<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1995
REGISTRATION NOS. 2-57229
811-2683
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 36 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 26 /X/
</TABLE>
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2800 POST OAK BLVD., HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60100
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copy to:
GEORGE M. BARTLETT, ESQ.
O'MELVENY & MYERS
400 SOUTH HOPE STREET
LOS ANGELES, CALIFORNIA 90071
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
---------------------
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/X/ on July 31, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Exhibit Index required by Rule 483(a) under the Securities Act of 1933
is located at page of the manually signed copy of this Registration Statement.
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, AND
FILED A RULE 24F-2 NOTICE FOR THE MOST RECENT FISCAL YEAR ON OR ABOUT NOVEMBER
25, 1994.
PURSUANT TO A MERGER SCHEDULED TO BE EFFECTIVE JULY 31, 1995, AMERICAN CAPITAL
MUNICIPAL BOND FUND, INC., A MARYLAND CORPORATION, WILL BE MERGED INTO VAN
KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND, A DELAWARE BUSINESS TRUST. UPON
EFFECTIVENESS OF THE MERGER AND PURSUANT TO RULE 414 UNDER THE SECURITIES ACT OF
1933, VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND ("SUCCESSOR REGISTRANT")
ADOPTS AND SUCCEEDS TO THE REGISTRATION STATEMENT OF AMERICAN CAPITAL MUNICIPAL
BOND FUND, INC. AMERICAN CAPITAL MUNICIPAL BOND FUND, INC. HAS IN THE PAST
REGISTERED AN INDEFINITE NUMBER OF SHARES OF COMMON STOCK UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940.
UPON THE EFFECTIVE DATE OF THE MERGER, SUCCESSOR REGISTRANT HEREBY ADOPTS AND
SUCCEEDS TO ANY PRIOR RULE 24F-2 NOTICES OF AMERICAN CAPITAL MUNICIPAL BOND
FUND, INC. SUCCESSOR REGISTRANT PROPOSES TO FILE ANY NOTICE REQUIRED BY RULE
24F-2.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
- -------------------------------------------------
PART A ITEM PROSPECTUS CAPTION
- ------------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund; Investment Objective and
Policies; Investment Practices; Description
of Shares of the Fund
5. Management of the Fund..................... The Fund; Investment Practices; Investment
Advisory Services; Inside Back Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Redemption of Shares; Distributions from
the Fund; Tax Status; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services;
Distribution Plans
8. Redemption or Repurchase................... Shareholder Services; Redemption of Shares
9. Legal Proceedings.......................... Inapplicable
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------------------------------------------------- -------------------------------------------
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Municipal Bonds; Repurchase
Policies Agreements; Futures Contracts
and Related Options; Investment
Restrictions
14. Management of the Registrant............... General Information; Trustees and Executive
Officers; Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... General Information; Trustees and Executive
Officers; Investment Advisory Agreement
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Transfer Agent; Portfolio Transactions
and Brokerage; Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares
20. Tax Status................................. Dividends, Distributions and Federal Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Financial Statements
PART C
- -------------------------------------------------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital Municipal Bond Fund, formerly known as American
Capital Municipal Bond Fund, Inc. (the "Fund"), is a mutual fund whose primary
objective is to provide, through investment in a professionally managed
portfolio of municipal bonds ("Municipal Bonds"), as high a level of current
interest income exempt from federal income tax as is consistent with the
preservation of capital. There is no assurance that the Fund will achieve its
investment objective.
THE FUND'S CURRENT SHAREHOLDERS ARE CONSIDERING A PROPOSAL TO REORGANIZE THE
FUND INTO THE VAN KAMPEN MERRITT MUNICIPAL INCOME FUND. SEE "PROPOSED
REORGANIZATION."
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is
(800) 421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated August 1, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800) 421-5666 or, for Telecommunications Device For
the Deaf, (800) 772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED AUGUST 1, 1995.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary............................................... 3
Proposed Reorganization.......................................... 5
Shareholder Transaction Expenses................................. 6
Annual Fund Operating Expense and Example........................ 7
Financial Highlights............................................. 9
The Fund......................................................... 11
Investment Objectives and Policies............................... 11
Municipal Bonds.................................................. 14
Investment Practices............................................. 15
Investment Advisory Services..................................... 21
Alternative Sales Arrangements................................... 22
Purchase of Shares............................................... 25
Shareholder Services............................................. 34
Redemption of Shares............................................. 39
Distribution Plans............................................... 42
Distributions from the Fund...................................... 44
Tax Status....................................................... 45
Fund Performance................................................. 47
Description of Shares of the Fund................................ 49
Additional Information........................................... 50
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Municipal Bond Fund (the "Fund") is a
diversified open-end management investment company organized as a Delaware
business trust.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
INVESTMENT OBJECTIVE. Interest income exempt from federal income tax. There
is, however, no assurance that the Fund will be successful in achieving its
objective.
INVESTMENT POLICY. Investing in a diversified portfolio of obligations issued
by states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal income tax.
INVESTMENT RESULTS. The investment results of the Fund during the past ten
years are shown in the table of "Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class of
shares that best suits their circumstances and objectives. See "Alternative
Sales Arrangements -- Factors for Consideration." Each class of shares
represents an interest in the same portfolio of investments of the Fund. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Alternative Sales Arrangements." For
information on redeeming shares see "Redemption of Shares."
Class A Shares. These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price. The Fund pays an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares -- Class A Shares" and
"Distribution Plans."
Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of four percent of
redemption proceeds during the first and second year, declining each year
thereafter to zero percent after the fifth year. See "Redemption of Shares." The
Fund pays a combined annual distribution fee and service fee of up to one
percent of its average daily net assets attributable to such class of shares.
See "Purchase of Shares -- Class B Shares" and "Distribution Plans." Class B
shares will convert automatically to Class A shares six years after the end of
the calendar month in which the shareholder's order to purchase was accepted.
See "Alternative Sales Arrangements -- Conversion Feature."
3
<PAGE> 6
Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to one percent of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
DISTRIBUTIONS FROM THE FUND. Income dividends are distributed monthly. Any
taxable net realized capital gains are distributed annually. Such distributions
are automatically reinvested in shares of the Fund at net asset value per share
(without sales charge) unless payment in cash is requested. See "Shareholder
Services -- Reinvestment Plan" and "Distributions from the Fund."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor").
RISK FACTORS. The Fund invests primarily in long-term Municipal Bonds which
tend to produce higher yields and are subject to greater market fluctuations as
a result of changes in interest rates ("market risk") than Municipal Bonds with
shorter maturities and lower yields. Up to 20% of the Fund's total assets may be
invested in Municipal Bonds rated Ba or B by Moody's Investors Service
("Moody's") and BB or B by Standard & Poor's Corporation ("S&P"), or which, if
non-rated, are in the opinion of the Adviser of comparable quality. Lower rated
securities are subject to market risks and are also subject to the ability of
the issuer to meet its principal and interest obligations ("credit risk").
Municipal Bonds rated B by Moody's are considered generally to lack
characteristics of the desirable investment in that assurance of interest and
principal payments or maintenance of other terms of the contract over any long
period of time may be small. The Fund may seek to hedge interest rate risk
through transactions in futures contracts and related options. Any net gains
from futures and options transactions are subject to federal income tax and such
transactions involve certain risks. See "Investment Practices and
Restrictions -- Futures Contracts and Related Options." The Fund invests a
portion of its assets in private-activity bonds so that a portion of its
exempt-interest dividends constitutes an item of tax preference to the extent
such dividends represent interest received from these private-activity bonds.
See "Dividends, Distributions and Taxes."
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
4
<PAGE> 7
- ------------------------------------------------------------------------------
PROPOSED REORGANIZATION
- ------------------------------------------------------------------------------
On May 11, 1994, the Board of Directors of the Fund approved an Agreement and
Plan of Reorganization between the Fund and the Van Kampen Merritt Municipal
Income Fund, a sub-trust of the Van Kampen Merritt Tax Free Fund (the "Van
Kampen Fund"), a fund advised by Van Kampen American Capital Investment Advisory
Corp., providing for the transfer of assets and liabilities of the Fund to the
Van Kampen Fund in exchange for shares of beneficial interest of the Van Kampen
Fund at its net asset value per share (the "Reorganization").
Van Kampen American Capital Investment Advisory Corp. and the Adviser are
wholly owned subsidiaries of Van Kampen American Capital, Inc., which is a
wholly owned subsidiary of VK/AC Holding, Inc.
The Reorganization is subject to approval by the holders of a majority of the
outstanding shares of the Fund. Further details of the proposed Reorganization
will be contained in the proxy statement/prospectus expected to be mailed to
shareholders in August, 1995.
The Van Kampen Fund had assets of $691.9 million on March 31, 1995. Its
objective is to seek to provide high current income exempt from federal income
tax consistent with preservation of capital by investing at least 80% of its
assets in a diversified portfolio of tax-exempt municipal securities rated
investment grade at the time of investment. The Fund and the Van Kampen Fund
have similar investment objectives and follow generally similar investment
policies although the Van Kampen Fund has greater flexibility to invest in
municipal bonds rated below A by Moody's Investors Service ("Moody's") and
Standard & Poor's Corporation ("S&P"). In addition, the Van Kampen Fund has
greater flexibility to utilize options and futures, as well as interest rate
transactions such as swaps, caps, floors or collars. The Van Kampen Fund may
invest a substantial portion of its assets in municipal securities that pay
interest that is subject to the federal alternative minimum tax, while the Fund
may only invest up to 20% of its assets in such securities.
The Fund will continue its normal operations prior to the Reorganization.
5
<PAGE> 8
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ----------------- -------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)................. 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering price)... None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds)............ None(2) Year 1--4.00% Year 1--1.00%
Year 2--4.00%
Year 3--3.00%
Year 4--2.5 %
Year 5--1.5 %
After--None
Redemption fees (as a percentage
of amount redeemed)............. None None None
Exchange fee...................... None None None
</TABLE>
- ---------------
(1) Reduced for purchases of $100,000 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 contingent deferred sales charge of 1% may be
imposed on certain redemptions made within one year of the purchase.
6
<PAGE> 9
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management fees (after reimbursement) (as a
percentage of average daily net
assets).................................. .50% .50% .50%
12b-1 Fees (as a percentage of average
daily net assets)(3)..................... .21% 1.00%(5) 1.00%(5)
Other Expenses (after reimbursement) (as a
percentage of average daily net
assets)(4)............................... .22% .22% .22%
Total Fund Operating Expenses (as a
percentage of average daily net
assets).................................. .93% 1.72% 1.72%
</TABLE>
- ---------------
(3) Up to 0.25% for Class A shares and one percent for Class B and C shares. See
"Distribution Plans."
(4) See "Investment Advisory Services."
(5) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
7
<PAGE> 10
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of .93% for Class
A shares, 1.72% for Class B shares and
1.72% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $ 57 $ 76 $ 97 $156
Class B............................... $ 59 $ 87 $111 $163*
Class C............................... $ 28 $ 54 $ 93 $203
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of
each time period:
Class A............................... $ 57 $ 76 $ 97 $156
Class B............................... $ 17 $ 54 $ 93 $163*
Class C............................... $ 17 $ 54 $ 93 $203
</TABLE>
- ---------------
* Based on conversion to Class A shares after six years.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the Fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected data for a share of capital stock outstanding throughout each of the
periods indicated)
The following financial highlights for each of the five most recent fiscal
years have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. The information presented below for the six
months ended March 31, 1995 is unaudited. This information should be read in
conjunction with the related financial statements and notes thereto included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A(1)
--------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30
SIX MONTHS ENDED -----------------------------------------------------------------
MARCH 31, 1995 1994 1993(2) 1992 1991 1990 1989
------------------ --------- -------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................... $ 9.82 $ 10.53 $ 9.98 $ 9.64 $ 9.13 $ 9.33 $ 9.05
--------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Investment income.................... .35 .68 .69 .705 .71 .72 .72
Expenses............................. (.05) (.09) (.094) (.09) (.08) (.08) (.065)
--------- -------- -------- -------- -------- -------- --------
Net investment income................. .30 .59 .596 .615 .63 .64 .655
Net realized and unrealized gains or
losses on securities................. .1555 (.7255) .558 .349 .5198 (.195) .30
--------- -------- -------- -------- -------- -------- --------
Total from investment operations...... .4555 (.1355) 1.154 .964 1.1498 .445 .955
--------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
Net investment income................ (.2955) (.5745) (.596) (.624) (.6398) (.645) (.675)
Excess of book-basis
net investment income(3)........... -- -- (.008) -- -- -- --
--------- -------- -------- -------- -------- -------- --------
Total distributions................... (.2955) (.5745) (.604) (.624) (.6398) (.645) (.675)
--------- -------- -------- -------- -------- -------- --------
Net asset value, end of period........ $ 9.98 $ 9.82 $ 10.53 $ 9.98 $ 9.64 $ 9.13 $ 9.33
========= ======== ======== ======== ======== ======== ========
TOTAL RETURN(5)....................... 4.76% (1.33%) 11.91% 10.31% 12.98% 4.90% 10.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)........................... $ 306.0 $ 309.0 $ 332.3 $ 292.3 $ 266.9 $ 237.4 $ 231.8
Ratios to average net assets
(annualized):
Expenses............................. .93% .93% .91% .90% .89% .86% .71%
Net investment income................ 6.23% 5.76% 5.82% 6.29% 6.71% 6.84% 7.05%
Portfolio turnover rate............... 2% 6% 3% 6% 10% 17% 32%
<CAPTION>
CLASS A(1)
------------------------------------------
YEAR ENDED SEPTEMBER 30
------------------------------------------
1988 1987 1986 1985
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................... $ 9.03 $ 10.35 $ 9.23 $ 8.46
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Investment income.................... .72 .795 .895 .88
Expenses............................. (.06) (.065) (.07) (.065)
-------- -------- -------- --------
Net investment income................. .66 .73 .825 .815
Net realized and unrealized gains or
losses on securities................. .5913 (1.27) 1.075 .735
-------- -------- -------- --------
Total from investment operations...... 1.2513 (.54) 1.90 1.55
-------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
Net investment income................ (.785) (.78) (.78) (.78)
Excess of book-basis
net investment income(3)........... (.4463) -- -- --
-------- -------- -------- --------
Total distributions................... (1.2313) (.78) (.78) (.78)
-------- -------- -------- --------
Net asset value, end of period........ $ 9.05 $ 9.03 $ 10.35 $ 9.23
======== ======== ======== ========
TOTAL RETURN(5)....................... 15.57% (5.73%) 21.03% 19.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)........................... $ 191.7 $ 166.7 $ 159.2 $ 100.5
Ratios to average net assets
(annualized):
Expenses............................. .69% .64% .68% .72%
Net investment income................ 7.47% 7.29% 8.10% 9.20%
Portfolio turnover rate............... 33% 164% 69% 197%
</TABLE>
(Table continued on following page)
9
<PAGE> 12
<TABLE>
<CAPTION>
CLASS B(4) CLASS C
---------------------------------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER
30
SIX MONTHS ENDED -------------------- SIX MONTHS ENDED
MARCH 31, 1995 1994 1993(2) MARCH 31, 1995
---------------- -------- ------- ----------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............................. $ 9.83 $ 10.53 $ 9.98 $ 9.83
------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Investment income............................................... .35 .68 .685 .35
Expenses........................................................ (.09) (.17) (.175) (.09)
------- -------- ------- -------
Net investment income............................................ .26 .51 .51 .26
Net realized and unrealized gains or losses on securities........ .1485 (.7195) .564 .1585
------- -------- ------- -------
Total from investment operations................................. (.4085) (.2095) 1.074 (.4185)
------- -------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income........................................... (.2585) (.4905) (.501) (.2585)
Excess of book-basis net investment income(3)................... -- -- (.023) --
------- -------- ------- -------
Total distributions.............................................. (.2585) (.4905) (.524) (.2585)
------- -------- ------- -------
Net asset value, end of period................................... $ 9.98 $ 9.83 $ 10.53 $ 9.99
=================== ======== ======= ===================
TOTAL RETURN(5).................................................. 4.25% (2.13%) 11.15% 4.25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................. $ 39.1 $ 37.2 $ 22.1 $ 7.9
Ratios to average net assets (annualized)
Expenses........................................................ 1.74% 1.72% 1.71% 1.74%
Net investment income........................................... 5.42% 5.00% 4.96% 5.42%
Portfolio turnover rate.......................................... 2% 6% 3% 2%
<CAPTION>
<S> <<C> <C>
AUGUST 30,
YEAR 1993(6)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1994(2) 1993(2)
------------- -----------------
<S> <<C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............................. $10.54 $ 10.53
------------- ------
INCOME FROM INVESTMENT OPERATIONS:
Investment income............................................... .69 .05
Expenses........................................................ (.18) (.015)
------------- ------
Net investment income............................................ .51 .035
Net realized and unrealized gains or losses on securities........ (.7295) .061
------------- ------
Total from investment operations................................. (.2195) .096
------------- ------
LESS DISTRIBUTIONS FROM:
Net investment income........................................... (.4905) (.007)
Excess of book-basis net investment income(3)................... -- (.079)
------------- ------
Total distributions.............................................. (.4905) (.086)
------------- ------
Net asset value, end of period................................... $ 9.83 $ 10.54
=============== ==================
TOTAL RETURN(5).................................................. (2.03%) .91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............................. $ 8.0 $ 1.3
Ratios to average net assets (annualized)
Expenses........................................................ 1.72% 1.69%
Net investment income........................................... 5.03% 4.25%
Portfolio turnover rate.......................................... 6% 3%
</TABLE>
(1) Per share amounts for 1991 through 1985 are adjusted to reflect a 2 for 1
stock split effected July 26, 1991. Additionally, in 1991, the Fund adopted
for financial reporting purposes a method of accounting for debt discounts
and premiums which is the same as is used for federal income tax reporting.
The effect of the change, on a pro forma basis, would have been to increase
net investment income with a corresponding decrease in net realized and
unrealized gains or losses in the amounts of $.01, $.01, $.02, $.01 and
$(.01) for the years 1990 to 1986, respectively. Similarly, the ratios of
net investment income to average net assets would have been 6.94%, 7.17%,
7.71%, 7.37% and 8.02%, respectively. For the year 1985, the effect of the
change in the accounting method was immaterial.
(2) Per share amounts based on average month-end shares outstanding.
(3) Effective October 1, 1992, the Fund adopted Statement of Position 93-2,
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies.
Prior year financial information was not restated.
(4) Sales of Class B commenced September 29, 1992, at a net asset value of
$10.00 per share and at year end, the net asset value was $9.98 per share.
The decrease in net asset value was due principally to a dividend of $0.52
per share. Other financial highlights for Class B shares for this short
period are not meaningful, and therefore not presented.
(5) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(6) Commencement of offering of sales.
10
<PAGE> 13
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company. This type
of company is commonly known as a mutual fund. A mutual fund provides, for those
who have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.
Fourteen Trustees have the responsibility for overseeing the affairs of the
Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.
[Mkt Paragraph]
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The Fund's objective is to provide as high a level of current interest income
exempt from federal income tax as is consistent with the preservation of
capital. This limitation could result in a lesser level of interest income than
that of funds willing to incur greater risk of capital. Because the value of and
yield on Municipal Bonds fluctuate, there can be no assurance that the Fund's
objective will be achieved.
The Fund seeks to achieve its objective by investing in a diversified
portfolio of obligations issued by or on behalf of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which,
in the opinion of bond counsel for the issuer, is exempt from federal income
tax. See "Municipal Bonds." Under normal circumstances, at least 80% of the
assets of the Fund are invested in Municipal Bonds which are exempt from federal
income tax. This is a fundamental policy and may not be changed without the
approval of at least a majority of the outstanding shares of the Fund. The Fund
does not independently evaluate the tax-exempt status of the Municipal Bonds in
which it invests. The Fund invests principally in Municipal Bonds rated at the
time of purchase within the four highest grades assigned by Moody's or S&P, or
which, if non-rated, is in the Adviser's opinion of comparable quality. The Fund
may not acquire any Municipal Bond which is rated below A by Moody's and S&P or
which is non-rated if immediately after and as a result of such purchase such
Bonds would constitute more than 50% of the Fund's total assets. The Fund may
not acquire any Municipal Bond which is rated below Baa by Moody's and below BBB
by S&P, or which, if non-rated, is in the opinion of the Adviser of comparable
quality, if immediately after and as a result of such
11
<PAGE> 14
purchase such Bonds would constitute more than 20% of the Fund's total assets.
The Fund may not, however, purchase any Municipal Bond rated below B by Moody's
and S&P or any non-rated Municipal Bond considered by the Adviser to be of
comparable quality. Ratings at the time of purchase determine which securities
may be acquired, and a subsequent reduction in rating does not require the Fund
to dispose of a security. Because investment in lower-rated securities involves
greater investment risks, achievement of the Fund's investment objectives may be
more dependent on the Adviser's credit analysis than would be the case if the
Fund invested only in higher-rated securities. Non-rated Municipal Bonds are not
necessarily of lower quality than rated Municipal Bonds, but the market for
rated Municipal Bonds is often broader. The Fund may seek to hedge against
changes in interest rates through transactions in listed futures contracts
related to U.S. Government securities or based upon the Bond Buyers Municipal
Bond Index and options thereon. See "Investment Practices -- Futures Contracts
and Related Options."
During the fiscal year ended September 30, 1994, the average percentage of the
Fund's assets invested in Municipal Bonds within the various rating categories
(based on the higher of the S&P or Moody's ratings), and the non-rated debt
securities, determined on a dollar weighted average, were as follows:
<TABLE>
<S> <C>
AAA/Aaa............................................. 20.98%
AA/Aa............................................... 16.74%
A/A................................................. 28.99%
BBB/Baa............................................. 11.13%
BB/Ba............................................... 1.16%
CCC/Caa............................................. .63%
*Non-rated.......................................... 14.37%
Other net assets.................................... 6.00%
--------
Total net assets................................ 100%
</TABLE>
- ---------------
* The non-rated debt securities as a percentage of total net assets were
considered by the Adviser to be comparable to securities rated by Moody's as
follows: AAA - .17%, BBB - 10.08%, BB - 3.68% and B - .44%.
Variations in the quality and maturity of the Fund's portfolio investments can
be expected to affect the Fund's yield and the degree of market and credit risk
to which the Fund is subject. Municipal Bonds rated BBB by S&P or Baa by Moody's
may have 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 grade Municipal
Bonds. The Fund maintains the flexibility to invest up to 20% of its total
assets in Municipal Bonds rated Ba or B by Moody's or BB or B by S&P. Municipal
Bonds rated Ba by Moody's are judged to have speculative elements so that their
future cannot be considered as well assured. Municipal Bonds rated B by Moody's
are considered generally to lack characteristics of a desirable investment in
that
12
<PAGE> 15
assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small. Additional risks of
investing in lower-rated Municipal Bonds are described in the Statement of
Additional Information which includes an appendix describing Municipal Bond
ratings. Generally, Municipal Bonds with longer maturities tend to produce
higher yields and are subject to greater market fluctuations as a result of
changes in interest rates than Municipal Bonds with shorter maturities and lower
yields. The market value of Municipal Bonds generally rises when interest rates
decline and falls when interest rates rise. Generally, lower-rated Municipal
Bonds provide a higher yield than higher-rated Municipal Bonds of similar
maturity but are subject to greater credit risk. The Fund is not limited as to
the maturities of the Municipal Bonds in which it invests. Such securities may
have remaining maturities of up to 30 years or more. The average maturity, which
may vary from time to time, of the Municipal Bonds owned by the Fund on
September 30, 1994, was 20.32 years.
On a temporary defensive basis, due to market conditions or pending investment
in Municipal Bonds, the Fund may hold temporary investments ("Temporary
Investments") consisting of short term municipal notes rated MIG 1 through MIG 4
by Moody's or SP-1 or SP-2 by S&P; variable rate demand notes rated VMIG 1 or
VMIG 2; tax-exempt commercial paper rated P-1 or P-2 in the case of Moody's or
A-1 or A-2 by S&P; securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; certificates of deposit of domestic banks with
assets of $500 million or more and having deposits insured by the Federal
Deposit Insurance Corporation; and shares of tax-exempt money market investment
companies. See "Investment Practices -- Money Market Investment Companies."
Temporary Investments may also include repurchase agreements collateralized by
Municipal Bonds or by any of the Temporary Investments described above,
provided, however, that no more than 15% of the Fund's net assets at the time of
purchase may be invested in repurchase agreements which do not mature within
seven days. Interest income from certain Temporary Investments may be taxable to
shareholders as ordinary income. See "Distributions from the Fund" and "Tax
Status". The Fund generally invests at least 90% of its assets in securities,
the income from which is exempt from regular federal income tax and at least 80%
of its assets in securities, the income from which is exempt from both such tax
and the federal alternative minimum tax. As a temporary defensive measure during
times of adverse market conditions, up to 50% of the Fund's assets may be
invested in such Temporary Investments.
The Fund may invest up to 15% of its net assets in illiquid securities which
include Municipal Bonds issued in limited placements under which the Fund
represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Bonds acquired in limited
placements gener-
13
<PAGE> 16
ally may be resold only in a privately negotiated transaction to one or more
other institutional investors. Such limitation could result in the Fund's
inability to realize a favorable price upon disposition, and in some cases might
make disposition of such securities at the time desired by the Fund impossible.
The 15% limitation applies at the time the purchase commitment is made. See
"Investment Practices -- Repurchase Agreements."
- ------------------------------------------------------------------------------
MUNICIPAL BONDS
- ------------------------------------------------------------------------------
Municipal Bonds include debt obligations of a state, territory or a possession
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which Municipal Bonds may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to lend to
other public institutions and facilities. Certain types of Municipal Bonds are
issued to obtain funding for privately operated facilities.
Many new issues of Municipal Bonds are sold on a "when-issued" basis. While
the Fund has ownership rights to the Bonds, the Fund does not have to pay for
them until they are delivered, normally 15 to 45 days later. To meet that
payment obligation, the Fund sets aside with the custodian sufficient cash or
securities equal to the amount that will be due. See "Investment
Practices -- Delayed Delivery and When-Issued Securities."
The yields of Municipal Bonds depend on, among other things, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of Moody's and S&P represent their opinions of the quality of the
Municipal Bonds they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
Municipal Bonds with the same maturity, coupon and rating may have different
yields while Municipal Bonds of the same maturity and coupon with different
ratings may have the same yield. A description of the ratings is included in the
Statement of Additional Information.
Among the various types of Municipal Bonds are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes.
14
<PAGE> 17
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
- -- tolls from a toll-bridge, for example. Industrial development revenue bonds
are a specific type of revenue bond backed by the credit and security of a
private user. The Fund's ability to achieve its objective depends to a great
extent on the ability of these various issuers to meet their scheduled payments
of principal and interest.
The Fund considers investments in tax-exempt Municipal Bonds not to be subject
to concentration policies and may invest a relatively high percentage of its
assets in Municipal Bonds issued by entities having similar characteristics. The
issuers may be located in the same geographic area or may pay their interest
obligations from revenue of similar projects such as hospitals, utility systems
and housing finance agencies. This may make the Fund's investments more
susceptible to similar economic, political or regulatory occurrences. As the
similarity in issuers increases, the potential for fluctuation in the Fund's per
share net asset value also increases. The Fund may invest more than 25% of its
total assets in industrial development revenue bonds, but it does not intend to
invest more than 25% of its assets in industrial development revenue bonds
issued for companies in the same industry or state. Sizeable investments in such
obligations could involve an increased risk to the Fund should any of such
issuers of any such related projects or facilities experience financial
difficulties.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds. It may be expected that similar proposals may be
introduced in the future. If any such proposals were to be enacted, the ability
of the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic 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 that 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. In the event of the
bankruptcy of the seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities, and the Fund could incur a loss
if the value of the underlying securities declines. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid
15
<PAGE> 18
securities held by the Fund, exceeds 15% of the value of its net assets. 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 loss including: (a) possible decline in the value of the underlying security
during the period while the Fund seeks to enforce its rights thereto, (b)
possible lack of access to income on the underlying security during this period,
and (c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate adjustment
formula and which are subject to an unconditional right of demand to receive
payment of the principal balance plus accrued interest either at any time or at
specified intervals not exceeding one year and in either case upon no more than
seven days notice. The interest rates are adjustable at intervals ranging from
daily ("floating rate") to up to one year to some prevailing market rate for
similar investments, such adjustment formula being calculated to maintain the
market value of the VRDN at approximately the par value of the VRDN upon the
adjustment date. The adjustments are typically based upon the prime rate of a
bank or some other appropriate interest rate adjustment index.
The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.
16
<PAGE> 19
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to Municipal Securities held by it. Under a "stand-by commitment," a bank or
dealer from which Municipal Securities are acquired agrees to purchase from the
Fund, at the Fund's option, the Municipal Securities at a specified price. Such
commitments are sometimes called "liquidity puts."
The amount payable to the Fund upon its exercise of a "stand-by commitment" is
normally (i) the Fund's acquisition cost of the Municipal Securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
"Stand-by commitments" generally can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than one year, and are
exercisable by the Fund at any time before the maturity of such obligations.
The Fund's right to exercise "stand-by commitments" is unconditional and
unqualified. A "stand-by commitment" generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Securities to a third party
at any time.
The Fund expects that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield-to-maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding "stand-by commitments" held in the Fund will not exceed
one half of one percent of the value of the Fund's total assets calculated
immediately after each "stand-by commitment" is acquired. The Fund intends to
enter into "stand-by commitments" only with banks and dealers which, in the
Adviser's opinion, present minimal credit risks.
The Fund would acquire "stand-by commitments" solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a "stand-by commitment" would not affect the
valuation of the underlying Municipal Securities which would continue to be
valued in accordance with the method of valuation employed for the Fund in which
they are held. "Stand-by commitments" acquired by the Fund would be valued at
zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a "stand-by commitment," its costs would be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. Municipal Bonds may at times be
purchased or sold on a delayed delivery or a when-issued basis. These
transactions arise when securities are purchased or sold by the Fund with
payment and
17
<PAGE> 20
delivery taking place in the future, often a month or more after the purchase.
The payment obligation and the interest rate are each fixed at the time the Fund
enters into the commitment. The Fund will only make commitments to purchase such
securities with the intention of actually acquiring the securities, but the Fund
may sell these securities prior to settlement date if it is deemed advisable.
Purchasing Municipal Bonds on a when-issued basis involves the risk that the
yield available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself; if yields so increase, the
value of the when-issued obligation will generally decrease. The Fund will
maintain a separate account at its custodian bank consisting of cash or liquid
high-grade debt obligations (valued on a daily basis) equal at all times to the
amount of any when-issued commitment.
MONEY MARKET INVESTMENT COMPANIES. The Fund may invest in shares of open-end
investment companies which are tax-exempt money market funds. Such investment
would not exceed three percent of the total outstanding voting stock of the
acquired company; five percent of the value of the total assets of the Fund; or
ten percent of the total assets of the acquired company as held by the Fund and
all American Capital funds. When the Fund invests in a tax-exempt money market
fund, the Adviser will reduce its advisory fee by the amount of any investment
advisory and administrative services fees paid to the investment adviser of the
money market fund.
FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies of the Fund
permit the Fund to engage in transactions in listed futures contracts and
related options. Such transactions may be in listed futures contracts based upon
The Bond Buyer Municipal Bond Index (the "Index"), a price weighted measure of
the market value of 40 large-sized, recent issues of tax-exempt bonds or in
listed contracts based on U.S. Government securities.
Futures contracts and options thereon may be used for defensive hedging or
anticipatory hedging purposes, depending upon the composition of the Fund's
portfolio and the Adviser's expectations concerning the securities markets. See
the Statement of Additional Information for discussion of futures contracts and
related options.
Potential Risks of Futures Contracts and Related Options. The purchase and
sale of futures contracts and related options involve risks different from those
involved with direct investments in securities. While utilization of futures
contracts and related options may be advantageous to the Fund, if the Adviser is
not successful in employing such instruments in managing the Fund's investments,
the Fund's performance will be worse than if the Fund did not make such
investments. In addition, the Fund would pay commissions and other costs in
connection with such investments, which may increase the Fund's expenses and
reduce its return. The Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed five
percent of the fair market value
18
<PAGE> 21
of the Fund's assets. In order to prevent leverage in connection with the
purchase of futures contracts or call options thereon by the Fund, an amount of
cash, cash equivalent or liquid high-grade debt securities equal to the market
value of the obligation under the futures contracts or options (less any related
margin deposits) will be maintained in a segregated account with the custodian.
PORTFOLIO TURNOVER. The Fund may purchase or sell securities without regard to
the length of time the security has been held to take advantage of short-term
differentials in bond yields consistent with its objective of seeking tax-exempt
interest income. The Fund engages in short-term trading only if the anticipated
benefits are expected by the Adviser to exceed the transaction costs. The Fund's
annual portfolio turnover rate is shown in the "Financial Highlights" table
shown herein. Since portfolio changes are made in light of market and other
conditions, the turnover rate may vary greatly from year to year. A 100%
turnover rate would occur, for example, if all the securities in the Fund's
portfolio were replaced once a year. A 100% turnover rate is substantially
greater than that of many other investment companies. Higher portfolio turnover
involves higher transaction costs and may result in realization of short-term
capital gains if securities are held for one year or less. Such gains are
taxable to shareholders as ordinary income except to the extent such gains are
offset by capital losses.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund and the negotiation of the price of such transactions. The Municipal
Bonds in which the Fund invests are traded in the over-the-counter market.
Municipal Bonds are generally traded on a net basis and do not normally involve
any brokerage commissions. The cost of portfolio securities transactions of the
Fund primarily consists of dealer or underwriter spreads. The Adviser is
authorized to place portfolio transactions with brokerage firms participating in
the distribution of shares of the Fund and other Van Kampen American Capital
funds if it reasonably believes that the quality of the execution and the
commission are comparable to that available from other qualified firms. The
Adviser is authorized to place portfolio transactions with brokerage firms that
provide it with investment and research information and to pay higher than the
lowest available commission if the Adviser determines that the cost is
reasonable in relation to the overall services provided. The information
received may be used by the Adviser in managing the assets of other advisory
accounts as well as in the management of the assets of the Fund.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
19
<PAGE> 22
majority (as defined in the 1940 Act) vote of the Fund's shareholders. These
restrictions provide, among other things, that the Fund may not:
1. Invest in securities other than Municipal Bonds and Temporary Investments
(as defined herein), listed futures contracts related to U.S. Government
securities, Municipal Bonds or to an index of Municipal Bonds, and options
on such contracts.
2. Invest more than five percent of its total assets at market value at the
time of purchase in the securities of any one issuer (other than
obligations of the United States Government or of any instrumentalities
thereof).
3. Borrow money, except from banks for temporary or emergency purposes, such
borrowing not to exceed five percent of its total assets at market value at
the time of borrowing. Any such borrowing may be secured provided that not
more than ten percent of the total assets at market value at the time of
pledging may be used as security for such borrowings. 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 and payments in connection
with futures contracts and related options.
4. Purchase any Municipal Bond rated below Baa by Moody's and below BBB by
S&P, or which, if non-rated, is in the opinion of the Adviser of comparable
quality, if immediately after and as a result of such purchase such Bonds
would constitute more than 20% of the Fund's total assets.
5. Purchase any Municipal Bond rated below A by Moody's and S&P, or which is
non-rated, if immediately after and as a result of such purchase such Bonds
would constitute more than 50% of the Fund's total assets.
6. Purchase any Municipal Bond rated below B by Moody's and S&P or any
non-rated Municipal Bonds considered by the Adviser to be of comparable
quality.
Each state and each political subdivision, agency or instrumentality of such
state, and each multi-state agency of which a state is a member is a separate
"issuer" as that term is used in this Prospectus. The non-government user of
facilities financed by industrial development bonds is also considered as a
separate issuer. If, however, a security is guaranteed by another entity,
securities issued or guaranteed by such guaranteeing entity shall be limited to
ten percent of the value of the Fund's total assets.
20
<PAGE> 23
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and
nearly $50 billion under management or supervision. Van Kampen American
Capital's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trusts are professionally distributed by leading financial advisers
nationwide.
Van Kampen American Capital Distributors, Inc., the Distributor of the Fund
and the sponsor of the Funds mentioned above, is also a wholly owned subsidiary
of Van Kampen American Capital. Van Kampen American Capital is a wholly owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a
New York based private investment firm. The General Partner of C&D L.P. is
Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates L.P.").
The general partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles
Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel , Leon J. Hendrix,
Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of
Clayton, Dubilier & Rice, Inc. In addition, certain officers, directors and
employees of Van Kampen American Capital own, in the aggregate, not more than 6%
of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon
the exercise of options, approximately an additional 10% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns or would own five percent or
more of the common stock of VK/AC Holding, Inc.
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 an annual fee of
0.50% of the Fund's average net assets. The fee is computed daily and payable
monthly. Under the Advisory Agreement, the Fund also reimburses the Adviser for
the cost of the Fund's accounting services, which include maintaining its
financial books and records and calculating its daily net asset value. Operating
expenses paid by the Fund include shareholder service agency fees, service fees,
distribution fees, custodian fees, legal and accounting fees, the costs of
reports and proxies to
21
<PAGE> 24
shareholders, directors' fees, and all other business expenses not specifically
assumed by the Adviser. Advisory (management) fee, and total operating expense,
ratios are shown under the caption "Annual Fund Operating Expenses and Example"
herein.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit 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. David C. Johnson is primarily responsible for the
day-to-day management of the Fund's investment portfolio since April 3, 1995.
Mr. Johnson is Vice President of the Fund and Vice President -- Portfolio
Manager of the Adviser. Mr. Johnson has been employed by Van Kampen American
Capital Investment Advisory Corp., an affiliate of the Adviser, for the last
five years.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if they are redeemed within five years of purchase.
Class B shares are subject to an ongoing service fee at an annual rate of up to
0.25% of the Fund's aggregate average daily net assets attributable to the Class
B shares and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
Class B shares enjoy the
22
<PAGE> 25
benefit of permitting all of the investor's dollars to work from the time the
investment is made. The ongoing distribution fee paid by Class B shares will
cause such shares to have a higher expense ratio and to pay lower dividends than
those related to Class A shares. See "Purchase of Shares -- Class B Shares."
Class B shares will automatically convert to Class A shares six years after the
end of the calendar month in which the shareholder's order to purchase was
accepted. See "Conversion Feature" herein for discussion on applicability of the
conversion feature to Class B shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will convert automatically to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the calendar month in which the shares were purchased and will no longer be
subject to the distribution fee. 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 purpose of the conversion feature is to relieve the
holders of the Class B shares and Class C shares that have been outstanding for
a period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares or Class C
shares as the case may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to
23
<PAGE> 26
Class B shares and Class C shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code, as amended (the "Code"), and (ii) the conversion of shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B shares and Class C shares may be suspended if such an opinion is no longer
available. In that event, no further conversions of Class B shares or Class C
shares would occur, and shares might continue to be subject to the distribution
fee for an indefinite period which may extend beyond the period ending six years
or ten years, respectively, after the end of the calendar month in which the
shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share of Class A
shares. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares. In this regard, Class A shares may
be more beneficial to the investor who qualifies for reduced initial sales
charges or purchases at net asset value, as described herein under "Purchase of
Shares -- Class A Shares." For these reasons, the Distributor will reject any
order of more than $500,000 for Class B shares or any order of more than $1
million for Class C shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not
24
<PAGE> 27
to pay redemption charges and/or have a longer-term investment horizon. In
addition, the check writing privilege is only available for Class A shares (see
"Shareholder Services -- Shareholder Services Applicable to Class A Shareholders
Only -- Check Writing Privilege"). Class B shares may be appropriate for
investors who wish to avoid a front-end sales charge, put 100% of their
investment dollars to work immediately, and/or have a longer-term investment
horizon. Class C shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon and/or desire a short
contingent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION
OF THE CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH
RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE
INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution Plans."
GENERAL. Dividends paid by the Fund with respect to Class A, Class B and Class
C shares will be calculated in the same manner at the same time on the same day,
except that the distribution fees and any incremental transfer agency costs
relating to Class B or Class C shares will be borne by the respective class. See
"Distributions from the Fund." Shares of the Fund may be exchanged, subject to
certain limitations, for shares of the same class of other mutual funds advised
by the Adviser. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the Investment Company Act
of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members
25
<PAGE> 28
of the National Association of Securities Dealers, Inc. ("NASD") who are acting
as securities dealers ("dealers") and NASD members or eligible non-NASD members
who are acting as brokers or agents for investors ("brokers"). The term
"dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold with an initial sales charge; Class B shares
and Class C shares are sold without an initial sales charge and are subject to a
contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to purchase. Contact the Investor Services Department at (800)
421-5666 for further information and appropriate forms.
Initial investments must be at least $500 and subsequent investments must be
at least $25. Both minimums may be waived by the Distributor for plans involving
periodic investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Shares may be purchased on any business day through authorized dealers. Shares
may also be purchased by completing the application included in this Prospectus
and forwarding the application, through the designated dealer, to the
shareholder service agent, ACCESS Investor Services, Inc., a wholly owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B or
Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per share is determined once daily as of the close of trading on the
New York Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time)
each day the Exchange is open. Net asset value per share for each class is
determined by dividing the value of the Fund's securities, cash and other assets
(including accrued interest) attributable to such class, less all liabilities
(including accrued expenses) attributable to such class, by the total number of
shares of the class outstanding. The Fund's investments are valued by an
independent pricing service.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the net asset
value next computed
26
<PAGE> 29
plus applicable Class A sales charges after an order is received by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. Orders received by dealers after the close of the
Exchange are priced based on the next close provided they are received by the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of dealers to transmit orders received by them to the Distributor
so they will be received prior to such time. Orders of less than $500 are mailed
by the dealer and processed at the offering price next calculated after
acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid which relate to a specific class, and (iii) Class B and
Class C shares are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service options available.
See "Distribution Plans" and "Shareholder Services -- Exchange Privilege." The
net income attributable to Class B and Class C shares and the dividends payable
on Class B and Class C shares will be reduced by the amount of the distribution
fee and incremental expenses associated with such distribution fees. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund, with subsidiaries of The Travelers Inc.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediaries 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 brokers, dealers or financial intermediaries
for certain services or activities which are primarily intended to result in
sales of shares of the Fund. Fees may include
27
<PAGE> 30
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to locations within or outside of the United States for meetings or seminars of
a business nature. Such fees paid for such services and activities with respect
to the Fund will not exceed in the aggregate 1.25% of the average total daily
net assets of the Fund on an annual basis. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. All of the foregoing payments are made by the Distributor out of its
own assets. These programs will not change the price an investor will pay for
shares or the amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
REALLOWED
AS % OF TO DEALERS
SIZE OF NET AMOUNT AS % OF (AS A % OF
INVESTMENT INVESTED OFFERING PRICE OFFERING PRICE)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Less than $100,000.......................... 4.99% 4.75% 4.25%
$100,000 but less than $250,000............. 3.90% 3.75% 3.25%
$250,000 but less than $500,000............. 2.83% 2.75% 2.25%
$500,000 but less than $1,000,000........... 2.04% 2.00% 1.75%
$1,000,000 and over......................... * * *
- -------------------------------------------------------------------------------------------------
</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 one percent in the event of certain redemptions
within one year of the purchase. The contingent deferred sales charge incurred
upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
one percent on sales to $2 million, plus 0.80% on the next million, plus 0.20%
on the next $2 million and 0.08% on the excess over $5 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. Dealers which are
reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the Securities Act of 1933.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in
28
<PAGE> 31
shares of the Fund for their clients a transaction fee up to the level of the
reallowance allowable to dealers described above. Such financial institutions,
other industry professionals and dealers are hereinafter referred to as "Service
Organizations." 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.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and minor children and any corporation, partnership or sole
proprietorship which is 100% owned, either alone or in combination, by any of
the foregoing; a trustee or other fiduciary purchasing for a single fiduciary
account, or a "company" as defined in Section 2(a)(8) of the 1940 Act.
Volume Discounts. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of other mutual
funds distributed by the Distributor other than Van Kampen American Capital
Money Market Fund ("VK Money Market"), Van Kampen American Capital Reserve Fund
("Reserve") and The Govett Funds, Inc. (the "Participating Funds"), although
other Participating Funds may have different sales charges.
Cumulative Purchase Discount. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in 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.
29
<PAGE> 32
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 table herein. The size
of investment shown in the preceding table also 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. If the goal is not
achieved within the period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. The
initial purchase must be for an amount equal to at least five percent of the
minimum total purchased amount of the level selected. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provisions, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. Such
adjustment in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanied by this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.
Unit Fund Reinvestment Programs. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A shares
of the Fund, other Participating Funds, VK Money Market or Reserve with no
minimum initial or subsequent investment requirement, and with a lower sales
charge if the administrator of an investor's unit investment trust program meets
certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all investments made from unit trust
distributions will be one percent of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their securities broker or 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
30
<PAGE> 33
order and make payment with a single remittance for all investments in the Fund
during each distribution period by all investors who choose to invest in the
Fund through the program and (2) provide ACCESS with appropriate backup data for
each participating investor in a computerized format fully compatible with
ACCESS' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Investment Advisory Corp. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser, and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or any combination of
shares of the Fund and shares of other Participating Funds as described
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts",
during the 13 month period commencing with the first investment pursuant
hereto which equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made an amount up to 0.50% of
the amount invested, over a twelve month period following such
transaction.
31
<PAGE> 34
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1% for such purchases.
(6) Accounts as to which a bank or broker or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has a
separate agreement with Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer or financial institution
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.
Service Organizations will be paid a service fee as described herein under
"Distribution Plans" on purchases made as described in (3) through (8) above.
The Fund may terminate, or amend the terms of, offering shares of the Fund at
net asset value to such groups at any time.
CLASS B SHARES
Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.
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
32
<PAGE> 35
payments during a month are aggregated and deemed to have been made on the last
day of the month.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First................................................ 4%
Second............................................... 4%
Third................................................ 3%
Fourth............................................... 2.5%
Fifth................................................ 1.5%
Sixth................................................ None
</TABLE>
- ------------------------------------------------------------------------------
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, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of four percent (the applicable rate in the second year after purchase).
A commission or transaction fee of four percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of one percent. The charge is assessed on an
amount equal to the lesser of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the
33
<PAGE> 36
initial purchase price. In addition, no charge is assessed on shares derived
from reinvestment of dividends or capital gains distributions.
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, 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 second, of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.75% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account, and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." The contingent deferred sales
charge is also waived on redemptions of Class C shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See the Statement of Additional Information
for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of these services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Except as described herein, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in certain of the
Participating Funds or Reserve, may receive statements quarterly from ACCESS
showing any
34
<PAGE> 37
reinvestments of dividends and capital gains distributions and any other
activity in the account since the preceding statement. Such shareholders also
will receive separate confirmations for each purchase or sale transaction other
than reinvestment of dividends and capital gains distributions and systematic
purchases or redemptions. Additions to an investment account may be made at any
time by purchasing shares through authorized investment dealers or by mailing a
check directly to ACCESS.
SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than two percent of the net asset value of the
issued shares, and bill the party to whom the certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. Unless the shareholder instructs otherwise, the reinvestment
plan is automatic. This instruction may be made by telephone by calling (800)
421-5666 ((800) 772-8889 for the hearing impaired) or in writing to ACCESS. The
investor may, on the initial application or prior to any declaration, instruct
that dividends be paid in cash and capital gains distributions be reinvested at
net asset value, or that both dividends and capital gains distributions be paid
in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such
35
<PAGE> 38
redemption. Once enrolled in the ACH plan, a shareholder may terminate
participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund reinvested into a pre-existing Class
A, Class B or Class C account in any of the Participating Funds, VK Money Market
or Reserve. If a qualified, pre-existing account does not exist, the shareholder
must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution only if shares of such selected funds have
been registered for sale in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund other than
Van Kampen American Capital Government Target Fund ("Government Target"), may be
exchanged for shares of the same class of any other fund without sales charge,
provided that shares of certain other Van Kampen American Capital fixed-income
funds are subject to a 30-day holding period requirement. Shares of Government
Target may be exchanged for Class A shares of the Fund without sales charge.
Class A shares of VK Money Market or Reserve that were not acquired in exchange
for Class B or Class C shares of a Participating Fund may be exchanged for Class
A upon payment of the excess, if any, of the sales charge rate applicable to the
shares being acquired over the sales charge rate previously paid. Shares of VK
Money Market or Reserve acquired through an exchange of Class B or Class C
shares may be exchanged only for the same class of shares of a Participating
Fund without incurring a contingent deferred sales charge. Shares of any
Participating Fund, VK Money Market or Reserve that were not acquired in
exchange for Class B or Class C shares of a Participating Fund may be exchanged
for shares of any other Participating Fund 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. Additional funds may be added from time to time as a
Participating Fund.
Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other Van
Kampen American Capital fund that offers such shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares, without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a disposition of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B or
Class C shareholders would remain subject to the contingent deferred sales
charge imposed by the
36
<PAGE> 39
original fund upon their redemption from the Van Kampen American Capital complex
of funds. The contingent deferred sales charge is based on the holding period
requirement of the original fund.
Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the exchanged shares, but is carried over and included in the
tax basis of the shares acquired. See the Statement of Additional Information.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value per share next calculated after the request is received
in good order with adjustment for any additional sales charge. See "Purchase of
Shares" and "Redemption of Shares." If the exchanging shareholder does not have
an account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain options
(except fund to fund dividends) and dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
file a specific written request. The Fund reserves the right to reject any order
to acquire its shares through exchange. In addition, the Fund may modify,
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
37
<PAGE> 40
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual or
annual checks in any amount, not less than $25.
Class B 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 in the Fund at the time the election to participate
in the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" and the Statement of Additional Information.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon the
redemption of shares.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the AUTHORIZATION FOR REDEMPTION BY CHECK
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to ACCESS, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to the Class A shareholder. These
checks may be made payable by the Class A shareholder to the order of any person
in any amount of $100 or more.
When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the Class A shareholder's account by ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of shares. Any gain or
loss realized on the sale of shares is a taxable event. See "Redemption of
Shares."
38
<PAGE> 41
Checks will not be honored for redemption of Class A shares held less than 15
calendar days, unless such Class A shares have been paid for by bank wire. Any
Class A shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or
State Street Bank. Accounts that are subject to backup withholding are not
eligible for the privilege. A "stop payment" system is not available on these
checks. See the Statement of Additional Information for further information
regarding the establishment of the privilege.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
dealer. Orders received from dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by a dealer provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B and
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more and for certain qualified 401(k) retirement plans. The
contingent deferred sales charge incurred upon redemption is paid to the
Distributor in reimbursement for distribution-related expenses. See "Purchase of
Shares." A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national
39
<PAGE> 42
securities exchange, registered securities association or clearing agency; a
savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed is made by check mailed
within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payment may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until the purchase check has cleared, usually a period of up to
15 days.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures
previously set forth, 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
accompanied by this Prospectus or call the Fund at (800) 421-5666 to request
that a copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares, contact the telephone transaction line at (800)
421-5684. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include
40
<PAGE> 43
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for the following types of
non-retirement accounts: individual accounts, joint accounts and accounts of
minors with custodians acting on their behalf. The telephone redemption
privilege is not available for shares represented by certificates. If an account
has multiple owners, ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. The Fund reserves the right at any time to terminate, limit or
otherwise modify this redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B and Class C shares.
In cases of disability, the contingent deferred sales charge on Class B and
Class C shares will be waived where the disabled person is either an individual
shareholder
41
<PAGE> 44
or owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the initial determination of disability. This waiver
of the contingent deferred sales charge on Class B and Class C shares applies to
a total or partial redemption, but only to redemptions of shares held at the
time of the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A 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 (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information.
- ------------------------------------------------------------------------------
DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing of its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit the annual distribution charges that a mutual fund may impose on a class
of shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, the Fund pays a service fee
to the Distributor at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Such payments to
the Distributor under the Class A Plan are based on an annual percentage of the
value of Class A shares held in shareholder accounts for which such Service
Organizations are responsible at the rates of 0.15% annually with respect to
Class A shares in such accounts on September 29, 1989 and 0.25% annually with
respect to Class A shares issued after that date. Under the Class B Plan and the
Class C Plan, the Fund pays a service fee to the Distributor at an annual rate
of up to 0.25% and a distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets
42
<PAGE> 45
attributable to the Class B shares or Class C shares to reimburse the
Distributor for service fees paid by it to Service Organizations and for its
distribution costs.
The Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal services and/or the maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to four
percent of the purchase price of Class B shares purchased by the clients of
broker-dealers and other Service Organizations, and (ii) other distribution
expenses as described in the Statement of Additional Information. Under the
Class C Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class C shares as reimbursement for (i) upfront commissions and
transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.75% of the average daily net
assets of the Fund's Class C shares, and (ii) other distribution expenses as
described in the Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
The distribution fee attributable to Class B or Class C shares is designed to
permit an investor to purchase such shares without the assessment of a front-end
sales load and at the same time permit the Distributor to compensate Service
Organizations with respect to such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and distribution fee
are the same as those of the initial sales charge with respect to the Class A
shares of the Fund in that in both cases such charges provide for the financing
of the distribution of the Fund's shares.
43
<PAGE> 46
Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class B
Plan, the balance of $100,000 would be subject to recovery in future fiscal
years from such sources. For the plan year ended June 30, 1994, the unreimbursed
expenses incurred by the Distributor under the Class B Plan and carried forward
were approximately $1.5 million or 4.25% of the Class B shares' net assets. The
unreimbursed expenses incurred by the Distributor under the Class C Plan from
August 30, 1993 (inception of Class C shares) through June 30, 1994, and carried
forward were approximately $118,000 or 1.71% of the Class C shares' net assets.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
DIVIDEND POLICY. The Fund distributes substantially all of its net investment
income in monthly dividends to shareholders. The Fund intends to distribute
after the end of a fiscal year the net capital gains, if any, realized during
the fiscal year, except to the extent that such gains are offset by capital loss
carryovers. Unless the shareholder instructs otherwise, dividends and
distributions are automatically applied to purchase shares of the Fund at net
asset value. See "Shareholder Services -- Reinvestment Plan."
The per share dividends on Class B and Class C shares of the Fund will be
lower than the per share dividends on Class A shares of the Fund as a result of
the distribution fees and higher incremental transfer agency fees applicable to
such classes of shares.
44
<PAGE> 47
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund has qualified and intends to be taxed as a
regulated investment company under the Code. By qualifying as a regulated
investment company, the Fund is not subject to federal income taxes to the
extent it distributes its net investment income and net realized capital gains.
In addition, the Fund intends to continue to invest in sufficient Municipal
Bonds to permit payment of "exempt-interest dividends" (as defined in the Code).
Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Bonds qualify as exempt-interest dividends if, at the close of each
quarter of the Fund's fiscal year, at least 50% of the value of its total assets
consists of Municipal Bonds.
The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gains. One such provision affects tax-exempt
securities by requiring that gains on such securities purchased at a market
discount be treated as ordinary income to the extent of the accrued market
discount, if the securities are acquired after April 30, 1993. Such securities
were exempt from the market discount rules under prior law.
Except as provided below, exempt-interest dividends paid to shareholders are
not includable in the shareholders' gross income for federal income tax
purposes. For each of the last three fiscal years of the Fund, over 99% of the
dividends paid by the Fund were exempt-interest dividends. The percentage of
income that is tax-exempt is applied uniformly to all dividends paid during each
fiscal year. This percentage may differ from the actual tax-exempt percentage
during any particular month.
Interest on certain "private-activity bonds" issued after August 7, 1986, is
an item of tax preference subject to the alternative minimum tax on individuals
and corporations. The Fund invests a portion of its assets in such
private-activity bonds so that a portion of its exempt-interest dividends is an
item of tax preference to the extent such dividends represent interest received
from these private-activity bonds. For the fiscal year ended September 30, 1994,
approximately 12% of the Fund's income consisted of interest on private-activity
bonds which is an item of tax preference. The Tax Reform Act of 1986 also
imposed per capita volume limitations on certain private-activity bonds which
could limit the amount of such bonds available for investment by the Fund.
Shareholders are notified annually of the federal tax status of dividends and
any capital gains distributions.
Individuals whose modified income exceeds a base amount are subject to federal
income tax on up to one-half of their Social Security benefits. Modified income
45
<PAGE> 48
includes adjusted gross income, one-half of Social Security benefits and
tax-exempt interest, including tax-exempt interest dividends from the Fund.
To avoid being subject to a 31% federal back-up withholding on dividends
(except exempt-interest dividends), distributions and redemption payments,
shareholders must furnish the Fund with a certification of their correct
taxpayer identification number.
Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution of record shortly after the purchase of
shares by an investor represents, in substance, a return of capital to the
investor, even though subject to income taxes to the extent discussed herein.
The foregoing is only a brief summary of some of the important tax
considerations generally affecting the Fund and its investors who are U.S.
residents or U.S. corporations. Additional tax information of relevance to
particular investors, including investors who may be "substantial users" of
facilities financed by Municipal Bonds, is contained in the Statement of
Additional Information. Investors are urged to consult their tax advisers with
specific reference to their own tax situation. Foreign investors should consult
their own counsel for further information as to the U.S. and their country of
residence or citizenship tax consequences of receipt of dividends and
distributions from the Fund.
FEDERAL INCOME TAX ASPECTS OF FUTURES AND OPTIONS. The Fund's ability to
engage in transactions in listed futures contracts and related options may be
limited by provisions of the Code, including the requirement that the Fund
derive less than 30% of its gross income from the sale or other disposition of
securities held for less than three months. Gains and losses recognized by the
Fund from transactions in futures contracts and options generally constitute
capital gains and losses for federal income tax purposes. See "Federal Tax
Information" in the Statement of Additional Information. To the extent such
activities result in net realized short-term capital gains which are distributed
to shareholders, such distributions constitute taxable ordinary income. To the
extent such activities result in net realized long-term capital gains which are
distributed to shareholders, such distributions constitute taxable long-term
capital gains.
STATE AND LOCAL TAXES. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that shareholders consult their tax advisers for information in this
regard. The Fund reports annually to its shareholders the percentage and source,
on a state-by-state basis, of interest
46
<PAGE> 49
income earned on Municipal Bonds held by the Fund during the preceding year.
Distributions paid by the Fund from sources other than tax-exempt interest are
generally subject to taxation at the state and local levels.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, five and ten year periods. Other total return quotations,
aggregate or average, over other time periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 4.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable 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 no 12b-1 fees 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.
Yield and total return are calculated separately for Class A, Class B and
Class C shares. Class A total return figures include the maximum sales charge of
4.75%; Class B and Class C total return figures include any applicable
contingent deferred sales charge. Because of the differences in sales charges
and distribution fees, the total returns for each of the classes will differ.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the
47
<PAGE> 50
last day of the period. A "bond equivalent" annualization method is used to
reflect a semiannual compounding. The Fund's "tax-equivalent yield" is
calculated by determining the rate of return that would have to be achieved on a
fully taxable investment to produce the after-tax equivalent of the Fund's
yield, assuming certain tax brackets for a Fund shareholder.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. It 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, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. Distribution rate is, therefore, not intended to be a complete measure
of the Fund's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Fund. Distribution rates will be
computed separately for each class of the Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc.,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds; or with municipal bond indices, such as Lehman
Brothers Municipal Bond Index or Bond Buyer's Index of 25 Revenue Securities or
with the Consumer Price Index, Standard & Poor's, NASDAQ, or other appropriate
indices of
48
<PAGE> 51
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 financial publications that are nationally
recognized, such as Business Week, Forbes, Fortune, Institutional Investor,
Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money, Mutual
Fund Forecaster, Stanger's Investment Advisor, USA Today, U.S. News & World
Report, and The Wall Street Journal. Such comparative performance information
will be stated in the same terms in which the comparative data or indices are
stated. Such advertisements and sales material may also include a yield
quotation as of a current period. In each case, such total return and yield
information, if any, will be calculated pursuant to rules established by the SEC
and will be computed separately for each class of the Fund's shares would also
include the standard performance information required by the SEC as described
above. For these purposes, the performance of the Fund, as well as the
performance of other mutual funds or indices, do not reflect sales charges, the
inclusion of which would reduce Fund performance. The Fund will include
performance data for Class A, Class B and Class C 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 provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Fund's Annual Report contains additional performance information. A copy
of the Annual Report may be obtained without charge by calling or writing the
Fund at the telephone number and address printed on the cover page of this
Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in Texas on September 8, 1976. The Fund
was incorporated in the State of Maryland on July 2, 1992 and reorganized on
July 31, 1995, under the laws of the state of Delaware as a business entity
commonly known as a "Delaware business trust." It is authorized to issue an
unlimited number of Class A, Class B and Class C shares of beneficial interest
of $0.01 par value. Other classes of shares may be established from time to time
in accordance with provisions of the Fund's Declaration of Trust. Shares issued
by the Fund are fully paid, non-assessable and have no preemptive or conversion
rights.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A shares, Class B shares and
Class C shares. Each class of shares represents an interest in the same assets
of the Fund and generally are identical in all respects except that each class
bears certain
49
<PAGE> 52
distribution expenses and has exclusive voting rights with respect to its
distribution fee. See "Distribution Plans."
Each class of shares is equal as to earnings, assets and voting privileges,
except as noted above, and each class bears the expenses related to the
distribution of its shares. There are no conversion, preemptive or other
subscription rights, except with respect to the conversion of Class B shares and
Class C shares into Class A shares as described above. In the event of
liquidation, each of the shares of the Fund is entitled to its portion of all of
the Fund's net assets after all debt and expenses of the Fund have been paid.
Since Class B shares and Class C shares pay higher distribution expenses, the
liquidation proceeds to Class B shareholders and Class C shareholders are likely
to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
An investment in the Fund may not be appropriate for all investors.
The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.
An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.
50
<PAGE> 53
<TABLE>
<S> <C>
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR EXISTING
ACCOUNT PLEASE CALL THE FUND'S
TOLL-FREE NUMBER--(800) 421-5666
PROSPECTIVE INVESTORS--CALL YOUR
BROKER OR (800) 421-5666
DEALERS--FOR DEALER INFORMATION,
SELLING AGREEMENTS, WIRE ORDERS, OR
REDEMPTIONS CALL THE DISTRIBUTOR'S
TOLL-FREE NUMBER--(800) 421-5666
FOR SHAREHOLDER AND DEALER INQUIRIES
THROUGH TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD)
DIAL (800) 772-8889
FOR TELEPHONE TRANSACTIONS DIAL (800)
421-5684
VAN KAMPEN AMERICAN CAPITAL
MUNICIPAL BOND FUND
2800 Post Oak Boulevard
Houston, TX 77056
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Boulevard
Houston, TX 77056
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
Funds
Legal Counsel
O'MELVENY & MYERS
400 South Hope Street
Los Angeles, CA 90071
Independent Accountants
PRICE WATERHOUSE LLP
1201 Louisiana
Suite 2900
Houston, TX 77002
</TABLE>
<PAGE> 54
VAN KAMPEN AMERICAN CAPITAL
MUNICIPAL BOND FUND
------------------------------------------------------------------------------
PROSPECTUS
AUGUST 1, 1995
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 55
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
AUGUST 1, 1995
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated August 1,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION........................................................... 2
MUNICIPAL BONDS............................................................... 2
RISK FACTORS RELATING TO HIGH YIELD BONDS..................................... 3
TEMPORARY INVESTMENTS......................................................... 4
REPURCHASE AGREEMENTS......................................................... 4
FUTURES CONTRACTS AND RELATED OPTIONS......................................... 4
INVESTMENT RESTRICTIONS....................................................... 7
TRUSTEES AND EXECUTIVE OFFICERS............................................... 9
INVESTMENT ADVISORY AGREEMENT................................................. 13
DISTRIBUTOR................................................................... 14
DISTRIBUTION PLANS............................................................ 14
TRANSFER AGENT................................................................ 16
PORTFOLIO TURNOVER............................................................ 16
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... 16
DETERMINATION OF NET ASSET VALUE.............................................. 17
PURCHASE AND REDEMPTION OF SHARES............................................. 17
EXCHANGE PRIVILEGE............................................................ 21
CHECK WRITING PRIVILEGE....................................................... 22
FEDERAL TAX INFORMATION....................................................... 22
PRIOR PERFORMANCE INFORMATION................................................. 25
OTHER INFORMATION............................................................. 26
FINANCIAL STATEMENTS.......................................................... 27
APPENDIX...................................................................... 28
</TABLE>
<PAGE> 56
GENERAL INFORMATION
Van Kampen American Capital Municipal Bond Fund (the "Fund") was originally
incorporated in Texas on September 8, 1976. The Fund was reincorporated in
Maryland on July 2, 1992, and reorganized under the laws of Delaware on July 31,
1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor") and ACCESS
Investor Services, Inc. ("ACCESS") are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 10% of the common stock of VK/AC Holding, Inc.
Advantage Capital Corporation, a retail broker-dealer affiliate of the
Distributor, is a wholly owned subsidiary of VK/AC Holding, Inc.
As of July 6, 1995, no person was known by the Fund to own beneficially or
of record as much as five percent of the Class A shares of the Fund.
As of July 6, 1995, no person was known by the Fund to own beneficially or
of record as much as five percent of the Class B shares of the Fund except as
follows: 6.99% was owned of record by National Financial Services Corp., Church
Street Station, P.O. Box 3730, New York, New York 10008-3730.
As of July 6, 1995, no person was known by the Fund to own beneficially or
of record as much as five percent of the Class C shares of the Fund except as
follows: 37.37% was owned of record by Smith Barney Inc., 388 Greenwich Street,
11th Floor, New York, New York 10013-2375.
MUNICIPAL BONDS
"Municipal Bonds" include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for general
operating expenses and loans to other public institutions and facilities. In
addition, certain types of industrial development obligations are issued by or
on behalf of public authorities to finance various privately-operated
facilities. Such obligations are included within the term Municipal Bonds if the
interest paid thereon is exempt from Federal income tax. Municipal Bonds also
include short-term tax-exempt municipal obligations such as tax anticipation
notes, bond anticipation notes, revenue anticipation notes, and variable rate
demand notes.
The two principal classifications of Municipal Bonds are "general
obligations" and "revenue" or "special obligations." General obligations are
secured by the issuer's pledge of full faith, credit, and taxing power for the
payment of principal and interest. Revenue or special obligations are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or from other
specific revenue sources such as the user of the facility being financed.
Industrial development bonds, including pollution control bonds, are revenue
bonds and do not constitute the pledge of the credit or taxing power of the
issuer of such bonds. The payment of the principal and interest on such
industrial revenue bonds depends solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund's portfolio may also include "moral obligation" bonds which
are normally issued by special purpose public authorities. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of such bonds
becomes a moral commitment but not a legal obligation of the state or
municipality which is the issuer of the bonds.
2
<PAGE> 57
When the Fund engages in when-issued and delayed delivery transactions, the
Fund relies on the buyer or seller, as the case may be, to consummate the trade.
Failure of the buyer or seller to do so may result in the Fund missing the
opportunity of obtaining a price considered to be advantageous.
The Fund may invest in Municipal Notes which include demand notes and
short-term municipal obligations (such as tax anticipation notes, revenue
anticipation notes, construction loan notes and short-term discount notes) and
tax-exempt commercial paper, provided that such obligations have the ratings
described in the Prospectus. Demand notes are obligations which normally have a
stated maturity in excess of one year, but permit any holder to demand payment
of principal plus accrued interest upon a specified number of days' notice.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to prepay at its discretion the
outstanding principal of the note plus accrued interest upon a specified number
of days' notice to the noteholders. The interest rate on a demand note may be
based on a known lending rate, such as a bank's prime rate, and may be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. Participation interests in
variable rate demand notes will be purchased only if, in the opinion of counsel,
interest income on such interest will be tax-exempt when distributed as
dividends to shareholders.
Yields on Municipal Bonds are dependent on a variety of factors, including
the general condition of the money market and of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. The ability of the Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the Municipal Bonds in
which the Fund invests to meet their obligations for the payment of interest and
principal when due. There are variations in the risks involved in holding
Municipal Bonds, both within a particular classification and among
classifications, depending on numerous factors. Furthermore, the rights of
holders of Municipal Bonds and the obligations of the issuers of such Municipal
Bonds may be subject to applicable bankruptcy, insolvency and similar laws and
court decisions affecting the rights of creditors generally, and such laws, if
any, which may be enacted by Congress or state legislatures imposing a
moratorium on the payment of principal and interest or imposing other
constraints or conditions on the payments of principal and interest on Municipal
Bonds.
RISK FACTORS RELATING TO HIGH YIELD BONDS
As described in the Prospectus, the Fund may purchase Municipal Bonds rated
BB or B by Standard & Poor's Corporation ("S&P") and Ba or B by Moody's
Investors Services, Inc. ("Moody's") and non-rated securities considered by the
Adviser to be of comparable quality if the purchase would not cause more than
20% of the Fund's total assets to be invested in such lower rated securities.
See the Appendix for a description of Municipal Bond ratings. The Prospectus
discussion of the risks of investing in such lower rated high yield bonds is
supplemented as follows:
1. Youth and Growth of the High Yield Bond Market. Since the high yield
bond market is relatively new, its growth has paralleled a long economic
expansion, and it has not weathered a recession in its present size and
form. An economic downturn or increase in interest rates is likely to
have a negative effect on the high yield bond market and on the value of
the high yield bonds in the Fund's portfolio, as well as on the ability
of the bonds' issuers to repay principal and interest.
2. Sensitivity to Interest Rate and Economic Changes. The economy and
interest rates affect high yield securities differently from other
securities. The prices of high yield bonds have been found to be less
sensitive to interest rate changes than higher-rated investments, but
more sensitive to adverse economic changes or individual issuer
developments. During an economic downturn or substantial period of
rising interest rates, the issuers may experience financial stress which
would adversely affect their ability to service their principal and
interest obligations, to meet projected revenue goals, and to obtain
additional financing. If the issuer of a bond owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to
result in increased volatility of market prices of high yield bonds and
the Fund's asset value. Furthermore, in the case of high yield bonds
structured as zero coupon or pay-in-kind securities,
3
<PAGE> 58
their market prices are affected to a greater extent by interest rate
changes and thereby tend to be more volatile than securities which pay
interest periodically and in cash.
3. Liquidity and Valuation. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds,
and there may be a negative impact on the Fund's board of directors'
ability to accurately value high yield bonds and the Fund's assets and
on the Fund's ability to dispose of the bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high yield bonds, especially in a
thinly traded market. To the extent the Fund owns or may acquire
illiquid high yield bonds, these securities may involve special
liquidity and valuation difficulties.
4. Credit Ratings. Certain risks are associated with applying credit
ratings as a method of evaluating high yield bonds. Credit ratings
evaluate the safety of principal and interest payments, not market value
risk of high yield bonds. Since credit rating agencies may fail to
timely change the credit ratings to reflect subsequent events, the
Adviser monitors the issuers of high yield bonds in the Fund's portfolio
to determine if the issuers appear to have sufficient cash flow to meet
required principal and interest payments, and to attempt to assure the
bonds' liquidity so the Fund can meet redemption requests. The Fund may
retain a portfolio security whose rating has been changed.
TEMPORARY INVESTMENTS
The taxable securities in which the Fund may invest as temporary
investments include U.S. Government securities, domestic bank certificates of
deposit and repurchase agreements.
U.S. Government securities include obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government, (b) the right of the issuer to borrow
an amount limited to a specific line or credit from the U.S. Government, (c)
discretionary authority of the U.S. Government agency or instrumentality, or (d)
the credit of the instrumentality. Such agencies or instrumentalities include,
but are not limited to, the Federal National Mortgage Association, the
Government National Mortgage Association, Federal Land Banks, and the Farmer's
Home Administration. The Fund may not invest in a certificate of deposit issued
by a commercial bank unless the bank is organized and operating in the United
States and has total assets of at least $500 million and is a member of the
Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund will make
payment 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. See "Investment
Practices and Restrictions -- Repurchase Agreements" in Prospectus for further
information.
FUTURES CONTRACTS AND RELATED OPTIONS
FUTURES CONTRACTS
A municipal bond futures contract is an agreement pursuant to which two
parties agree to take and make delivery of an amount of cash equal to a
specified dollar amount times the differences between The Bond
4
<PAGE> 59
Buyer Municipal Bond Index (the "Index") value at the close of the last trading
day of the contract and the price at which the futures contract is originally
struck. The Index is a price weighted measure of the market value of 40 large
sized, recent issues of tax-exempt bonds.
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, cash equivalents or liquid high
grade debt securities equal to not more than five percent 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 contact and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to 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 not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or related options, the Fund could experience delays
and/or losses in liquidating open positions purchased and/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.
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
5
<PAGE> 60
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 contact.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.
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 movements, 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.
The Fund could 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". CFTC regulations require, among
other things, (i) that futures and related options be used solely for bona fide
hedging purposes (or meet certain conditions as specified in CFTC regulations)
and (ii) that the Fund not enter into futures and related options for which the
aggregate initial margin and premiums exceed five percent of the fair market
value of the Fund's assets. In order to minimize leverage in connection with the
purchase of futures contracts by the Fund, an amount of cash, cash equivalents
or liquid high grade debt 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.
6
<PAGE> 61
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 in initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as, it could sell a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS TO FUTURES CONTRACTS AND RELATED OPTIONS
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 other (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.
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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which, along with its
investment objective, cannot be changed without approval by the holders of a
majority of its outstanding shares. Such majority is defined by the 1940 Act as
the lesser of (i) 67% or more of the voting securities present in person or by
proxy at the meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
7
<PAGE> 62
restrictions and policies set forth herein apply at the time of purchase of
securities. These restrictions provide that the Fund shall not:
1. Purchase or hold securities of any issuer if any of the Fund's officers
or directors, or officers or directors of its investment adviser, who
beneficially own more than 1/2% of the securities of that issuer,
together own beneficially more than five percent of the securities of
such issuer.
2. Purchase securities on margin or make short sales, but it may engage in
transactions in options, futures contracts and related options and make
margin deposits and payments in connection therewith.
3. Make loans of money or securities to other persons except through the
purchase of securities in accordance with its investment objective and
policies.
4. Invest in real estate; commodities or commodities contracts; interests
in oil, gas, or other mineral exploration or development programs; or
any security not payable in United States currency (but this shall not
prevent the Fund from investing in Municipal Bonds or Temporary
Investments secured by real estate or interests therein or from
entering into transactions in futures contracts and related options).
5. Engage in the underwriting of securities or invest more than 15% of its
net assets in securities subject to restrictions on resale or for which
there is no readily available market. Such securities include
securities issued in limited placements under which the Fund represents
that it is purchasing without a view to a public distribution,
repurchase agreements maturing in more than seven days and securities
subject to legal or contractual restrictions on resale.
6. Invest in securities other than Municipal Bonds and Temporary
Investments (as defined in the Prospectus), listed futures contacts
related to U.S. Government securities, Municipal Bonds or to an index
of Municipal Bonds, and options on such contracts.
7. Invest more than five percent of its total assets at market value at
time of purchase in the securities of any one issuer (other than
obligations of the United States Government or of any instrumentalities
thereof).
8. Borrow money, except from banks for temporary or emergency purposes,
such borrowing not to exceed five percent of its total assets at market
value at the time of borrowing. Any such borrowing may be secured
provided that not more than ten percent of the total assets at market
value at the time of pledging may be used as security for such
borrowings. 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 and payments in connection with futures contracts
and related options.
9. Purchase any Municipal Bond rated below Baa by Moody's and below BBB by
S&P, or which, if non-rated, is in the opinion of the Adviser of
comparable quality, if immediately after and as a result of such
purchase such Bonds would constitute more than 20% of the Fund's total
assets.
10. Purchase any Municipal Bond rated below A by Moody's and S&P, or which
is non-rated, if immediately after and as a result of such purchase
such Bonds would constitute more than 50% of the Fund's total assets.
11. Purchase any Municipal Bond rated below B by Moody's and S&P or any
non-rated Municipal bonds considered by the Adviser to be of comparable
quality.
12. 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 futures contracts, options on futures contracts
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".
8
<PAGE> 63
Each state and each political subdivision, agency or instrumentality of
such state, and each multi-state agency of which a state is a member is a
separate "issuer" as that term is used in the Prospectus. The non-government
user of facilities financed by industrial development bonds is also considered
as a separate issuer. If, however, a security is guaranteed by another entity,
securities issued or guaranteed by such guaranteeing entity shall be limited to
ten percent of the value of the Fund's total assets.
Because of the nature of the securities in which the Fund may invest, the
Fund may not invest in voting securities, or invest for the purpose of
exercising control or management, or invest in securities of other investment
companies.
TRUSTEES AND EXECUTIVE OFFICERS
The Fund's Trustees and executive officers and their principal occupations
for the past five years are listed below.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and scientific
1009 Slater Road equipment. A trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital Funds.
Age: 62
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Radnor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing. A
trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A trustee
of each of the Van Kampen American Capital Funds.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Chairman of the Board and a trustee of each
of the Van Kampen American Capital Funds.
</TABLE>
9
<PAGE> 64
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). A trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser; Director and Executive Vice
President of ACCESS, Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Fund
Company; Director, Trustee or Managing General Partner of
each of the Van Kampen American Capital Funds and other
open-end investment companies and closed-end investment
companies advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital, a director and the second
vice president of International Institute of Los Angeles.
A trustee of each of the Van Kampen American Capital
Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. A trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 62 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A trustee of each of the Van Kampen American Capital
Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Chairman of the Board and a trustee of each of
Age: 70 the Van Kampen American Capital Funds.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a trustee of
the Van Kampen Merritt Series Fund and closed-end
investment companies advised by an affiliate of the
Adviser.
</TABLE>
10
<PAGE> 65
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940). Mr. Powell is an interested person of
the Adviser and the Fund by reason of his position with the Adviser. Mr.
Sheehan and Mr. Whalen are interested persons of the Adviser and the Fund by
reason of their firms having acted as legal counsel to the Adviser or an
affiliate thereof.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
Age: 41 Secretary and Corporate Secretary of the Adviser.
David C. Johnson......... Vice President Vice President -- Portfolio Manager of the
One Parkview Plaza Adviser.
Oakbrook Terrace, IL
60181
Age: 42
Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 35 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.
Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
One Parkview Plaza Director of the Adviser. Director of VK/AC
Oakbrook Terrace, IL Holding, Inc. and Van Kampen American
60181 Capital.
Age: 53
Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 48 Treasurer investment companies advised by the
Adviser.
Ronald A. Nyberg......... Vice President Executive Vice President, General Counsel
One Parkview Plaza and Secretary of Van Kampen American
Oakbrook Terrace, IL Capital; Executive Vice President and a
60181 Director of the Distributor. Executive Vice
Age: 41 President of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.
</TABLE>
11
<PAGE> 66
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Robert C. Peck, Jr....... Vice President Senior Vice President and Director of the
Age: 48 Adviser.
J. David Wise............ Vice President and Vice President, Associate General Counsel
Age: 51 Assistant Secretary and Assistant Corporate Secretary of the
Adviser.
Paul R. Wolkenberg....... Vice President Senior Vice President of the Adviser;
Age: 50 President, Chief Operating Officer and
Director of Van Kampen American Capital
Services, Inc.; Executive Vice President,
Chief Operating Officer and Director of Van
Kampen American Capital Trust Company;
Executive Vice President and Director of
ACCESS.
</TABLE>
- ---------------
The trustees and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto and Woodside served as Trustees of the Fund during
its last fiscal year. During the fiscal year ended September 30, 1994, the
Directors who were not affiliated with the Adviser or its parent received as a
group $13,494 in directors' fees from the Fund in addition to certain
out-of-pocket expenses. Such trustees also received compensation for serving as
trustees of other investment companies advised by the Adviser as identified in
the notes to the foregoing table. For legal services rendered during the fiscal
year, the Fund paid legal fees of $11,680 to the law firm of O'Melveny & Myers,
of which Mr. Sheehan is Of Counsel. The firm also serves as legal counsel to
other Van Kampen American Capital Funds.
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as directors or trustees is
set forth below. The compensation shown for the Fund is for the fiscal year
ended September 30, 1994 and the total compensation shown for the Fund and other
related mutual Funds is for the calendar year ended December 31, 1994. Mr.
Powell is not compensated for his service as Trustee, because of his affiliation
with the Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION
OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM
ACCRUED REGISTRANT
AS AND
AGGREGATE PART FUND
COMPENSATION OF COMPLEX
FROM FUND PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
----------------------------------------- ------------ ---------- ---------------
<S> <C> <C> <C>
J. Miles Branagan........................ $2,050 -0- $64,000
Dr. Richard E. Caruso(2)(3).............. $2,080 -0- $64,000
Dr. Roger Hilsman........................ $2,125 -0- $66,000
David Rees(3)............................ $2,050 -0- $64,000
Lawrence J. Sheehan...................... $2,155 -0- $67,000
Dr. Fernando Sisto(2)(3)................. $2,660 -0- $82,000
William S. Woodside(4)................... $ 0 -0- $18,000
</TABLE>
- ---------------
(1) Represents 29 investment company portfolios in the fund complex
(2) Amount reflects deferred compensation of $2,020 for Dr. Caruso and $-0- for
Dr. Sisto.
(3) The cumulative deferred compensation paid by the Fund is as follows: Dr.
Caruso, $4,786; Mr. Rees, $7,466; and Dr. Sisto, $3,037.
(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, with respect to the second and fourth columns, $1,650
and $36,000, respectively, was paid by the Adviser directly.
12
<PAGE> 67
(5) Includes the following amounts for which the various Funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000 (Mr. Woodside was
paid $36,000 directly by the Adviser as discussed in Footnote 4 above.
Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $1,056 and a
meeting fee of $30 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objective. The Adviser also furnishes at no cost to the Fund (except
as noted herein) the services of sufficient executive and clerical personnel for
the Fund as are necessary to prepare registration statements, prospectuses,
shareholder reports and notices, and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction. During the
fiscal years ended September 30, 1992, 1993 and 1994, the Adviser received
$1,393,099, $1,615,258 and $1,804,381, respectively, in advisory fees from the
Fund. For such periods the Fund paid $91,361, $120,055 and $115,272,
respectively, for accounting services. A substantial portion of these amounts
was paid to the Adviser or its parent in reimbursement of personnel, office
space, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services are provided at cost which is
allocated among the investment companies advised by the Adviser. The Fund also
pays shareholder service agency fees, distribution fees, custodian fees, legal
and auditing fees, the costs of reports to shareholders and all other ordinary
expenses not specifically assumed by the Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at an annual
rate of 0.50% of the Funds average net assets.
The average net asset value is determined by taking the average of all of
the determinations of net asset value for each business day during a given
calendar month. Such fee is payable for each calendar month as soon as
practicable after the end of that month. The Adviser agrees to use its best
efforts to recapture tender solicitation fees and exchange offer fees for the
Fund's benefit, and to advise the Trustees of the Fund of any other commissions,
fees, brokerage or similar payments which may be possible under applicable laws
for the Adviser or any other direct or indirect majority owned subsidiary of
VK/AC Holding, Inc. to receive in connection with the Fund's portfolio
transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the expenses of the
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where the Fund's shares are qualified for sale, the
compensation due the Adviser for such fiscal year shall be reduced by the amount
of such excess and
13
<PAGE> 68
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year. The Advisory Agreement also
provides that the Adviser shall not be liable to the Fund for any actions or
omissions if it acted in good faith without negligence or misconduct.
Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million, and 1 1/2% of the remaining
average net assets.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
has the exclusive right to distribute shares of the Fund through affiliated and
unaffiliated dealers. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay for
only such shares of the Fund as may be sold to the public. The Distributor is
not obligated to sell any stated number of shares. The Distributor bears the
cost of printing (but not typesetting) prospectuses used in connection with this
offering and the cost and expense of supplemental sales literature, promotion
and advertising. The Underwriting Agreement is renewable from year to year if
approved (a) by the Fund's Trustees or by a vote of a majority of the Fund's
outstanding voting securities and (b) by the affirmative vote of a majority of
Trustees who are not parties to the Underwriting Agreement or interested persons
of any party, by votes cast in person at a meeting called for such purpose. The
Underwriting Agreement provides that it will terminate if assigned, and that it
may be terminated without penalty by either party on 60 days' written notice.
During the fiscal years ended September 30, 1992, 1993 and 1994, total
underwriting commissions on the sale of shares of the Fund were $1,079,211,
$1,055,715 and $793,290, respectively. Of such totals, the amount retained by
the Distributor was $32,794, $97,650 and $118,647, respectively. The remainder
was reallowed to dealers. Of such dealer reallowances, $314,982, $197,590 and
$105,378, respectively, was received by Advantage Capital Corporation, an
affiliated dealer of the Distributor.
DISTRIBUTION PLANS
The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan", "Class B Plan" and "Class C
Plan", respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").
The Trustees have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to 4% of the purchase price
14
<PAGE> 69
of the Class B shares purchased by the clients of broker-dealers and other
Service Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professions, and (5) advertising and promotion expenses, including conducting
and organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses. With respect to the Class C Plan, authorized payments
under the Class C Plan also include payments at an annual rate of up to 0.75% of
the net assets of the Class C shares to reimburse the Distributor for (1)
upfront commissions and transaction fees of up to 0.75% of the purchase price of
Class C shares purchased by the clients of broker-dealers and other Service
Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, and (5) advertising and promotion
expenses, including conducting and organizing sales seminars, marketing support
salaries and bonuses, and travel-related expenses. Such reimbursements are
subject to the maximum sales charge limits specified by the National Association
of Securities Dealers, Inc. ("NASD") for asset-based charges.
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. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and form of
servicing agreement and selling group agreement were approved by the Trustees,
including a majority of the Trustees who are not affiliated persons (as defined
in the 1940 Act) of the Fund and who have no direct or indirect financial
interest in the operation of any of the Plans or in any agreements related to
each Plan ("Independent Trustees"). In approving the Plans in accordance with
the requirements of Rule 12b-1, the Trustees determined that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, each Plan will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting shares of the
respective class of the Fund. Any change in any of the Plans that would
materially increase the distribution expenses borne by the Fund requires
shareholder approval, voting separately by class; otherwise, it may be amended
by a majority of the Trustees, including a majority of the Independent Trustees,
by vote cast in person at a meeting called for the purpose of voting upon such
amendment. So long as the Plan is in effect, the selection or nomination of the
Independent Trustees is committed to the discretion of the Independent Trustees.
For the fiscal year ended September 30, 1994, the Fund's aggregate expenses
under the Class A Plan were $686,403 or .21%, of the Fund's average net assets.
Such expenses were paid to reimburse the Distributor for payments made to
Service Organizations for servicing Fund shareholders and administering the
Class A Plan. The offering of Class B shares commenced on September 29, 1992.
For the fiscal year ended September 30, 1994, the Fund's aggregate expenses
under the Class B Plan were $311,708 or 1.00% of the Class B shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $233,781 for commissions and transaction fees paid to
broker-dealers and other Service
15
<PAGE> 70
Organizations in respect of sales of Class B shares of the Fund and $77,927 for
fees paid to Service Organizations for servicing Class B shareholders and
administering the Class B Plan. For the fiscal year ended September 30, 1994,
the unreimbursed expenses incurred by the Distributor under the Class B Plan and
carried forward were approximately $1.6 million. The offering of Class C shares
commenced August 30, 1993. For the fiscal year ended September 30, 1994, the
Fund's aggregate expenses under the Class C Plan were $54,489 or 1.00% of the
Class C shares' average daily net assets. Such expenses were paid to the
Distributor for the following payments: $40,867 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of Class
C shares of the Fund and $13,622 for fees paid to Service Organizations for
servicing Class C shareholders and administering the Class C Plan. For the
fiscal year ended September 30, 1994, the unreimbursed expenses incurred by the
Distributor under the Class C Plan and carried forward were approximately
$130,000.
TRANSFER AGENT
For the fiscal years ended September 30, 1992, 1993 and 1994, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $242,356, $280,191 and $334,826, respectively, for these
services. These services are provided at cost plus a profit.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate for prior
years is shown under "Financial Highlights" in the Prospectus. The annual
turnover rate is expected to exceed 100%, which is higher than that of many
other investment companies. A 100% turnover rate would occur if all the Fund's
portfolio securities were replaced during one year. The lower turnover rate
during the last fiscal year reflects the Adviser's investment strategy and the
lower volatility of the market for municipal securities during the period.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of any
commissions, if any, paid on such transactions. As most transactions made by the
Fund are principal transactions at net prices, the Fund incurs little or no
brokerage costs. Portfolio securities are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers include the spread between the bid and asked price. Sales to dealers are
effected at bid prices.
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 commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser. No specific value can be assigned to such
research services which are furnished without cost to the Adviser. 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 the 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
16
<PAGE> 71
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with the Fund.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund as a factor in the
selection of firms to execute portfolio transactions for the Fund.
The Adviser places portfolio transactions 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 by the Fund and another advisory account. In some cases, this
procedure could have an adverse effect on the price or the amount of securities
available to the Fund. In making such allocations among the Fund and other
advisory accounts, the main factors considered by the Adviser are the 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.
The Adviser's brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Trustees who are not affiliated
persons (as defined in the 1940 Act) of the Adviser. During the fiscal years
ended September 30, 1992, 1993 and 1994, the Fund paid $-0-, $-0- and $4,589,
respectively, in brokerage commissions. The negotiated commission paid to an
affiliated broker on any transaction would be comparable to that payable to a
non-affiliated broker in a similar transaction.
DETERMINATION OF NET ASSET VALUE
The net asset value of Fund shares is computed by dividing the value of all
securities plus other assets, less liabilities, by the number of shares
outstanding. The net asset value of the shares of the Fund is determined once
daily as of the close of trading (currently 4:00 p.m., New York time) each day
the New York Stock Exchange (the "Exchange") is open. The Exchange is currently
closed on weekends and on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The Fund's investments are valued by an independent pricing service
("Service"). When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at such quoted bid prices (as obtained by
the Service from dealers in such securities). Other investments are carried at
fair value as determined by the Service, based on methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. Any assets which are not valued
by the Service would be valued at fair value using methods determined in good
faith by the Directors. Expenses and fees, including the management fee are
accrued daily and taken into account for the purpose of determining the net
asset value of Fund shares. Short-term instruments having remaining maturities
of 60 days or less are valued at amortized cost.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the Securities and Exchange Commission ("SEC").
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."
PURCHASE OF SHARES
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized dealers, including Advantage Capital
Corporation.
17
<PAGE> 72
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements, a
higher distribution services fee, and any expenses (including higher transfer
agency costs) resulting from such sales arrangements, and have exclusive voting
rights with respect to the Rule 12b-1 distribution plan pursuant to which the
distribution fee is paid.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the 1933 Act.
INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of $500 or more, in the form of a check
payable to the Fund, must accompany the application. This minimum may be waived
by the Distributor for plans involving continuing investments. Subsequent
investments of $25 or more may be mailed directly to ACCESS. All such
investments are made at the public offering price of Fund shares next computed
following receipt of payment by ACCESS. Confirmations of the opening of an
account and of all subsequent transactions in the account are forwarded by
ACCESS to the investor's dealer of record, unless another dealer is designated.
In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charges reflected in the sales charge table as shown in
the Prospectus apply to purchases of Class A shares of the Fund where the
aggregate investment is $100,000 or more. For purposes of determining
eligibility for volume discounts, spouses and their minor children are treated
as a single fiduciary account. An aggregate investment includes all shares of
the Fund and all shares of certain other participating Van Kampen American
Capital mutual funds described in the Prospectus (the "Participating Funds"),
which have been previously purchased and are still owned, plus the shares being
purchased. The current offering price is used to determine the value of all such
shares. If, for example, an investor has previously purchased and still holds
Class A shares of the Fund and shares of other Participating Funds having a
current offering price of $40,000, and that person purchases $65,000 of
additional Class A shares of the Fund, the sales charge applicable to the
$65,000 purchase would be 3.75% of the offering price. The same reduction is
applicable to purchases under a Letter of Intent as described in the next
paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN ORDER IS PLACED
FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE BASIS OF
PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN SUCH AN
ORDER IS PLACED BY MAIL. The reduced sales charge will not be applied if such
notification is not furnished at the time of the order. The reduced sales charge
will also not be applied should a review of the records of the Distributor or
ACCESS fail to confirm the investor's representations concerning his holdings.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount", made pursuant to the Letter of Intent and
the value of all shares of such Participating Funds previously purchased and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales
18
<PAGE> 73
charge applicable to the amount represented by the goal as if it were a single
investment. Escrowed shares totaling five percent of the dollar amount of the
Letter of Intent are held by ACCESS in the name of the shareholder. The
effective date of a Letter of Intent may be back-dated up to 90 days in order
that any investments made during this 90-day period, valued at the investor's
cost, can become subject to the Letter of Intent. The Letter of Intent does not
obligate the investor to purchase the indicated amount. In the event the Letter
of Intent goal is not achieved within the 13-month period, the investor is
required to pay the difference between sales charges otherwise applicable to the
purchases made during this period and sales charges actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrow shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the investor in shares of the Fund, the
amount of excess sales charge, if any, paid during the 13-month period.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." 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.
CONTINGENT DEFERRED SALES CHARGE-CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC-Class A") of one percent is imposed in the event of certain
redemptions within one year of the purchase. If a CDSC-Class A is imposed upon
redemption, the amount of the CDSC-Class A will be equal to the lesser of one
percent of the net asset value of the shares at the time of purchase, or one
percent of the net asset value of the shares at the time of redemption.
The CDSC-Class A will only be imposed if a Qualified Purchaser redeems an
amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one year period prior to the redemption. The CDSC-Class
A will be waived in connection with redemptions by certain Qualified Purchasers
(e.g., in retirement plans qualified under Section 401(a) of the Code and
deferred compensation plans under Section 457 of the Code) required to obtain
funds to pay distributions to beneficiaries pursuant to the terms of the plans.
Such payments include, but are not limited to, death, disability, retirement or
separation from service. No CDSC-Class A will be imposed on exchanges between
funds. For purposes of the CDSC-Class A, when shares of one fund are exchanged
for shares of another fund, the purchase date for the shares of the fund
exchanged into will be assumed to be the date on which shares were purchased in
the fund from which the exchange was made. If the exchanged shares themselves
are acquired through an exchange, the purchase date is assumed to carry over
from the date of the original election to purchase shares subject to a
CDSC-Class A rather than a front-end load sales charge. In determining whether a
CDSC-Class A is payable, it is assumed that shares held the longest are the
first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of Van Kampen American Capital Reserve
Fund and Van Kampen American Capital Money Market Fund with shares of other
participating funds described as "Participating Funds" in the Prospectus.
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B and Class C shares will be subject to a contingent deferred sales
charge.
19
<PAGE> 74
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
The CDSC-Class B and C is waived on redemptions of Class B and Class C
shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B 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 (the "Code"), which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC-Class B and C.
In cases of disability or death, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held 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.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("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 such 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.
20
<PAGE> 75
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required
Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC upon such
involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest, 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
shares of the Fund, provided that the reinvestment is effected within 120 days
after such redemption and the shareholder has not previously exercised this
reinvestment privilege with respect to Class C shares of the Fund. Shares
acquired in this manner will be deemed to have the original cost and purchase
date of the redeemed shares for purposes of applying the CDSC-Class C to
subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
21
<PAGE> 76
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form to ACCESS before checks will be issued. All signatures on
the authorization card must be guaranteed if any of the signators are persons
not referenced in the account registration or if more than 30 days have elapsed
since ACCESS established the account on its records. Moreover, if the
shareholder is a corporation, partnership, trust, fiduciary, executor or
administrator, the appropriate documents appointing authorized signers
(corporate resolutions, partnerships or trust agreements) must accompany the
authorization card. The documents must be certified in original form, and the
certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
FEDERAL TAX INFORMATION
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Fund has elected to be taxed as a regulated investment company under
Sections 851-855 of the Code. This means the Fund must pay all or substantially
all its taxable net investment income and taxable net realized capital gains to
shareholders of Class A, Class B and Class C shares and meet certain
diversification and other requirements. The per share dividends on Class B and
Class C shares will be lower than the per share dividends on Class A shares as a
result of the higher distribution services and incremental transfer agency fees
applicable to the Class B and Class C shares. By qualifying as a regulated
investment company, the Fund is not subject to federal income taxes to the
extent it distributes its taxable net investment income and taxable net realized
capital gains. If for any taxable year the Fund does not qualify for the special
tax treatment afforded regulated investment companies, all of its taxable
income, including any net realized capital gains, would be subject to tax at
regular corporate rates (without any deduction for distributions to
shareholders).
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
The Code permits a regulated investment company whose assets consist
primarily of tax-exempt Municipal Bonds to pass through to its investors,
tax-exempt, net Municipal Bond interest income. In order for the Fund to be
eligible to pay exempt-interest dividends during any taxable year, at the close
of each fiscal quarter, at least 50% of the aggregate value of the Fund's assets
must consist of exempt-interest obligations. In addition, the Fund must
distribute at least (i) 90% of the excess of its exempt-interest income over
certain disallowed deductions, and (ii) 90% of its "investment company taxable
net income" (i.e., its ordinary taxable income and the excess, if any, of its
net short-term capital gains over any net long-term capital losses) recognized
by the Fund during the taxable year (the "Distribution Requirements").
The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders at least 98% of its ordinary taxable (net
investment) income for the twelve months ended December 31, plus
22
<PAGE> 77
98% of its capital gain net income for the twelve months ended October 31 of
such calendar year. The Fund intends to distribute sufficient amounts to avoid
liability for the excise tax.
Not later than 60 days after the close of its taxable year, the Fund will
notify its shareholders of the portion of the dividends paid by the Fund to the
shareholders for the taxable year which constitutes exempt-interest dividends.
The aggregate amount of dividends so designated cannot exceed, however, the
amount of interest exempt from tax under Section 103 of the Code received by the
Fund during the year over any amounts disallowed as deductions under Sections
265 and 171(a)(2) of the Code. Since the percentage of dividends which are
"exempt-interest" dividends is determined on an average annual method for the
fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax-exempt during the period covered by the dividend.
Although exempt-interest dividends generally may be treated by the Fund's
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the shareholder would be
treated as a "substantial user" or a "related person" with respect to any of the
tax-exempt obligations held by the Fund. "Substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person who regularly uses in
his trade or business a part of any facilities financed with the tax-exempt
obligations and whose gross revenues derived from such facilities exceed five
percent of the total revenues derived from the facilities by all users, or who
occupies more than five percent of the usable area of the facilities or for whom
the facilities or a part thereof were specifically constructed, reconstructed or
acquired. Examples of "related persons" include certain related natural persons,
affiliated corporations, a partnership and its partners and an S corporation and
its shareholders.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Fund is not deductible for federal income tax purposes if the Fund
distributes exempt-interest dividends during the shareholder's taxable year. If
a shareholder receives an exempt-interest dividend with respect to any shares
and such shares are held for six months or less, any short-term capital loss on
the sale or exchange of the shares will be disallowed to the extent of the
amount of such exempt-interest dividend.
If, during any taxable year, the Fund realizes net capital gains (the
excess of net long-term capital gains over net short-term capital losses) from
the sale or other disposition of Municipal Bonds or other assets, the Fund will
have no tax liability with respect to such gains if they are distributed to
shareholders. Distributions designated as capital gains dividends are taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held his shares. Not later than 60 days after the close of the Fund's
taxable year, the Fund will send to its shareholders a written notice
designating the amount of any distributions made during the year which
constitute capital gain.
A capital gain dividend received after the purchase of the Fund's shares
reduces the net asset value of the shares by the amount of the distribution and
will be subject to income taxes. A loss on the sale of shares held for less than
six months (to the extent not disallowed on account of the receipt of
exempt-interest dividends) attributable to a capital gain dividend is treated as
a long-term capital loss for Federal income tax purposes.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
law. Non-resident shareholders are urged to consult their own tax adviser
concerning the applicability of the United States withholding tax.
BACK-UP WITHHOLDING
The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income or who fails to certify to the Fund
23
<PAGE> 78
that he has provided a correct taxpayer identification number and that he is not
subject to withholding. (An individual's taxpayer identification number is his
social security number.) The 31% "back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular federal income tax
liability.
TREATMENT OF DIVIDENDS
While the Fund expects that a major portion of its investment income will
constitute tax-exempt interest, a portion may consist of "investment company
taxable income" and "net capital gains". As pointed out above, the Fund will be
subject to tax for any year on its undistributed investment company taxable
income and net capital gains.
It is anticipated that substantially all of the Fund's taxable income and
capital gain net income will be distributed by the Fund in order to meet the
Distribution Requirements and to avoid taxation at the Fund level. Dividends
from net investment income and distributions from any short-term capital gains
are taxable to shareholders as ordinary income.
Dividends and distributions declared to shareholders of record after
September 30 of any year and paid before February 1 of the following year, are
considered taxable income to shareholders on the record date even though paid in
the next year.
Since none of the Fund's net investment income will arise from dividends on
common or preferred stock, none of its distributions are eligible for the 70%
dividends received deduction for corporations. To qualify for the dividends
received deduction, a corporate shareholder must hold the shares on which the
dividend is paid for more than 45 days.
The Tax Reform Act of 1986 (the "Tax Reform Act") added a provision that,
for taxable years beginning after December 31, 1989, 75% of the excess of a
corporation's adjusted current earnings (generally, earning and profits, with
adjustments) over its other alternative minimum taxable income is an item of tax
preference for corporations. All tax-exempt interest is included in the
definition of "adjusted current earnings" so a portion of such interest is
included in computing the alternative minimum tax on corporations. For
shareholders that are financial institutions, the Tax Reform Act eliminated
their ability to deduct interest payments to the extent allocated on a pro rata
basis to the purchase of Fund shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and these Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
TAX TREATMENT OF FUTURES CONTRACTS AND RELATED OPTIONS
In connection with its operations, the Fund may effect transactions in U.S.
Government securities and municipal bond futures contracts ("Futures Contracts")
and in options thereon ("Futures Options"). Gains or losses recognized by the
Fund from transactions in such Futures Contracts and Futures Options constitute
capital gains and losses for federal income tax purposes and do not therefore
qualify as exempt-interest income.
With respect to a Futures Contract closed out by the Fund, any realized
gain or loss will be treated as long-term capital gain or loss to the extent of
60 percent thereof and short-term capital gain or loss to the extent of 40
percent thereof (hereinafter "60/40 gain or loss"). Open Futures Contracts held
by the Fund at the end of any fiscal year will be required to be treated as sold
at market value on the last day of such fiscal year for federal income tax
purposes (i.e. "marked-to-market"). Gain or loss recognized under this mark-to-
market rule is 60/40 gain or loss. The federal income tax treatment accorded to
Futures Options will be the
24
<PAGE> 79
same as that accorded to Futures Contracts. The Distribution Requirements may
limit the Fund's ability to hold Futures Contracts and Futures Options at the
end of a year.
A portion of the Fund's transactions in Futures Contracts and Futures
Options, particularly its hedging transactions, may constitute "straddles" with
respect to the Fund's holdings of Municipal Securities. Straddles are defined in
Section 1092 of the Code as offsetting positions with respect to personal
property. A straddle in which at least one (but not all) of the positions are
Section 1256 contracts is a "mixed straddle" under the Code if certain
identification requirements are met.
The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone a recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position forming part of a straddle is sold and a new offsetting
position is acquired within a prescribed period, and (iii) "short sale" rules
which may terminate the holding period of securities owned by the Fund when
offsetting positions are established and which may convert certain losses from
short-term to long-term.
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. The Fund has not determined whether it will make
any of these elections.
The Fund may acquire an option to "put" specified portfolio securities to
banks or municipal bond dealers from whom the securities are purchased. See
"Stand-By Commitments," in the Prospectus. The Fund has been advised by its
legal counsel that it will be treated for federal income tax purposes as the
owner of the Municipal Securities acquired subject to the put; and the interest
on the Municipal Securities will be tax-exempt to the Fund. Counsel has pointed
out that although the Internal Revenue Service has issued a favorable published
ruling on a similar but not identical situation, it could reach a different
conclusion from that of counsel. Counsel has also advised the Fund that the
Internal Revenue Service presently will not ordinarily issue private letter
rulings regarding the ownership of securities subject to stand-by commitments.
RESTRICTIONS ON FUTURES CONTRACTS AND RELATED OPTIONS
Among the requirements for qualification as a regulated investment company
under the Code, the Fund must derive less than 30% of its gross income each year
from sales of securities held for less than three months. This requirement and
the mark-to-market rule may restrict the Fund's ability to: (i) effect closing
purchase transactions in Futures Contracts and Futures Options which have been
held for less than three months, and (ii) enter into various other short-term
transactions.
In addition, the Code requires that a Fund satisfy certain portfolio
diversification requirements at the end of each fiscal quarter of its taxable
year in order to maintain its qualification as a regulated investment company.
In general, no more than 25% of the value of a Fund's assets may be invested in
the securities of any one issuer and at least 50% of the value of the Fund's
assets must be represented by securities of issuers each of which separately
represents not more than five percent of the value of the total assets of the
Fund. Consequently, a Fund's ability to invest in Futures Contracts and Futures
Options may be limited.
PRIOR PERFORMANCE INFORMATION
The Fund's average annual total return for Class A shares for the one-year,
five-year and ten-year periods ended March 31 1995, was 1.03%, 6.88% and 8.59%,
respectively. The average annual total return for Class B shares of the Fund for
the one-year period ended March 31, 1995 was 1.14%, and for the period from
September 29, 1992 (the initial offering of Class B shares) to March 31, 1995
was 4.18%. The average annual total return for Class C shares for the one-year
period ended March 31, 1995 was 4.14%, and for the period from August 30, 1993
(the initial offering of Class C shares) to March 31, 1995 was 1.92%. These
results are based on historical earnings and asset value fluctuations and are
not intended to indicate future performance.
25
<PAGE> 80
Such information should be considered in light of the Fund's investment
objective and policies as well as the risks incurred in the Fund's investment
practices.
The annualized current yield for Class A shares, Class B shares and Class C
shares of the Fund for the 30-day period ending March 31, 1995 was 4.98%, 4.39%
and 4.38%, respectively. The tax equivalent yield (based on an assumption of a
tax rate of 36%) for the same period for Class A, Class B and Class C shares of
the Fund was 7.77%, 6.85%, and 6.84%, respectively. The yield for Class A, Class
B and Class C shares is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield and total return are computed separately for Class A, Class B and
Class C shares.
From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by American Capital in 1994.
From time to time, VKAC will announce the results of its monthly polls of
U.S. investor intentions -- the Van Kampen American Capital Index of Investor
IntentionsSM and the Van Kampen American Capital Mutual Fund IndexSM -- which
polls measure how Americans plan to use their money.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Fund.
OTHER INFORMATION
Custody of Assets -- All securities owned by the Fund and all cash,
including proceeds from the sale of shares of the Fund and of securities in the
Fund's investment portfolio, are held by State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110, as Custodian.
Shareholder Reports -- Semiannual statements are furnished to shareholders,
and annually such statements are audited by the independent accountants.
Independent Accountants -- Price Waterhouse LLP, 1201 Louisiana, Houston,
Texas 77002, the independent accountants for the Fund, perform an annual audit
of the Fund's financial statements.
26
<PAGE> 81
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual and Semiannual Reports to Shareholders, including the related Report of
Independent Accountants on the September 30, 1994 financial statements, are
hereby included in the Statement of Additional Information.
The following information is not included in the Annual or Semiannual
Reports. This example assumes a purchase of Class A shares aggregating less than
$100,000 subject to the schedule of sales charges set forth in the Prospectus at
a price based upon the net asset value of Class A shares of the Fund.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 MARCH 31, 1995
------------------ --------------
<S> <C> <C>
Net Asset Value per Class A Share $ 9.82 $ 9.98
Class A Per Share Sales Charge -- 4.75% of
offering price
(4.99% of net asset value per share) $ .49 $ .50
------- -------
Class A Per Share Offering Price to the Public $10.31 $10.48
</TABLE>
27
<PAGE> 82
APPENDIX
RATINGS OF INVESTMENTS
Ratings of Municipal Bonds
Descriptions of Moody's Investors Service, Inc. ("Moody's") Municipal Bond
Ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a midrange ranking;
and a modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Short-term Notes: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality . . . but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection . . . and not
distinctly or predominantly speculative."
Beginning on February 5, 1985, Moody's started new rating categories for
variable rate demand obligations ("VRDO's"). VRDO's receive two ratings. The
first rating, depending on the maturity of the VRDO, is assigned either a bond
or MIG rating which represents an evaluation of the risk associated with
scheduled principal and interest payments. The second rating, designated as
"VMIG," represents an
28
<PAGE> 83
evaluation of the degree of risk associated with the demand feature. The new
VRDO's demand feature ratings and symbols are:
VMIG 1: strong protection by established cash flows, superior liquidity
support, demonstrated access to the market for refinancing.
VMIG 2: ample margins of protection, high quality.
VMIG 3: favorable quality, liquidity and cash flow protection may be
narrow, market access for refinancing may be less well established.
VMIG 4: adequate quality, not predominantly speculative but there is risk.
DESCRIPTIONS OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
The first two are described below:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") MUNICIPAL DEBT RATINGS
A S&P's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources S&P considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditor's rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
29
<PAGE> 84
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB,B Debt rated "BB" and "B" is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that S&P does
not rate a particular type of obligation as a matter of policy.
A S&P Commercial Paper Rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days. The
highest category is "A" which is further defined with the designation of 1, 2
and 3 to indicate the relative degree of safety. The first two categories are
described below:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment.
A-1 This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming
as for issues designated "A-1".
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer and obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information.
Commencing on July 27, 1984, S&P instituted a new rating category with
respect to certain municipal note issues with a maturity of less than three
years. The new note ratings and symbols are:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be given
a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
S&P may continue to rate note issues with a maturity greater than three
years in accordance with the same rating scale currently employed for municipal
bond ratings.
S&P assigns dual ratings to all long-term debt issues that have a demand or
put feature. The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses the demand feature alone.
Long-term debt rating symbols are used for the long-term maturity and commercial
paper rating symbols are used for the put option (for example, AAA/A-1+). For
demand notes, S&P's note rating symbols are used with the commercial paper
symbols (for example, SP-1+/a-1+).
30
<PAGE> 85
Rating criteria described in the Prospectus are applied on the basis of the
highest rating applicable to the Municipal Security. This applies to split rated
securities (i.e., different ratings by Moody's and S&P) and dual rated
securities as described above.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds or a
Temporary Investment may cease to be rated or its rating may be reduced, causing
more than 20% of the Fund's assets invested in Municipal Bonds to be invested in
low or non-rated bonds. This would not require the elimination of such
obligation from the Fund's portfolio, but the Adviser will consider such an
event in its determination of whether the Fund should continue to hold such
obligation in its portfolio. To the extent that the ratings accorded by S&P or
Moody's for Municipal Bonds or Temporary Investment may change as a result of
changes in such organizations, or changes in their rating systems, the Fund will
attempt to use comparable ratings as standards for its investments in Municipal
Bonds or Temporary Investments in accordance with the investment policies
contained herein.
31
<PAGE> 86
Investment Portfolio
September 30, 1994
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS 94.9%
EDUCATION 4.5%
$ 1,000,000 Broward County, Florida, Educational Facilities Authority Rev.
(Nova University Project), G.O., 8.50%, 4/1/10 . . . . . . . . . $ 1,148,150
625,000 Clear Creek, Texas, Independent School District, G.O.,
6.25%, 2/1/11 . . . . . . . . . . . . . . . . . . . . . . . . . 654,156
1,000,000 Cook County, Illinois, Community College, District #508,
Certificates of Participation, FGIC, 8.75%, 1/1/07 . . . . . . . 1,229,150
1,150,000 Florida State Board of Education, Capital Outlay, Series A,
7.25%, 6/1/23 . . . . . . . . . . . . . . . . . . . . . . . . . 1,261,564
Illinois Educational Facilities Authority Rev., G.O.
1,000,000 Lake First College, FSA, 6.75%, 10/1/21 . . . . . . . . . . . . 1,020,930
1,000,000 Northwestern University, Series 1985, 6.90%, 12/1/21 . . . . . . 1,103,630
2,000,000 New Hampshire Higher Education & Daniel Webster College
Issue, G.O., 7.625%, 7/1/16 . . . . . . . . . . . . . . . . . . 1,900,260
1,000,000 New York City, New York, Industrial Development Agency, Civil
Facility Rev. (Marymount Manhattan College Project), G.O.,
7.00%, 7/1/23 . . . . . . . . . . . . . . . . . . . . . . . . . 953,620
New York State Dormitory Authority Rev.
1,000,000 City University, 8.125%, 7/1/17; Pre-refunded 7/1/97 . . . . . . 1,104,280
3,250,000 State University Educational Facility, Series 1990-A,
7.70%, 5/15/12 . . . . . . . . . . . . . . . . . . . . . . . . 3,703,960
Pennsylvania State Higher Educational Facilities Authority Rev.
500,000 Hahnemann University Project, MBIA, G.O., 7.20%, 7/1/19 . . . . . 538,005
250,000 Pennsylvania Medical College, Series A, G.O., 7.50%,
3/1/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,850
University of the Virgin Islands, Series A
500,000 7.50%, 10/1/09 . . . . . . . . . . . . . . . . . . . . . . . . . 497,335
500,000 7.65%, 10/1/14 . . . . . . . . . . . . . . . . . . . . . . . . . 496,965
--------------
TOTAL EDUCATION . . . . . . . . . . . . . . . . . . . . . . . . 15,866,855
--------------
HEALTH CARE 1.7%
500,000 Colorado Health Facilities Authority Rev. (Cleo Wallace Center
Project), 7.00%, 8/1/15 . . . . . . . . . . . . . . . . . . . . 481,925
1,500,000 Colorado Health Facilities Authority Rev. (PSL Healthcare System
Project), Series 1991-A, FSA, 6.25%, 2/15/21 . . . . . . . . . . 1,460,220
1,000,000 Cuyahoga County, Ohio, Health Care Facilities Rev.
(Jennings Hall), 7.30%, 11/15/23 . . . . . . . . . . . . . . . . 941,580
1,000,000 Lebanon County, Pennsylvania, Health Facilities Authority Health
Center Rev. (UTD Church of Christ Homes Project),
6.75%, 10/1/10 . . . . . . . . . . . . . . . . . . . . . . . . . 969,620
750,000 Massachusetts State, Industrial Finance Rev., 7.10%, 11/15/18 . . . 688,673
235,000 Pinal County, Arizona, Industrial Development Authority (Casa
Grande Regional Medical Center Project), 9.00%, 12/1/13 . . . . . 239,991
1,000,000 St. Petersburg, Florida, Health Facilities Authority Rev. (Allegany
Health Systems), 7.75%, 12/1/15 . . . . . . . . . . . . . . . . 1,130,990
--------------
TOTAL HEALTH CARE . . . . . . . . . . . . . . . . . . . . . . . 5,912,999
--------------
HOSPITALS 14.6%
Bexar County, Texas, Health Facilities Development Rev. (St. Lukes
Lutheran Hospital Project)
500,000 7.00%, 5/1/21 . . . . . . . . . . . . . . . . . . . . . . . . . 495,785
1,500,000 7.90%, 5/1/18 . . . . . . . . . . . . . . . . . . . . . . . . . 1,564,290
1,000,000 Boston, Massachusetts, Rev. (Boston City Hospital), FHA,
7.625%, 2/15/21 . . . . . . . . . . . . . . . . . . . . . . . . 1,132,060
500,000 Boulder County, Colorado, Industrial Development Rev. (Boulder
Medical Center Project), 8.875%, 1/1/17 . . . . . . . . . . . . 519,905
</TABLE>
F-1
<PAGE> 87
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOSPITALS--CONTINUED
$ 1,000,000 Charlotte County, Florida, Hospital Authority Rev. (Bon Secours
Health System), 8.25%, 8/15/18 . . . . . . . . . . . . . . . . . $ 1,128,880
500,000 Clarksville, Tennessee, Hospital Rev., Refunding & Improvement
(Clarksville Memorial Project), 6.25%, 7/1/13 . . . . . . . . . . 458,670
995,000 Clearfield, Pennsylvania, Hospital Authority Rev. (Clearfield
Hospital Project), Series-94, 6.875%, 6/1/16 . . . . . . . . . . 903,619
800,000 Colorado Health Facilities Authority Rev. (Rocky Mountain
Adventist), 6.625%, 2/1/13 . . . . . . . . . . . . . . . . . . . 747,680
2,000,000 Delaware State Economic Development Authority Rev. (Osteopathic
Hospital Association of Delaware), Series A, 6.90%, 1/1/18 . . . 1,823,740
1,000,000 Ector County, Texas, Hospital District (Medical Center Hospital),
7.125%, 4/15/02 . . . . . . . . . . . . . . . . . . . . . . . . 1,012,720
500,000 Erie County, Pennsylvania, Hospital Authority Rev. (Metro Health
Center), Series 1992, 7.25%, 7/1/12 . . . . . . . . . . . . . . 506,535
1,000,000 Harris County, Texas, Health Facilities Development Corp.
(Memorial Hospital System Project), 7.125%, 6/1/15 . . . . . . . 1,039,500
Illinois Health Facilities Authority Rev.
1,000,000 Elmhurst Memorial Hospital, Series 87-A, 8.125%, 1/1/13 . . . . . 1,086,380
1,000,000 Improvement Swedish Covenant, Series A, 6.30%, 8/1/13 . . . . . . 915,540
2,000,000 Lutheran Health System, Series B, MBIA, 6.00%, 4/1/18 . . . . . . 1,868,980
1,000,000 Masonic Medical Center, Series 1989-B, 7.70%, 10/1/19 . . . . . . 1,125,770
1,000,000 Memorial Hospital, 7.25%, 5/1/22 . . . . . . . . . . . . . . . . 977,770
500,000 Mercy Center For Health Care Services, 6.625%, 10/1/12 . . . . . 492,770
1,000,000 Northwestern Memorial Hospital, 6.75%, 8/15/11 . . . . . . . . . 1,028,770
1,000,000 Indiana Health Facilities, Financing Hospital Authority Rev.
(Community Hospital of Indiana), Series-H, MBIA,
6.85%, 7/1/22 . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,510
1,160,000 Jefferson County, Texas, Health Facility Authority Rev. (Baptist
Health Care Project), 8.30%, 10/1/14 . . . . . . . . . . . . . . 1,249,355
845,000 Lebanon County, Pennsylvania, Good Samaritan Hospital Authority
Rev. (Good Samaritan Hospital Project), 5.85%, 11/15/07 . . . . . 762,367
1,000,000 Marion County, Indiana, Hospital Authority, Facility Rev.
(Methodist Hospital of Indiana), 6.50%, 9/1/13 . . . . . . . . . 973,060
1,000,000 McKeesport, Pennsylvania, Hospital Authority Rev. (McKeesport
Hospital Project), 6.50%, 7/1/08 . . . . . . . . . . . . . . . . 924,620
1,000,000 Michigan State Hospital Finance Authority Rev. (St. Joseph
Hospital Corp.), Series A, 8.125%, 7/1/05 . . . . . . . . . . . 1,053,220
1,000,000 Missouri State Health & Educational Facilities Authority
(Heartland Health Systems Project), 8.125%, 10/1/10 . . . . . . . 1,122,930
2,500,000 New Hampshire Health & Higher Educational Facility Authority Rev.
(Wentworth Douglass Hospital), 8.50%, 1/1/15 . . . . . . . . . . 2,735,975
New York State Medical Care Facilities Finance Agency Rev.
1,000,000 Columbia Presbyterian Hospital, Series A, FHA, 8.00%, 2/15/25 . . 1,104,630
1,965,000 Montefiore Medical Center, 7.25%, 2/15/09 . . . . . . . . . . . 2,096,262
1,000,000 North General Hospital, Series 89-A, 7.40%, 2/15/19 . . . . . . . 1,040,740
725,000 Philadelphia, Pennsylvania, Hospital & Higher Education Facilities
Authority Rev. (Roxborough Memorial Hospital),
Series 2, 7.25%, 3/1/24 . . . . . . . . . . . . . . . . . . . . 658,445
1,500,000 Richardson, Texas, Hospital Authority, Refunding & Improvement
Rev. (Richardson Medical Center), 6.75%, 12/1/23 . . . . . . . . 1,416,225
1,000,000 Royal Oak, Michigan, Hospital Finance Authority, Rev. (William
Beaumont Hospital), Series D, 6.75%, 1/1/20 . . . . . . . . . . . 1,006,770
1,750,000 Rusk County, Texas, Health Facilities Corp., Hospital Rev.
(Henderson Memorial Hospital Project), 7.75%, 4/1/13 . . . . . . 1,693,405
</TABLE>
F-2
<PAGE> 88
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOSPITALS--CONTINUED
$ 500,000 Salem, Oregon, Hospitals Facilities Authority Rev.,
7.50%, 12/1/24 . . . . . . . . . . . . . . . . . . . . . . . . $ 493,455
Scranton-Lackawanna, Pennsylvania, Health & Welfare Authority
Rev. (Moses Taylor Hospital Project)
1,000,000 Series A, 7.375%, 7/15/08 . . . . . . . . . . . . . . . . . . . 983,730
500,000 Series B, 8.25%, 7/1/09 . . . . . . . . . . . . . . . . . . . . 534,570
South Dakota State Health & Educational Facilities Authority Rev.
(Sioux Valley Hospital)
1,000,000 7.25%, 4/1/20 . . . . . . . . . . . . . . . . . . . . . . . . . 958,700
2,000,000 7.625%, 11/1/13 . . . . . . . . . . . . . . . . . . . . . . . . 2,216,063
1,500,000 St. Joseph County, Indiana, Hospital Authority Rev. (Memorial
Hospital South Bend Project), MBIA, 6.25%, 8/15/22 . . . . . . . 1,449,990
1,000,000 Tyler, Texas, Health Facilities Development Corp. (East Texas
Medical Center Regional Health), Series B, 6.75%, 11/1/25 . . . . 914,870
1,000,000 Washington County, Pennsylvania, Hospital Authority,
7.35%, 6/1/13 . . . . . . . . . . . . . . . . . . . . . . . . . . 941,050
1,500,000 Wells County, Indiana, Hospital Authority Rev., Refunding
(Caylor-Nickel Medical Center, Inc.), 8.50%, 4/15/03 . . . . . . 1,517,085
1,000,000 Weslaco, Texas, Health Facilities Development (Knapp Medical
Center Project), Series-A, 5.25%, 6/1/16 . . . . . . . . . . . . 848,500
1,000,000 West Virginia State, Hospital Finance Authority, Refunding &
Improvement (Fairmont General Hospital), Series A,
6.75%, 3/1/14 . . . . . . . . . . . . . . . . . . . . . . . . . 946,270
2,000,000 Wisconsin State Health & Educational Facilities Rev. (Wheaton
Franciscan Services Inc.), 8.20%, 8/15/18 . . . . . . . . . . . 2,254,280
--------------
TOTAL HOSPITALS . . . . . . . . . . . . . . . . . . . . . . . . 51,746,441
--------------
HOUSING 6.2%
1,275,000 Albuquerque, New Mexico, Home Mtg. Rev., 12.00%, 9/1/98 . . . . . . 1,261,536
1,645,000 Arapahoe County, Colorado, Single Family Mtg. Rev.,
8.375%, 8/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 1,697,311
1,000,000 Austin, Texas, Housing Finance Corp., Multi-family Rev.
(Stassey Woods Apartments Project), 6.75%, 4/1/19 . . . . . . . . 965,230
Bexar County, Texas, Housing Finance Corp., Rev.
410,000 8.20%, 4/1/22 . . . . . . . . . . . . . . . . . . . . . . . . . 430,791
435,000 Series B, 9.25%, 4/1/16 . . . . . . . . . . . . . . . . . . . . 455,692
145,000 El Paso, Texas, Property Finance Authority Inc., Single Family
Mtg. Rev., Series A, 8.70%, 12/1/18 . . . . . . . . . . . . . . 154,960
680,000 Fort Worth, Texas, Housing Finance Corp., Home Mtg. Rev.,
Refunding, 8.50%, 10/1/11 . . . . . . . . . . . . . . . . . . . 724,315
800,000 Harris County, Texas, Housing Financing Corp., Single Family Mtg.
Rev., Series 1983-A, 10.125%, 7/15/03 . . . . . . . . . . . . . 802,592
Houston, Texas, Housing Finance Corp., Single Family Mtg. Rev.
705,000 10.00%, 9/15/14 . . . . . . . . . . . . . . . . . . . . . . . . 725,057
885,000 Series A, FSA, 5.95%, 12/1/10 . . . . . . . . . . . . . . . . . 866,937
1,000,000 Maricopa County, Arizona, IDR, Multi-Family Rev., Refunding
(Laguna Point Apartments Project), 6.50%, 7/1/09 . . . . . . . . 994,250
Massachusetts State Housing Finance Agency
1,000,000 Multi-family Housing Authority, Series A, 8.75%, 8/1/08 . . . . . 1,041,250
550,000 Residential Housing Authority, Series A, 8.40%, 8/1/21 . . . . . 573,375
965,000 Minnesota State Housing Finance Agency, Single Family Mtg. Rev.,
6.75%, 1/1/26 . . . . . . . . . . . . . . . . . . . . . . . . . 956,556
1,000,000 Montgomery County, Pennsylvania, Industrial Development
Authority, Retirement Community Rev. (GDL Farms Corp.
Project), 6.30%, 1/1/13 . . . . . . . . . . . . . . . . . . . . 895,260
</TABLE>
F-3
<PAGE> 89
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOUSING--CONTINUED
$ 1,000,000 Mount Clemens, Michigan, Housing Corp., Multi-family Rev.,
Refunding, Series A, 6.60%, 6/1/13 . . . . . . . . . . . . . . . $ 1,000,640
1,000,000 North St. Paul, Minnesota, Multi-family Refunding Housing Rev.
(Cottages North St. Paul), 9.25%, 2/1/22 . . . . . . . . . . . . 1,078,020
1,000,000 Pima County, Arizona, IDR, Single Family Mtg. Rev.,
6.625%, 11/1/14 . . . . . . . . . . . . . . . . . . . . . . . . 1,000,720
1,155,000 Ridgeland, Mississippi, Urban Renewal (The Orchard, Ltd. Project),
Series A, 7.75%, 12/1/15 . . . . . . . . . . . . . . . . . . . . 1,120,997
2,500,000 St. Paul, Minnesota Port Authority, Housing & Redevelopment
Authority, Multi-family Housing Rev., Series J, 9.50%, 12/1/11 . 2,375,525
1,000,000 South Dakota State Housing Development Authority, Homeowner
Mtg., Series D-1, 6.85%, 5/1/26 . . . . . . . . . . . . . . . . 1,013,750
1,450,000 Texas State Veterans Housing Assistance, MBIA, G.O.,
6.80%, 12/1/23 . . . . . . . . . . . . . . . . . . . . . . . . . 1,471,344
245,000 Travis County, Texas, Housing Finance Corp., Single Family Mtg.
Rev., 8.20%, 4/1/22 . . . . . . . . . . . . . . . . . . . . . . 252,073
--------------
TOTAL HOUSING . . . . . . . . . . . . . . . . . . . . . . . . . 21,858,181
--------------
LIFE CARE 1.6%
2,000,000 Butler County, Pennsylvania, Industrial Development Authority Rev.,
1st Mtg. Rev. (Sherwood Oaks Project), Series A, 8.75%, 6/1/16 . 2,119,800
975,000 Hanover Park, Illinois, 1st Mtg. Rev. (Windsor Park Manor
Project), 9.25%, 12/1/07 . . . . . . . . . . . . . . . . . . . . 1,013,454
1,000,000 Massachusetts State Industrial Finance Agency Rev., 1st Mtg.
(Reeds Landing Project), 8.625%, 10/1/23 . . . . . . . . . . . . 1,001,470
500,000 Tempe, Arizona, Industrial Development Authority Rev.
(Friendship Village Temple), Series-A, 6.75%, 12/1/13 . . . . . . 445,875
1,000,000 Wisconsin State Health & Educational Facilities Authority Rev.
(United Lutheran Program for the Aging Inc. Project),
8.50%, 3/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 1,056,780
--------------
TOTAL LIFE CARE . . . . . . . . . . . . . . . . . . . . . . . . 5,637,379
--------------
MISCELLANEOUS 7.4%
500,000 Berry Creek Metropolitan District, Colorado, G.O.,
Refunding and Improvement, 8.25%, 12/1/11 . . . . . . . . . . . 529,345
2,000,000 Compton, California, Certificates of Participation, Refunding,
Series B, 7.50%, 8/1/15 . . . . . . . . . . . . . . . . . . . . 2,100,760
1,000,000 Detroit, Michigan, Tax Increment Bonds (Development Area No. 1
Project), Series 89-A, 7.60%, 7/1/10 . . . . . . . . . . . . . . 1,047,540
2,500,000 District of Columbia Rev. (National Public Radio), Series A,
7.70%, 1/1/23 . . . . . . . . . . . . . . . . . . . . . . . . . 2,485,300
1,000,000 Dove Valley Metropolitan District, Arapahoe County, Colorado,
G.O., 9.50%, 12/1/08 . . . . . . . . . . . . . . . . . . . . . . 1,026,910
1,000,000 Du Page County, Illinois (Stormwater Project), 6.55%, 1/1/21 . . . 1,077,360
Fort Bend County, Texas, Levee Improvement District No. 11, G.O.
500,000 8.70%, 3/1/09 . . . . . . . . . . . . . . . . . . . . . . . . . 544,620
440,000 8.70%, 3/1/10 . . . . . . . . . . . . . . . . . . . . . . . . . 479,441
1,000,000 Lake Charles, Louisiana, Harbor & Terminal Facilities Rev.
(Trunkline Liquified Natural Gas Co. Project), 7.75%, 8/15/22 . . 1,043,160
1,000,000 Lehigh County, Pennsylvania, IDR (Allentown Interstate Motel),
8.00%, 8/1/12 . . . . . . . . . . . . . . . . . . . . . . . . . 995,130
Mountain Village Metropolitan District, San Miguel County,
Colorado, Refunding, Series 1992, G.O.
630,000 7.95%, 12/1/03 . . . . . . . . . . . . . . . . . . . . . . . . . 643,432
500,000 8.10%, 12/1/11 . . . . . . . . . . . . . . . . . . . . . . . . . 525,640
</TABLE>
F-4
<PAGE> 90
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS--CONTINUED
$ 145,000 Pocahontas, Iowa, Industrial Development Rev. (Navistar
International Harvester Co.), 10.25%, 10/1/00 . . . . . . . . . . $ 150,690
1,000,000 Port of New Orleans, Louisiana, IDR, Refunding (Avondale
Industries, Inc.), 8.25%, 6/1/04 . . . . . . . . . . . . . . . . 1,038,230
2,330,000 Somerset County, Pennsylvania, General Authority, Commonwealth
Lease Rev., FGIC, 6.25%, 10/15/11 . . . . . . . . . . . . . . . 2,448,830
1,750,000 St. Charles, Illinois, Industrial Development Rev. (Tri-City Center
Project), 7.50%, 11/1/13 . . . . . . . . . . . . . . . . . . . . 1,693,090
Texas General Services, Community Partner Interests, (Office
Building and Land Acquisition Project)
500,000 7.00%, 8/1/19 . . . . . . . . . . . . . . . . . . . . . . . . 487,875
500,000 7.00%, 8/1/24 . . . . . . . . . . . . . . . . . . . . . . . . 487,130
1,000,000 Texas State, Refunding (Superconducting Project), Series C, G.O.,
5.50%, 4/1/20 . . . . . . . . . . . . . . . . . . . . . . . . . 864,050
Utah State Building Ownership Authority Lease Rev. (Dept. of
Employment Security)
1,000,000 7.80%, 8/15/10 . . . . . . . . . . . . . . . . . . . . . . . . . 1,096,710
1,300,000 7.80%, 8/15/11 . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,723
1,000,000 Valdez, Alaska, Marine Term Rev., Refunding, (Sohio Pipeline),
7.125%, 12/1/25 . . . . . . . . . . . . . . . . . . . . . . . . 1,056,150
1,250,000 Virginia, Port of Authority, Commonwealth, 8.20%, 7/1/08 . . . . . 1,372,988
1,500,000 Woodward, Oklahoma, Municipal Auto Sales, Refunding,
8.00%, 11/1/12 . . . . . . . . . . . . . . . . . . . . . . . . . 1,645,860
--------------
TOTAL MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 26,265,964
--------------
MUNICIPAL UTILITY DISTRICT (MUD) 1.4%
500,000 Eldridge Road, Texas, MUD, Refunding, 6.125%, 3/1/11 . . . . . . . 452,450
1,000,000 Harris County, Texas, MUD No. 1, 9.75%, 3/1/00; Pre-refunded 3/1/95 1,022,650
500,000 Harris County, Texas, MUD, Refunding, G.O., 7.30%, 3/1/14 . . . . . 490,815
1,000,000 Mills Road, Texas, MUD, 6.50%, 9/1/14 . . . . . . . . . . . . . . . 927,450
Mission Bend MUDNo. 2, Texas
500,000 10.00%, 9/1/98 . . . . . . . . . . . . . . . . . . . . . . . . . 567,770
375,000 10.00%, 9/1/00 . . . . . . . . . . . . . . . . . . . . . . . . . 432,881
655,000 Montgomery County, Texas, MUD No. 4 (Water Works System),
8.90%, 9/1/02 . . . . . . . . . . . . . . . . . . . . . . . . . 744,362
500,000 North Mission Glen, Texas, MUD, Refunding, 6.50%, 9/1/14 . . . . . 460,755
--------------
TOTAL MUD . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,099,133
--------------
NURSING HOMES 0.6%
500,000 Fairfield, Ohio, Economic Development Rev., Refunding
(Beverly Enterprises), 8.50%, 1/1/03 . . . . . . . . . . . . . . 523,690
475,000 Louisiana Public Facilities Authority, Industrial Development Rev.,
Refunding (Beverly Enterprises), 8.25%, 9/1/08 . . . . . . . . . 490,822
1,315,000 Luzerne County, Pennsylvania, Industrial Development Authority,
1st Mtg. Rev., Refunding (Birchwood Nursing Center Project),
Series-A, 7.875%, 12/1/13 . . . . . . . . . . . . . . . . . . . 1,270,724
--------------
TOTAL NURSING HOMES . . . . . . . . . . . . . . . . . . . . . . 2,285,236
--------------
POLLUTION CONTROL REVENUE (PCR) 6.1%
3,675,000 Brazos River Authority, Texas, PCR (Texas Utilities Electric Co.
Project A), 9.875%, 10/1/17 . . . . . . . . . . . . . . . . . . 4,151,316
1,000,000 Burke County, Georgia, Development Authority, PCR
(Georgia Power Co.), 9.375%, 12/1/17 . . . . . . . . . . . . . . 1,133,810
1,000,000 Burlington, Kansas, PCR, MBIA (Kansas Gas & Electric Co. Project),
7.00%, 6/1/31 . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,670
1,595,000 Capital Industrial Development Corp., Texas, PCR (International
Business Machines Corp.), 7.40%, 5/1/12 . . . . . . . . . . . . 1,722,472
</TABLE>
F-5
<PAGE> 91
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
POLLUTION CONTROL REVENUE (PCR)--CONTINUED
$ 750,000 County of Coshocton, Ohio, Solid Waste Disposal Rev. (Stone
Container Corp. Project), Series 1992, 7.875%, 8/1/13 . . . . . . $ 736,185
1,000,000 Hodge, Louisiana, Utility Rev. (Stone Container Corp. Project),
Series 1990, 9.00%, 3/1/10 . . . . . . . . . . . . . . . . . . . 1,020,930
1,280,000 Illinois Development Finance Authority, PCR (Commonwealth
Edison Co.), 11.375%, 10/15/14 . . . . . . . . . . . . . . . . . 1,349,747
1,250,000 Mercer County, North Dakota, PCR, Basin Electric Power, Series E,
7.00%, 1/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 1,285,713
500,000 Monroe County, Michigan, PCR (Detroit Edison Co.), Series A,
10.50%, 12/1/16 . . . . . . . . . . . . . . . . . . . . . . . . 542,065
New Hampshire State Industrial Development Authority, PCR
1,000,000 New England Power Co., 7.80%, 4/1/16 . . . . . . . . . . . . . . 1,047,310
1,000,000 United Illuminating Co., Series B, 10.75%, 10/1/12 . . . . . . . 1,161,110
1,000,000 Parish of St. Charles, Louisiana, PCR (Louisiana Power &
Light Co.), 8.25%, 6/1/14 . . . . . . . . . . . . . . . . . . . 1,104,010
1,400,000 Parish of West Feliciana, Louisiana, PCR (Gulf States Utilities),
Series A, 7.50%, 5/1/15 . . . . . . . . . . . . . . . . . . . . 1,471,904
1,000,000 Petersburg, Indiana, PCR, Refunding (Indianapolis Power &
Lighting), Series 1993-A, 6.10%, 1/1/16 . . . . . . . . . . . . 936,680
750,000 Pope County, Arkansas, PCR (Arkansas Power & Light Project),
11.00%, 12/1/15 . . . . . . . . . . . . . . . . . . . . . . . . 814,463
Sabine River Authority, Texas, Refunding, PCR (Texas Utilities
Co. Project)
1,350,000 7.75%, 4/1/16 . . . . . . . . . . . . . . . . . . . . . . . . . 1,411,938
440,000 Series 1986, 9.00%, 9/1/07 . . . . . . . . . . . . . . . . . . . 481,743
--------------
TOTAL PCR . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,426,066
--------------
POOL FINANCING PROGRAMS 2.8%
Emmaus, Pennsylvania, General Authority, Local Government Bond
Pool Program, Rev.
1,750,000 Series A, BIG, 8.15%, 5/15/18 . . . . . . . . . . . . . . . . . 1,889,650
2,500,000 Series C, BIG, 7.90%, 5/15/18 . . . . . . . . . . . . . . . . . 2,679,275
Indianapolis, Indiana, Local Public Improvement
1,000,000 Series A, 6.00%, 2/1/20 . . . . . . . . . . . . . . . . . . . . 945,280
2,000,000 Series C, 6.70%, 1/1/17 . . . . . . . . . . . . . . . . . . . . 1,986,020
450,000 Series D, 6.50%, 2/1/22 . . . . . . . . . . . . . . . . . . . . 432,747
550,000 Series D, 6.75%, 2/1/14 . . . . . . . . . . . . . . . . . . . . 558,272
1,000,000 Series D, 6.75%, 2/1/20 . . . . . . . . . . . . . . . . . . . . 992,680
670,000 Tampa, Florida, Capital Improvement Program Rev., Series A,
8.25%, 10/1/18 . . . . . . . . . . . . . . . . . . . . . . . . . 701,410
--------------
TOTAL POOL FINANCING PROGRAMS . . . . . . . . . . . . . . . . . 10,185,334
--------------
RESOURCE RECOVERY 3.2%
Broward County, Florida, Resource Recovery Rev.
1,810,000 North Project, 7.95%, 12/1/08 . . . . . . . . . . . . . . . . . 1,971,633
2,365,000 South Project, 7.95%, 12/1/08 . . . . . . . . . . . . . . . . . 2,576,195
1,000,000 Camden County, New Jersey, PCR, Solid Waste Resource Recovery
Rev., Series B, 7.50%, 12/1/09 . . . . . . . . . . . . . . . . . 992,700
1,500,000 Delaware County, Pennsylvania, Industrial Development Authority
Rev. (Resource Recovery Project), 8.10%, 12/1/13 . . . . . . . . 1,602,030
1,000,000 El Centro, California, Certificates of Participation, 7.00%, 6/1/19 959,170
1,000,000 Montgomery County, Pennsylvania, Industrial Development
Authority Rev., Resource Recovery, 7.50%, 1/1/12 . . . . . . . . 1,037,120
2,000,000 Northeast, Maryland, Solid Waste Disposal Authority Rev.
(Montgomery County Resource Recovery Project), Series A,
6.30%, 7/1/16 . . . . . . . . . . . . . . . . . . . . . . . . . 1,876,260
</TABLE>
F-6
<PAGE> 92
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
RESOURCE RECOVERY--CONTINUED
$ 500,000 Rockdale County, Georgia, Development Authority Rev., Solid Waste
Disposal (Visy Paper, Inc. Project), 7.50%, 1/1/26 . . . . . . . $ 484,710
--------------
TOTAL RESOURCE RECOVERY . . . . . . . . . . . . . . . . . . . . 11,499,818
--------------
SALES TAX REVENUE 1.5%
1,000,000 Crestwood, Illinois, Tax Increment Rev., Refunding, 7.25%, 12/1/08 961,440
1,000,000 Edgewater, Colorado, Redevelopment Rev., 6.75%, 12/1/08 . . . . . . 931,800
1,000,000 Orange County, Florida, Tourist Development Tax Rev., AMBAC,
6.00%, 10/1/16 . . . . . . . . . . . . . . . . . . . . . . . . . 950,860
Round Lake Beach, Illinois, Tax Increment Rev.
900,000 Series 1993, 7.20%, 12/1/04 . . . . . . . . . . . . . . . . . . 855,774
500,000 Series 1993, 7.50%, 12/1/13 . . . . . . . . . . . . . . . . . . 444,000
975,000 St. Louis, Missouri, Tax Increment Rev. (Scullin Redevelopment
Area), Series A, 10.00%, 8/1/10 . . . . . . . . . . . . . . . . 1,109,102
--------------
TOTAL SALES TAX REVENUE . . . . . . . . . . . . . . . . . . . . 5,252,976
--------------
TRANSPORTATION 10.0%
3,000,000 Atlanta, Georgia, Airport Facilities Rev. (Atlanta International
Airport), Series 1990, 6.25%, 1/1/21 . . . . . . . . . . . . . . 2,826,810
Chicago, Illinois, O'Hare International Airport Rev.
1,000,000 Series A, 6.00%, 1/1/18 . . . . . . . . . . . . . . . . . . . . 913,590
1,000,000 Series B, 6.00%, 1/1/18 . . . . . . . . . . . . . . . . . . . . 913,590
500,000 Cleveland, Ohio, Parking Facilities Improvement Rev.,
8.00%, 9/15/12 . . . . . . . . . . . . . . . . . . . . . . . . . 522,285
940,000 Dallas-Fort Worth, Texas, International Airport Facility Rev,
(American Airlines, Inc.), 7.50%, 11/1/25 . . . . . . . . . . . 925,448
2,500,000 Greater Orlando Aviation Authority, Florida, Airport Facilities
Rev., 8.375%, 10/1/16 . . . . . . . . . . . . . . . . . . . . . 2,762,645
500,000 Hawaii State Harbor Capital Improvement Rev., MBIA,
7.00%, 7/1/17 . . . . . . . . . . . . . . . . . . . . . . . . . 525,205
2,000,000 Indiana Transportation Finance Authority, Airport Facilities Lease
Rev., Series A, 6.25%, 11/1/16 . . . . . . . . . . . . . . . . . 1,894,660
Kentucky State Turnpike Authority, Toll Road Rev., Refunding
1,000,000 Series A, 5.50%, 7/1/07 . . . . . . . . . . . . . . . . . . . . 948,940
8,000,000 Series 1987-A, 5.00%, 7/1/08 . . . . . . . . . . . . . . . . . . 7,078,800
2,000,000 Los Angeles, California, Regional Airport Facility Improvement
Corp., Lease Rev., 11.25%, 11/1/25 . . . . . . . . . . . . . . . 2,203,760
1,500,000 Metropolitan Transportation Authority, New York Transportation
Facilities, Rev., Series G, MBIA, 5.50%, 7/1/15 . . . . . . . . . 1,343,295
1,000,000 New Hampshire State Turnpike System, Rev., Refunding, Series A,
FGIC, 6.75%, 11/1/11 . . . . . . . . . . . . . . . . . . . . . . 1,045,350
3,200,000 New Jersey State Turnpike Authority, Series C, 6.50%, 1/1/16 . . . 3,281,568
1,000,000 Port Authority of New York and New Jersey, Consolidated Board,
95th Series, 6.125%, 7/15/22 . . . . . . . . . . . . . . . . . . 937,910
1,000,000 Philadelphia, Pennsylvania, Industrial Development Authority Rev.
(Parking Garage II Project), 6.125%, 2/15/03 . . . . . . . . . . 973,780
1,750,000 San Joaquin Hills, California, Transcorridor Agency, Toll Road
Rev., 6.75%, 1/1/32 . . . . . . . . . . . . . . . . . . . . . . 1,637,108
1,000,000 St. Louis, Missouri, Parking Facilities Rev., 6.625%, 12/15/21 . . 988,680
1,000,000 Triborough Bridge & Tunnel Authority, New York, Rev.,
7.875%, 1/1/18 . . . . . . . . . . . . . . . . . . . . . . . . . 1,101,960
Tulsa, Oklahoma, Municipal Airport Trust, Rev.
1,000,000 7.60%, 12/1/30 . . . . . . . . . . . . . . . . . . . . . . . . . 982,910
800,000 American Airlines, 9.50%, 6/1/20 . . . . . . . . . . . . . . . . 841,696
</TABLE>
F-7
<PAGE> 93
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION--CONTINUED
$ 825,000 Virgin Islands Port Authority, Marine Division Rev.
(Marine Terminal), Series A, 10.13%, 11/1/05 . . . . . . . . . . $ 859,196
--------------
TOTAL TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . 35,509,186
--------------
UTILITIES--COMBINATION ELECTRIC, GAS AND/OR WATER 9.5%
Austin, Texas, Utility System Rev.
1,250,000 FGIC, 7.75%, 11/15/06 . . . . . . . . . . . . . . . . . . . . . 1,334,700
2,280,000 Refunding, 6.00%, 5/15/15 . . . . . . . . . . . . . . . . . . . 2,131,686
1,000,000 Series A, 7.80%, 11/15/12 . . . . . . . . . . . . . . . . . . . 1,118,640
2,380,000 Series B, 7.80%, 11/15/12 . . . . . . . . . . . . . . . . . . . 2,608,147
1,000,000 Chicago, Illinois, Gas Supply Rev. (People's Gas Lighting and Coke
Co.), Series A, 8.10%, 5/1/20 . . . . . . . . . . . . . . . . . 1,111,720
1,000,000 Chicago, Illinois, Metropolitan Water District, G.O., 7.00%, 1/1/11 1,071,490
700,000 Citronelle, Alabama, Utilities Board, Water, Sewer & Gas Rev.,
9.00%, 5/1/13 . . . . . . . . . . . . . . . . . . . . . . . . . 757,526
10,950,000 Jefferson County, Kentucky, Capital Project Lease Rev., Waste
Water Treatment Plant, Zero Coupon, 8/15/14 . . . . . . . . . . . 2,710,344
750,000 Jefferson, Wisconsin, Sewer System, Waterworks, 7.40%, 7/1/16 . . . 835,193
2,000,000 Los Angeles, California, Dept. of Water & Power, Electric Plant
Rev., 5.375%, 9/1/23 . . . . . . . . . . . . . . . . . . . . . . 1,668,520
2,000,000 Massachusetts State Water Resource Authority, Series A,
7.50%, 4/1/16 . . . . . . . . . . . . . . . . . . . . . . . . . 2,240,700
1,000,000 New Hampshire State Business Finance Authority, Electric Facilities
Rev. (Plymouth Cogeneration Light Power), 7.75%, 6/1/14 . . . . . 975,260
New York City Municipal Water Finance Authority, New York,
Water & Sewer Rev.
1,000,000 Series A, 7.625%, 6/15/16 . . . . . . . . . . . . . . . . . . . 1,086,040
3,000,000 Series A, MBIA, 7.25%, 6/15/15 . . . . . . . . . . . . . . . . . 3,346,230
4,100,000 Series B, 5.00%, 6/15/17 . . . . . . . . . . . . . . . . . . . . 3,288,159
1,000,000 New York State Environment Facilities Corp., Water Facilities Rev.
(Long Island Water Corp.), 10.00%, 10/1/17 . . . . . . . . . . . 1,109,150
Norco, California, Sewer and Water Rev., Refunding,
500,000 6.70%, 10/1/13 . . . . . . . . . . . . . . . . . . . . . . . . . 488,465
500,000 7.20%, 10/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 487,570
750,000 Northwest Harris County, Texas, Municipal Utility, Waterworks and
Sewer System Combination Tax, 8.10%, 10/1/15 . . . . . . . . . . 796,117
2,000,000 Orlando, Florida, Utilities Commission, Water & Electric Rev.,
Refunding, 8.625%, 10/1/05; Pre-refunded 10/1/95 . . . . . . . . 2,123,880
Willow Fork, Texas, Drainage District, G.O.
500,000 7.00%, 3/1/12 . . . . . . . . . . . . . . . . . . . . . . . . . 502,825
500,000 7.00%, 3/1/13 . . . . . . . . . . . . . . . . . . . . . . . . . 502,540
1,000,000 Winters, Texas, Water Works & Sewer Rev., 8.50%, 8/1/17 . . . . . . 1,202,170
--------------
TOTAL UTILITIES--COMBINATION ELECTRIC, GAS AND/OR WATER . . . . . . 33,497,072
--------------
UTILITIES--ELECTRIC 23.8%
2,500,000 Alaska Energy Authority Power Rev., First Series (Bradley Lake
Hydroelectric Project), BIG, 6.25%, 7/1/21 . . . . . . . . . . . . 2,430,150
1,500,000 Florida State Municipal Power Agency, Refunding (St. Lucie
Project), FGIC, 5.00%, 10/1/01 . . . . . . . . . . . . . . . . . 1,444,245
Georgia State Municipal Electric Authority, Power Rev.
850,000 6.00%, 1/1/20 . . . . . . . . . . . . . . . . . . . . . . . . . 789,582
2,000,000 Series A, 7.875%, 1/1/18; Pre-refunded 1/1/96 . . . . . . . . . . 2,117,060
1,750,000 Series Q, 8.375%, 1/1/16; Pre-refunded 1/1/98 . . . . . . . . . . 1,937,880
</TABLE>
F-8
<PAGE> 94
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--ELECTRIC--CONTINUED
$ 9,685,000 Grand River Dam Authority, Oklahoma, Rev., Series 1987,
5.00%, 6/1/12 . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,252,395
Intermountain Power Agency, Utah, Power Supply Authority Rev.
1,850,000 1st Crossover Series, 5.00%, 7/1/16 . . . . . . . . . . . . . . 1,527,212
1,000,000 Series A, 6.00%, 7/1/23 . . . . . . . . . . . . . . . . . . . . 921,820
2,400,000 Series A, 7.75%, 7/1/17 . . . . . . . . . . . . . . . . . . . . 2,571,240
3,650,000 Series B, 7.75%, 7/1/20 . . . . . . . . . . . . . . . . . . . . 3,963,426
2,000,000 Series H, 6.00%, 7/1/21 . . . . . . . . . . . . . . . . . . . . 1,847,580
2,000,000 Series I, 6.00%, 7/1/21 . . . . . . . . . . . . . . . . . . . . 1,847,580
1,000,000 Lewis County, Washington, Public Utility District No. 1, Rev.
(Cowlitz Falls Hydroelectric Project), 6.00%, 10/1/24 . . . . . . 913,580
Massachusetts Municipal Wholesale Electric Co., Rev.
2,060,000 Series B, 13.00%, 7/1/18 . . . . . . . . . . . . . . . . . . . . 2,145,305
310,000 Series B, 13.625%, 7/1/17; Pre-refunded 1/1/93 . . . . . . . . . 326,380
750,000 Michigan Public Power Agency, Rev., Refunding (Belle River
Project), 7.00%, 1/1/18 . . . . . . . . . . . . . . . . . . . . 778,958
1,250,000 Municipal Electric Authority, Georgia, Special Obligation, 2nd
Crossover Series Rev., 8.125%, 1/1/17 . . . . . . . . . . . . . 1,374,988
3,000,000 Muscatine, Iowa, Electric Authority Rev., 5.00%, 1/1/08 . . . . . . 2,628,210
2,500,000 New York State Power Authority, Rev., Series T, 7.375%, 1/1/18 . . 2,636,000
300,000 Northern California, Public Power Agency, Rev., 5.00%, 7/1/09 . . . 254,643
North Carolina Eastern Municipal Power Agency, Power System Rev.
335,000 8.00%, 1/1/21 . . . . . . . . . . . . . . . . . . . . . . . . . 370,279
2,665,000 8.00%, 1/1/21; Pre-refunded 1/1/98 . . . . . . . . . . . . . . . 2,945,651
7,695,000 Series A, 4.50%, 1/1/24 . . . . . . . . . . . . . . . . . . . . 6,076,972
North Carolina Municipal Power Agency No. 1, Catawba Electric Rev.
1,000,000 6.00%, 1/1/20 . . . . . . . . . . . . . . . . . . . . . . . . . 909,550
2,850,000 7.875%, 1/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 3,139,161
1,070,000 Piedmont Municipal Power Agency, South Carolina, Rev.,
5.00%, 1/1/25 . . . . . . . . . . . . . . . . . . . . . . . . . 828,587
5,290,000 Salt River Project, Arizona Agricultural Improvement & Power
District Electric System Rev., 7.875%, 1/1/28 . . . . . . . . . . 5,826,723
Sam Rayburn, Texas, Municipal Power Agency, Refunding
1,000,000 Series A, 6.25%, 10/1/17 . . . . . . . . . . . . . . . . . . . . 870,840
1,000,000 Series A, 6.75%, 10/1/14 . . . . . . . . . . . . . . . . . . . . 949,640
1,000,000 South Carolina, Public Service Authority, 7.875%, 7/1/21;
Pre-refunded 1/1/96 . . . . . . . . . . . . . . . . . . . . . . 1,053,297
Southern Minnesota Municipal Power Agency, Power Supply
System Rev.
2,000,000 Series A, 5.00%, 1/1/16 . . . . . . . . . . . . . . . . . . . . 1,654,780
1,250,000 Series C, 5.00%, 1/1/17 . . . . . . . . . . . . . . . . . . . . 1,029,625
8,565,000 Texas Municipal Power Agency Rev., 5.50%, 9/1/13 . . . . . . . . . 7,621,908
Washington State Public Power Supply System Rev.
1,250,000 Nuclear Project No. 1, Series B, 7.125%, 7/1/16 . . . . . . . . . 1,312,438
445,000 Nuclear Project No. 1, Series D, 15.00%, 7/1/17 . . . . . . . . . 534,574
2,500,000 Nuclear Project No. 2, Series B, 7.00%, 7/1/12 . . . . . . . . . 2,596,400
1,000,000 Nuclear Project No. 2, Series B, 7.375%, 7/1/12 . . . . . . . . . 1,117,760
2,000,000 Nuclear Project No. 2, Series 1990-C, 7.625%, 7/1/10 . . . . . . 2,264,820
3,000,000 Nuclear Project No. 3, MBIA 5.60%, 7/1/17 . . . . . . . . . . . 2,626,560
--------------
TOTAL UTILITIES--ELECTRIC . . . . . . . . . . . . . . . . . . 84,437,799
--------------
TOTAL MUNICIPAL BONDS (COST $321,111,687) . . . . . . . . . . . 336,480,439
--------------
</TABLE>
F-9
<PAGE> 95
Investment Portfolio--continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Municipal Variable Rate Demand Notes+ 3.7%
$ 100,000 Arkansas State Development Finance Authority, 3.65%, 12/1/15 . . . $ 100,000
California Statewide Communities Development Corp. Rev., Series A
600,000 3.50%, 6/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
1,000,000 3.50%, 8/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
400,000 Cuyahoga County, Ohio, IDR (Allen Group, Inc. Project),
3.50%, 12/1/15 . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
500,000 Dade County, Florida, Industrial Development Authority Rev.,
(Dynacolor Graphic Project), 4.00%, 6/1/99 . . . . . . . . . . . 500,000
500,000 Delaware County, Pennsylvania, Industrial Development
Authority Rev. (Ram Motors, Inc.), 4.20%, 9/1/10 . . . . . . . . 500,000
300,000 Fort Wayne, Indiana, Hospital Authority, Series C, 3.90%, 1/1/16 . 300,000
900,000 Illinois Development Finance Authority Rev., 3.70%, 4/1/07 . . . . 900,000
100,000 Illinois Health Facilities Authority Rev., 3.70%, 1/1/18 . . . . . 100,000
800,000 Indiana Health Facilities Financing Authority Rev., Capital Access
Designated Pool Program, 3.70%, 12/1/02 . . . . . . . . . . . . 800,000
100,000 Maricopa County, Arizona, Industrial Development Authority,
Hospital Facility Rev. (Samaritan Health Services Hospital),
Series B-2, 3.60%, 12/1/08 . . . . . . . . . . . . . . . . . . . 100,000
New York City, New York, G.O.
500,000 3.70%, 8/1/10 . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
700,000 3.70%, 8/1/17 . . . . . . . . . . . . . . . . . . . . . . . . . 700,000
400,000 3.70%, 8/1/21 . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
1,550,000 New York, New York, Subseries A-7, G.O., 3.95%, 8/1/20 . . . . . . 1,550,000
100,000 New York State Job Development Authority, 3.60%, 3/1/07 . . . . . . 100,000
500,000 Ossian, Indiana, Economic Development Rev. (Walbro Auto
Corporation Project), 3.80%, 12/1/23 . . . . . . . . . . . . . . 500,000
3,100,000 Panola County, Mississippi (Moog Automotive, Inc. Project),
3.85%, 9/1/10 . . . . . . . . . . . . . . . . . . . . . . . . . 3,100,000
400,000 Pennsylvania State Higher Educational Facility Authority Rev.,
Series B, 3.75%, 7/1/18 . . . . . . . . . . . . . . . . . . . . 400,000
300,000 Sacramento County, California, Multi-family Housing Rev., Series E,
3.75%, 9/15/07 . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
100,000 Uinta County, Wyoming, PCR, Refunding (Chevron U.S.A., Inc.
Project), 3.50%, 12/1/22 . . . . . . . . . . . . . . . . . . . . 100,000
--------------
TOTAL MUNICIPAL VARIABLE RATE DEMAND NOTES
(Cost $12,950,000) . . . . . . . . . . . . . . . . . . . . . . 12,950,000
--------------
TOTAL INVESTMENTS (Cost $334,061,687) 98.6% . . . . . . . . . . . . 349,430,439
Other assets and liabilities, net 1.4% . . . . . . . . . . . . . . 4,826,629
--------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . . . $ 354,257,068
==============
</TABLE>
<TABLE>
<S> <C>
Insurers:
+Interest rates are as of September 30, 1994. AMBAC -- AMBAC Indemnity Corp.
FHA -- Federal Housing Administration BIG -- Bond Investors Guaranty Insurance Co.
G.O. -- General obligation bond FGIC -- Financial Guaranty Insurance Corp.
Rev. -- Revenue bond FSA -- Financial Security Assurance Inc.
IDR -- Industrial Revenue Bond MBIA -- Municipal Bond Investor's Assurance Corp.
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE> 96
Statement of Assets and Liabilities
September 30, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $334,061,687) . . . . . . . . . . . $ 349,430,439
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,191
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 6,945,043
Receivable for investments sold . . . . . . . . . . . . . . . . . . . . 677,921
Receivable for Fund shares sold . . . . . . . . . . . . . . . . . . . . 255,397
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,370
---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,316,361
---------------
LIABILITIES
Payable for Fund shares redeemed . . . . . . . . . . . . . . . . . . . 1,836,732
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 752,716
Due to Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . 220,415
Due to Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,623
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,807
---------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 3,059,293
---------------
NET ASSETS, equivalent to $9.82 per share for Class A shares and
$9.83 per share for Class B and Class C shares . . . . . . . . . . $ 354,257,068
===============
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 31,463,264 Class A, 3,791,614 Class B and
814,200 Class C shares outstanding . . . . . . . . . . . . . . . . . $ 360,691
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349,124,331
Accumulated net realized loss on securities . . . . . . . . . . . . . . (9,469,519)
Net unrealized appreciation of investments . . . . . . . . . . . . . . 15,368,752
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (1,127,187)
---------------
NET ASSETS at September 30, 1994 . . . . . . . . . . . . . . . . . . . $ 354,257,068
===============
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE> 97
Statement of Operations
Year Ended September 30, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,134,366
---------------
EXPENSES
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,804,381
Service fees--Class A . . . . . . . . . . . . . . . . . . . . . . . . . . 686,403
Distribution and service fees--Class B . . . . . . . . . . . . . . . . . 311,708
Distribution and service fees--Class C . . . . . . . . . . . . . . . . . 54,489
Shareholder service agent's fees and expenses . . . . . . . . . . . . . . 407,704
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,272
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . 109,827
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 64,148
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,177
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,983
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . . 15,386
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,381
---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,628,859
---------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 20,505,507
---------------
REALIZED AND UNREALIZED LOSS ON SECURITIES
Net realized loss on securities . . . . . . . . . . . . . . . . . . . . . (2,005,680)
Net unrealized depreciation of securities during the year . . . . . . . . (23,803,245)
---------------
Net realized and unrealized loss on securities . . . . . . . . . . . . (25,808,925)
---------------
Decrease in net assets resulting from operations . . . . . . . . . . . $ (5,303,418)
===============
</TABLE>
See Notes to Financial Statements.
F-12
<PAGE> 98
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30
---------------------------------------------------
1994 1993
---------------------- -----------------------
<S> <C> <C>
NET ASSETS, beginning of year . . . . . . . . . . . . . $ 355,682,180 $ 292,305,914
--------------------- -----------------------
Operations
Net investment income . . . . . . . . . . . . . . . . 20,505,507 18,722,991
Net realized loss on securities . . . . . . . . . . . (2,005,680) (61,760)
Net unrealized appreciation (depreciation) of
securities during the year . . . . . . . . . . . . . (23,803,245) 18,032,935
--------------------- -----------------------
Increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . (5,303,418) 36,694,166
--------------------- -----------------------
Dividends and distributions to shareholders
From net investment income
Class A . . . . . . . . . . . . . . . . . . . . . . . (18,227,557) (18,216,098)
Class B . . . . . . . . . . . . . . . . . . . . . . . (1,534,981) (490,357)
Class C . . . . . . . . . . . . . . . . . . . . . . . (276,302) (275)
--------------------- -----------------------
(20,038,840) (18,706,730)
--------------------- -----------------------
In excess of book-basis net investment
income (Note 1D)
Class A . . . . . . . . . . . . . . . . . . . . . . . -- (252,018)
Class B . . . . . . . . . . . . . . . . . . . . . . . -- (55,026)
Class C . . . . . . . . . . . . . . . . . . . . . . . -- (4,939)
--------------------- -----------------------
-- (311,983)
--------------------- -----------------------
Total dividends and distributions to shareholders . . (20,038,840) (19,018,713)
--------------------- -----------------------
Net equalization credits (debits) (Note 1F) . . . . . . (20,289) 81,721
--------------------- -----------------------
Capital transactions
Proceeds from shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . 49,766,921 54,755,685
Class B . . . . . . . . . . . . . . . . . . . . . . . 25,694,674 22,802,935
Class C . . . . . . . . . . . . . . . . . . . . . . . 9,071,276 1,280,053
--------------------- -----------------------
84,532,871 78,838,673
--------------------- -----------------------
Proceeds from shares issued for dividends reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . 10,485,166 10,718,588
Class B . . . . . . . . . . . . . . . . . . . . . . . 958,506 333,342
Class C . . . . . . . . . . . . . . . . . . . . . . . 183,364 3,626
--------------------- -----------------------
11,627,036 11,055,556
--------------------- -----------------------
Cost of shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . (60,814,520) (42,583,199)
Class B . . . . . . . . . . . . . . . . . . . . . . . (9,282,719) (1,691,938)
Class C . . . . . . . . . . . . . . . . . . . . . . . (2,125,233) --
--------------------- -----------------------
(72,222,472) (44,275,137)
--------------------- -----------------------
Increase in net assets resulting from capital
transactions . . . . . . . . . . . . . . . . . . . . 23,937,435 45,619,092
--------------------- -----------------------
Increase (decrease) in Net Assets . . . . . . . . . . . (1,425,112) 63,376,266
--------------------- -----------------------
NET ASSETS, end of year . . . . . . . . . . . . . . . $ 354,257,068 $ 355,682,180
===================== =======================
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE> 99
Notes to Financial Statements
Note 1-Significant Accounting Policies
American Capital Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. Investment Valuations
Investments in municipal bonds are valued at the most recently quoted bid
prices or at bid prices based on a matrix system (which considers such
factors as security prices, yields, maturities and ratings) furnished by
dealers and an independent pricing service. Municipal variable rate
demand notes are valued at par; periodic rate changes reflect current
market conditions.
Short-term investments with a maturity of 60 days or less when purchased
are valued at amortized cost, which approximates market value. Short-term
investments with a maturity of more than 60 days when purchased are
valued based on market quotations until the remaining days to maturity
becomes less than 61 days. From such time, until maturity, the
investments are valued at amortized cost.
Issuers of certain securities owned by the Fund have obtained insurance
guaranteeing their timely payment of principal and interest at maturity.
The insurance reduces financial risk but not market risk of the security.
Fund investments include lower rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade
holdings. These securities are often subordinated to the prior claims of
other senior lenders and uncertainties exist as to an issuer's ability to
meet principal and interest payments. At September 30, 1994, debt
securities rated below investment grade and comparable unrated securities
represented approximately 19% of the investment portfolio.
B. Federal Income Taxes
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the
Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and
taxable net realized capital gains to its shareholders. It is
anticipated that no distributions of net realized capital gains will be
made until tax basis capital loss carryforwards expire or are offset by
net realized capital gains.
C. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of identified
cost. Interest income is accrued daily.
D. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which may
differ from generally accepted accounting principles. Such dividends or
distributions may exceed financial statement earnings.
E. Debt Discount and Premium
The Fund accounts for debt discounts and premiums on the same basis as is
followed for federal income tax reporting. Accordingly, original issue
discounts and all premiums are amortized over the life of the security.
Market discounts are recognized at the time of sale as realized gains for
book purposes, and ordinary income for tax purposes.
F. Equalization
At September 30, 1994, the Fund discontinued the accounting practice of
equalization, which it had used since its inception. Equalization is a
practice whereby a portion of the proceeds from sales and costs of
redemptions of Fund shares, equivalent on a per-share basis to the
F-14
<PAGE> 100
amount of the undistributed net investment income, is charged or credited
to undistributed net investment income.
The balance of equalization included in undistributed net investment
income at the date of change, which was approximately $2.8 million, was
reclassified to capital surplus. Such reclassification had no effect on
net assets, results of operations, or net asset value per share of the
Fund.
G. When-Issued Securities
Delivery and payment for securities purchased on a when-issued basis may
take place up to 45 days after the date of the transaction. The
securities purchased are subject to market fluctuation during this
period. To meet the payment obligation, sufficient cash or liquid
securities equal to the amount that will be due are set aside with the
custodian.
Note 2-Management Fees and Other Transactions with Affiliates
American Capital Asset Management, Inc. (the "Adviser") serves as investment
manager of the Fund. Management fees are paid monthly, based on the rate of
.50% per annum of the average daily net assets of the Fund.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or sub-advised by the Adviser.
For the year ended September 30, 1994, these charges included $10,303 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The services provided by the
Adviser are at cost.
American Capital Companies Shareholder Services, Inc., an affiliate of the
Adviser, serves as shareholder service agent. These services are provided at
cost plus a profit. For the year ended September 30, 1994, the fees for such
services were $334,826.
The Fund has been advised that American Capital Marketing, Inc. (the
"Distributor") and Advantage Capital Corp. (the "Retailer Dealer"), both
affiliates of the Adviser, received $118,647 and $105,378, respectively, as
their portion of the commissions charged on sales of Fund shares during the
year.
Under the Distribution Plans, the Fund pays up to .25% per annum of its average
net assets to reimburse the Distributor for expenses and service fees incurred.
Class B shares and Class C shares pay an additional fee of up to .75% per annum
of their average daily net assets to reimburse the Distributor for its
distribution expenses. Actual distribution expenses incurred by the Distributor
for Class B shares and Class C shares may exceed the amounts reimbursed to the
Distributor by the Fund. At September 30, 1994, the unreimbursed expenses
incurred by the Distributor under the Class B and Class C plans aggregated
approximately $1.6 million and $130,000, respectively, and may be carried
forward and reimbursed through either the collection of the contingent deferred
sales charges from share redemptions or, subject to the annual renewal of the
plans, future Fund reimbursements of distribution fees.
Legal fees of $11,680 were for services rendered by O'Melveny & Myers, counsel
for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of
the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
Note 3-Investment Activity
During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $45,734,980 and $21,355,006,
respectively.
For federal income tax purposes, the identified cost of investments owned at
September 30, 1994 was
F-15
<PAGE> 101
$334,094,902. Net unrealized appreciation of investments aggregated
$15,335,537, gross unrealized appreciation of investments aggregated
$19,847,942, and gross unrealized depreciation of investments aggregated
$4,512,405.
The net realized capital loss carryforward for federal income tax purposes of
approximately $9.4 million at September 30, 1994 may be utilized to offset
current or future gains until expiration in 1996 through 2002.
Note 4-Director Compensation
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,320 plus a fee of $30 per day for Board and
Committee meetings attended. The Chairman receives additional fees from the
Fund at the annual rate of $490. During the year, such fees aggregated $13,494.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. At September 30, 1994, the liability for the Plan aggregated
$25,830. The deferred fees have been credited with interest at a rate equal to
that earned by the Fund on its short-term investments.
Note 5-Capital
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred
basis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.
The Fund has 200 million of each class of shares of $.01 par value of capital
stock authorized. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended September 30
---------------------------
1994 1993
------------ -----------
<S> <C> <C>
Shares sold
Class A . . . . . . . . . . . . . . . . . . . 4,883,618 5,402,298
Class B . . . . . . . . . . . . . . . . . . . 2,518,998 2,225,454
Class C . . . . . . . . . . . . . . . . . . . 884,668 121,207
----------- -----------
8,287,284 7,748,959
----------- -----------
Shares issued for dividends and distributions
reinvested
Class A . . . . . . . . . . . . . . . . . . . 1,032,887 1,047,735
Class B . . . . . . . . . . . . . . . . . . . 94,773 32,208
Class C . . . . . . . . . . . . . . . . . . . 18,175 344
----------- -----------
1,145,835 1,080,287
----------- -----------
Shares redeemed
Class A . . . . . . . . . . . . . . . . . . . (6,004,203) (4,190,132)
Class B . . . . . . . . . . . . . . . . . . . (915,403) (164,467)
Class C . . . . . . . . . . . . . . . . . . . (210,194) -
----------- -----------
(7,129,800) (4,354,599)
----------- -----------
Increase in shares outstanding . . . . . . 2,303,319 4,474,647
=========== ===========
</TABLE>
Note 6-Subsequent Dividends
The Board of Directors of the Fund declared a dividend of $.0485 per share for
Class A shares, $.0415 per share for Class B shares and $.0415 for Class C
shares from net investment income, payable November 15, 1994 to shareholders of
record on October 31, 1994.
F-16
<PAGE> 102
Financial Highlights
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
<CAPTION>
Class A(1)
---------------------------------------------
Year Ended September 30
---------------------------------------------
1994 1993(2) 1992 1991 1990
--------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(4)
Net asset value, beginning of period . . $ 10.53 $ 9.98 $ 9.64 $ 9.13 $ 9.33
INCOME FROM INVESTMENT OPERATIONS
Investment income . . . . . . . . . . . . .68 .69 .705 .71 .72
Expenses . . . . . . . . . . . . . . . . (.09) (.094) (.09) (.08) (.08)
------- ------- ------ ------ ------
Net investment income . . . . . . . . . . .59 .596 .615 .63 .64
Net realized and unrealized gains or
losses on securities . . . . . . . . . . (.7255) .558 .349 .5198 (.195)
------- ------- ------ ------ ------
Total from investment operations . . . . (.1355) 1.154 .964 1.1498 .445
------- ------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income . . (.5745) (.596) (.624) (.6398) (.645)
Distributions in excess of book-basis
net investment income(3) . . . . . . . . -- (.008) -- -- --
------- ------- ------ ------ ------
Total distributions . . . . . . . . . . . (.5745) (.604) (.624) (.6398) (.645)
------- ------- ------ ------ ------
Net asset value, end of period . . . . . $ 9.82 $ 10.53 $ 9.98 $ 9.64 $ 9.13
======= ======= ====== ====== ======
TOTAL RETURN(4) . . . . . . . . . . . . (1.33%) 11.91% 10.31% 12.98% 4.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) . . $ 309.0 $ 332.3 $292.3 $266.9 $237.4
Average net assets (millions) . . . . . . $ 324.2 $ 313.0 $278.6 $253.2 $241.2
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . .93% .91% 90% .89% .86%
Net investment income . . . . . . . . . 5.76% 5.82% 6.29% 6.71% 6.84%
Portfolio turnover rate . . . . . . . . . 6% 3% 6% 10% 17%
</TABLE>
(1) Per share amounts for 1990 and 1991 are adjusted to reflect a 2 for 1
stock split effected July 26, 1991. Additionally, in 1991, the Fund
adopted for financial reporting purposes a method of accounting for
debt discounts and premiums which is the same as is used for federal
income tax reporting. The effect of the change, on a pro forma basis,
would have been to increase net investment income with a corresponding
decrease in net realized and unrealized gains or losses in the amount
of $.01 for 1990. Similarly, the ratio of net investment income to
average net assets would have been 6.94%.
(2) Per share amounts based on average month-end shares outstanding.
(3) Effective October 1, 1992, the Fund adopted Statement of Position 93-2,
Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. Prior year financial information was not restated.
(4) Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
F-17
<PAGE> 103
Financial Highlights, continued
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
<CAPTION>
Class B(1) Class C(2)
------------------------ ----------------------------
Year August 30,
Year Ended September 30, Ended 1993(5) through
------------------------ September 30, September 30,
1994 1993(2) 1994 1993
------ -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period . $ 10.53 $ 9.98 $10.54 $10.53
------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income . . . . . . . . . . . .68 .685 .69 .05
Expenses . . . . . . . . . . . . . . . (.17) (.175) (.18) (.015)
------- ------ ------ ------
Net investment income . . . . . . . . . .51 .51 .51 .035
Net realized and unrealized gains or
losses on securities . . . . . . . . . (.7195) .564 (.7295) .061
------- ------ ------ ------
Total from investment operations . . . (.2095) 1.074 (.2195) .096
------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income . (.4905) (.501) (.4905) (.007)
------- ------ ------ ------
Distributions in excess of book-basis net
investment income(3) . . . . . . . . -- (.023) -- (.079)
Total distributions . . . . . . . . . . (.4905) (.524) (.4905) (.086)
------- ------ ------ ------
Net asset value, end of period . . . . $ 9.83 $10.53 $ 9.83 $10.54
======= ====== ====== ======
TOTAL RETURN(4) . . . . . . . . . . . (2.13%) 11.15% (2.03%) .91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) . $ 37.2 $ 22.1 $ 8.0 $ 1.3
Average net assets (millions) . . . . . $ 31.2 $ 10.0 $ 5.4 $ 0.4
Ratios to average net assets
Expenses . . . . . . . . . . . . . . . 1.72% 1.71% 1.72% 1.69%(6)
Net investment income . . . . . . . . . 5.00% 4.96% 5.03% 4.25%(6)
Portfolio turnover rate . . . . . . . . 6% 3% 6% 3%
</TABLE>
(1) Sales of Class B commenced September 29, 1992 at a net asset value of
$10.00 per share. At September 30, 1992, there were 50 Class B shares
outstanding with a per share net asset value of $9.98. The decrease in
net asset value was due principally to a dividend of $.052 per share.
Other financial highlights for Class B shares for this short period
(September 29, 1992 to September 30, 1992) are not presented as they
are not meaningful.
(2) Per share amounts based on average month-end shares outstanding.
(3) Effective October 1, 1992, the Fund adopted Statement of Position 93-2,
Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies.
(4) Total return for periods of less than one full year are not
annualized. Total return does not consider the effect of sales charges.
(5) Commencement of offering of sales.
(6) Annualized
See Notes to Financial Statements.
F-18
<PAGE> 104
Report of Independent Accountants
To the Shareholders and Board of Directors of
American Capital Municipal Bond Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, 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 American Capital Municipal Bond
Fund, Inc. at September 30, 1994, and the results of its operations, the
changes in its net assets and the selected per share data and ratios for each
of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial statements and selected per share data
and ratios (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 September 30, 1994 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
November 11, 1994
F-19
<PAGE> 105
PORTFOLIO OF INVESTMENTS
March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 95.6%
EDUCATION 4.6%
$1,000 Broward County, Florida,
Educational Facilities Authority
Rev. (Nova University Project),
G.O............................... 8.500% 04/01/10 $ 1,143,070
625 Clear Creek, Texas, Independent
School District, G.O.............. 6.250 02/01/11 660,175
1,000 Cook County, Illinois, Community
College, District #508,
Certificates of Participation,
FGIC.............................. 8.750 01/01/07 1,252,580
1,150 Florida State Board of Education,
Capital Outlay, Series A.......... 7.250 06/01/23 1,266,722
1,000 Illinois Educational Facilities
Authority Rev., G.O.
Lake First College, FSA........... 6.750 10/01/21 1,041,270
1,000 Illinois Educational Facilities
Authority Rev., G.O., Northwestern
University, Series 1985........... 6.900 12/01/21 1,113,650
2,000 New Hampshire Higher Education &
Daniel Webster College Issue,
G.O............................... 7.625 07/01/16 1,960,540
1,000 New York City, New York,
Industrial Development Agency,
Civil Facility Rev. (Marymount
Manhattan College Project), G.O... 7.000 07/01/23 1,009,310
1,000 New York State Dormitory Authority
Rev. City University (Prerefunded
@ 7/1/97)......................... 8.125 07/01/17 1,091,920
3,250 New York State Dormitory Authority
Rev., State University Education
Facility, Series 1990-A........... 7.700 05/15/12 3,705,130
500 Pennsylvania State Higher
Educational Facilities Authority
Rev. Hahnemann University Project,
MBIA, G.O......................... 7.200 07/01/19 533,815
250 Pennsylvania State Higher
Educational Facilities Authority
Rev., Pennsylvania Medical
College, Series A, G.O............ 7.500 03/01/14 257,635
500 University of the Virgin Islands,
Series A.......................... 7.500 10/01/09 521,130
500 University of the Virgin Islands,
Series A.......................... 7.650 10/01/14 518,185
-----------
TOTAL EDUCATION............... 16,075,132
-----------
HEALTH CARE 1.7%
500 Colorado Health Facilities
Authority Rev. (Cleo Wallace
Center Project)................... 7.000 08/01/15 502,435
1,500 Colorado Health Facilities
Authority Rev. (PSL Healthcare
System Project), Series 1991-A,
FSA............................... 6.250 02/15/21 1,518,435
1,000 Cuyahoga County, Ohio, Health Care
Facilities Rev. (Jenning Hall).... 7.300 11/15/23 947,300
1,000 Lebanon County, Pennsylvania,
Health Facilities Authority Health
Center Rev. (UTD Church of Christ
Homes Project).................... 6.750 10/01/10 1,004,600
700 Massachusetts State, Industrial
Finance Rev....................... 7.100 11/15/18 672,875
230 Pina County, Arizona, Industrial
Development Authority (Casa Grande
Regional Medical Center Project).. 9.000 12/01/13 238,425
1,000 St. Petersburg, Florida, Health
Facilities Authority Rev.
(Allegany Health Systems)......... 7.750 12/01/15 1,130,330
-----------
TOTAL HEALTH CARE............. 6,014,400
-----------
</TABLE>
F-20
<PAGE> 106
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITAL 15.5%
$ 500 Bexar County, Texas, Health
Facilities Development Rev.
(St. Lukes Lutheran Hospital
Project).......................... 7.000% 05/01/21 $ 509,830
1,500 Bexar County, Texas, Health
Facilities Development Rev.
(St. Lukes Lutheran Hospital
Project).......................... 7.900 05/01/18 1,762,245
1,000 Boston Massachusetts, Rev. (Boston
City Hospital), FHA............... 7.625 02/15/21 1,133,810
500 Boulder County, Colorado,
Industrial Development Rev.
(Boulder Medical Center Project).. 8.875 01/01/17 518,565
1,000 Charlotte County, Florida,
Hospital Authority Rev. (Bon
Secours Health System)............ 8.250 08/15/18 1,120,860
500 Clarksville, Tennessee, Hospital
Rev., Refunding & Improvement
(Clarskville Memorial Project).... 6.250 07/01/13 477,960
995 Clearfield, Pennsylvania, Hospital
Authority Rev. (Clearfield
Hospital Project), Series-94...... 6.875 06/01/16 995,587
800 Colorado Health Facilities
Authority Rev. (Rocky Mountain
Adventist)........................ 6.625 02/01/13 779,520
2,000 Delaware State Economic
Development Authority Rev.
(Osteopathic Hospital Association
of Delaware), Series A............ 6.900 01/01/18 1,835,120
500 Erie County, Pennsylvania,
Hospital Authority Rev. (Metro
Health Center), Series 1992....... 7.250 07/01/12 514,150
1,000 Harris County, Texas, Health
Facilities Development Corp.
(Memorial Hospital System
Project).......................... 7.125 06/01/15 1,057,750
1,000 Illinois Health Facilities
Authority Rev. Elmhurst Memorial
Hospital, Series 87-A............. 8.125 01/01/13 1,073,910
1,000 Illinois Health Facilities
Authority Rev. Improvement Swedish
Covenant, Series A................ 6.300 08/01/13 933,080
2,000 Illinois Health Facilities
Authority Rev. Lutheran Health
System, Series B, MBIA............ 6.000 04/01/18 1,922,940
1,000 Illinois Health Facilities
Authority Rev. Masonic Medical
Center, Series 1989-B............. 7.700 10/01/19 1,124,910
1,000 Illinois Health Facilities
Authority Rev., Memorial Hospital. 7.250 05/01/22 1,005,850
500 Illinois Health Facilities
Authority Rev. Mercy Center For
Health Care Services.............. 6.625 10/01/12 500,350
1,000 Illinois Health Facilities
Authority Rev., Northwestern
Memorial Hospital................. 6.750 08/15/11 1,031,460
1,000 Indiana Health Facilities,
Financing Hospital Authority Rev.
(Community Hospital of Indiana),
Series-H, MBIA.................... 6.850 07/01/22 1,044,390
1,160 Jefferson County, Texas, Health
Facility Authority Rev. (Baptist
Health Care Project).............. 8.300 10/01/14 1,263,426
845 Lebanon County, Pennsylvania, Good
Samaritan Hospital Authority Rev.
(Good Samaritan Hospital Project). 5.850 11/15/07 772,279
1,000 Marion County, Indiana, Hospital
Authority, Facility Rev.,
(Methodist Hospital of Indiana)... 6.500 09/01/13 1,006,840
1,000 McKeesport, Pennsylvania, Hospital
Authority Rev. (McKeesport
Hospital Project)................. 6.500 07/01/08 979,910
</TABLE>
F-21
<PAGE> 107
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000 Michigan State Hospital Finance
Authority Rev. St. Joseph Hospital
Corp., Series A.................... 8.125% 07/01/05 $1,045,100
1,000 Michigan State Hospital Finance
Authority Rev., Refunding, Genesys
Health System, Series A............ 7.500 10/01/07 1,010,500
1,000 Missouri State Health & Educational
Facilities Authority (Heartland
Health Systems Project)............ 8.125 10/01/10 1,112,180
1,000 New Hampshire Health & Higher
Educational Facility Authority
Rev................................ 7.500 06/01/05 1,042,440
2,500 New Hampshire Health & Higher
Educational Facility Authority Rev.
(Wentworth Douglass Hospital)...... 8.500 01/01/15 2,700,525
1,000 New York State Medical Care
Facilities Finance Agency Rev.
Columbia Presbyterian Hospital,
Series A, FHA...................... 8.000 02/15/25 1,092,980
1,960 New York State Medical Care
Facilities Finance Agency Rev.,
Montefiore Medical Center.......... 7.250 02/15/09 2,104,080
1,000 New York State Medical Care
Facilities Finance Agency Rev.,
North General Hospital, Series 89-
A.................................. 7.400 02/15/19 1,034,670
1,000 Newton, Kansas, Hospital Rev.,
Newton Health Care Corp., Series-A. 7.750 11/15/24 1,018,260
695 Philadelphia, Pennsylvania,
Hospital & Higher Education
Facilities Authority Rev.
(Roxborough Memorial Hospital),
Series 2........................... 7.250 03/01/24 649,040
1,500 Richardson, Texas, Hospital
Authority, Refunding & Improvement
Rev. (Richardson Medical Center)... 6.750 12/01/23 1,507,740
1,000 Royal Oak, Michigan, Hospital
Finance Authority, Rev. (William
Beaumont Hospital), Series D....... 6.750 01/01/20 1,027,130
1,750 Rusk County, Texas, Health
Facilities Corp., Hospital Rev.
(Henderson Memorial Hospital
Project)........................... 7.750 04/01/13 1,801,450
500 Salem, Oregon, Hospitals Facilities
Authority Rev...................... 7.500 12/01/24 507,295
1,000 Scranton-Lackawanna, Pennsylvania,
Health & Welfare Authority Rev.
(Moses Taylor Hospital Project),
Series A........................... 7.375 07/15/08 1,012,830
500 Scranton-Lackawanna, Pennsylvania,
Health & Welfare Authority Rev.
(Moses Taylor Hospital Project),
Series B........................... 8.250 07/01/09 536,310
1,000 South Dakota State Health &
Educational Facilities Authority
Rev. (Sioux Valley Hospital)....... 7.250 04/01/20 1,003,450
2,000 South Dakota State Health &
Educational Facilities Authority
Rev. (Sioux Valley Hospital)....... 7.625 11/01/13 2,221,598
1,500 St. Joseph County, Indiana,
Hospital Authority Rev. (Memorial
Hospital South Bend Project), MBIA. 6.250 08/15/22 1,504,245
1,000 Tyler, Texas, Health Facilities
Development Corp. (East Texas
Medical Center Regional Health),
Series B........................... 6.750 11/01/25 964,310
1,000 Washington County, Pennsylvania,
Hospital Authority................. 7.350 06/01/13 952,800
1,500 Wells County, Indiana, Hospital
Authority Rev., Refunding (Caylor-
Nickel Medical Center, Inc.)....... 8.500 04/15/03 1,529,550
1,000 Weslaco, Texas, Health Facilities
Development (Knapp Medical Center
Project), Series-A, CONN........... 5.250 06/01/16 885,540
</TABLE>
F-22
<PAGE> 108
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000 West Virginia State, Hospital
Finance Authority, Refunding &
Improvement (Fairmont General
Hospital), Series A................. 6.750% 03/01/14 $ 969,850
2,000 Wisconsin State Health & Educational
Facilities Rev. (Wheaton Franciscan
Services Inc.)...................... 8.200 08/15/18 2,238,660
-----------
TOTAL HOSPITAL.................. 54,837,275
-----------
HOUSING 5.8%
1,545 Arapahoe County, Colorado, Single
Family Mtg. Rev..................... 8.375 08/01/19 1,618,094
1,000 Austin, Texas, Housing Finance
Corp., Multi-family Rev. (Stassey
Woods Apartment Project)............ 6.750 04/01/19 979,090
410 Bexar County, Texas, Housing Finance
Corp., Rev.......................... 8.200 04/01/22 431,550
420 Bexar County, Texas, Housing Finance
Corp., Rev., Series B............... 9.250 04/01/16 440,534
135 El Paso, Texas, Property Finance
Authority Inc., Single Family Mtg.
Rev., Series A...................... 8.700 12/01/18 145,064
645 Fort Worth, Texas, Housing Finance
Corp., Home Mtg. Rev. Refunding..... 8.500 10/01/11 702,605
735 Harris County, Texas, Housing
Financing Corp., Single Family Mtg.
Rev., Series 1983-A................. 10.125 07/15/03 737,742
670 Houston, Texas, Housing Finance
Corp., Single Family Mgt. Rev....... 10.000 09/15/14 689,309
855 Houston, Texas, Housing Finance
Corp., Single Family Mgt. Rev.,
Series A, FSA....................... 5.950 12/01/10 842,089
1,000 Maricopa County, Arizona, IDR,
Multi-Family Rev., Refunding (Laguna
Point Apartments Project)........... 6.500 07/01/09 1,016,630
1,000 Massachusetts State Housing Finance
Agency, Multi-family Housing
Authority, Series A................. 8.750 08/01/08 1,051,250
550 Massachusetts State Housing Finance
Agency, Residential Housing
Authority, Series A................. 8.400 08/01/21 578,875
910 Minnesota State Housing Finance
Agency, Single Family Mtg. Rev...... 6.750 01/01/26 907,725
1,000 Montgomery County, Pennsylvania,
Industrial Development Authority,
Retirement Community Rev. (GDL Farms
Corp. Project)...................... 6.300 01/01/13 907,690
1,000 Mount Clemens, Michigan, Housing
Corp., Multi-family Rev., Refunding,
Series A............................ 6.600 06/01/13 1,030,480
1,000 North St. Paul, Minnesota, Multi-
family Refunding Housing Rev.
(Cottages North St. Paul)........... 9.250 02/01/22 1,086,250
1,000 Pima County, Arizona, IDR, Single
Family Mtg. Rev..................... 6.625 11/01/14 1,018,000
1,155 Ridgeland, Mississippi, Urban
Renewal (The Orchard, Ltd. Project),
Series A............................ 7.750 12/01/15 1,130,410
2,500 St. Paul, Minnesota Port Authority,
Housing & Redevelopment Authority,
Multi-family Housing Rev., Series J. 9.500 12/01/11 2,396,875
1,000 South Dakota State Housing
Development Authority, Homeowner
Mtg., Series D-1.................... 6.850 05/01/26 1,017,500
1,450 Texas State Veterans Housing
Assistance, MBIA, G.O.,............. 6.800 12/01/23 1,521,616
</TABLE>
F-23
<PAGE> 109
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 245 Travis County, Texas, Housing Finance
Corp., Single Family Mtg. Rev........ 8.200% 04/01/22 $ 253,134
-----------
TOTAL HOUSING.................... 20,502,512
-----------
LIFE CARE 2.7%
500 Atlantic Beach, Florida, Rev.,
Refunding & Improvement Fleet Landing
Project, Series A.................... 7.500 10/01/02 506,270
500 Atlantic Beach, Florida, Rev.,
Refunding & Improvement Fleet Landing
Project, Series A.................... 7.875 10/01/08 514,430
2,000 Butler County, Pennsylvania,
Industrial Development Authority
Rev., 1st Mgt. Rev. (Sherwood Oaks
Project), Series A................... 8.750 06/01/16 2,099,300
500 Chartiers Valley, Pennsylvania,
Industrial & Commercial Development
Authority (Asbury Health Center
Project)............................. 7.250 12/01/11 503,840
500 Chartiers Valley, Pennsylvania,
Industrial & Commercial Development
Authority (Asbury Health Center
Project)............................. 7.400 12/01/15 494,195
950 Hanover Park, Illinois, 1st Mgt. Rev.
Windsor Park Manor Project........... 9.250 12/01/07 1,029,733
1,000 Massachusetts State Industrial
Finance Agency Rev. 1st Mtg. Reeds
Landing Project...................... 8.625 10/01/23 1,012,350
1,000 Massachusetts State Industrial
Finance Agency, Greater Lynn Mental
Health Association Project........... 8.800 06/01/14 1,105,680
500 Scottsdale, Arizona, Industrial
Development Authority, Refunding, 1st
Mtg. Westminter Village, Series A.... 8.250 06/01/15 528,275
500 Tempe, Arizona, Industrial
Development Authority Rev. Friendship
Village Temple, Series-A............. 6.750 12/01/13 487,020
1,000 Wisconsin State Health & Educational
Facilities Authority Rev., (United
Lutheran Program for the Aging Inc.
Project)............................. 8.500 03/01/19 1,058,750
-----------
TOTAL LIFE CARE.................. 9,339,843
-----------
MISCELLANEOUS 7.6%
500 Berry Creek Metropolitan District,
Colorado, G.O., Refunding and
Improvement.......................... 8.250 12/01/11 534,280
2,000 Compton, California, Certificates of
Participation, Refunding, Series B... 7.500 08/01/15 2,119,320
1,000 Detroit, Michigan, Tax Increment
Bonds (Development Area No. 1
Project) Series 89-A................. 7.600 07/01/10 1,047,270
2,500 District of Columbia Rev. (National
Public Radio), Series A.............. 7.700 01/01/23 2,621,775
1,000 Dove Valley Metropolitan District,
Arapahoe County, Colorado, G.O....... 9.500 12/01/08 1,048,290
1,000 Du Page County, Illinois (Stormwater
Project)............................. 6.550 01/01/21 1,091,860
500 Fort Bend County, Texas, Levee
Improvement District No. 11, G.O..... 8.700 03/01/09 547,735
440 Fort Bend County, Texas, Levee
Improvement District No. 11, G.O..... 8.700 03/01/10 482,007
1,000 Lake Charles, Louisiana, Harbor &
Terminal Facilities Rev. (Trunkline
Liquified Natural Gas Co. Project)... 7.750 08/15/22 1,074,380
1,000 Lehigh County, Pennsylvania, IDR
(Allentown Interstate Motel.......... 8.000 08/01/12 1,022,720
</TABLE>
F-24
<PAGE> 110
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 630 Mountain Village Metropolitan
District, San Miguel County,
Colorado, Refunding, Series 1992,
G.O................................. 7.950% 12/01/03 $ 652,182
500 Mountain Village Metropolitan
District, San Miguel County,
Colorado, Refunding, Series 1992,
G.O................................. 8.100 12/01/11 525,605
145 Pocahontas, Iowa, Industrial
Development Rev. (Navistar
International Harvester Co.)........ 10.250 10/01/00 150,986
1,000 Port of New Orleans, Louisiana, IDR,
Refunding (Avondale Industries,
Inc.)............................... 8.250 06/01/04 1,063,900
2,330 Somerset County, Pennsylvania,
General Authority, Commonwealth
Lease Rev., FGIC.................... 6.250 10/15/11 2,474,693
1,705 St. Charles, Illinois, Industrial
Development Rev. (Tri-City Center
Project)............................ 7.500 11/01/13 1,707,302
500 Texas General Services, Community
Partner Interests, (Office Building
and Land Acquisition Project)....... 7.000 08/01/19 513,320
500 Texas General Services, Community
Partner Interests, (Office Building
and Land Acquisition Project)....... 7.000 08/01/24 513,320
1,000 Texas State, Refunding
(Superconducting Project), Series C,
G.O. ............................... 5.500 04/01/20 922,340
1,000 Utah State Building Ownership
Authority Lease Rev. (Dept. of
Employment Security)................ 7.800 08/15/10 1,090,020
1,300 Utah State Building Ownership
Authority Lease Rev. (Dept. of
Employment Security)................ 7.800 08/15/11 1,417,026
1,000 Valdez, Alaska, Marine Term Rev.,
Refunding (Sohio Pipeline).......... 7.125 12/01/25 1,073,550
1,250 Virginia, Port of Authority,
Commonwealth........................ 8.200 07/01/08 1,369,200
1,500 Woodward, Oklahoma, Municipal Auto
Sales, Refunding.................... 8.000 11/01/12 1,629,645
-----------
TOTAL MISCELLANEOUS............ 26,692,726
-----------
MUNICIPAL UTILITY DISTRICT
(MUD) 1.2%
500 Eldridge Road, Texas, MUD,
Refunding........................... 6.125 03/01/11 479,860
500 Harris County, Texas, MUD,
Refunding, G.O. .................... 7.300 03/01/14 508,790
1,000 Mills Road, Texas, MUD.............. 6.500 09/01/14 973,090
500 Mission Bend MUD No. 2, Texas....... 10.000 09/01/98 567,845
375 Mission Bend MUD No. 2, Texas....... 10.000 09/01/00 435,878
655 Montgomery County, Texas, MUD No. 4
(Water Works System)................ 8.900 09/01/02 737,117
500 North Mission Glen, Texas, MUD,
Refunding........................... 6.500 09/01/14 482,360
-----------
TOTAL MUD...................... 4,184,940
-----------
NURSING HOMES 1.2%
500 Fairfield, Ohio, Economic
Development Rev., Refunding (Beverly
Enterprises)........................ 8.500 01/01/03 525,595
475 Louisiana Public Facilities
Authority, Industrial Development
Rev., Refunding (Beverly
Enterprises)........................ 8.250 09/01/08 500,740
1,315 Luzerne County, Pennsylvania,
Industrial Development Authority,
1st Mtg. Rev., Refunding (Birchwood
Nursing Center Project), Series-A... 7.875 12/01/13 1,377,620
</TABLE>
F-25
<PAGE> 111
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,555 New Hampshire Health & Higher
Educational Facility Authority Rev.,
Refunding 1st Mtg. Odd Fellows Home. 8.800% 06/01/09 $ 1,698,635
-----------
TOTAL NURSING HOMES............. 4,102,590
-----------
POLLUTION CONTROL REVENUE (PCR) 5.6%
3,675 Brazos River Authority, Texas, PCR
(Texas Utilities Electric Co.
Project A).......................... 9.875 10/01/17 4,074,031
1,000 Burke County, Georgia, Development
Authority, PCR (Georgia Power Co.).. 9.375 12/01/17 1,115,390
1,000 Burlington, Kansas, PCR, MBIA
(Kansas Gas & Electric Co. Project). 7.000 06/01/31 1,050,940
1,595 Capital Industrial Development
Corp., Texas, PCR (International
Business Machines Corp.)............ 7.400 05/01/12 1,749,683
750 County of Coshocton, Ohio, Solid
Waste Disposal Rev. (Stone Container
Corp. Project), Series 1992......... 7.875 08/01/13 753,022
1,000 Hodge, Louisiana, Utility Rev.
(Stone Container Corp. Project),
Series 1990......................... 9.000 03/01/10 1,063,530
1,240 Mercer County, North Dakota, PCR,
Basin Electric Power, Series E...... 7.000 01/01/19 1,274,174
500 Monroe County, Michigan, PCR
(Detroit Edison Co.), Series A...... 10.500 12/01/16 531,290
1,000 New Hampshire State Industrial
Development Authority, PCR, New
England Power Co. .................. 7.800 04/01/16 1,042,090
1,000 New Hampshire State Industrial
Development Authority, PCR, United
Illuminating Co., Series B.......... 10.750 10/01/12 1,140,690
1,000 Parish of St. Charles, Louisiana,
PCR (Louisiana Power & Light Co.)... 8.250 06/01/14 1,068,750
1,400 Parish of West Feliciana, Louisiana,
PCR (Gulf States Utilities), Series
A................................... 7.500 05/01/15 1,432,634
1,000 Petersburg, Indiana, PCR, Refunding
(Indianapolis Power & Lighting),
Series 1993-A....................... 6.100 01/01/16 981,440
750 Pope County, Arkansas, PCR (Arkansas
Power & Light Project).............. 11.000 12/01/15 792,983
1,350 Sabine River Authority, Texas,
Refunding, PCR (Texas Utilities Co.
Project)............................ 7.750 04/01/16 1,404,338
440 Sabine River Authority, Texas,
Refunding, PCR (Texas Utilities Co.
Project), Series 1986............... 9.000 09/01/07 482,090
-----------
TOTAL PCR....................... 19,957,075
-----------
POOL FINANCING PROGRAMS 2.9%
1,750 Emmaus, Pennsylvania, General
Authority, Local Government Bond
Pool Program, Rev., Series A, BIG... 8.150 05/15/18 1,881,215
2,500 Emmaus, Pennsylvania, General
Authority, Local Government Bond
Pool Program, Rev., Series C, BIG... 7.900 05/15/18 2,669,750
1,000 Indianapolis, Indiana, Local Public
Improvement, Series A............... 6.000 02/01/20 967,350
2,000 Indianapolis, Indiana, Local Public
Improvement, Series C............... 6.700 01/01/17 2,010,220
450 Indianapolis, Indiana, Local Public
Improvement, Series D............... 6.500 02/01/22 450,410
550 Indianapolis, Indiana, Local Public
Improvement, Series D............... 6.750 02/01/14 579,502
1,000 Indianapolis, Indiana, Local Public
Improvement, Series D............... 6.750 02/01/20 1,024,400
</TABLE>
F-26
<PAGE> 112
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 670 Tampa, Florida, Capital Improvement
Program Rev., Series A.............. 8.250% 10/01/18 $ 700,237
-----------
TOTAL POOL FINANCING PROGRAMS... 10,283,084
-----------
RESOURCE RECOVERY 2.7%
1,760 Broward County, Florida, Resource
Recovery Rev., North Project........ 7.950 12/01/08 1,920,389
2,295 Broward County, Florida, Resource
Recovery Rev., South Project........ 7.950 12/01/08 2,501,206
1,000 Camden County, New Jersey, PCR,
Solid Waste Resource Recovery Rev.,
Series B............................ 7.500 12/01/09 960,440
1,500 Delaware County, Pennsylvania,
Industrial Development Authority
Rev. (Resource Recovery Project).... 8.100 12/01/13 1,588,005
1,000 El Centro, California, Certificates
of Participation.................... 7.000 06/01/19 975,990
1,000 Montgomery County, Pennsylvania,
Industrial Development Authority
Rev., Resource Recovery............. 7.500 01/01/12 1,054,390
500 Rockdale County, Georgia,
Development Authority Rev. Solid
Waste Disposal (Visy Paper, Inc.
Project)............................ 7.500 01/01/26 504,685
-----------
TOTAL RESOURCE RECOVERY......... 9,505,105
-----------
SALES TAX REVENUE 1.5%
1,000 Crestwood, Illinois, Tax Increment
Rev., Refunding..................... 7.250 12/01/08 986,250
1,000 Edgewater, Colorado, Redevelopment
Rev................................. 6.750 12/01/08 1,009,710
1,000 Orange County, Florida, Tourist
Development Tax Rev., AMBAC......... 6.000 10/01/16 1,000,930
865 Round Lake Beach, Illinois, Tax
Increment Rev., Series 1993......... 7.200 12/01/04 858,954
500 Round Lake Beach, Illinois, Tax
Increment Rev., Series 1993......... 7.500 12/01/13 448,390
975 St. Louis, Missouri, Tax Increment
Rev. (Scullin Redevelopment Area),
Series A............................ 10.000 08/01/10 1,144,367
-----------
TOTAL SALES TAX REVENUE......... 5,448,601
-----------
TRANSPORTATION 9.7%
3,000 Atlanta, Georgia, Airport Facilities
Rev. (Atlanta International
Airport), Series 1990............... 6.250 01/01/21 2,946,900
1,000 Chicago, Illinois, O'Hare
International Airport Rev.,
Series A............................ 6.000 01/01/18 940,910
1,000 Chicago, Illinois, O'Hare
International Airport Rev.,
Series B............................ 6.000 01/01/18 940,910
500 Cleveland, Ohio, Parking Facilities
Improvement Rev..................... 8.000 09/15/12 523,230
940 Dallas-Fort Worth, Texas,
International Airport Facility Rev.,
(American Airlines, Inc.)........... 7.500 11/01/25 955,623
2,500 Greater Orlando Aviation Authority,
Florida, Airport Facilities Rev..... 8.375 10/01/16 2,746,558
500 Hawaii State Harbor Capital
Improvement Rev., MBIA.............. 7.000 07/01/17 525,685
2,000 Indiana Transportation Finance
Authority, Airport Facilities Lease
Rev., Series A...................... 6.250 11/01/16 1,962,720
1,000 Kentucky State Turnpike Authority,
Toll Road Rev., Refunding Series A.. 5.500 07/01/07 967,900
</TABLE>
F-27
<PAGE> 113
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 8,000 Kentucky State Turnpike Authority,
Toll Road Rev., Refunding Series
1987-A.............................. 5.000% 07/01/08 $ 7,261,520
2,000 Los Angeles, California, Regional
Airport Facility Improvement Corp.,
Lease Rev........................... 11.250 11/01/25 2,138,200
1,500 Metropolitan Transportation
Authority, New York Transportation
Facilities, Rev., Series G, MBIA.... 5.500 07/01/15 1,419,315
1,000 New Hampshire State Turnpike System,
Rev., Refunding Series A, FGIC...... 6.750 11/01/11 1,087,400
3,200 New Jersey State Turnpike Authority,
Series C............................ 6.500 01/01/16 3,372,416
1,000 Port Authority of New York and New
Jersey, Consolidated Board, 95th
Series.............................. 6.125 07/15/22 997,250
915 Philadelphia, Pennsylvania,
Industrial Development Authority
Rev. (Parking Garage II Project).... 6.125 02/15/03 907,049
1,000 St. Louis, Missouri, Parking
Facilities Rev...................... 6.625 12/15/21 1,007,690
1,000 Triborough Bridge & Tunnel
Authority, New York, Rev............ 7.875 01/01/18 1,093,430
1,000 Tulsa, Oklahoma, Municipal Airport
Trust, Rev.......................... 7.600 12/01/30 986,530
800 Tulsa, Oklahoma, Municipal Airport
Trust, Rev. (American Airlines)..... 9.500 06/01/20 832,968
785 Virgin Islands Port Authority,
Marine Division Rev. (Marine
Terminal), Series A................. 10.125 11/01/05 811,737
-----------
TOTAL TRANSPORTATION............ 34,425,941
-----------
UTILITIES--COMBINATION ELECTRIC, GAS
AND/OR WATER 9.7%
1,250 Austin, Texas, Utility System Rev.,
FGIC................................ 7.750 11/15/06 1,316,662
2,280 Austin, Texas, Utility System Rev.,
Refunding........................... 6.000 05/15/15 2,258,796
1,000 Austin, Texas, Utility System Rev.,
Series A............................ 7.800 11/15/12 1,112,940
2,380 Austin, Texas, Utility System Rev.,
Series B............................ 7.800 11/15/12 2,631,209
1,000 Chicago, Illinois, Gas Supply Rev.
(People's Gas Lighting and
Coke Co.), Series A................. 8.100 05/01/20 1,103,260
1,000 Chicago, Illinois, Metropolitan
Water District, G.O................. 7.000 01/01/11 1,122,700
700 Citronelle, Alabama, Utilities
Board, Water, Sewer & Gas Rev....... 9.000 05/01/13 752,171
10,950 Jefferson County, Kentucky, Capital
Project Lease Rev. Waste Water
Treatment Plant..................... * 08/15/14 2,931,315
750 Jefferson, Wisconsin, Sewer System,
Waterworks.......................... 7.400 07/01/16 840,397
2,000 Los Angeles, California, Dept. of
Water & Power, Electric Plant Rev... 5.375 09/01/23 1,776,940
2,000 Massachusetts State Water Resource
Authority, Series A................. 7.500 04/01/16 2,243,440
1,000 New Hampshire State Business Finance
Authority, Electric Facilities Rev.
(Plymouth Cogeneration Light Power). 7.750 06/01/14 1,006,120
1,000 New York City Municipal Water
Finance Authority, New York, Water &
Sewer Rev., Series A................ 7.625 06/15/16 1,075,680
3,000 New York City Municipal Water
Finance Authority, New York, Water &
Sewer Rev., Series A, MBIA.......... 7.250 06/15/15 3,352,200
</TABLE>
F-28
<PAGE> 114
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$4,100 New York City Municipal Water
Finance Authority, New York, Water &
Sewer Rev., Series B................ 5.000% 06/15/17 $ 3,510,584
1,000 New York State Environment
Facilities Corp., Water Facilities
Rev. (Long Island Water Corp.)...... 10.000 10/01/17 1,108,110
500 NORCO, California, Sewer and Water
Rev., Refunding..................... 6.700 10/01/13 489,130
500 NORCO, California, Sewer and Water
Rev., Refunding..................... 7.200 10/01/19 493,770
750 Northwest Harris County, Texas,
Municipal Utility, Waterworks and
Sewer System Combination Tax........ 8.100 10/01/15 809,610
2,000 Orlando, Florida, Utilities
Commission, Water & Electric Rev.
Refunding (Prerefunded @ 10/1/95)... 8.625 10/01/05 2,081,240
500 Willow Fork, Texas, Drainage
District, G.O....................... 7.000 03/01/12 517,080
500 Willow Fork, Texas, Drainage
District, G.O....................... 7.000 03/01/13 514,270
1,000 Winters, Texas, Water Works & Sewer
Rev................................. 8.500 08/01/17 1,219,240
-----------
TOTAL UTILITIES--COMBINATION
ELECTRIC, GAS AND/OR WATER.... 34,266,864
-----------
UTILITIES--ELECTRIC 23.2%
2,500 Alaska Energy Authority Power Rev.,
First Series (Bradley Lake
Hydroelectric Project), BIG......... 6.250 07/01/21 2,502,475
850 Georgia State Municipal Electric
Authority, Power Rev................ 6.000 01/01/20 817,114
2,000 Georgia State Municipal Electric
Authority, Power Rev., Series A
(Prerefunded 1/1/96)................ 7.875 01/01/18 2,086,560
1,750 Georgia State Municipal Electric
Authority, Power Rev., Series Q
(Prerefunded 1/1/98)................ 8.375 01/01/16 1,927,730
1,250 Georgia State Municipal Electric
Authority, Power Rev., Series O..... 8.125 01/01/17 1,358,250
9,685 Grand River Dam Authority, Oklahoma,
Rev. Series 1987.................... 5.000 06/01/12 8,598,052
1,850 Intermountain Power Agency, Utah,
Power Supply Authority Rev., 1st
Crossover Series.................... 5.000 07/01/16 1,597,419
1,000 Intermountain Power Agency, Utah,
Power Supply Authority Rev., Series
A................................... 6.000 07/01/23 965,630
2,400 Intermountain Power Agency, Utah,
Power Supply Authority Rev., Series
A................................... 7.750 07/01/17 2,536,824
3,650 Intermountain Power Agency, Utah,
Power Supply Authority Rev., Series
B................................... 7.750 07/01/20 3,917,070
2,000 Intermountain Power Agency, Utah,
Power Supply Authority Rev.,
Series H............................ 6.000 07/01/21 1,920,740
2,000 Intermountain Power Agency, Utah,
Power Supply Authority Rev.,
Series I............................ 6.000 07/01/21 1,920,740
1,000 Lewis County, Washington, Public
Utility District No. 1 Rev. (Cowlitz
Falls Hydroelectric Project)........ 6.000 10/01/24 966,510
750 Michigan Public Power Agency, Rev.,
Refunding (Belle River Project)..... 7.000 01/01/18 770,467
3,000 Muscatine, Iowa, Electric Authority
Rev................................. 5.000 01/01/08 2,700,330
2,500 New York State Power Authority,
Rev., Series T...................... 7.375 01/01/18 2,601,950
300 Northern California, Public Power
Agency, Rev......................... 5.000 07/01/09 260,835
</TABLE>
F-29
<PAGE> 115
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 335 North Carolina Eastern Municipal
Power Agency, Power System Rev...... 8.000% 01/01/21 $ 367,971
2,665 North Carolina Eastern Municipal
Power Agency, Power System Rev.
(Prerefunded @ 1/1/98).............. 8.000 01/01/21 2,927,289
7,695 North Carolina Eastern Municipal
Power Agency, Power System Rev.,
Series A............................ 4.500 01/01/24 6,140,379
1,000 North Carolina Municipal Power
Agency No. 1, Catawba Electric Rev.. 6.000 01/01/20 948,150
2,850 North Carolina Municipal Power
Agency No. 1, Catawba Electric Rev.. 7.875 01/01/19 3,121,064
1,070 Piedmont Municipal Power Agency,
South Carolina, Rev................. 5.000 01/01/25 870,552
5,290 Salt River Project, Arizona
Agricultural Improvement & Power
District Electric System Rev........ 7.875 01/01/28 5,785,938
1,000 Sam Rayburn, Texas, Municipal Power
Agency, Refunding, Series A......... 6.250 10/01/17 864,160
1,000 Sam Rayburn, Texas, Municipal Power
Agency, Refunding, Series A......... 6.750 10/01/14 942,280
1,000 South Carolina, Public Service
Authority (Prerefunded @ 1/1/96).... 7.875 07/01/21 1,036,228
2,000 Southern Minnesota Municipal Power
Agency, Power Supply System Rev.,
Series A............................ 5.000 01/01/16 1,730,140
1,250 Southern Minnesota Municipal Power
Agency, Power Supply System Rev.,
Series C............................ 5.000 01/01/17 1,077,400
8,565 Texas Municipal Power Agency Rev.... 5.500 09/01/13 7,990,289
1,250 Washington State Public Power Supply
System Rev., Nuclear Project No. 1,
Series B............................ 7.125 07/01/16 1,350,525
445 Washington State Public Power Supply
System Rev., Nuclear Project No. 1,
Series D............................ 15.000 07/01/17 513,294
2,500 Washington State Public Power Supply
System Rev., Nuclear Project No. 2,
Series B............................ 7.000 07/01/12 2,589,975
1,000 Washington State Public Power Supply
System Rev., Nuclear Project No. 2,
Series B............................ 7.375 07/01/12 1,120,120
2,000 Washington State Public Power Supply
System Rev., Nuclear Project No. 2,
Series 1990-C....................... 7.625 07/01/10 2,276,020
3,000 Washington State Public Power Supply
System Rev., Nuclear Project No. 3,
MBIA................................ 5.600 07/01/17 2,773,770
------------
TOTAL UTILITIES--ELECTRIC....... 81,874,240
------------
TOTAL MUNICIPAL BONDS (Cost
$316,710,927).................. 337,510,328
------------
MUNICIPAL VARIABLE RATE DEMAND
NOTES+ 2.9%
540 Anchorage, Alaska, Higher Education
Rev................................. 4.200 07/01/17 540,000
2,100 District Columbia, Series A-4....... 4.750 10/01/07 2,100,000
2,000 District Columbia, Series A-6....... 4.750 10/01/07 2,000,000
300 Illinois Health Facilities Authority
Rev., La Grand Memorial Health
System.............................. 4.600 12/01/16 300,000
900 Illinois Development Finance
Authority Rev....................... 4.200 04/01/07 900,000
</TABLE>
F-30
<PAGE> 116
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$750 Illinois Health Facilities
Authority Rev.................... 4.600% 01/01/18 $ 750,000
355 Jacksonville, Florida,
Industrial Development Rev....... 4.750 09/01/07 355,000
500 Maricopa County, Arizona,
Industrial Development Authority,
Hospital Facility Rev.,
Series B-2....................... 4.500 12/01/08 500,000
300 New York, New York, Subseries
A-7, G.O......................... 4.600 08/01/20 300,000
200 New York, New York, Subseries
E-2, G.O......................... 4.500 08/01/20 200,000
500 New York, New York, Subseries
E-5, G.O......................... 4.500 08/01/16 500,000
575 New York State Job Development
Authority........................ 4.500 03/01/07 575,000
200 Peninsula Ports, Virginia,
Authority Rev., Port Facilities.. 4.450 12/01/05 200,000
500 West Feliciana Parish,
Louisiana........................ 4.750 04/01/16 500,000
500 Wisconsin State Health
Facilities Authority Rev., Series
A-2.............................. 4.100 01/01/16 500,000
------------
TOTAL MUNICIPAL VARIABLE RATE DEMAND
NOTES (Cost $10,220,000).................... 10,220,000
------------
TOTAL INVESTMENTS (Cost $326,930,927) 98.5%.............. 347,730,328
OTHER ASSETS AND LIABILITIES, NET 1.5%................... 5,299,458
------------
NET ASSETS 100%.......................................... $353,029,786
============
</TABLE>
<TABLE>
<S> <C>
*Zero Coupon bond Insurers:
+Interest rates are as of March 31, 1995 AMBAC--AMBAC Indemnity Corp.
FHA--Federal Housing Administration BIG--Bond Investors Guranty Insurance Co.
G.O.--General obligation bond CONN--Connie Lee
Rev.--Revenue bond FGIC--Financial Guaranty Insurance Corp.
IDR--Industrial Revenue Bond FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investor's Assurance Corp.
</TABLE>
F-31
<PAGE> 117
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $326,930,927)............... $347,730,328
Cash........................................................... 63,719
Interest receivable............................................ 6,874,209
Receivable for Fund shares sold................................ 409,773
Receivable for investments sold................................ 160,463
Other assets................................................... 2,683
------------
Total Assets................................................ 355,241,175
------------
LIABILITIES
Payable for Fund shares redeemed............................... 923,890
Dividends payable.............................................. 763,698
Due to Distributor............................................. 217,909
Due to Adviser................................................. 147,435
Deferred Director compensation................................. 25,079
Accrued expenses............................................... 133,378
------------
Total Liabilities........................................... 2,211,389
------------
NET ASSETS, equivalent to $9.98 per share for Class A shares,
$9.98 per share for Class B shares and $9.99 per share for
Class C shares................................................ $353,029,786
============
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 30,671,176 Class A, 3,922,453 Class B
and 794,623 Class C shares outstanding........................ $ 353,883
Capital surplus................................................ 342,630,860
Accumulated net realized loss on securities.................... (9,875,520)
Net unrealized appreciation of investments..................... 20,799,401
Accumulated deficit............................................ (878,838)
------------
NET ASSETS at March 31, 1995................................... $353,029,786
============
</TABLE>
F-32
<PAGE> 118
STATEMENT OF OPERATIONS
Six Months Ended March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................... $12,361,124
-----------
EXPENSES
Management fees................................................ 865,032
Service fees--Class A.......................................... 299,675
Distribution and service fees--Class B......................... 186,720
Distribution and service fees--Class C......................... 38,876
Shareholder service agent's fees and expenses.................. 212,684
Accounting services............................................ 66,960
Registration and filing fees................................... 51,672
Reports to shareholders........................................ 32,076
Custodian fees................................................. 10,669
Audit fees..................................................... 10,350
Directors' fees and expenses................................... 9,682
Legal fees..................................................... 1,807
Miscellaneous.................................................. 6,781
-----------
Total expenses.............................................. 1,792,984
-----------
NET INVESTMENT INCOME.......................................... 10,568,140
===========
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized loss on securities................................ (406,001)
Net unrealized appreciation of securities during the period.... 5,430,649
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES................. 5,024,648
===========
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $15,592,788
===========
</TABLE>
F-33
<PAGE> 119
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1995 September 30, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period........... $354,257,068 $355,682,180
------------ ------------
Operations
Net investment income.................... 10,568,140 20,505,507
Net realized loss on securities.......... (406,001) (2,005,680)
Net unrealized appreciation (depreciation)
of securities during the period......... 5,430,649 (23,803,245)
------------ ------------
Increase (decrease) in net assets
resulting from operations.............. 15,592,788 (5,303,418)
------------ ------------
Distributions to shareholders from net
investment income
Class A................................ (9,121,444) (18,227,557)
Class B................................ (992,532) (1,534,981)
Class C................................ (205,815) (276,302)
------------ ------------
(10,319,791) (20,038,840)
------------ ------------
Net equalization debits (Note 1F)......... -- (20,289)
------------ ------------
Capital transactions
Proceeds from shares sold
Class A................................ 14,727,341 49,766,921
Class B................................ 5,982,935 25,694,674
Class C................................ 1,089,358 9,071,276
------------ ------------
21,799,634 84,532,871
------------ ------------
Proceeds from shares issued for
distributions reinvested
Class A................................ 5,388,284 10,485,166
Class B................................ 608,782 958,506
Class C................................ 134,811 183,364
------------ ------------
6,131,877 11,627,036
------------ ------------
Cost of shares redeemed
Class A................................ (27,714,382) (60,814,520)
Class B................................ (5,310,821) (9,282,719)
Class C................................ (1,406,587) (2,125,233)
------------ ------------
(34,431,790) (72,222,472)
------------ ------------
Increase (decrease) in net assets
resulting from capital transactions...... (6,500,279) 23,937,435
------------ ------------
DECREASE IN NET ASSETS.................... (1,227,282) (1,425,112)
------------ ------------
NET ASSETS, end of period................. $353,029,786 $354,257,068
============ ============
</TABLE>
F-34
<PAGE> 120
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A(1)
-----------------------------------------------------
Six Months
Ended Year Ended September 30
March 31, -----------------------------------------
1995 1994 1993(2) 1992 1991 1990
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period................. $ 9.82 $10.53 $ 9.98 $ 9.64 $ 9.13 $ 9.33
------ ------ ------ ------ ------ ------
Income from investment
operations:
Investment income........ .35 .68 .69 .705 .71 .72
Expenses................. (.05) (.09) (.094) (.09) (.08) (.08)
------ ------ ------ ------ ------ ------
Net investment income..... .30 .59 .596 .615 .63 .64
Net realized and
unrealized gains or losses
on securities............ .1555 (.7255) .558 .349 .5198 (.195)
------ ------ ------ ------ ------ ------
Total from investment
operations............... .4555 (.1355) 1.154 .964 1.1498 .445
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income.... (.2955) (.5745) (.596) (.624) (.6398) (.645)
Excess of book-basis net
investment income....... -- -- (.008) -- -- --
------ ------ ------ ------ ------ ------
Total distributions....... (.2955) (.5745) (.604) (.624) (.6398) (.645)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................... $ 9.98 $ 9.82 $10.53 $ 9.98 $ 9.64 $ 9.13
====== ====== ====== ====== ====== ======
TOTAL RETURN(3)........... 4.76% (1.33%) 11.91% 10.31% 12.98% 4.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)............... $306.0 $309.0 $332.3 $292.3 $266.9 $237.4
Average net assets
(millions)............... $300.9 $324.2 $313.0 $278.6 $253.2 $241.2
Ratios to average net
assets (annualized):
Expenses............... .93% .93% .91% .90% .89% .86%
Net investment income.. 6.23% 5.76% 5.82% 6.29% 6.71% 6.84%
Portfolio turnover rate... 2% 6% 3% 6% 10% 17%
</TABLE>
(1) Per share amounts for 1990 and 1991 are adjusted to reflect a 2 for 1 stock
split effected July 26, 1991. Additionally, in 1991, the Fund adopted for
financial reporting purposes a method of accounting for debt discounts and
premiums which is the same as is used for federal income tax reporting. The
effect of the change, on a pro forma basis, would have been to increase net
investment income with a corresponding decrease in net realized and
unrealized gains or losses in the amount of $.01 for 1990. Similarly, the
ratio of net investment income to average net assets would have been 6.94%.
(2) Per share amounts based on average month-end shares outstanding.
(3) Total return for a period of less than one full year is not annualized.
Total return does not consider the effect of sales charges.
F-35
<PAGE> 121
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B(1) Class C
----------------------------------- --------------------------------------------
August 30,
Six Months Year Ended Six Months 1993(4)
Ended September 30 Ended Year Ended through
March 31, ------------------ March 31, September 30, September 30,
1995 1994 1993(2) 1995 1994(2) 1993(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $ 9.83 $10.53 $ 9.98 $ 9.83 $10.54 $10.53
------ ------ ------ ------ ------ ------
Income from investment
operations:
Investment income............ .35 .68 .685 .35 .69 .05
Expenses..................... (.09) (.17) (.175) (.09) (.18) (.015)
------ ------ ------ ------ ------ ------
Net investment Income.......... .26 .51 .51 .26 .51 .035
Net realized and unrealized
gains or losses on securities.. .1485 (.7195) .564 .1585 (.7295) .061
------ ------ ------ ------ ------ ------
Total from investment
operations.................... .4085 (.2095) 1.074 .4185 (.2195) .096
------ ------ ------ ------ ------ ------
Less Distributions from:
Net investment income......... (.2585) (.4905) (.501) (.2585) (.4905) (.007)
Excess of book-basis net
investment income ........... -- -- (.023) -- -- (.079)
------ ------ ------ ------ ------ ------
Total distributions............ (.2585) (.4905) (.524) (.2585) (.4905) (.086)
------ ------ ------ ------ ------ ------
Net asset value, end of
period........................ $ 9.98 $ 9.83 $10.53 $ 9.99 $ 9.83 $10.54
====== ====== ====== ====== ====== ======
TOTAL RETURN(3)................ 4.25% (2.13%) 11.15% 4.25% (2.03%) .91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of the
period (millions)............. $ 39.1 $ 37.2 $ 22.1 $ 7.9 $ 8.0 $ 1.3
Average net assets (millions).. $ 37.3 $ 31.2 $ 10.0 $ 7.8 $ 5.4 $ 0.4
Ratios to average net assets
Expenses...................... 1.74%(5) 1.72% 1.71% 1.74%(5) 1.72% 1.69%(5)
Net investment income......... 5.42%(5) 5.00% 4.96% 5.42%(5) 5.03% 4.25%(5)
Portfolio turnover rate........ 2% 6% 3% 2% 6% 3%
</TABLE>
(1) Sales of Class B commenced September 29, 1992 at a net asset value of
$10.00 per share. At September 30, 1992, there were 50 Class B shares
outstanding with a per share net asset value of $9.98. The decrease in net
asset value was due principally to a dividend of $.052 per share. Other
financial highlights for Class B shares for this short period (September
29, 1992 to September 30, 1992) are not presented as they are not
meaningful.
(2) Per share amounts based on average month-end shares outstanding.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(4) Commencement of offering of sales.
(5) Annualized
F-36
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Municipal Bond Fund (the "Fund") is registered under the In-
vestment Company Act of 1940, as amended, as a diversified open-end management
investment company. The following is a summary of significant accounting poli-
cies consistently followed by the Fund in the preparation of its financial
statements.
A. INVESTMENT VALUATIONS-Investments in municipal bonds are valued at the most
recently quoted bid prices or at bid prices based on a matrix system (which
considers such factors as security prices, yields, maturities and ratings)
furnished by dealers and an independent pricing service. Municipal variable
rate demand notes are valued at par; periodic rate changes reflect current
market conditions.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
Issuers of certain securities owned by the Fund have obtained insurance
guaranteeing their timely payment of principal and interest at maturity. The
insurance reduces financial risk but not market risk of the security.
Fund investments include lower rated debt securities which may be more sus-
ceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal
and interest payments. At March 31, 1995, debt securities rated below invest-
ment grade and comparable unrated securities represented approximately 20% of
the investment portfolio.
B. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders. It is anticipated that no distri-
butions of net realized capital gains will be made until tax basis capital
loss carryforwards expire or are offset by net realized capital gains.
The net realized capital loss carryforward for federal income tax purposes
of approximately $9.4 million at September 30, 1994 may be utilized to offset
current or future gains until expiration in 1996 through 2002.
F-37
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
C. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Interest income is
accrued daily.
D. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
E. DEBT DISCOUNT AND PREMIUM-The Fund accounts for debt discounts and premiums
on the same basis as is followed for federal income tax reporting. According-
ly, original issue discounts and all premiums are amortized over the life of
the security. Market discounts are recognized at the time of sale as realized
gains for book purposes and ordinary income for tax purposes.
F. EQUALIZATION-At September 30, 1994, the Fund discontinued the accounting
practice of equalization, which it had used since its inception. Equalization
is a practice whereby a portion of the proceeds from sales and costs of re-
demptions of Fund shares, equivalent on a per-share basis to the amount of the
undistributed net investment income, is charged or credited to undistributed
net investment income.
G. WHEN-ISSUED SECURITIES-Delivery and payment for securities purchased on a
when-issued basis may take place up to 45 days after the date of the transac-
tion. The securities purchased are subject to market fluctuation during this
period. To meet the payment obligation, sufficient cash or liquid securities
equal to the amount that will be due are set aside with the custodian.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen American Capital Asset Management, Inc. (the "Adviser") serves as
investment manager of the Fund. Management fees are paid monthly, based on the
rate of .50% per annum of the average daily net assets of the Fund.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised or sub-advised by the Adviser. For
the period March 31, 1995, these
F-38
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
charges included $5,384 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as
shareholder service agent. These services are provided at cost plus a profit.
For the period ended March 31, 1995, the fees for such services were $147,187.
The Fund has been advised that Van Kampen American Capital Distributors,
Inc. (the "Distributor") and Advantage Capital Corp. (the "Retailer Dealer")
both affiliates of the Adviser, received $27,527 and $30,555, respectively, as
their portion of the commissions charged on sales of Fund shares during the
period.
Under the Distribution Plans, the Fund pays up to .25% per annum of its av-
erage net assets to reimburse the Distributor for expenses and service fees
incurred. Class B shares and Class C shares pay an additional fee of up to
.75% per annum of their average daily net assets to reimburse the Distributor
for its distribution expenses. Actual distribution expenses incurred by the
Distributor for Class B shares and Class C shares may exceed the amounts reim-
bursed to the Distributor by the Fund. At March 31, 1995, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans
aggregated approximately $1.5 million and $110,000, respectively, and may be
carried forward and reimbursed through either the collection of the contingent
deferred sales charges from share redemptions or, subject to the annual re-
newal of the plans, future Fund reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder services
agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $8,215,930 and $12,451,313, re-
spectively.
For federal income tax purposes, the identified cost of investments owned at
March 31, 1995 was $326,964,141. Net unrealized appreciation of investments
aggregated $20,766,187, gross unrealized appreciation of investments aggre-
gated $23,399,469, and gross unrealized depreciation of investments aggregated
$2,633,282.
F-39
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,250 plus a fee of $30 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $470. During the period, such fees aggregated $7,453.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each director covered by the Plan elects to be credited with
an earnings component on amounts deferred equal to the income earned by the
Fund on its short-term investments or equal to the total return of the Fund.
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.
F-40
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
The Fund has 200 million shares of each class of shares of $.01 par value of
capital stock authorized. Transactions in shares of capital stock were as fol-
lows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A............................................. 1,519,426 4,883,618
Class B............................................. 617,796 2,518,998
Class C............................................. 110,152 884,668
---------- ----------
2,247,374 8,287,284
========== ==========
Shares issued for distributions reinvested
Class A............................................. 554,575 1,032,887
Class B............................................. 62,597 94,773
Class C............................................. 13,854 18,175
---------- ----------
631,026 1,145,835
========== ==========
Shares redeemed
Class A............................................. (2,866,089) (6,004,203)
Class B............................................. (549,554) (915,403)
Class C............................................. (143,583) (210,194)
---------- ----------
(3,559,226) (7,129,800)
---------- ----------
Increase (decrease) in shares outstanding............ (680,826) 2,303,319
========== ==========
</TABLE>
NOTE 6--SUBSEQUENT DIVIDENDS
The Board of Directors of the Fund declared a dividend of $.05 per share for
Class A shares, $.044 per share for Class B and Class C shares from net in-
vestment income, payable May 15, 1995 to shareholders of record on April 28,
1995.
F-41
<PAGE> 127
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
<TABLE>
<CAPTION>
INCLUDED IN PART B
------------------
<S> <C>
Investment Portfolio
September 30, 1994 X
March 31, 1995 (unaudited) X
Statement of Assets and Liabilities
September 30, 1994 X
March 31, 1995 (unaudited) X
Statement of Operations
Year Ended September 30, 1994 X
Six Months Ended March 31, 1995 (unaudited) X
Statement of Changes in Net Assets
Year Ended September 30, 1993 X
Year Ended September 30, 1994 X
Six Months Ended March 31, 1995 (unaudited) X
Notes to Financial Statements X
Financial Highlights X
Report of Independent Accountants X
</TABLE>
The Statement of Sources of Net Assets and Schedules II and III are omitted
because the required information is included in the financial statements filed
herewith, or because the conditions requiring their filing do not exist.
(b) Exhibits
<TABLE>
<S> <C>
1.1 -- Form of First Amended and Restated Agreement and Declaration of Trust.
1.2 -- Form of Certificate of Designation.
2 -- Form of Amended and Restated Bylaws.
3 -- Inapplicable.
4.1 -- Specimen Class A Share Certificate.
4.2 -- Specimen Class B Share Certificate.
4.3 -- Specimen Class C Share Certificate.
5 -- Form of Investment Advisory Agreement.
6.1 -- Form of Underwriting Agreement.
6.2 -- Form of Selling Group Agreement incorporated herein by reference (Exhibit 6.2 to
Form N-1A of Registrant's Post-Effective Amendment No. 28, filed on January 27,
1992).
6.3 -- Form of Selling Agreement for banks and bank affiliated broker-dealers incorporated
herein by reference (Exhibit 6.3 to Form N-1A of Registrant's Post-Effective
Amendment No. 28, filed on January 27, 1992).
7 -- Inapplicable.
8.1 -- Form of Custodian Contract dated December 2, 1993, incorporated herein by reference
(Exhibit 8 to Form N-1A of American Capital Global Managed Assets Fund, Inc.,
Registration No. 33-72024, Post-Effective Amendment No. 2, filed May 6, 1994).
</TABLE>
C-1
<PAGE> 128
<TABLE>
<C> <S>
8.2 -- Form of Transfer Agency and Service Agreement.
9 -- Data Access Services Agreement dated December 2, 1993 incorporated herein by
reference (Exhibit 9.2 to Form N-1A of American Capital Utilities Income Fund,
Inc., Registration No. 33-68452, Post-Effective Amendment No. 1, filed May 19,
1994).
10 -- Inapplicable for this filing.
11.1 -- Consent of Independent Accountants.
11.2 -- Consent of Trustees.
12 -- Inapplicable.
13 -- Inapplicable.
14 -- Inapplicable.
15.1 -- Form of Plan of Distribution for Class A shares.
15.2 -- Form of Plan of Distribution for Class B shares.
15.3 -- Form of Plan of Distribution for Class C shares.
15.4 -- Form of Servicing Agreement.
15.5 -- Form of Servicing Agreement for banks and bank affiliated broker-dealers.
16 -- Computation Measure for Performance Information.
17.1 -- List of Certain Investment Companies in Response to Item 29(a).
17.2 -- List of Officers and Directors of Van Kampen American Capital Distributors, Inc. in
Response to Item 29(b).
18 -- Multiple Class Plan.
19 -- Powers-of-Attorney for J. Miles Branagan, Richard E. Caruso, Roger Hilsman, Don G.
Powell, David Rees, Lawrence J. Sheehan, Fernando Sisto and William S. Woodside.
27 -- Financial Data Schedule.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of May 31, 1995
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF RECORD
TITLE OF CLASS HOLDERS
- ------------------------------- ----------------
<S> <C>
Shares of Beneficial Interest, 9,144 (Class A)
$0.01 par value 1,597 (Class B)
414 (Class C)
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her
C-2
<PAGE> 129
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent trustees, after review of the facts, that such officer or trustee is
not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Executive Officers" in the Statement of Additional Information for information
regarding the business of the Adviser. For information as to the business,
profession, vocation and employment of a substantial nature of directors and
officers of the Adviser, reference is made to the Adviser's current Form ADV
(File No. 801-1669) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17.1 incorporated by
reference herein.
(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17.2. Except as disclosed under the
heading, "Trustees and Executive Officers" in Part B of this Registration
Statement, none of such persons has any position or office with Registrant.
(c) Not applicable.
C-3
<PAGE> 130
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Unless otherwise stated below, the books or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are in the physical possession of:
Fund Treasurer
Mutual Fund Accounting
2800 Post Oak Boulevard
Houston, Texas 77056
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
- ------ ------------------------------------------------------------------
<S> <C> <C>
31a-1 (b)(2)(iii) Van Kampen American Capital Asset Management, Inc.
(b)(4)-(6) 2800 Post Oak Blvd.
(b)(9)-(11) Houston, Texas 77056
(b)(2)(iv) Van Kampen American Capital Shareholder Services, Inc.
7501 Tiffany Springs Parkway
Kansas City, Missouri 64153
</TABLE>
ITEM 31. MANAGEMENT SERVICES.
There are no management related services contracts not discussed in Part A.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish each person to whom a Prospectus is
delivered a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
C-4
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Houston, and State of Texas, on the 14th day of
July, 1995.
VAN KAMPEN AMERICAN CAPITAL
MUNICIPAL BOND FUND
By /s/ DON G. POWELL
----------------------------------
(Don G. Powell, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 14, 1995:
Principal Executive Officer:
<TABLE>
<C> <S>
/s/ DON G. POWELL President and Trustee
------------------------------------
(Don G. Powell)
Principal Financial Officer and Accounting
Officer:
/s/ CURTIS W. MORELL Vice President and Treasurer
------------------------------------
(Curtis W. Morell)
Trustees:
/s/ J. MILES BRANAGAN Trustee
------------------------------------
(J. Miles Branagan)
/s/ RICHARD E. CARUSO Trustee
------------------------------------
(Richard E. Caruso)
/s/ ROGER HILSMAN Trustee
------------------------------------
(Roger Hilsman)
/s/ DAVID REES Trustee
------------------------------------
(David Rees)
/s/ LAWRENCE J. SHEEHAN Trustee
------------------------------------
(Lawrence J. Sheehan)
/s/ FERNANDO SISTO Trustee
------------------------------------
(Fernando Sisto)
/s/ WILLIAM S. WOODSIDE Trustee
------------------------------------
(William S. Woodside)
</TABLE>
/s/ NORI L. GABERT
---------------------------------
Nori L. Gabert
Attorney-in-Fact
<PAGE> 132
INDEX TO EXHIBITS TO FORM N-1A
REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -----------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of First Amended and Restated Agreement and Declaration of
Trust.
1.2 -- Form of Certificate of Designation.
2 -- Form of Amended and Restated Bylaws.
4.1 -- Specimen Class A Share Certificate.
4.2 -- Specimen Class B Share Certificate.
4.3 -- Specimen Class C Share Certificate.
5 -- Form of Investment Advisory Agreement.
6.1 -- Form of Underwriting Agreement.
8.2 -- Form of Transfer Agency and Service Agreement.
11.1 -- Consent of Independent Accountants.
11.2 -- Consent of Trustees.
15.1 -- Form of Plan of Distribution for Class A shares.
15.2 -- Form of Plan of Distribution for Class B shares.
15.3 -- Form of Plan of Distribution for Class C shares.
15.4 -- Form of Servicing Agreement.
15.5 -- Form of Servicing Agreement for banks and bank affiliated
broker/dealers.
16 -- Computation Measure for Performance Information.
17.1 -- List of Certain Investment Companies in Response to Item 29(a).
17.2 -- List of Officers and Directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
18 -- Multiple Class Plan.
19 -- Powers-of-Attorney for J. Miles Branagan, Richard E. Caruso, Roger
Hilsman, Don G. Powell, David Rees, Lawrence J. Sheehan, Fernando
Sisto and William S. Woodside.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
FORM OF AMERICAN CAPITAL FUNDS
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
OF
Dated: June __, 1995
<PAGE> 2
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
Index
RECITALS ........................................................... 1
ARTICLE I THE TRUST ................................................. 2
SECTION 1.1 Name ...................................................... 2
SECTION 1.2. Location .................................................. 2
SECTION 1.3. Nature of Trust ........................................... 2
SECTION 1.4. Definitions ............................................... 2
SECTION 1.5. Real Property to be Converted into Personal Property ...... 5
ARTICLE 2 PURPOSE OF THE TRUST ...................................... 5
ARTICLE 3 POWERS OF THE TRUSTEES .................................... 6
SECTION 3.1. Powers in General ......................................... 6
(a) Investments ....................................................... 6
(b) Disposition of Assets ............................................. 7
(c) Ownership Powers .................................................. 7
(d) Form of Holding ................................................... 7
(e) Reorganization, etc. .............................................. 7
(f) Voting Trusts, etc. ............................................... 7
(g) Contracts, etc. ................................................... 7
(h) Guarantees, etc. .................................................. 7
(i) Partnerships, etc. ................................................ 8
(j) Insurance ......................................................... 8
(k) Pensions, etc. .................................................... 8
(I) Power of Collection and Litigation ................................ 8
(m) Issuance and Repurchase of Shares ................................. 8
(n) Offices ........................................................... 8
(o) Expenses .......................................................... 9
(p) Agents, etc. ...................................................... 9
(q) Accounts .......................................................... 9
(r) Valuation ......................................................... 9
(s) Indemnification ................................................... 9
(t) General ........................................................... 9
SECTION 3.2. Borrowings; Financings; Issuance of Securities ............ 9
i
<PAGE> 3
SECTION 3.3. Deposits ................................................... 9
SECTION 3.4. Allocations ................................................ 10
SECTION 3.5. Further Powers; Limitations ................................ 10
ARTICLE 4 TRUSTEES AND OFFICERS ...................................... 10
SECTION 4.1. Number, Designation, Election, Term, etc. .................. 10
(a) Initial Trustee .................................................... 10
(b) Number ............................................................. 10
(c) Election and Term .................................................. 11
(d) Resignation and Retirement ......................................... 11
(e) Removal ............................................................ 11
(f) Vacancies .......................................................... 11
(g) Acceptance of Trusts ............................................... 12
(h) Effect of Death, Resignation, etc. ................................. 12
(i) Conveyance ......................................................... 12
(j) No Accounting ...................................................... 12
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc. ....... 12
SECTION 4.3. Committees; Delegation ..................................... 13
SECTION 4.4. Officers ................................................... 13
SECTION 4.5. Compensation of Trustees and Officers ...................... 13
SECTION 4.6. Ownership of Shares and Securities of the Trust ............ 13
SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage
in Business; Authority of Trustees to Permit Others to Do
Likewise ................................................... 13
SECTION 4.8. Reliance on Experts ........................................ 14
SECTION 4.9. Surety Bonds ............................................... 14
SECTION 4.10. Apparent Authority of Trustees and Officers ................ 14
SECTION 4.11. Other Relationships Not Prohibited ......................... 14
SECTION 4.12. Payment of Trust Expenses .................................. 15
SECTION 4.13. 0wnership of the Trust Property ............................ 15
ii
<PAGE> 4
SECTION 4.14. By-Laws .................................................... 15
ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES .................. 15
SECTION 5.1. Appointment; Action by Less than All Trustees .............. 15
SECTION 5.2. Certain Contracts .......................................... 16
(a) Advisory ........................................................... 16
(b) Administration ..................................................... 16
(c) Underwriting ....................................................... 16
(d) Custodian .......................................................... 17
(e) Transfer and Dividend Disbursing Agent ............................. 17
(f) Shareholder Servicing .............................................. 17
(g) Accounting ......................................................... 17
Section 5.3. Distribution Arrangements .................................. 17
Section 5.4. Service Arrangements ....................................... 17
ARTICLE 6 SERIES AND SHARES .......................................... 18
SECTION 6.1. Description of Series and Shares ........................... 18
(a) General ............................................................ 18
(b) Establishment, etc. of Series; Authorization of Shares ............. 18
(c) Character of Separate Series and Shares Thereof .................... 18
(d) Consideration for Shares ........................................... 19
(e) Assets Belonging to Series ......................................... 19
(f) Liabilities of Series .............................................. 19
(g) Dividends .......................................................... 19
(h) Liquidation ........................................................ 20
(i) Voting ............................................................. 20
(j) Redemption by Shareholder .......................................... 20
(k) Redemption at the Option of the Trust .............................. 21
(I) Net Asset Value .................................................... 21
(m) Transfer ........................................................... 22
(n) Equality ........................................................... 22
(o) Rights of Fractional Shares ........................................ 22
(p) Conversion Rights .................................................. 22
SECTION 6.2. Ownership of Shares .......................................... 23
SECTION 6.3. Investments in the Trust ..................................... 23
SECTION 6.4. No Pre-emptive Rights ........................................ 23
iii
<PAGE> 5
SECTION 6.5. Status of Shares ........................................... 23
ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS ................... 23
SECTION 7.1. Voting Powers .............................................. 23
SECTION 7.2. Number of Votes and Manner of Voting; Proxies .............. 24
SECTION 7.3. Meetings ................................................... 24
SECTION 7.4. Record Dates ............................................... 25
SECTION 7.5. Quorum and Required Vote ................................... 25
SECTION 7.6. Action by Written Consent .................................. 25
SECTION 7.7. Inspection of Records ...................................... 25
SECTION 7.8. Additional Provisions ...................................... 25
ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION ................... 26
SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice.. 26
SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond
or Surety ................................................. 26
SECTION 8.3. Indemnification of Shareholders ............................ 27
SECTION 8.4. Indemnification of Trustees, Officers, etc. ................ 27
SECTION 8.5. Compromise Payment ......................................... 28
SECTION 8.6. Indemnification Not Exclusive, etc. ........................ 28
SECTION 8.7. Liability of Third Persons Dealing with Trustees ........... 28
ARTICLE 9 DURATION; REORGANIZATION; INCORPORATION; AMENDMENTS ........ 28
SECTION 9.1. Duration of Trust .......................................... 28
SECTION 9.2. Termination of Trust ....................................... 28
SECTION 9.3. Reorganization ............................................. 29
SECTION 9.4. Incorporation ............................................. 29
iv
<PAGE> 6
SECTION 9.5. Amendments; etc. ............................................. 30
SECTION 9.6. Filing of Copies of Declaration and Amendments ............... 30
ARTICLE 10 MISCELLANEOUS ................................................ 30
SECTION 10.1. Notices ...................................................... 30
SECTION 10.2. Governing Law ................................................ 30
SECTION 10.3. Counterparts ................................................ 30
SECTION 10.4. Reliance by Third Parties .................................... 31
SECTION 10.5. References; Headings ......................................... 31
SECTION 10.6. Provisions in Conflict With Law or Regulation ................ 31
SECTION 10.7. Use of the Name "Van Kampen American Capital" ................ 31
Signature ................................................................. 32
Acknowledgments ........................................................... 33
v
<PAGE> 7
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
OF
_____________________ FUND
As amended and restated as of June __, 1995
This CONSENT TO AMENDMENT AND RESTATMENT, made as of this __ day of
June, 1995, by the Trustees whose signatures are set forth below:
W I T N E S S E T H T H A T:
WHEREAS, the AGREEMENT AND DECLARATION OF TRUST of
____________________, a trust organized as a business trust under Delaware law
(the "Trust"), was signed and delivered on May 10, 1995, by Van Kampen American
Capital, Inc. as Settlor (the "Settlor"), and Ronald A. Nyberg as trustee (the
"Initial Trustee"), in the city of Oakbrook Terrace, Illinois; and
WHEREAS, a Certificate of Trust relating to the Trust was thereafter
filed in the offices of the Secretary of State of the State of Delaware; and
WHEREAS, Article IX, Sections 9.5 and 9.6 of the Declaration provide
certain procedures for the amendment and restatement thereof; and
WHEREAS, the Trustees have determined that it is desirable and in the
best interests of the Trust and the Shareholders that the Declaration be
amended and restated as herein provided.
NOW, THEREFORE, the undersigned, being at least a Majority of the
Trustees, do hereby consent, pursuant to Section 9.5 of the Declaration, to the
first amendment and restatement of the Agreement and Declaration of Trust, and
hereby declare, for the benefit of all Persons who shall hereafter become
holders of Shares of the Trust (or of any Series thereof), that the Trustees
will hold the sum delivered to the Initial Trustee upon his execution of the
Declaration, and all other and further cash, securities and other property of
every type and description which they may in any way acquire in their capacity
as such Trustees, together with the income therefrom and the proceeds thereof,
IN TRUST NEVERTHELESS, to manage and dispose of the same for the benefit of the
holders from time to time of the Shares being issued and to be issued hereunder
and in the manner and subject to the provisions hereof, to wit:
1
<PAGE> 8
ARTICLE I
THE TRUST
SECTION 1.1 Name. The name of the Trust shall be
"____________________________________________"
and so far as may be practicable, the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under that name,
which name (and the word "Trust" wherever used in this Agreement and
Declaration of Trust, except where the context otherwise requires) shall refer
to the Trustees in their capacity as Trustees, and not individually or
personally, and shall not refer to the officers, agents or employees of the
Trust or of such Trustees, or to the holders of the Shares of the Trust or any
Series. If the Trustees determine that the use of such name is not practicable,
legal or convenient at any time or in any jurisdiction, or if the Trust is
required to discontinue the use of such name pursuant to Section 10.7 hereof,
then subject to that Section, the Trustees may use such other designation, or
they may adopt such other name for the Trust as they deem proper, and the Trust
may hold property and conduct its activities under such designation or name.
SECTION 1.2. Location. The Trust shall maintain a registered office in
the State of Delaware and may have such other offices or places of business as
the Trustees may from time to time determine to be necessary or expedient.
SECTION 1.3. Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The State of Delaware, of the type
defined in Title 12, Chapter 38, Section 3801 of the Delaware Code as a
business trust. The Trust is not intended to be, shall not be deemed to be, and
shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder.
SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:
"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.
"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.
"Affiliated Person" shall have the meaning assigned to it in the 1940
Act.
"By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time.
"Certificate of Designation" shall have the meaning designated in
Section 6.1 hereof.
"Certificate of Termination" shall have the meaning designated in
Section 6.1 hereof.
"Class" or "Classes" shall mean, with respect to the Trust (of any
Series thereof), any unissued Shares of the Trust (or such Series) in respect
of which the Trustees shall from time to time fix and determine any special
provisions relating to sales charges, any rights of redemption and the price,
terms and manner of redemption, special and relative rights as to dividends and
other distributions and on
2
<PAGE> 9
liquidation, sinking or purchase fund provisions, conversion rights,
and conditions under which the Shareholders of such Class shall have separate
voting rights or no voting rights.
"Commission" shall have the same meaning as in the 1940 Act.
"Contracting Party" shall have the meaning designated in the preamble
to Section 5.2 hereof.
"Conversion Date" shall mean with respect to Shares of any Class that
are convertible automatically into Shares of any other Class of the Trust (or
Series thereof) the date fixed by the Trustees for such conversion.
"Covered Person" shall have the meaning designated in Section 8.4
hereof.
"Custodian" shall have the meaning designated in Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time
to time in effect. This Agreement and Declaration of Trust is the "governing
instrument" of the Trust within the meaning of the laws of the State of
Delaware with respect to Delaware Business Trusts. References in this
Agreement and Declaration of Trust to "hereof", "herein" and "hereunder" shall
be deemed to refer to the Declaration of Trust generally, and shall not be
limited to the particular text, Article or Section in which such words appear.
"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.
"Distributor" shall have the meaning designated in Section 5.2(c)
hereof.
"Dividend Disbursing Agent" shall have the meaning designated in
Section 5.2(e) hereof.
"General Items" shall have the meaning defined in Section 6.2(a)
hereof.
"Initial Trustee" shall have the meaning defined in the preamble
hereto.
"Investment Advisor" shall have the meaning defined in Section 5.2(a)
hereof.
"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be only one
(1) Trustee in office, such term shall mean such Trustee.
"Majority Shareholder Vote," as used with respect to (a) the election
of any Trustee at a meeting of Shareholders, shall mean the vote for the
election of such Trustee of a plurality of all outstanding Shares of the Trust,
without regard to Series, represented in person or by proxy and entitled to
vote thereon, provided that a quorum (as determined in accordance with the
By-Laws) is present, (b) any other action required or permitted to be taken by
Shareholders, shall mean the vote for such action of the holders of that
majority of all outstanding Shares (or, where a separate vote of Shares of any
particular Series is to be taken, the affirmative vote of that majority of the
outstanding Shares of that Series) of the Trust which consists of: (i) a
majority of all Shares (or of Shares of the particular Series) represented in
person or by proxy and entitled to vote on such action at the meeting of
Shareholders at which such action is to be taken, provided that a quorum (as
determined in accordance with the By-Laws) is present; or (ii) if such action
is to be taken by written consent of Shareholders, a majority of all Shares (or
of Shares of the particular Series) issued and outstanding and entitled to vote
on such action; provided that (iii) as used
3
<PAGE> 10
with respect to any action requiring the affirmative vote of "a
majority of the outstanding voting securities," as the quoted phrase is defined
in the 1940 Act, of the Trust or of any Series, "Majority Shareholder Vote"
means the vote for such action at a meeting of Shareholders of the smallest
majority of all outstanding Shares of the Trust (or of Shares of the particular
Series) entitled to vote on such action which satisfies such 1940 Act voting
requirement.
"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to the Trust.
"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, land trusts, business trusts or
other organizations established under the laws of any jurisdiction, whether or
not considered to be legal entities, and governments and agencies and political
subdivisions thereof.
"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.
"Prospectus," as used with respect to the Trust (or the Shares of a
particular Series), shall mean the prospectus relating to the Trust (or such
Series) which constitutes part of the currently effective Registration
Statement of the Trust under the Securities Act of 1933, as such prospectus may
be amended or supplemented from time to time.
"Securities" shall have the same meaning ascribed to that term in the
Securities Act of 1993.
"Series" shall mean one or more of the series of Shares authorized by
the Trustees to represent the beneficial interest in one or more separate
components of the assets of the Trust which are now or hereafter established
and designated under or in accordance with the provisions of Article 6 hereof.
"Settlor" shall have the meaning defined in the preamble hereto.
"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding Shares
of any Series, and shall include a pledgee into whose name any such Shares are
transferred in pledge.
"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.
"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Series of the Trust (as the context may require)
shall be divided from time to time, and includes fractions of Shares as well as
whole Shares. All references herein to "Shares" which are not accompanied by a
reference to any particular Series or Class shall be deemed to apply to
outstanding Shares without regard to Series or Class.
"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a style of
voting in which each holder of one or more Shares shall be entitled to one vote
on the matter in question for each Share standing in his name on the records of
the Trust, irrespective of Series or Class of a Series, and all outstanding
Shares of all Series vote as a single class.
4
<PAGE> 11
"Statement of Additional Information," as used with respect to the
Trust (or any Series), shall mean the statement of additional information
relating to the Trust (or such Series) which constitutes part of the currently
effective Registration Statement of the Trust under the Securities Act of 1933,
as such statement of additional information may be amended or supplemented from
time to time.
"Transfer Agent" shall have the meaning defined in Section 5.2(e)
hereof.
"Trust" shall mean the trust named in Section 1.1 hereof.
"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or
the Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the
Trustees, without regard to the Series to which such property is allocated.
"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in question
have been duly elected or appointed as Trustees of the Trust in accordance with
the provisions hereof and who have qualified and are then in office. At any
time at which there shall be only one (I) Trustee in office, such term shall
mean such single Trustee.
SECTION 1.5. Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such conversion as long
as they in their uncontrolled discretion shall think fit, and for the purpose
of determining the nature of the interest of the Shareholders therein, all such
real property shall at all times be considered as personal property.
ARTICLE 2
PURPOSE OF THE TRUST
The purpose of the Trust shall be to (a) manage, conduct, operate and
carry on the business of an investment company; (b) subscribe for, invest in,
reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise deal in or dispose of any and all
sorts of property, tangible or intangible, including but not limited to
Securities of any type whatsoever, whether equity or nonequity, of any issuer,
evidences of indebtedness of any person and any other rights, interest,
instruments or property of any sort to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investment
of every kind and description, including without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect
of any of said investments. The Trustees shall not be limited by any law
limiting the investments which may be made by fiduciaries.
5
<PAGE> 12
ARTICLE 3
POWERS OF THE TRUSTEES
SECTION 3.1. Powers in General. The Trustees shall have, without other
or further authorization, full, entire, exclusive and absolute power, control
and authority over, and management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such powers
of delegation as may be permitted by this Declaration, subject only to such
limitations as may be expressly imposed by this Declaration of Trust or by
applicable law. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. Without limiting the foregoing; they may select, and from
time to time change, the fiscal year of the Trust; they may adopt and use a
seal for the Trust, provided that unless otherwise required by the Trustees, it
shall not be necessary to place the seal upon, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust; they may from time to time in accordance with the
provisions of Section 6.1 hereof establish one or more Series to which they may
allocate such of the Trust Property, subject to such liabilities, as they shall
deem appropriate, each such Series to be operated by the Trustees as a separate
and distinct investment medium and with separately defined investment
objectives and policies and distinct investment purposes, all as established by
the Trustees, or from time to time changed by them; they may as they consider
appropriate elect and remove officers and appoint and terminate agents and
consultants and hire and terminate employees, any one or more of the foregoing
of whom may be a Trustee; they may appoint from their own number, and
terminate, any one or more committees consisting of one or more Trustees,
including without implied limitation an Executive Committee, which may, when
the Trustees are not in session and subject to the 1940 Act, exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
in accordance with Section 5.2 they may employ one or more Investment Advisers,
Administrators and Custodians and may authorize any such service provider to
employ one or more other or service providers and to deposit all or any part of
such assets in a system or systems for the central handling of Securities,
retain Transfer, Dividend Disbursing, Accounting or Shareholder Servicing
Agents or any of the foregoing, provide for the distribution of Shares by the
Trust through one or more Distributors, Principal Underwriters or otherwise,
set record dates or times for the determination of Shareholders entitled to
participate in, benefit from or act with respect to various matters; and in
general they may delegate to any officer of the Trust, to any Committee of the
Trustees and to any employee, Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent, Dividend Disbursing Agent, or any other agent or
consultant of the Trust, such authority, powers, functions and duties as they
consider desirable or appropriate for the conduct of the business and affairs
of the Trust, including without implied limitation the power and authority to
act in the name of the Trust and of the Trustees, to sign documents and to act
as attorney-in-fact for the Trustees. Without limiting the foregoing and to the
extent not inconsistent with the 1940 Act or other applicable law, the Trustees
shall have power and authority:
(a) Investments. To subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to Securities of any type whatsoever,
whether equity or nonequity, of any issuer, evidences of indebtedness of any
person and any other rights, interest, instruments or property of any sort, to
exercise any and all rights, powers and privileges of ownership or
6
<PAGE> 13
interest in respect of any and all such investments of every kind and
description, including without limitation the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of said rights, powers and privileges in respect of any of said
investments, in every case without being limited by any law limiting the
investments which may be made by fiduciaries;
(b) Disposition of Assets. Upon such terms and conditions as they deem
best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer or otherwise dispose of,
and to trade in, any and all of the Trust Property, free and clear of all
trusts, for cash or on terms, with or without advertisement, and on such terms
as to payment, security or otherwise, all as they shall deem necessary or
expedient;
(c) Ownership Powers. To vote or give assent, or exercise any and all
other rights, powers and privileges of ownership with respect to, and to
perform any and all duties and obligations as owners of, any Securities or
other property forming part of the Trust Property, the same as any individual
might do; to exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of Securities, and to receive powers of
attorney from, and to execute and deliver proxies or powers of attorney to,
such Person or Persons as the Trustees shall deem proper, receiving from or
granting to such Person or Persons such power and discretion with relation to
Securities or other property of the Trust, all as the Trustees shall deem
proper;
(d) Form of Holding. To hold any Security or other property in a form
not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust, or of the Series to which
such Securities or property belong, or in the name of a Custodian, subcustodian
or other nominee or nominees, or otherwise, upon such terms, in such manner or
with such powers, as the Trustees may determine, and with or without indicating
any trust or the interest of the Trustees therein;
(e) Reorganizations etc. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer, any
Security of which is or was held in the Trust or any Series; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any Security forming
part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders of any Securities in
acting through a committee, depository, voting trustee or otherwise, and in
that connection to deposit any Security with, or transfer any Security to, any
such committee, depository or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depository or trustee as the Trustees shall deem proper;
(g) Contracts. etc. To enter into, make and perform all such
obligations, contracts, agreements and undertakings of every kind and
description, with any Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business of the Trust, for such
terms as they shall see fit, whether or not extending beyond the term of office
of the Trustees, or beyond the possible expiration of the Trust; to amend,
extend, release or cancel any such obligations, contracts, agreements or
understandings; and to execute, acknowledge, deliver and record all written
instruments which they may deem necessary or expedient in the exercise of their
powers;
(h) Guarantees. etc. To endorse or guarantee the payment of any notes
or other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
7
<PAGE> 14
and to mortgage and pledge the Trust Property or any part thereof to secure any
of or all such obligations;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or association;
(j) Insurance. To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, Investment Advisers, managers,
Administrators, Distributors, Principal Underwriters, or other independent
contractors, or any thereof (or any Person connected therewith), of the Trust,
individually, against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such Person
in any such capacity, whether or not the Trust would have the power to
indemnify such Person against such liability;
(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit sharing, share bonus, share purchase, savings, thrift, deferred
compensation and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust;
(I) Power of Collection and Litigation. To collect, sue for and receive
all sums of money coming due to the Trust, to employ counsel, and to commence,
engage in, prosecute, intervene in, join, defend, compound, compromise, adjust
or abandon, in the name of the Trust, any and all actions, suits, proceedings,
disputes, claims, controversies, demands or other litigation or legal
proceedings relating to the Trust, the business of the Trust, the Trust
Property, or the Trustees, officers, employees, agents and other independent
contractors of the Trust, in their capacity as such, at law or in equity, or
before any other bodies or tribunals, and to compromise, arbitrate or otherwise
adjust any dispute to which the Trust may be a party, whether or not any suit
is commenced or any claim shall have been made or asserted. Except to the
extent required for a Delaware Business Trust, the Shareholders shall have no
power to vote as to whether or not a court action, legal proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders.
(m) Issuance and Repurchase of Shares. To authorize, issue, sell,
repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to Article 6
hereof, to apply to any such repurchase, redemption, retirement, cancellation
or acquisition of Shares of any Series, any of the assets belonging to the
Series to which such Shares relate, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law;
provided that any Shares belonging to the Trust shall not be voted, directly or
indirectly;
(n) Offices. To have one or more offices, and to carry on all or any of
the operations and business of the Trust, in any of the States, Districts or
Territories of the United States, and in any and all foreign countries, subject
to the laws of such State, District, Territory or country;
8
<PAGE> 15
(o) Expenses. To incur and pay any and all such expenses and charges as
they may deem advisable (including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of money for which they may
be held liable by way of damages, penalty, fine or otherwise;
(p) Agents, etc. To retain and employ any and all such servants,
agents, employees, attorneys, brokers, Investment Advisers, accountants,
architects, engineers, builders, escrow agents, depositories, consultants,
ancillary trustees, custodians, agents for collection, insurers, banks and
officers, as they think best for the business of the Trust or any Series, to
supervise and direct the acts of any of the same, and to fix and pay their
compensation and define their duties;
(q) Accounts. To determine, and from time to time change, the method or
form in which the accounts of the Trust or any Series shall be kept;
(r) Valuation. Subject to the requirements of the 1940 Act, to
determine from time to time the value of all or any part of the Trust Property
and of any services, Securities, property or other consideration to be
furnished to or acquired by the Trust, and from time to time to revalue all or
any part of the Trust Property in accordance with such appraisals or other
information as is, in the Trustees' sole judgment, necessary and satisfactory;
(s) Indemnification. In addition to the mandatory indemnification
provided for in Article 8 hereof and to the extent permitted by law, to
indemnify or enter into agreements with respect to indemnification with any
Person with whom this Trust has dealings, including, without limitation, any
independent contractor, to such extent as the Trustees shall determine; and
(t) General. Subject to the fundamental policies in effect from time to
time with respect to the Trust, to do all such other acts and things and to
conduct, operate, carry on and engage in such other lawful businesses or
business activities as they shall in their sole and absolute discretion
consider to be incidental to the business of the Trust or any Series as an
investment company, and to exercise all powers which they shall in their
discretion consider necessary, useful or appropriate to carry on the business
of the Trust or any Series, to promote any of the purposes for which the Trust
is formed, whether or not such things are specifically mentioned herein, in
order to protect or promote the interests of the Trust or any Series, or
otherwise to carry out the provisions of this Declaration.
SECTION 3.2. Borrowings; Financings: Issuance of Securities. The
Trustees have power, subject to the fundamental policies in effect from time to
time with respect to the Trust, to borrow or in any other manner raise such sum
or sums of money, and to incur such other indebtedness for goods or services,
or for or in connection with the purchase or other acquisition of property, as
they shall deem advisable for the purposes of the Trust, in any manner and on
any terms, and to evidence the same by negotiable or nonnegotiable Securities
which may mature at any time or times, even beyond the possible date of
termination of the Trust; to issue Securities of any type for such cash,
property, services or other considerations, and at such time or times and upon
such terms, as they may deem advisable; and to reacquire any such Securities.
Any such Securities of the Trust may, at the discretion of the Trustees, be
made convertible into Shares of any Series, or may evidence the right to
purchase, subscribe for or otherwise acquire Shares of any Series, at such
times and on such terms as the Trustees may prescribe.
SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits
9
<PAGE> 16
are to be subject to withdrawal in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any loss which may
occur by reason of the failure of the bank, trust company or other banking
institution with which any such moneys or Securities have been deposited,
except as provided in Section 8.2 hereof.
SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a discount,
as income or capital, or to apportion the same between income and capital, to
apportion the sale price of any asset between income and capital, and to
determine in what manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as income
or as capital or such expense or disbursement would be charged to income or to
capital; to treat any dividend or other distribution on any investment as
income or capital, or to apportion the same between income and capital; to
provide or fail to provide reserves, including reserves for depreciation,
amortization or obsolescence in respect of any Trust Property in such amounts
and by such methods as they shall determine; to allocate less than all of the
consideration paid for Shares of any Series to surplus with respect to the
Series to which such Shares relate and to allocate the balance thereof to
paid-in capital of that Series, and to reallocate such amounts from time to
time; all as the Trustees may reasonably deem proper.
SECTION 3.5. Further Powers: Limitations. The Trustees shall have power
to do all such other matters and things, and to execute all such instruments,
as they deem necessary, proper or desirable in order to carry out, promote or
advance the interests of the Trust, although such matters or things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration of Trust, the presumption shall
be in favor of a grant of power to the Trustees. The Trustees shall not be
required to obtain any court order to deal with the Trust Property. The
Trustees may limit their right to exercise any of their powers through express
restrictive provisions in the instruments evidencing or providing the terms for
any Securities of the Trust or in other contractual instruments adopted on
behalf of the Trust.
ARTICLE 4
TRUSTEES AND OFFICERS
SECTION 4.1. Number. Designation, Election. Term, etc.
(a) Initial Trustee. Upon his execution of this Agreement and
Declaration of Trust dated May 10, 1995 or a counterpart hereof or some other
writing in which he accepted such Trusteeship and agreed to the provisions
hereof, the individual whose signature is affixed thereto as Initial Trustee
became the Initial Trustee thereof.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than fourteen (14)) or
decrease the number of Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority
10
<PAGE> 17
(or a supermajority if required by the By-Laws) of the Trustees). No
decrease in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term, but the number of
Trustees may be decreased in conjunction with the removal of a Trustee pursuant
to subsection (e) of this Section 4.1.
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of Shareholders immediately
prior to the initial issuance of shares of the Trust in a public offering and
the term of office of any Trustees in office before such election shall
terminate at the time of such election. Subject to Section 16(a) of the 1940
Act and to the preceding sentence of this subsection (c) and to any
requirements specified in the By-Laws, the Trustees shall have the power to set
and alter the terms of office of the Trustees, and at any time to lengthen or
shorten their own terms or make their terms of unlimited duration, to elect
their own successors and, pursuant to subsection (f) of this Section 4.1, to
appoint Trustees to fill vacancies; provided that Trustees shall be elected by
a Majority Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940 Act or,
if not so required, that such action is advisable; and further provided that,
after the initial election of Trustees by the Shareholders, the term of office
of any incumbent Trustee shall continue until the termination of this Trust or
his earlier death, resignation, retirement, bankruptcy, adjudicated
incompetency or other incapacity or removal, or if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this subsection (c).
(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by a written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.
(e) Removal. Any Trustee may be removed: (i) with cause at any time by
written instrument, signed by at least two thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding a majority of
the Shares of the Trust then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than a majority of the Shares of the Trust then
outstanding. Notwithstanding any other provisions set forth in this Declaration
of Trust, this Section 4.1(e) may not be amended (either directly or indirectly
through a reorganization) without the approval of (i) 80% of the Trustees then
in office or (ii) by vote of Shareholders holding a majority of the Shares of
the Trust then outstanding.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including an increase in the number of Trustees, may (but need not
unless required by the 1940 Act) be filled by a Majority (or a supermajority if
required by the By-Laws) of the Trustees, subject to the provisions of Section
16(a) of the 1940 Act, through the appointment in writing of such other
individual as such remaining Trustees in their discretion shall determine;
provided that if there shall be no Trustees in office, such vacancy or
vacancies shall be filled by Majority Shareholders Vote. Any such appointment
or election shall be effective upon such individual's written acceptance of his
appointment as a Trustee and his agreement to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in the
number of Trustees to be effective at a later date shall become effective only
at or after the effective date of said retirement, resignation or increase in
the number of Trustees.
11
<PAGE> 18
(g) Acceptance of Trusts. Whenever any conditions to the appointment or
election of any individual as a Trustee hereunder who was not, immediately
prior to such appointment or election, acting as a Trustee shall have been
satisfied, such individual shall become a Trustee and the Trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance. Such new Trustee shall accept such appointment or
election in writing and agree in such writing to be bound by the provisions
hereof, but the execution of such writing shall not be requisite to the
effectiveness of the appointment or election of a new Trustee.
(h) Effect of Death. Resignation, etc. No vacancy, whether resulting
from the death, resignation, retirement, bankruptcy, adjudicated incompetency,
incapacity, or removal of any Trustee, an increase in the number of Trustees or
otherwise, shall operate to annul or terminate the Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant
to the terms of this Declaration of Trust. Until such vacancy is filled as
provided in this Section 4.1, the Trustees in office (if any), regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration. Upon
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require in
order to effect the purpose of this Paragraph.
(i) Convevance. In the event of the resignation or removal of a
Trustee or his otherwise ceasing to be a Trustee, such former Trustee or his
legal representative shall, upon request of the continuing Trustees, execute
and deliver such documents as may be required for the purpose of consummating
or evidencing the conveyance to the Trust or the remaining Trustees of any
Trust Property held in such former Trustee's name, but the execution and
delivery of such documents shall not be requisite to the vesting of title to
the Trust Property in the remaining Trustees, as provided in subsection (g) of
this Section 4.1 and in Section 4.13 hereof.
(j) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no Person
ceasing to be a Trustee (nor the estate of any such Person) shall be required
to make an accounting to the Shareholders or remaining Trustees upon such
cessation.
SECTION 4.2. Trustees' Meetings: Participation by Telephone. etc.
Annual and special meetings may be held from time to time, in each case, upon
the call of such officers as may be thereunto authorized by the By-Laws or vote
of the Trustees, or by any three (3) Trustees, or pursuant to a vote of the
Trustees adopted at a duly constituted meeting of the Trustees, and upon such
notice as shall be provided in the By-Laws. Any such meeting may be held within
or without the state of Delaware. The Trustees may act with or without a
meeting, and a written consent to any matter, signed by all of the Trustees,
shall be equivalent to action duly taken at a meeting of the Trustees, duly
called and held. Except as otherwise provided by the 1940 Act or other
applicable law, or by this Declaration of Trust or the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees (a quorum, consisting of at least a Majority of the
Trustees, being present), within or without Delaware. If authorized by the
By-Laws, all or any one or more Trustees may participate in a meeting of the
Trustees or any Committee thereof by means of conference telephone or similar
means of communication by means of which all Persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
means of communication shall constitute presence in person at such meeting. The
minutes of any meeting thus held shall be prepared in the same manner as a
meeting at which all participants were present in person.
12
<PAGE> 19
SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to one or more other Committees, or to any
single Trustee, the doing of such things and the execution of such deeds or
other instruments, either in the name of the Trust or the names of the Trustees
or as their attorney or attorneys in fact, or otherwise as the Trustees may
from time to time deem expedient, and any agreement, deed, mortgage, lease or
other instrument or writing executed by the Trustee or Trustees or other Person
to whom such delegation was made shall be valid and binding upon the Trustees
and upon the Trust.
SECTION 4.4. Officers. The Trustees shall annually elect such officers
or agents, who shall have such powers, duties and responsibilities as the
Trustees may deem to be advisable, and as they shall specify by resolution or
in the By-Laws. Except as may be provided in the By-Laws, any officer elected
by the Trustees may be removed at any time with or without cause. Any two (2)
or more offices may be held by the same individual.
SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall
fix the compensation of all officers and Trustees. Without limiting the
generality of any of the provisions hereof, the Trustees shall be entitled to
receive reasonable compensation for their general services as such, and to fix
the amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal, accounting,
or other professional services, as they in good faith may deem reasonable. No
Trustee or officer resigning (except where a right to receive compensation for
a definite future period shall be expressly provided in a written agreement
with the Trust, duly approved by the Trustees) and no Trustee or officer
removed shall have any right to any compensation as such Trustee or officer for
any period following his resignation or removal, or any right to damages on
account of his removal, whether his compensation be by the month, or the year
or otherwise.
SECTION 4.6. Ownership of Shares and Securities of the Trust. Any
Trustee, and any officer, employee or agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of any Series and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of such Shares or
Securities to the same extent and in the same manner as if such Person were not
such a Trustee, officer, employee or agent of the Trust; subject, in the case
of Trustees and officers, to the same limitations as directors or officers (as
the case may be) of a Delaware business corporation; and the Trust may issue
and sell or cause to be issued and sold and may purchase any such Shares or
other Securities from any such Person or any such organization, subject only to
the general limitations, restrictions or other provisions applicable to the
sale or purchase of Shares of such Series or other Securities of the Trust
generally.
SECTION 4.7. Right of Trustees and Officers to Own Property or to
Engage in Business; Authority of Trustees to Permit Others to Do Likewise. The
Trustees, in their capacity as Trustees, and (unless otherwise specifically
directed by vote of the Trustees) the officers of the Trust in their capacity
as such, shall not be required to devote their entire time to the business and
affairs of the Trust. Except as otherwise specifically provided by vote of the
Trustees, or by agreement in any particular case, any Trustee or officer of the
Trust may acquire, own, hold and dispose of, for his own individual account,
any property, and acquire, own, hold, carry on and dispose of, for his own
individual account, any business entity or business activity, whether similar
or dissimilar to any property or business entity or business activity invested
in or carried on by the Trust, and without first offering the same as an
investment opportunity to the Trust, and may exercise all rights in respect
thereof as if he were not a Trustee or officer of the Trust. The Trustees shall
also have power, generally or in specific cases, to permit
13
<PAGE> 20
employees or agents of the Trust to have the same rights (or lesser
rights) to acquire, hold, own and dispose of property and businesses, to carry
on businesses, and to accept investment opportunities without offering them to
the Trust, as the Trustees have by virtue of this Section 4.7.
SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, engineers, brokers, appraisers, auctioneers, accountants,
investment bankers, securities analysts or other Persons (any of which may be a
firm in which one or more of the Trustees or officers is or are members or
otherwise interested) whose profession gives authority to a statement made by
them on the subject in question, and who are reasonably deemed by the Trustees
or officers in question to be competent, and the advice or opinion of such
Persons shall be full and complete personal protection to all of the Trustees
and officers in respect of any action taken or suffered by them in good faith
and in reliance on or in accordance with such advice or opinion. In discharging
their duties, Trustees and officers, when acting in good faith, may rely upon
financial statements of the Trust represented to them to be correct by any
officer of the Trust having charge of its books of account, or stated in a
written report by an independent certified public accountant fairly to present
the financial position of the Trust. The Trustees and officers may rely, and
shall be personally protected in acting, upon any instrument or other document
believed by them to be genuine.
SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of
the Trust shall, as such, be obligated to give any bond or surety or other
security for the performance of any of his duties, unless required by
applicable law or regulation, or unless the Trustees shall otherwise determine
in any particular case.
SECTION 4.10. Apparent Authority of Trustees and Officers. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or of such officer.
SECTION 4.11. Other Relationships Not Prohibited. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party (as defined in Section 5.2 hereof), or of or
for any parent or affiliate of any Contracting Party, or that the
Contracting Party or any parent or affiliate thereof is a Shareholder
or has an interest in the Trust or any Series, or that
(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or to the holders of Shares of any Series; provided
that, in the case of any relationship or interest referred to in the preceding
clause (i) on the part of any Trustee or officer of the Trust, either (x) the
material facts as to such relationship or interest have been disclosed to or
are known by the Trustees not having any such relationship or interest and the
contract involved is approved in good faith by a majority
14
<PAGE> 21
of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all
of the Trustees), (y) the material facts as to such relationship or interest
and as to the contract have been disclosed to or are known by the Shareholders
entitled to vote thereon and the contract involved is specifically approved in
good faith by vote of the Shareholders, or (z) the specific contract involved
is fair to the Trust as of the time it is authorized, approved or ratified by
the Trustees or by the Shareholders.
SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to
pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, and according to any
allocation to a particular Series and Class made by them pursuant to Section
6.1(f) hereof, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the business and affairs of the Trust or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, Investment Adviser, Administrator, Distributor,
Principal Underwriter, auditor, counsel, Custodian, Transfer Agent, Dividend
Disbursing Agent, Accounting Agent, Shareholder Servicing Agent, and such other
agents, consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur.
SECTION 4.13. Ownership of the Trust Property. Legal title to all the
Trust Property shall be vested in the Trustees as joint tenants, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or of any particular Series, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided that the
interest of the Trust and of the respective Series therein is appropriately
protected. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee.
Upon the termination of the term of office of a Trustee as provided in Section
4.1(c), (d) or (e) hereof, such Trustee shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to Section 4.1(i) hereof.
SECTION 4.14. By-Laws. The Trustees may adopt and from time to time
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE 5
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1. Appointment; Action by Less than All Trustees. The
Trustees shall be responsible for the general operating policy of the Trust and
for the general supervision of the business of the Trust conducted by officers,
agents, employees or advisers of the Trust or by independent contractors, but
the Trustees shall not be required personally to conduct all the business of
the Trust and, consistent with their ultimate responsibility as stated herein,
the Trustees may appoint, employ or contract with one or more officers,
employees and agents to conduct, manage and/or supervise the operations of the
Trust, and may grant or delegate such authority to such officers, employees
and/or agents as the Trustees may, in their sole discretion, deem to be
necessary or desirable, without regard to whether such authority is normally
granted or delegated by trustees. With respect to those matters of the
operation and business of
15
<PAGE> 22
the Trust which they shall elect to conduct themselves, except as
otherwise provided by this Declaration or the By-Laws, if any, the Trustees may
authorize any single Trustee or defined group of Trustees, or any committee
consisting of a number of Trustees less than the whole number of Trustees then
in office without specification of the particular Trustees required to be
included therein, to act for and to bind the Trust, to the same extent as the
whole number of Trustees could do, either with respect to one or more
particular matters or classes of matters, or generally.
SECTION 5.2. Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time in their discretion and
without limiting the generality of their powers and authority otherwise set
forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnerships, limited partnerships or other
types of organizations, or individuals ("Contracting Party"), to provide for
the performance and assumption of some or all of the following services, duties
and responsibilities to, for or on behalf of the Trust and/or any Series,
and/or the Trustees, and to provide for the performance and assumption of such
other services, duties and responsibilities in addition to those set forth
below, as the Trustees may deem appropriate:
(a) Advisory. An investment advisory or management agreement whereby
the agent shall undertake to furnish the Trust (or any Series thereof) such
management, investment advisory or supervisory, statistical and research
facilities and services, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable, all upon such terms and
conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
or any applicable provisions of the By-Laws (any such agent being herein
referred to as an "Investment Adviser"). To the extent required by the 1940
Act, any such advisory or management agreement and any amendment thereto shall
be subject to approval by a Majority Shareholder Vote at a meeting of the
Shareholders of the Trust (or applicable Series). Notwithstanding any
provisions of this Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
securities of the Trust on behalf of the Trustees or may authorize any officer
or employee of the Trust or any Trustee to effect such purchases, sales, loans
or exchanges pursuant to recommendations of the Investment Adviser (and all
without further action by the Trustees). Any such purchases, sales, loans and
exchanges shall be deemed to have been authorized by all of the Trustees. The
Trustees may, in their sole discretion, call a meeting of Shareholders in order
to submit to a vote of Shareholders of the Trust (or applicable Series) at such
meeting the approval of continuance of any such investment advisory or
management agreement.
(b) Administration. An agreement whereby the agent, subject to the
general supervision of the Trustees and in conformity with any policies of the
Trustees with respect to the operations of the Trust and each Series thereof,
will supervise all or any part of the operations of the Trust (or any Series
thereof), and will provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust (or any Series thereof)
(any such agent being herein referred to as an "Administrator").
(c) Underwriting. An agreement providing for the sale of Shares of the
Trust (or any Series thereof) to net the Trust not less than the net asset
value per Share (as described in Section 6.1(l) hereof) and pursuant to which
the Trust may appoint the other party to such agreement as its principal
underwriter or sales agent for the distribution of such Shares. The agreement
shall contain such terms and
16
<PAGE> 23
conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
and any applicable provisions of the By-Laws (any such agent being herein
referred to as a "Distributor" or a "Principal Underwriter," as the case may
be).
(d) Custodian. The appointment of an agent meeting the requirements for
a custodian for the assets of Investment Companies contained in the 1940 Act
as custodian of the Securities and cash of the Trust (or any Series thereof)
and of the accounting records in connection therewith (any such agent being
herein referred to as a "Custodian").
(e) Transfer and Dividend Disbursing Agent. An agreement with an agent
to maintain records of the ownership of outstanding Shares, the issuance and
redemption and the transfer thereof (any such agent being herein referred to
as a "Transfer Agent"), and to disburse any dividends declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends
(any such agent being herein referred to as a "Dividend Disbursing Agent").
(f) Shareholder Servicing. An agreement with an agent to provide
service with respect to the relationship of the Trust and its Shareholders,
records with respect to Shareholders and their Shares, and similar matters
(any such agent being herein referred to as a "Shareholder Servicing Agent").
(g) Accounting. An agreement with an agent to handle all or any part of
the accounting responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise (any such agent being herein referred
to as an "Accounting Agent").
In addition, the Trustees may from time to time cause the Trust (or any
Series thereof) to enter into agreements with respect to such other services
and upon such other terms and conditions as they may deem necessary,
appropriate or desirable. The same Person may be the Contracting Party for
some or all of the services, duties and responsibilities to, for and of the
Trust and/or the Trustees, and the contracts with respect thereto may contain
such terms interpretive of or in addition to the delineation of the services,
duties and responsibilities provided for, including provisions that are not
inconsistent with the 1940 Act relating to the standard of duty of and the
rights to indemnification of the Contracting Party and others, as the Trustees
may determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into subcontractual arrangements relative to
any of the matters referred to in subsections (a) through (g) of this Section
5.2.
Section 5.3. Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more plans of distribution pursuant to Rule 12b-1 of the 1940
Act which plan(s) will provide for the payment of specified marketing,
distribution and shareholder relations expenses of the Trust and any or all
Series and their agents and the agents of such agents.
Section 5.4. Service Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more service plans which plans will provide for the payment of
ongoing services to holders of the shares of such Trust (or any Series thereof)
and in connection with the maintenance of such shareholders' accounts.
17
<PAGE> 24
ARTICLE 6
SERIES AND SHARES
SECTION 6.1. Description of Series and Shares.
(a) General. The beneficial interest in the Trust shall be divided into
Shares (either full or fractional) with $.01 par value per Share, of which an
unlimited number may be issued. The Trustees shall have the authority from time
to time to establish and designate one or more separate, distinct and
independent Series of Shares (each of which Series shall represent interests
only in the asset attributed by the Trustees to such Series), and to authorize
separate Classes of Shares of the Trust (or any such Series), as they deem
necessary or desirable. All Shares shall be of one class, provided that the
Trustees shall have the power to classify or reclassify any unissued Shares of
any Series into any number of additional Classes of such Series.
(b) Establishment. etc. of Series; Authorization of Shares. The
establishment and designation of any Series and the authorization of the Shares
thereof shall be effective upon the execution by a Majority of the Trustees (or
by an officer of the Trust pursuant to the vote of a Majority of the Trustees)
of an instrument setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series and the manner in
which the same may be amended (a "Certificate of Designation"), and may provide
that the number of Shares of such Series which may be issued is unlimited, or
may limit the number issuable. At any time that there are no Shares outstanding
of any particular Series previously established and designated, the Trustees
may by an instrument executed by a Majority of the Trustees (or by an officer
of the Trust pursuant to the vote of a Majority of the Trustees) terminate such
Series and the establishment and designation thereof and the authorization of
its Shares (a "Certificate of Termination"). Each Certificate of Designation,
Certificate of Termination and any instrument amending a Certificate of
Designation shall have the status of an amendment to this Declaration of Trust.
(c) Character of Separate Series and Shares Thereof. Each Series
established hereunder shall represent beneficial interests in a separate
component of the assets of the Trust. Holders of Shares of a Series shall be
considered Shareholders of such Series, but such Shareholders shall also be
considered Shareholders of the Trust for purposes of receiving reports and
notices and, except as otherwise provided herein or in the Certificate of
Designation of a particular Series, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct Series, and to
fix and determine the relative rights and preferences as between the shares of
the respective Series, and as between the Classes of the Trust (or any Series
thereof), as to rights of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Series or the several
Classes of any Series of Shares shall have separate voting rights or no voting
rights. Except as otherwise provided as to a particular Series herein, or in
the Certificate of Designation therefor, the Trustees shall have all the rights
and powers, and be subject to all the duties and obligations, with respect to
each such Series and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
Separate and distinct records shall be maintained for each Series of Shares and
the assets and liabilities attributable thereto.
18
<PAGE> 25
(d) Consideration for Shares. The Trustees may issue Shares of the
Trust (or any Series thereof) for such consideration (which may include
property subject to, or acquired in connection with the assumption of,
liabilities) and on such terms as they may determine (or for no consideration
if pursuant to a Share dividend or split-up), all without action or approval of
the Shareholders. All Shares when so issued on the terms determined by the
Trustees shall be fully paid and nonassessable (but may be subject to mandatory
contribution back to the Trust (or applicable Series) as provided in Section
6.1(l) hereof. The Trustees may classify or reclassify any unissued Shares, or
any Shares of the Trust (or any Series thereof) previously issued and
reacquired by the Trust, into Shares of the Trust or one or more other Series
that may be established and designated from time to time.
(e) Assets Belonging to Series. Any portion of the Trust Property
allocated to a particular Series, and all consideration received by the Trust
for the issue or sale of Shares of such Series, together with all assets in
which such consideration is invested or reinvested, all interest, dividends,
income, earnings, profits and gains therefrom, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series and shall irrevocably belong to
that Series for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of such Series shall not have, and
shall be conclusively deemed to have waived, any claims to the assets of any
Series of which they are not Shareholders. Such consideration, assets,
interest, dividends, income, earnings, profits, gains and proceeds, together
with any General Items allocated to that Series as provided in the following
sentence, are herein referred to collectively as assets "belonging to" that
Series. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series (collectively, "General Items"), the
Trustees shall allocate such General Items to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable; and any
General Items so allocated to a particular Series shall belong to and be part
of the assets belonging to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
(f) Liabilities of Series. The assets belonging to each particular
Series shall be charged with the liabilities in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as pertaining to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
indebtedness, expenses, costs, charges and reserves allocated and so charged to
a particular Series are herein referred to as "liabilities of" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series
for all purposes. Any creditor of any Series may look only to the assets
belonging to that Series to satisfy such creditor's debt.
(g) Dividends. Dividends and distributions on Shares of a particular
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the
Shareholders of that Series, from such of the income, accrued or realized, and
capital gains,
19
<PAGE> 26
realized or unrealized, and out of the assets belonging to that Series,
as the Trustees may determine, after providing for actual and accrued
liabilities of that Series. All dividends and distributions on Shares of a
particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of such Shares held by such holders at the
date and time of record established for the payment of such dividends or
distributions, except that the dividends and distributions of investment income
and capital gains with respect to each Class of Shares of a particular Series
shall be in such amount as may be declared from time to time by the Trustees,
and such dividends and distributions may vary as between such Classes to
reflect differing allocations of the expenses of the Series between the
Shareholders of such several Classes and any resultant differences between the
net asset value of such several Classes to such extent and for such purposes as
the Trustees may deem appropriate and further except that, in connection with
any dividend or distribution program or procedure, the Trustees may determine
that no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the time
or times established by the Trustees under such program or procedure, or that
dividends or distributions shall be payable on Shares which have been tendered
by the holder thereof for redemption or repurchase, but the redemption or
repurchase proceeds of which have not yet been paid to such Shareholder. Such
dividends and distributions may be made in cash, property or Shares of any
Class of that Series or a combination thereof as determined by the Trustees, or
pursuant to any program that the Trustees may have in effect at the time for
the election by each Shareholder of the mode of the making of such dividend or
distribution to that Shareholder. Any such dividend or distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with subsection (l) of this Section 6.1.
(h) Liquidation. In the event of the liquidation or dissolution of the
Trust (or any particular Series), the Shareholders of the Trust (or that
Series) shall be entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to the Trust (or that Series) over the
liabilities of such Series. The assets so distributable to the Shareholders of
the Trust (or that Series) shall be distributed among such Shareholders in
proportion to the number of Shares of the Trust (or that Series) held by them
and recorded on the books of the Trust. The liquidation of the Trust (or any
particular Series) may be authorized by vote of a Majority of the Trustees,
subject to the affirmative vote of "a majority of the outstanding voting
securities" of that Series, as the quoted phrase is defined in the 1940 Act,
determined in accordance with clause (iii) of the definition of "Majority
Shareholder Vote" in Section 1.4 hereof.
(i) Voting. The Shareholders shall have the voting rights set forth in
or determined under Article 7 hereof.
(j) Redemption by Shareholder. Each holder of Shares of the Trust (or a
particular Series thereof) shall have the right at such times as may be
permitted by the Trust, but no less frequently than required by the 1940 Act,
to require the Trust (or such Series) to redeem all or any part of his Shares of
the Trust (or such Series) at a redemption price equal to the net asset value
per Share of the Trust (or Series) next determined in accordance with
subsection (l) of this Section 6.1 after the Shares are properly tendered for
redemption; provided, that the Trustees may from time to time, in their
discretion, determine and impose a fee for such redemption and that the
proceeds of the redemption of Shares (including a fractional Share) of any
Class of the Trust (or any Series thereof) shall be reduced by the amount of
any applicable contingent deferred sales charge or other sales charge, if any,
payable on such redemption to the distributor of Shares of such Class pursuant
to the terms of
20
<PAGE> 27
the initial issuance of the Shares of such Class (to the extent
consistent with the 1940 Act or regulations or exemptions thereunder) and the
Trust shall promptly pay to such distributor the amount of such deferred sales
charge. Payment of the redemption price shall be in cash; provided, however,
that if the Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable, the
Trust may make payment wholly or partly in Securities or other assets belonging
to such Series at the value of such Securities or assets used in such
determination of net asset value. Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
holders of Shares of the Trust (or any Series thereof) to require the Trust to
redeem Shares of the Trust (or such Series) during any period or at any time
when and to the extent permissible under the 1940 Act.
(k) Redemption at the Option of the Trust. The Trustees shall have the
power to redeem Shares of the Trust (or any Series thereof) at a redemption
price determined in accordance with Section 6.1(j), if at any time (i) the
total investment in such account does not have a value of at least such minimum
amount as may be specified in the Prospectus for the Trust (or such Series)
from time to time (ii) the number of Shares held in such account is equal to or
in excess of a specified percentage of Shares of the Trust or any Series as set
forth from time to time in the applicable Prospectus. In the event the Trustees
determine to exercise their power to redeem Shares provided in this Section
6.1(k), the Shareholder shall be notified that the value of his account is less
than the applicable minimum amount and shall be allowed 30 days to make an
appropriate investment before redemption is processed.
(I) Net Asset Value. The net asset value per Share of the Trust (or any
Series or Class) at any time shall be the quotient obtained by dividing the
value of the net assets of the Trust (or such Series or Class) at such time
(being the current value of the assets belonging to the Trust (or such Series
or Class), less its then existing liabilities) by the total number of Shares of
the Trust (or such Series or Class) then outstanding, all determined in
accordance with the methods and procedures, including without limitation those
with respect to rounding, established by the Trustees from time to time in
accordance with the requirements of the 1940 Act. The net asset value of the
several Classes of the Trust (or a particular Series) shall be separately
computed, and may vary from one another. The Trustees shall establish
procedures for the allocation of investment income or capital gains and
expenses and liabilities of a particular Series between the several Classes of
the Trust (or such Series). The Trustees may determine to maintain the net
asset value per Share of the Trust or any Series or Class at a designated
constant dollar amount and in connection therewith may adopt procedures not
inconsistent with the 1940 Act for the continuing declaration of income
attributable to the Trust or such Series or Class as dividends payable in
additional Shares of the Trust or such Series or Class at the designated
constant dollar amount and for the handling of any losses attributable to the
Trust or such Series or Class. Such procedures may provide that in the event of
any loss each Shareholder shall be deemed to have contributed to the shares of
beneficial interest account of the Trust or such Series or Class his pro rata
portion of the total number of Shares required to be canceled in order to
permit the net asset value per Share of the Trust or such Series or Class to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have expressly agreed,
by his investment in the Trust (or any Series thereof) with respect to which
the Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.
(m) Transfer. All Shares of the Trust and each Series shall be
transferable, but transfers of Shares of the Trust or a particular Series will
be recorded on the Share transfer records of the Trust
21
<PAGE> 28
applicable to the Trust or such Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares of the
Trust or such Series and at such other times as may be permitted by the
Trustees.
(n) Equality. All Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities of that Series), and each Share of any particular Series shall
be equal to each other Share thereof; but the provisions of this sentence shall
not restrict any distinctions between the several Classes of a Series
permissible under this Section 6.1 or under Section 7. 1 hereof nor any
distinctions permissible under subsection (g) of this Section 6.1 that may
exist with respect to dividends and distributions on Shares of the same Series.
The Trustees may from time to time divide or combine the Shares of any class of
particular Series into a greater or lesser number of Shares of that class of a
Series without thereby changing the proportionate beneficial interest in the
assets belonging to that Series or in any way affecting the rights of the
holders of Shares of any other Series.
(o) Rights of Fractional Shares. Any fractional Share of the Trust (or
any Series thereof) shall carry proportionately all the rights and obligations
of a whole Share of the Trust (or such Series), including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or of the Series to which
they pertain.
(p) Conversion Rights. (i) Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that holders
of Shares of any Series shall have the right to convert said Shares into Shares
of one or more other Series, that holders of any Class of the Trust or a Series
of Shares shall have the right to convert said Shares of such Class into Shares
of one or more other Classes of the Trust or such Series, and that Shares of
any Class of the Trust or a Series shall be automatically converted into Shares
of another Class of the Trust or such Series, in each case in accordance with
such requirements and procedures as the Trustees may establish.
(ii) The number of Shares of into which a convertible Share shall
convert shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share for purposes of sales
and redemptions of the converting Share on the Conversion Date by the net asset
value per Share for purposes of sales and redemptions of the Class of Shares
into which it is converting on the Conversion Date.
(iii) On the Conversion Date, the Share converting into another
share will cease to accrue dividends and will no longer be deemed
outstanding and the rights of the holders thereof (except the right to receive
the number of target Shares into which the converting Shares have been
converted and declared but unpaid dividends to the Conversion Date) will cease.
Certificates representing Shares resulting from the conversion need not be
issued until certificates representing Shares converted, if issued, have been
received by the Trust or its agent duly endorsed for transfer.
(vi) The Trust will appropriately reflect the conversion of Shares
of one Class of the Trust (or a Series thereof) into Shares of another
Class of the Trust (or such Series) on the first periodic statements of account
sent to Shareholders of record affected which provide account information with
respect to a reporting period which includes the date such conversion occurred.
SECTION 6.2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a Transfer Agent or similar agent for
the Trust, which books shall be maintained
22
<PAGE> 29
separately for the Shares of each Series that has been authorized.
Certificates evidencing the ownership of Shares need not be issued except as
the Trustees may otherwise determine from time to time, and the Trustees shall
have power to call outstanding Share certificates and to replace them with book
entries. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the use of facsimile signatures, the transfer
of Shares and similar matters. The record books of the Trust as kept by the
Trust or any Transfer Agent or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders and as to the number of Shares of the
Trust and, if designated, each Series thereof held from time to time by each
such Shareholder.
The holders of Shares of the Trust and, if designated, each Series
thereof shall upon demand disclose to the Trustees in writing such information
with respect to their direct and indirect ownership of Shares of the Trust or,
if designated, such Series as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other authority.
SECTION 6.3. Investments in the Trust. The Trustees may accept
investments in any Series of the Trust from such Persons and on such terms and
for such consideration, not inconsistent with the provisions of the 1940 Act,
as they from time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or other Person
to accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares, whether or not conforming
to such authorized terms.
SECTION 6.4. No Preemptive Rights. No Shareholder, by virtue of holding
Shares of the Trust or, if designated, any Series thereof, shall have any
preemptive or other right to subscribe to any additional Shares of the Trust or
such Series, or to any shares of any other Series, or any other Securities
issued by the Trust.
SECTION 6.5. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. Shares shall be deemed to
be personal property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Series, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Declaration of Trust.
ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Sections 4.1(c)
and (e) hereof, (ii) with respect to the approval or termination in accordance
with the 1940 Act of any contract with a Contracting Party as provided in
Section 5.2 hereof as to which Shareholder approval is required by the 1940
Act, (iii) with respect to any termination or reorganization of the Trust or
any Series to the extent and as provided in Sections 9.2, 9.3 and 9.4 hereof,
(iv) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Section 9.5 hereof, (v) to the same extent as the
stockholders of a Delaware business
23
<PAGE> 30
corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or any Series, or the Shareholders of any of them
(provided. however, that a Shareholder of a particular Series shall not in any
event be entitled to maintain a derivative or class action on behalf of any
other Series or the Shareholders thereof), and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any State, or as the Trustees may
consider necessary or desirable. If and to the extent that the Trustees shall
determine that such action is required by law or by this Declaration, they
shall cause each matter required or permitted to be voted upon at a meeting or
by written consent of Shareholders to be submitted to a separate vote of the
outstanding Shares of each Series entitled to vote thereon; provided, that (i)
when expressly required by the 1940 Act or by other law, actions of
Shareholders shall be taken by Single Class Voting of all outstanding Shares
whose holders are entitled to vote thereon; and (ii) when the Trustees
determine that any matter to be submitted to a vote of Shareholders affects
only the rights or interests of Shareholders of one or more but not all Series
or of one or more but not all Classes of the Trust or a single Series
(including without limitation any distribution plan pursuant to Rule 12b-1 of
the 1940 Act applicable to such Class), then only the Shareholders of the
Series or Classes so affected shall be entitled to vote thereon. Any matter
required to be submitted to shareholders and affecting one or more Series shall
require separate approval by the required vote of Shareholders of the Trust or
each affected Series; provided, however, that to the extent required by the
1940 Act, there shall be no separate Series votes on the election or removal of
Trustees, the selection of auditors for the Trust and its Series or approval of
any agreement or contract entered into by the Trust or any Series. Shareholders
of a particular Series shall not be entitled to vote on any matter that affects
only one or more other Series.
SECTION 7.2. Number of Votes and Manner of Voting: Proxies. On each
matter submitted to a vote of the Shareholders, each holder of Shares of the
Trust or, if applicable, any Series shall be entitled to a number of votes
equal to the number of Shares of the Trust or such Series standing in his name
on the books of the Trust. There shall be no cumulative voting in the election
or removal of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two (2) or more Persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided, or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven (7) days before such
meeting, postage prepaid, stating the time, place and purpose of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records
of the Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than ten
percent (10%) of the Shares then outstanding. If the Trustees shall fail to
call or give notice of any meeting of Shareholders for a period of thirty (30)
days after written application by Shareholders holding at least ten percent
(10%) of the Shares then outstanding requesting that a
24
<PAGE> 31
meeting be called for any other purpose requiring action by the
Shareholders as provided herein or in the By-Laws, then Shareholders holding at
least ten percent (10%) of the Shares then outstanding may call and give notice
of such meeting, and thereupon the meeting shall be held in the manner provided
for herein in case of call thereof by the Trustees. Any meetings may be held
within or without The State of Delaware. Shareholders may only act with
respect to matters set forth in the notice to Shareholders.
SECTION 7.4. Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding thirty (30) days (except at
or in connection with the termination of the Trust), as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
and time not more than ninety (90) days prior to the date of any meeting of
Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
SECTION 7.5. Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A Majority Shareholder Vote at a meeting of which a quorum is
present shall decide any question, except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law or by this
Declaration of Trust or the By-Laws, or when the Trustees shall in their
discretion require a larger vote or the vote of a majority or larger fraction
of the Shares of one or more particular Series.
SECTION 7.6. Action By Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof or of the Shares of any particular
Series as shall be required by the 1940 Act or by any express provision of this
Declaration of Trust or the By-Laws or as shall be permitted by the Trustees)
consent to the action in writing and if the writings in which such consent is
given are filed with the records of the meetings of Shareholders, to the same
extent and for the same period as proxies given in connection with a
Shareholders' meeting. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
SECTION 7.7. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Delaware business corporation under the Delaware business
corporation law.
SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
25
<PAGE> 32
ARTICLE 8
LIMITATION OF LIABILITY: INDEMNIFICATION
SECTION 8.1. Trustees. Shareholders. etc. Not Personally Liable;
Notice. The Trustees, officers, employees and agents of the Trust, in incurring
any debts, liabilities or obligations, or in limiting or omitting any other
actions for or in connection with the Trust, are or shall be deemed to be
acting as Trustees, officers, employees or agents of the Trust and not in their
own capacities. No Shareholder shall be subject to any personal liability
whatsoever in tort, contract or otherwise to any other Person or Persons in
connection with the assets or the affairs of the Trust or of any Series, and
subject to Section 8.4 hereof, no Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever in tort, contract,
or otherwise, to any other Person or Persons in connection with the assets or
affairs of the Trust or of any Series, save only that arising from his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office or the discharge of his functions.
The Trust (or if the matter relates only to a particular Series, that Series)
shall be solely liable for any and all debts, claims, demands, judgments,
decrees, liabilities or obligations of any and every kind, against or with
respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed
that resort shall be had solely to the Trust Property of the Trust or the
Series Assets of such Series, as the case may be, for the payment or
performance thereof.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that a Certificate of
Trust in respect of the Trust is on file with the Secretary of the state of
Delaware and shall recite to the effect that the same was executed or made by
or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer, and not individually, and that the obligations of such instrument are
not binding upon any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust, or the particular Series in
question, as the case may be, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the Series Assets of any Series to the
obligations of any other Series.
SECTION 8.2. Trustees' Good Faith Action; Expert Advice: No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 8.4 hereof, a
Trustee shall be liable for his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (i) the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing
of any officer, agent, employee, consultant, Investment Adviser, Administrator,
Distributor or Principal Underwriter, Custodian or Transfer Agent, Dividend
Disbursing Agent, Shareholder Servicing Agent or Accounting Agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant, and (with respect to the subject matter of the contract
involved) any officer, partner or
26
<PAGE> 33
responsible employee of a Contracting Party appointed by the Trustees
pursuant to Section 5.2 hereof. The Trustees as such shall not be required to
give any bond or surety or any other security for the performance of their
duties.
SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being
or having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request
by the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified
against all loss and expense arising from such liability.
SECTION 8.4. Indemnification of Trustees. Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 8.4, the
Trust shall indemnify (from the assets of one or more Series to which the
conduct in question relates) each of its Trustees, officers, employees and
agents (including Persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise (hereinafter, together with
such Person's heirs, executors, administrators or personal representative,
referred to as a "Covered Person")) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel
fees, incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it has been
determined that such Covered Person (i) did not act in good faith in the
reasonable belief that such Covered Person's action was in or not opposed to
the best interests of the Trust; (ii) had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (iii) for a criminal proceeding, had
reasonable cause to believe that his conduct was unlawful (the conduct
described in (i), (ii) and (iii) being referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the Covered Person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum
of Trustees who are neither "interested persons" of the Trust as defined in
Section 2(a)(19) of the 1940 Act nor parties to the proceeding (the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments,
in compromise or as fines or penalties), may be paid from time to time by one
or more Series to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided that the Covered
Person shall have undertaken to repay the amounts so paid to such Series if it
is ultimately determined that indemnification of such expenses is not
authorized under this Article 8 and (i) the Covered Person shall
27
<PAGE> 34
have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the Disinterested Trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial type inquiry), that there
is reason to believe that the Covered Person ultimately will be found entitled
to indemnification.
SECTION 8.5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4
hereof, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent
legal counsel pursuant to clause (ii) shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
either of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office.
SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article 8, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article 8 shall affect
any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person.
SECTION 8.7. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
ARTICLE 9
DURATION: REORGANIZATION: INCORPORATION; AMENDMENTS
SECTION 9.1. Duration of Trust. Unless terminated as provided herein,
the Trust shall have perpetual existence.
SECTION 9.2. Termination of Trust. The Trust may be terminated at any
time by a Majority of the Trustees, subject to the favorable vote of the
holders of not less than a majority of the Shares outstanding and entitled to
vote of each Series of the Trust, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than a majority of
such Shares, or by such greater or different vote of Shareholders of any Series
as may be established by the Certificate of Designation by which such Series
was authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be
28
<PAGE> 35
determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with
the provisions of Section 6.1(h) hereof. After termination of the Trust or any
Series and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination. Upon
termination of the Trust, the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease. Upon termination of any Series, the
Trustees shall thereupon be discharged from all further liabilities and duties
with respect to such Series, and the rights and interests of all Shareholders
of such Series shall thereupon cease.
SECTION 9.3. Reorganization. The Trustees may sell, convey and transfer
all or substantially all of the assets of the Trust, or the assets belonging to
any one or more Series, to another trust, partnership, association, corporation
or other entity organized under the laws of any state of the United States, or
may transfer such assets to another Series of the Trust, in exchange for cash,
Shares or other Securities (including, in the case of a transfer to another
Series of the Trust, Shares of such other Series), or to the extent permitted
by law then in effect may merge or consolidate the Trust or any Series with any
other Trust or any corporation, partnership, or association organized under the
laws of any state of the United States, all upon such terms and conditions and
for such consideration when and as authorized by vote or written consent of a
Majority of the Trustees and approved by the affirmative vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Series whose assets are affected by such transaction, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, and/or by such other vote of any Series as
may be established by the Certificate of Designation with respect to such
Series. Following such transfer, the Trustees shall distribute the cash, Shares
or other Securities or other consideration received in such transaction (giving
due effect to the assets belonging to and indebtedness of, and any other
differences among, the various Series of which the assets have so been
transferred) among the Shareholders of the Series of which the assets have been
so transferred; and if all of the assets of the Trust have been so transferred,
the Trust shall be terminated. Nothing in this Section 9.3 shall be construed
as requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or
other organizations, and to sell, convey or transfer less than substantially
all of the Trust Property or the assets belonging to any Series to such
organizations or entities.
SECTION 9.4. Incorporation. Upon approval by Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization, in
exchange for the shares or securities thereof, or otherwise, and to lend money
to, subscribe for the shares of securities of, and enter into any contracts
with any such corporation, trust, partnership, association or organization in
which the Trust holds or is about to acquire shares or any other interests. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporation, trusts,
29
<PAGE> 36
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
SECTION 9.5. Amendments; etc. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any Shareholder
or Trustee or the prohibition of assessment upon the Shareholders (otherwise
than as permitted under Section 6.1(l)) without the express consent of each
Shareholder or Trustee involved. Subject to the foregoing, the provisions of
this Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument in
writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.I
hereof of Shareholders holding a majority of all the Shares outstanding and
entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Series, by the
vote of the holders of a majority of all the Shares entitled to vote of each
Series so affected. Notwithstanding any other provisions set forth in this
Declaration of Trust, a provision in this Declaration of Trust requiring
shareholder approval of any action may be amended only with like shareholder
approval.
SECTION 9.6. Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration and of each amendment hereto (including
each Certificate of Designation and Certificate of Termination) shall be kept
at the office of the Trust where it may be inspected by any Shareholder. A
restated Declaration, integrating into a single instrument all of the
provisions of this Declaration which are then in effect and operative, may be
executed from time to time by a Majority of the Trustees and shall, upon
execution, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration and the various
amendments thereto. A Certificate of Trust shall be filed in the office of the
Secretary of State of the State of Delaware.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.
SECTION 10.2. Governing Law. This Declaration of Trust is, with
reference to the laws thereof, and the rights of all parties and the
construction and effect of every provision hereof shall be, subject to and
construed according to the laws of said The State of Delaware.
SECTION 10.3. Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an
30
<PAGE> 37
original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust is a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form
of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust, (e)
the form of any By-Law adopted, or the identity of any officers elected, by the
Trustees, (f) the existence or nonexistence of any fact or facts which in any
manner relate to the affairs of the Trust, or (g) the name of the Trust or the
establishment of a Series shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees, or any of them, and
the successors of such Person.
SECTION 10.5. References; Headings. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part of this Declaration or control
or affect the meaning, construction or effect hereof.
SECTION 10.6. Provisions in Conflict With Law or Regulation. (a)
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Declaration; provided, however, that such determination shall not affect
any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION 10.7. Use of the Name "Van Kampen American Capital". Van Kampen
American Capital, Inc. ("Van Kampen American Capital") has consented to the use
by the Trust and by each Series and each Series thereof to the identifying
words "Van Kampen" or "Van Kampen Merritt" or any combination thereof in the
name of the Trust and of each Series and Series thereof. Such consent is
conditioned upon the Trust's employment of Van Kampen American Capital, its
successors or a subsidiary or affiliate thereof as investment adviser to the
Trust and to each Series and each Series thereof. As between Van Kampen
American Capital and the Trust, Van Kampen American Capital shall control the
use of such name insofar as such name contains the identifying words "Van
Kampen" or "Van Kampen Merritt". Van Kampen American Capital may from time to
time use the identifying words "American Capital," "Van Kampen" or "Van Kampen
Merritt" in other connections and for other purposes, including without
limitation in the names of other investment companies, corporations or
businesses that it may manage, advise, sponsor or own or in which it may have a
financial interest. Van Kampen American Capital may require the Trust or any
Series or Series thereof to cease using the identifying words "Van Kampen" or
"Van Kampen Merritt" in the name of the Trust or any Series or any Series
thereof if the Trust or any Series or Series thereof ceases to employ Van
Kampen American Capital, its successors or a subsidiary or affiliate thereof as
investment adviser.
31
<PAGE> 38
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees of the Trust, have set their hands and seal, for themselves and their
assigns, unto this First Amended and Restated Agreement and Declaration of
Trust of Van Kampen American Capital ___________, as of the day and year first
above written.
___________________________________ ___________________________________
J. Miles Branagan Richard E. Caruso
___________________________________ ___________________________________
Roger Hilsman Don G. Powell
___________________________________ ___________________________________
David Rees Lawrence J. Sheehan
___________________________________ ___________________________________
Fernando Sisto William S. Woodside
32
<PAGE> 39
A C K N O W L E D G M E N T
STATE OF )
) ss
COUNTY OF )
______________________
(Date)
Then personally appeared the above named [ ] and acknowledged the
foregoing instrument to be his free act and deed.
Before me,
_______________________________
(Notary Public)
My commission expires:___________
33
<PAGE> 1
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
Certificate of Designation
of
Van Kampen American Capital Municipal Bond Fund
The undersigned, being the Secretary of Van Kampen American Capital Municipal
Bond Fund, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's First
Amended and Related Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby establish and
designate the following classes of Shares of the Trust with following the
rights, preferences and characteristics:
1. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
2. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
3. Conversion. Each Class B and Class C Share of the Trust shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Trust at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Trust's Prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Trust may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust, or with respect to any Class of Shares set forth in the
Declaration shall apply to
1
<PAGE> 2
Shares of the Trust unless otherwise specified in this Certificate of
Designation, in which case this Certificate of Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled
to vote or, if such amendment affects the Shares of one or more but not all of
the Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
June _____, 1995
____________________________
Nori L. Gabert,
Secretary
2
<PAGE> 1
EXHIBIT 2
DRAFT FORM OF AMERICAN CAPITAL FUNDS DELAWARE TRUST
AMENDED AND RESTATED BYLAWS
VAN KAMPEN AMERICAN CAPITAL
[TRUST]
AMENDED AND RESTATED BYLAWS
<PAGE> 2
[TRUST]
Bylaws
Index
<TABLE>
<S> <C> <C>
ARTICLE 1 SHAREHOLDERS AND SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Presiding Officer; Secretary . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Authority of Chairman of Meeting to Interpret Declaration and Bylaws . . 1
Section 1.4. Voting; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.5. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 Records at Shareholder Meetings . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. Shareholders Action in Writing . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 TRUSTEES AND TRUSTEES' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1. Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2. Regular Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3. Special Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5. Quorum; Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.6. Participation by Telephone . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7. Location of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.8. Actions by Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.9. Rulings of Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.10. Trustees' Action in Writing . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.11. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.12. Tenure of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 3 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1. Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2. Time and Terms of Election . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3. Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.6. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.7. Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . 5
Section 3.8. Controller and Assistant Controllers . . . . . . . . . . . . . . . . . . 6
Section 3.9. Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . 6
Section 3.10. Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.11. Execution of Deeds, etc. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.12. Power to Vote Securities . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1. Power of Trustees to Designate Committees . . . . . . . . . . . . . . . 7
Section 4.2. Rules for Conduct of Committee Affairs . . . . . . . . . . . . . . . . 7
Section 4.3. Trustees May Alter, Abolish, etc., Committees . . . . . . . . . . . . . 7
Section 4.4. Minutes; Review by Trustees . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6 SHARES .......................................... . . . . . . . . . . . . . . . . . 7
Section 6.1. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.2. Uncertificated Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.3. Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.4. Lost, Stolen, etc., Certificates . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 7 STOCK TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.1. Transfer Agents, Registrars, etc. . . . . . . . . . . . . . . . . . . . 8
Section 7.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.3. Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.1. Bylaws Subject to Amendment . . . . . . . . . . . . . . . . . . . . . 9
Section 8.2. Notice of Proposal to Amend Bylaws Required . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 5
[TRUST]
BYLAWS
These are the Bylaws of [TRUST], a trust with transferable shares
established under the laws of The State of Delaware (the "Trust"), pursuant to
an Agreement and Declaration of Trust of the Trust (the "Declaration") made the
10th day of May, 1995, and a Certificate of Trust filed in the office of the
Secretary of State pursuant to Section 3810 of The Delaware Business Trust Act,
Title 12, Chapter 38 of the Delaware Code. These Bylaws have been adopted by
the Trustees pursuant to the authority granted by Section 4.14 of the
Declaration.
All words and terms capitalized in these Bylaws, unless
otherwise defined herein, shall have the same meanings as they have in the
Declaration.
ARTICLE 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1. Meetings. A meeting of the Shareholders of the Trust
shall be held whenever called by the Chairman, the President or a majority of
the Trustees and whenever election of a Trustee or Trustees by Shareholders is
required by the provisions of the 1940 Act. Meetings of Shareholders shall
also be called by the Trustees when requested in writing by Shareholders
holding at least ten percent (10%) of the Shares then outstanding for the
purpose of voting upon removal of any Trustee, or if the Trustees shall fail to
call or give notice of any such meeting of Shareholders for a period of thirty
(30) days after such application, then Shareholders holding at least ten
percent (10%) of the Shares then outstanding may call and give notice of such
meeting. Notice of Shareholders' meetings shall be given as provided in the
Declaration.
SECTION 1.2. Presiding Officer; Secretary. The President shall
preside at each Shareholders' meeting as chairman of the meeting, or in the
absence of the President, the Trustees present at the meeting shall elect one
of their number as chairman of the meeting. Unless otherwise provided for by
the Trustees, the Secretary of the Trust shall be the secretary of all meetings
of Shareholders and shall record the minutes thereof.
SECTION 1.3. Authority of Chairman of Meeting to Interpret
Declaration and Bylaws. At any Shareholders' meeting the chairman of the
meeting shall be empowered to determine the construction or interpretation
of the Declaration or these Bylaws, or any part thereof or hereof, and their
ruling shall be final.
SECTION 1.4. Voting; Quorum. At each meeting of Shareholders, except
as otherwise provided by the Declaration, every holder of record of Shares
entitled to vote shall be entitled to a number of votes equal to the number of
Shares standing in his name on the Share register of the Trust on the record
date of the meeting. Shareholders may vote by proxy and the form of any such
proxy may be prescribed from time to time by the Trustees. A quorum shall
exist if the holders of a majority of the outstanding Shares of the Trust
entitled to vote are present in person or by proxy, but any lesser
1
<PAGE> 6
number shall be sufficient for adjournments. At all meetings of the
Shareholders, votes shall be taken by ballot for all matters which may be
binding upon the Trustees pursuant to Section 7.1 of the Declaration. On other
matters, votes of Shareholders need not be taken by ballot unless otherwise
provided for by the Declaration or by vote of the Trustees, or as required by
the 1940 Act, but the chairman of the meeting may in his discretion authorize
any matter to be voted upon by ballot.
SECTION 1.5. Inspectors. At any meeting of Shareholders, the chairman
of the meeting may appoint one or more Inspectors of Election or Balloting to
supervise the voting at such meeting or any adjournment thereof. If Inspectors
are not so appointed, the chairman of the meeting may, and on the request of
any Shareholder present or represented and entitled to vote shall, appoint one
or more Inspectors for such purpose. Each Inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of Inspector of Election or Balloting, as the case may be, at such
meeting with strict impartiality and according to the best of his
ability. If appointed, Inspectors shall take charge of the polls and, when the
vote is completed, shall make a certificate of the result of the vote taken and
of such other facts as may be required by law.
SECTION 1.6. Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last
previous Meeting of Shareholders of the Trust and a list of the Shareholders of
the Trust, certified to be true and correct by the Secretary or other proper
agent of the Trust, as of the record date of the meeting or the date of closing
of transfer books, as the case may be. Such list of Shareholders shall contain
the name of each Shareholder. Shareholders shall have such other rights and
procedures of inspection of the books and records of the Trust as are granted
to shareholders of a Delaware corporation.
SECTION 1.7. Shareholders' Action in Writing. Nothing in this Article
1 shall limit the power of the Shareholders to take any action by means of
written instruments without a meeting, as permitted by Section 7.6 of the
Declaration.
ARTICLE 2
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1. Number of Trustees. The number of Trustees shall be
eight (8) until such time as additional trustees are elected by the
Shareholders pursuant to Section 4.1(e) hereof and the meeting of shareholders
called for July 21, 1995 of the Trust's predecessor. Thereafter, the number of
Trustees shall be fourteen (14), provided that such number shall be
automatically reduced upon the death, resignation or retirement of any Trustee
until the number of Trustees is eight (8). The number of Trustees shall
thereafter be such number, authorized by the Declaration, as from time to time
shall be fixed by a vote of the Trustees in accordance with Section 2.8 hereof.
SECTION 2.2. Regular Meetings of Trustees. Regular meetings of the
Trustees may be held without call or notice at such places and at such times as
the Trustees may from time to time determine; provided, that notice of such
determination, and of the time and place of the first regular meeting
thereafter, shall be given to each absent Trustee in accordance with Section
2.4 hereof.
SECTION 2.3. Special Meetings of Trustees. Special meetings of the
Trustees may be held at any time and at any place when called by the President
or the Treasurer or by three (3) or more
2
<PAGE> 7
Trustees, or if there shall be less than three (3) Trustees, by any Trustee;
provided, that notice of the time and place thereof is given to each Trustee
in accordance with Section 2.4 hereof by the Secretary or an Assistant
Secretary or by the officer or the Trustees calling the meeting.
SECTION 2.4. Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if given in writing to each
Trustee, and if sent by mail at least five (5) days, by a nationally recognized
overnight delivery service at least two (2) days or by facsimile at least
twenty-four (24) hours, before the meeting, addressed to his usual or last
known business or residence address, or if delivered to him in person at least
twenty-four (24) hours before the meeting. Notice of a special meeting need
not be given to any Trustee who was present at an earlier meeting, not more
than thirty-one (31) days prior to the subsequent meeting, at which the
subsequent meeting was called. Unless statute, these bylaws or a resolution of
the Trustees might otherwise dictate, notice need not state the business to be
transacted at or the purpose of any meeting of the Board of Trustees. Notice
of a meeting may be waived by any Trustee by written waiver of notice, executed
by him or her before or after the meeting, and such waiver shall be filed with
the records of the meeting. Attendance by a Trustee at a meeting shall
constitute a waiver of notice, except where a Trustee attends a meeting for the
purpose of protesting prior thereto or at its commencement the lack of notice.
No notice need be given of action proposed to be taken by unanimous written
consent.
SECTION 2.5. Quorum: Presiding Trustee. At any meeting of the
Trustees, a Majority of the Trustees shall constitute a quorum. Any meeting may
be adjourned from time to time by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice. Unless the Trustees shall otherwise elect,
generally or in a particular case, the Chairman shall be the presiding Trustee
at each meeting of the Trustees or in the absence of the Chairman, the
President shall preside over the meeting. In the absence of both the Chairman
and the President, the Trustees present at the meeting shall elect one of their
number as presiding Trustee of the meeting.
SECTION 2.6. Participation by Telephone. One or more of the Trustees
may participate in a meeting thereof or of any Committee of the Trustees by
means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 2.7. Location of Meetings. Trustees' meetings may be held at
any place, within or without the State of Delaware.
SECTION 2.8. Actions by Trustees. Unless statute, the declaration
or these bylaws requires a greater proportion, action of a majority of the
Trustees present at a meeting at which a quorum is present is action of the
Board of Trustees. Notwithstanding the preceding sentence, a vote of not less
than two-thirds (2/3) of the Trustees then in office shall be required to
(directly or indirectly through a reorganization or an amendment to the
Declaration) (i) amend Section 2.1, 2.12 or 2.13 of these By-Laws, (ii)
nominate or elect a new Trustee, (iii) adopt a retirement plan other than a
deferred compensation plan or (iv) amend this supermajority provision of the
By-Laws. Voting at Trustees' meetings may be conducted orally, by show of
hands, or, if requested by any Trustee, by written ballot. The results of
all voting shall be recorded by the Secretary in the minute book.
3
<PAGE> 8
SECTION 2.9. Rulings of Presiding Trustee. All other rules of conduct
adopted and used at any Trustees' meeting shall be determined by the presiding
Trustee of such meeting, whose ruling on all procedural matters shall be
final.
SECTION 2.10. Trustees' Action in Writing. Nothing in this Article 2
shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.
SECTION 2.11. Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the Chairman, the President
or the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
SECTION 2.12. Tenure of Trustees. Notwithstanding any other
provision herein to the contrary, through June 30, 1996, the term of office of
each Trustee shall end at the time such Trustee reaches the age of seventy-six
and one-half years (76 1/2) or seventy-four and one-half years (74 1/2) for
each person who had not been elected before January 1, 1986 as a trustee or
director of any open end investment company managed by Van Kampen American
Capital Asset Management, Inc. (formerly American Capital Asset Management,
Inc. and, prior thereto, American General Capital Management, Inc.) and on and
after July 1, 1996, the term of office of each Trustee shall end at the time
such Trustee reaches the age of seventy-six and one-half years (76 1/2) or
seventy-two and one-half years (72 1/2) for each person who had not been
elected before January 1, 1986 as a trustee or director of any open end
investment company managed by Van Kampen American Capital Asset Management,
Inc.; provided that the term of office of each Trustee shall end on December
31st of the year in which such Trustee reaches the age of seventy-five years
(75) for each person first elected on or after July 1, 1995 and prior to
December 1, 1995 as a Trustee who was over the age of seventy-two and one half
(72 1/2) and under the age of seventy-five (75) at the time of such election;
and further provided that the term of office of each Trustee first elected on
or after July 1, 1995 and prior to December 1, 1995 who is seventy-five years
(75) of age at the time of such election shall expire as of the date such
Trustees reaches the age of seventy-six years (76).
SECTION 2.13. Chairman of the Board. The Trustees shall from time to
time elect one of the Trustees to serve as Chairman of the Board of Trustees,
provided that the chairman shall be a Trustee who is not an "interested person"
of the Trust or the Trust's investment adviser, within the meaning of the 1940
Act.
ARTICLE 3
OFFICERS
SECTION 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and a Secretary, and may include a
Controller and one or more Vice Presidents, Assistant Treasurers and Assistant
Secretaries, and such other officers as the Trustees may designate. Any person
may hold more than one office.
SECTION 3.2. Time and Terms of Election. The President, the Treasurer
and the Secretary shall be elected by the Trustees at their first meeting and
thereafter at the annual meeting of the Trustees, as provided in Section 4.2 of
the Declaration. Such officers shall hold office until the next
4
<PAGE> 9
annual meeting of the Trustees and until their successors shall have been duly
elected and qualified, and may be removed at any meeting by the affirmative
vote of a Majority of the Trustees. All other officers of the Trust may be
elected or appointed at any meeting of the Trustees. Such officers shall hold
office for any term, or indefinitely, as determined by the Trustees, and shall
be subject to removal, with or without cause, at any time by the Trustees.
SECTION 3.3. Resignation and Removal. Any officer may resign at any
time by giving written notice to the Trustees. Such resignation shall take
effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective. If the office of any officer or agent becomes vacant by reason
of death, resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold office for the
unexpired term in respect of which such vacancy occurred. Except to the extent
expressly provided in a written agreement with the Trust, no officer resigning
or removed shall have any right to any compensation for any period following
such resignation or removal, or any right to damage on account of such removal.
SECTION 3.4. Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.
SECTION 3.5. President. The President shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property and affairs of
the Trust and such other powers and duties as the Trustees may prescribe.
SECTION 3.6. Vice Presidents. In the absence or disability of the
President, the Vice President or, if there shall be more than one, the Vice
Presidents in the order of their seniority or as otherwise designated by the
Trustees, shall exercise all of the powers and duties of the President. The
Vice Presidents shall have the power to execute bonds, notes, mortgages and
other contracts, agreements and instruments in the name of the Trust, and shall
do and perform such other duties as the Trustees or the President shall direct.
SECTION 3.7. Treasurer and Assistant Treasurers. The Treasurer shall
be the chief financial officer of the Trust, and shall have the custody of the
Trust's funds and Securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys, and other valuable effects in the name and to the credit of the
Trust, in such depositories as may be designated by the Trustees, taking
proper vouchers for such disbursements, shall have such other duties and
powers as may be prescribed from time to time by the Trustees, and shall
render to the Trustees, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Trust. If no
Controller is elected, the Treasurer shall also have the duties and powers
of the Controller, as provided in these Bylaws. Any Assistant Treasurer shall
have such duties and powers as shall be prescribed from time to time by the
Trustees or the Treasurer, and shall be responsible to and shall report to the
Treasurer. In the absence or disability of the Treasurer, the Controller shall
have the powers and duties of the Treasurer. If no Controller is elected, the
Assistant Treasurer or, if there shall be more than one, the Assistant
Treasurers in the order of their seniority or as otherwise designated by the
Trustees or the Chairman, shall have the powers and duties of the Treasurer.
5
<PAGE> 10
SECTION 3.8. Controller and Assistant Controllers. If a Controller
is elected, the Controller shall be the chief accounting officer of the Trust
and shall be in charge of its books of account and accounting records and of
its accounting procedures, and shall have such duties and powers as are
commonly incident to the office of a controller, and such other duties and
powers as may be prescribed from time to time by the Trustees. The Controller
shall be responsible to and shall report to the Trustees, but in the
ordinary conduct of the Trust's business, shall be under the supervision of
the Treasurer. Any Assistant Controller shall have such duties and powers as
shall be prescribed from time to time by the Trustees or the Controller, and
shall be responsible to and shall report to the Controller. In the absence or
disability of the Controller, the Assistant Controller or, if there shall be
more than one, the Assistant Controllers in the order of their seniority or as
otherwise designated by the Trustees, shall have the powers and duties of the
Controller.
SECTION 3.9. Secretary and Assistant Secretaries. The
Secretary shall, if and to the extent requested by the Trustees, attend all
meetings of the Trustees, any Committee of the Trustees and/or the Shareholders
and record all votes and the minutes of proceedings in a book to be kept for
that purpose, shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders and shall
perform such other duties as may be prescribed by the Trustees. The Secretary,
or in his absence any Assistant Secretary, shall affix the Trust's seal to any
instrument requiring it, and when so affixed, it shall be attested by the
signature of the Secretary or an Assistant Secretary. The Secretary shall be
the custodian of the Share records and all other books, records and papers of
the Trust (other than financial) and shall see that all books, reports,
statements, certificates and other documents and records required by law are
properly kept and filed. In the absence or disability of the Secretary, the
Assistant Secretary or, if there shall be more than one, the Assistant
Secretaries in the order of their seniority or as otherwise designated by the
Trustees, shall have the powers and duties of the Secretary.
SECTION 3.10. Substitutions. In case of the absence or disability
of any officer of the Trust, or for any other reason that the Trustees may deem
sufficient, the Trustees may delegate, for the time being, the powers or
duties, or any of them, of such officer to any other officer, or to any
Trustee.
SECTION 3.11. Execution of Deeds, etc. Except as the Trustees may
generally or in particular cases otherwise authorize or direct, all deeds,
leases, transfers, contracts, proposals, bonds, notes, checks, drafts and other
obligations made, accepted or endorsed by the Trust shall be signed or endorsed
on behalf of the Trust by its properly authorized officers or agents as
provided in the Declaration.
SECTION 3.12. Power to Vote Securities. Unless otherwise ordered by
the Trustees, the Treasurer shall have full power and authority on behalf of
the Trust to give proxies for, and/or to attend and to act and to vote at, any
meeting of stockholders of any corporation in which the Trust may hold stock,
and at any such meeting the Treasurer or his proxy shall possess and may
exercise any and all rights and powers incident to the ownership of such stock
which, as the owner thereof, the Trust might have possessed and exercised if
present. The Trustees, by resolution from time to time, or, in the absence
thereof, the Treasurer, may confer like powers upon any other person or persons
as attorneys and proxies of the Trust.
6
<PAGE> 11
ARTICLE 4
COMMITTEES
SECTION 4.1. Power of Trustees to Designate Committees. The Trustees,
by vote of a Majority of the Trustees, may elect from their number an Executive
Committee and any other Committees and may delegate thereto some or all of
their powers except those which by law, by the Declaration or by these
Bylaws may not be delegated; provided, that an Executive Committee shall not
be empowered to elect the President, the Treasurer or the Secretary, to amend
the Bylaws, to exercise the powers of the Trustees under this Section 4.1 or
under Section 4.3 hereof, or to perform any act for which the action of a
Majority of the Trustees is required by law, by the Declaration or by these
Bylaws. The members of any such Committee shall serve at the pleasure of the
Trustees.
SECTION 4.2. Rules for Conduct of Committee Affairs. Except as
otherwise provided by the Trustees, each Committee elected or appointed
pursuant to this Article 4 may adopt such standing rules and regulations for
the conduct of its affairs as it may deem desirable, subject to review and
approval of such rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or any contrary
provisions by the Trustees, the business of each Committee shall be conducted,
so far as practicable, in the same manner as provided herein and in the
Declaration for the Trustees.
SECTION 4.3. Trustees May Alter, Abolish, etc., Committees Trustees
may at any time alter or abolish any Committee, change membership of any
Committee, or revoke, rescind, waive or modify action of any Committee or the
authority of any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any third parties.
SECTION 4.4. Minutes: Review by Trustees. Any Committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees.
ARTICLE 5
SEAL
The seal of the Trust, if any, may be affixed to any instrument, and
the seal and its attestation may be lithographed, engraved or otherwise printed
on any document with the same force and effect as if had been imprinted and
affixed manually in the same manner and with the same force and effect as if
done by a Delaware corporation. Unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 6
SHARES
SECTION 6.1. Issuance of Shares. The Trustees may issue an unlimited
number of Classes of Shares of any or all Series either in certificated or
uncertificated form, they may issue certificates to the
7
<PAGE> 12
holders of a Class of Shares of a Series which was originally issued in
uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders of
such Series require the surrender of their Share certificates to the Trust for
cancellation, which surrender and cancellation shall not affect the ownership
of Shares for such Series.
SECTION 6.2. Uncertificated Shares. For any Class of Shares for which
the Trustees issue Shares without certificates, the Trust or the Transfer Agent
may either issue receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such Shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of such Shares as if they
had received certificates therefor and shall be held to have expressly assented
and agreed to the terms hereof and of the Declaration.
SECTION 6.3. Share Certificates. For any Class of Shares for which
the Trustees shall issue Share certificates, each Shareholder of such Class
shall be entitled to a certificate stating the number of Shares owned by him in
such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Trust. Such signatures may be facsimiles if the certificate
is countersigned by a Transfer Agent, or by a Registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he were such officer at the time of its issue.
SECTION 6.4. Lost, Stolen, etc., Certificates. If any
certificate for certificated Shares shall be lost, stolen, destroyed or
mutilated, the Trustees may authorize the issuance of a new certificate of the
same tenor and for the same number of Shares in lieu thereof. The Trustees
shall require the surrender of any mutilated certificate in respect of which a
new certificate is issued, and may, in their discretion, before the issuance of
a new certificate, require the owner of a lost, stolen or destroyed
certificate, or the owner's legal representative, to make an affidavit or
affirmation setting forth such facts as to the loss, theft or destruction as
they deem necessary, and to give the Trust a bond in such reasonable sum as the
Trustees direct, in order to indemnify the Trust.
ARTICLE 7
TRANSFER OF SHARES
SECTION 7.1. Transfer Agents, Registrars, etc. As approved in Section
5.2(e) of the Declaration, the Trustees shall have the authority to employ and
compensate such transfer agents and registrars with respect to the Shares of
the Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have the power to employ and compensate such dividend dispersing
agents, warrant agents and agents for reinvestment of dividends as they shall
deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
SECTION 7.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section
6.1(m) of the Declaration. The Trust, or its transfer agents, shall be
authorized to
8
<PAGE> 13
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
SECTION 7.3 Registered Shareholders. The Trust may deem and treat
the holder of record of any Shares the absolute owner thereof for all purposes
and shall not be required to take any notice of any right or claim of right of
any other person.
ARTICLE 8
AMENDMENTS
SECTION 8.1. Bylaws Subject to Amendment. These Bylaws may be
altered, amended or repealed, in whole or in part, at any time by vote of the
holders of a majority of the Shares issued, outstanding and entitled to vote.
The Trustees, by vote of a Majority of the Trustees (unless a greater vote is
required by Section 2.8 hereof), may alter, amend or repeal these Bylaws, in
whole or in part, including Bylaws adopted by the Shareholders, except with
respect to any provision hereof which by law, the Declaration or these Bylaws
requires action by the Shareholders. Bylaws adopted by the Trustees may be
altered, amended or repealed by the Shareholders.
SECTION 8.2. Notice of Proposal to Amend Bylaws Required. No proposal
to amend or repeal these Bylaws or to adopt new Bylaws shall be acted upon at a
meeting unless either (i) such proposal is stated in the notice or in the
waiver of notice, as the case may be, of the meeting of the Trustees or
Shareholders at which such action is taken, or (ii) all of the Trustees or
Shareholders, as the case may be, are present at such meeting and all agree to
consider such proposal without protesting the lack of notice.
9
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL ________ FUND
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL ________ FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.2
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL ________ FUND
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL ________ FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.3
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL ________ FUND
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL ________ FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this ____ day of ____________, 1995, by and
between VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND, a Delaware business
trust (hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").
The FUND and the ADVISER agree as follows:
(1) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected by
the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
FUND selected by the Trustees, and the supervision of the FUND's Treasurer and
the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of
<PAGE> 2
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction. In the event of such authorization and to the extent
authorized by law, the ADVISER shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall pay,
or arrange for others to pay, all its expenses other than those expressly stated
to be payable by the ADVISER hereunder, which expenses payable by the FUND shall
include (i) interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase and sale of portfolio investments; (iii)
compensation of its directors and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the FUND which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the FUND's financial statements, preparation of such financial
statements and other FUND documents and reports of a financial nature required
by federal and state laws, and participation in the production of the FUND's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders; (v) fees of outside counsel to and of independent accountants
of the FUND selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the FUND and its shares
for distribution under state and federal securities laws; (x) expenses of
printing and mailing of registration statements, prospectuses, reports, notices
and proxy solicitation materials of the FUND; (xi) all other expenses incidental
to holding meetings of the FUND's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the FUND's membership in trade associations approved by the Trustees; and
(xv) such nonrecurring expenses as may arise, including those associated with
actions, suits or proceedings to which the FUND is a party and the legal
obligation which the FUND may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
between the FUND and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
2
<PAGE> 3
(2) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND may
be a shareholder, trustee, director, officer or employee of, or be otherwise
interested in, the ADVISER, and in any person controlled by or under common
control with the ADVISER, and the ADVISER, and any person controlled by or under
common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or to
any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(3) Compensation Payable to ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed at
the following annual rate:
.50% of average net assets.
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct expenses
incurred by such person, in connection with obtaining such commissions, fees,
brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the FUND's portfolio transactions and shall advise the
Trustees of any other commissions, fees, brokerage or similar payments which may
be possible for the ADVISER or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with the FUND's
portfolio transactions or other arrangements which
3
<PAGE> 4
may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal year
should exceed the most restrictive expense limitation applicable in the states
where the FUND's shares are qualified for sale, the compensation due the ADVISER
for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND shall
include the investment advisory fee and other operating expenses paid by the
FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii) as a
result of litigation in connection with a suit involving a claim for recovery by
the FUND; (iv) as a result of litigation involving a defense against a liability
asserted against the FUND, provided that, if the ADVISER made the decision or
took the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the FUND to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to Van Kampen
American Capital Distributors, Inc., the distributor of the FUND's shares, in
connection with a distribution plan adopted by the FUND's Trustees pursuant to
Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) Books and Records
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any of
such records upon the FUND's request. The ADVISER further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the Act.
(5) Duration of Agreement
This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Trustees who are not parties to this Agreement or interested persons of
any such parties, cast in person at a meeting called for the purpose of
4
<PAGE> 5
voting on such approval, and by a vote of a majority of the FUND's Trustees or a
majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment. The
Agreement may be terminated at any time by the FUND's Trustees, by vote of a
majority of the FUND's outstanding voting securities, or by the ADVISER, on 60
days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person," "assignment,"
"interested person," and "majority of the outstanding voting securities" shall
have their respective meanings defined in the 1940 Act and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
to either the ADVISER or the FUND by the Securities and Exchange Commission (the
"Commission"), or such interpretive positions as may be taken by the Commission
or its staff, under the 1940 Act, and the term "brokerage and research services"
shall have the meaning given in the Securities Exchange Act of 1934 and the
Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Fund or
the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees, officers
or shareholders of the FUND individually but are binding only upon the assets
and property of the FUND. A Certificate of Trust in respect of the Fund is on
file with the Secretary of State of Delaware.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
5
<PAGE> 1
UNDERWRITING AGREEMENT
between
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
and
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
THIS AGREEMENT made this ___ day of ________, 1995, by and between VAN KAMPEN
AMERICAN CAPITAL MUNICIPAL BOND FUND, a Delaware business trust, hereinafter
referred to as the "Fund", and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.,
a Delaware corporation, hereinafter referred to as the "Underwriter".
WHEREAS, the Fund proposes to issue its shares in three classes: Class A,
Class B and Class C, all as described in the Fund's current prospectus at the
time of sale;
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: The Fund hereby appoints the Underwriter as its exclusive agent for the
sale of shares of the Fund to the public through investment dealers in the
United States and throughout the world.
SECOND: The Fund shall not sell any of its shares except through the
Underwriter and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,
(A) the Fund may issue its shares to any other investment company or personal
holding company, or to the shareholders thereof, in exchange for all or a
majority of the shares or assets of any such company;
(B) the Fund may issue its shares at net asset value to any shareholder of the
Fund purchasing such shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders; and
(C) the Fund may issue its shares at net asset value to its Trustees.
THIRD: The Underwriter hereby accepts appointment as exclusive agent for the
sale of all classes of shares of the Fund and agrees that it will use its best
efforts to sell such shares; provided, however, that:
(A) the Underwriter may, and when requested by the Fund shall, suspend its
efforts to effectuate sales for any or all classes of
1
<PAGE> 2
shares of the Fund or limit such sales efforts to existing shareholders of the
Fund at any time when, in the opinion of the Underwriter, after consultation
with the investment adviser to the Fund, or in the opinion of the Fund, sales
efforts should be limited or suspended because of market or other economic
considerations (including a determination by the Fund's investment adviser that
it would be in the best interests of existing shareholders of the Fund to
suspend sales of shares of the Fund or limit such sales to existing
shareholders of the Fund) or abnormal circumstances of any kind;
(B) upon the limiting or suspension of sales efforts by the Underwriter
pursuant to clause (A) above, the Fund may in its discretion suspend the sale
of shares through the Underwriter or limit such sales to existing shareholders
of the Fund; and
(C) the Fund may withdraw the offering of its shares (i) at any time with the
consent of the Underwriter, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Underwriter does not undertake to sell any specific amount of shares
of the Fund. The Fund shall have the right to specify minimum amounts for
initial and subsequent orders for the purchase of shares.
FOURTH: The offering price of shares of the Fund (the "offering price") shall
be the net asset value per share plus, in the case of Class A shares, any
applicable initial sales charge. Net asset value per share shall be determined
in the manner provided in the then current prospectus of the Fund. The sales
charge for shares shall be established by the Underwriter. The Underwriter may
designate a scale of reducing sales charges on the basis of the value of shares
purchased or owned in accordance with Rule 22d-1 under the Investment Company
Act of 1940 (the "Act"). Included in the scale of reducing sales charges may
be a level at which no sales charges are added to the net asset value in
computing the public offering price. The Underwriter may also designate
eliminations of sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1, provided such eliminations are
approved by the Fund and described in the prospectus. The Fund shall allow,
directly to investment dealers through whom shares of the Fund are sold, such
portion of the sales charge as may be payable to them and specified by the
Underwriter up to, but not exceeding, the amount of the total sales charge.
The difference between any portion of the sales charge so payable to investment
dealers and the total sales charges included in the offering price shall be
paid to the Underwriter.
The offering price of Class B and Class C shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Fund
agrees that the Underwriter shall impose certain contingent deferred sales
charges in connection with the redemption
2
<PAGE> 3
of Class B and Class C shares of the Fund, not to exceed a specified percentage
of the original purchase price of the shares as from time to time set forth in
the prospectus of the Fund. The Underwriter may retain (or receive from the
Fund, as the case may be) all of such contingent deferred sales charges. Net
asset value per share shall be determined in the manner provided in the then
current prospectus of the Fund. The Underwriter may designate eliminations of
contingent deferred sales charges to particular classes of investors or
transactions in accordance with Rule22d-1 provided such eliminations are
approved by the Fund and described in the prospectus. The Underwriter proposes
to pay to investment dealers through whom Class B and Class C shares of the
Fund are sold a dealer commission of a specified percentage of the purchase
price of Class B and Class C shares purchased through them and as from time to
time set forth in the prospectus of the Fund.
The Underwriter shall act as agent of the Fund in connection with the sale and
repurchase of shares of the Fund. Except with respect to such sales and
repurchases, the Underwriter shall act as principal in all matters relating to
the promotion of the sale of shares of the Fund and shall enter into all of its
own engagements, agreements and contracts as principal on its own account. The
Underwriter shall enter into selling group agreements with investment dealers
selected by the Underwriter, authorizing such investment dealers to offer and
sell shares of the Fund to the public upon the terms and conditions set forth
therein, which shall not be inconsistent with the provisions of this Agreement.
Each selling group agreement shall provide that the investment dealer shall act
as a principal, and not as an agent of the Fund.
FIFTH: The Underwriter shall bear
(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses relating to public offerings made by
the Underwriter pursuant to this Agreement and annual and semi-annual
shareowner reports used as sales literature (not, however, including
typesetting costs), as well as all printing and distribution costs of any other
sales literature used by the Underwriter or furnished by the Underwriter to
dealers in connection with such public offerings except as otherwise agreed by
the Trustees;
(B) expenses of advertising in connection with such public offerings except as
otherwise agreed by the Trustees; and
(C) all legal expenses in connection with the foregoing.
SIXTH: The Underwriter will accept orders for shares of the Fund only to the
extent of purchase orders actually received and not in excess of such orders,
and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.
3
<PAGE> 4
SEVENTH:
(A) The Fund and the Underwriter shall each comply with all applicable
provisions of the Act, the Securities Act of 1933 (the "Securities Act") and of
all other federal and state laws, rules and regulations governing the issuance
and sale of shares of the Fund.
(B) The Fund agrees to indemnify the Underwriter against any and all claims,
demands, liabilities and expenses which the Underwriter may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(C) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of or
based upon any act or deed of the Underwriter or its sales representatives
which has not been authorized by the Fund in its prospectus or in this
Agreement. The Underwriter agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(D) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur under the Securities
Act, or common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any prospectus of the Fund
prepared for use under Rule 482 of the Securities Act, or any omission to state
a material fact therein.
EIGHTH: Nothing herein contained shall require the Fund to take any action
contrary to any provision of its charter or to any applicable statute or
regulation.
NINTH: This Agreement shall become effective on the date hereof, shall have an
initial term of two years from the date hereof, and shall continue in force and
effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a)(i) by the Trustees of the Fund, or
(ii) by vote of a majority of the Fund's outstanding voting securities (as
defined in Section 2(a)(42) of the Act); and (b) by vote of a majority of the
4
<PAGE> 5
Fund's Trustees who are not parties to this Agreement or interested persons (as
defined in Section 2(a)(19) of the Act) of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
TENTH:
(A) This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Underwriter, on sixty days
written notice to the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the Act).
ELEVENTH: Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed, postage paid, to the other party at such address as such
other party may designate for the receipt of such notices. Until further
notice to the other party, it is agreed that the address of the Fund shall be
2800 Post Oak Boulevard, Houston, Texas 77056 and the address of the
Underwriter shall be One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
TWELFTH: This Agreement is executed on behalf of the Fund or the Trustees of
the FUND as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding only upon the assets and property of the
Fund. A Certificate of Trust in respect of the Fund is on file with the
Secretary of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By:__________________________________
Name:________________________________
Its:_________________________________
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
By:__________________________________
Name:________________________________
Its:_________________________________
5
<PAGE> 1
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ___ day of _______, 1995 by and between each
of the VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A"
hereto, which are organized under the laws of the state and as the entities set
forth in Schedule "A" hereto, having their principal office and place of
business at Houston, Texas (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation, having its principal office at Houston,
Texas, and its principal place of business at Kansas City, Missouri ("ACCESS").
R E C I T A L:
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF ACCESS.
1.01 Subject to the terms and conditions set forth in this
Agreement, each of the Funds hereby employs and appoints ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and
agrees that on and after the effective date of this Agreement it will act as
the transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will
be performed in a competent, efficient and workmanlike manner with due
diligence in accordance with reasonable industry practice, and that the
necessary facilities, equipment and personnel for such performance will be
provided.
1.04 In order to assure compliance with section 1.03 and to
implement a cooperative effort to improve the quality of transfer agency and
shareholder services received by each of the Funds and its shareholders,
1
<PAGE> 2
ACCESS agrees to provide and maintain quantitative performance objectives,
including maximum target turn-around times and maximum target error rates, for
the various services provided hereunder. ACCESS also agrees to provide a
reporting system designed to provide the Board of Trustees or Board of
Directors of each of the Funds (the "Board") on a quarterly basis with
quantitative data comparing actual performance for the period with the
performance objectives. The foregoing procedures are designed to provide a
basis for continuing monitoring by the Board of the quality of services
rendered hereunder.
ARTICLE 2. FEES AND EXPENSES.
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each
of the Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS.
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in the states of
Texas and Missouri.
3.03 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement.
2
<PAGE> 3
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this
Agreement access to the necessary facilities, equipment and personnel to
perform its duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as
follows:
(a) Each "as of" transaction effected at a price other
than that in effect on the day of processing for which an estimate has
not been given to any of the affected Funds and which is necessitated
by ACCESS' error, or delay for which ACCESS is responsible or which
could have been avoided through the exercise of reasonable care, will
be identified, and the net effect of such transactions determined, on
a daily basis for each such Fund.
(b) The cumulative net effect of the transactions
included in paragraph (a) above will be determined each day throughout
each month. If, on any day during the month, the cumulative net
effect upon any Fund is negative and exceeds an amount equivalent to
1/2 of 1 cent per share of such Fund, ACCESS shall promptly make a
payment to such Fund (in cash or through use of a credit as described
in paragraph (c) below) in such amount as necessary to reduce the
negative cumulative net effect to less than 1/2 of 1 cent per share of
such Fund. If on the last business day of the month the cumulative
net effect (adjusted by the amount of any payments pursuant to the
preceding sentence) upon any Fund is negative, such Fund shall be
entitled to a reduction in the monthly transfer agency fee next
payable by an equivalent amount, except as provided in paragraph (c)
below. If on the last business day of the month the cumulative net
effect (similarly adjusted) upon any Fund is positive, ACCESS shall be
entitled to recover certain past payments and reductions in fees, and
to a credit against all future payments and fee reductions made under
this paragraph to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net
effect upon any Fund shall be deemed to be a credit to ACCESS which
shall first be applied to recover any payments and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar
year by increasing the amount of the monthly transfer agency fee next
payable in an amount equal to prior payments and fee
3
<PAGE> 4
reductions made during such year, but not exceeding the sum of that
month's credit and credits arising in prior months during such year to
the extent such prior credits have not previously been utilized as
contemplated by this paragraph (c). Any portion of a credit to ACCESS
not so used shall remain as a credit to be used as payment against the
amount of any future negative cumulative net effects that would
otherwise require a payment or fee reduction to such Fund pursuant to
paragraph (b) above.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUNDS.
Each of the Funds hereby represents and warrants on behalf of
itself only and not any other Funds that are a party to this Agreement that:
4.01 It is duly organized and existing and in good standing under
the laws of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by
its Declaration of Trust or Articles of Incorporation and by-laws to enter into
and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to
authorize it to enter into and perform this Agreement.
4.04 It is an open-end, diversified, management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
ARTICLE 5. INDEMNIFICATION.
5.01 ACCESS shall not be responsible for and each of the Funds
shall indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities arising out of or attributable to:
4
<PAGE> 5
(a) All actions of ACCESS required to be taken by ACCESS
for the benefit of such Fund pursuant to this Agreement, provided
ACCESS has acted in good faith with due diligence and without
negligence or willful misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable
use by ACCESS of, information, records and documents which have been
prepared or maintained by or on behalf of such Fund or have been
furnished to ACCESS by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying
out by ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation
of any requirement under the federal securities laws or regulations or
the securities laws or regulations of any state or in violation of any
stop order or other determination or ruling by any federal agency or
any state with respect to the offer or sale of such shares in such
state unless such violation results from any failure by ACCESS to
comply with written instructions of such Fund that no offers or sales
of such Fund's shares be made in general or to the residents of a
particular state.
(e) Such Fund's refusal or failure to comply with the
terms of this Agreement, or such Fund's lack of good faith, negligence
or willful misconduct or the breach of any representation or warranty
of such Fund hereunder.
5.02 ACCESS shall indemnify and hold each of the Funds harmless
from and against any and all losses, damages, costs, charges, reasonable
counsel fees, payments, expenses and liability arising out of or attributable
to ACCESS' refusal or failure to comply with the terms of this Agreement, or
ACCESS' lack of good faith, negligence or willful misconduct, or the breach of
any representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any
of the Funds for instructions, and may consult with any of the Funds' legal
counsel, at the expense of such concerned Fund, with respect to any matter
arising in connection with the services to be performed by ACCESS under this
Agreement, and ACCESS shall not be liable and shall be indemnified by such
concerned Fund for any action taken or omitted by it in good faith in
reasonable reliance upon such instructions or upon the opinion of such counsel.
ACCESS shall be protected and
5
<PAGE> 6
indemnified in acting upon any paper or document reasonably believed by ACCESS
to be genuine and to have been signed by the proper person or persons and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the concerned Fund. ACCESS shall also
be protected and indemnified in recognizing stock certificates which ACCESS
reasonably believes to bear the proper manual or facsimile signatures of the
officers of the concerned Fund, and the proper countersignature of any former
transfer agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it except with
the other party's prior written consent.
ARTICLE 6. COVENANTS OF EACH OF THE FUNDS AND ACCESS.
6.01 Each of the Funds shall promptly furnish to ACCESS the
following:
(a) Certified copies of the resolution of its Board
authorizing the appointment of ACCESS and the execution and delivery
of this Agreement.
(b) Certified copies of its Declaration of Trust or
Articles of Incorporation and by-laws and all amendments thereto.
6
<PAGE> 7
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any
of the Fund Records, ACCESS will endeavor to notify each of the concerned Funds
and to secure instructions from an authorized officer of each of the concerned
Funds as to such inspection. ACCESS reserves the right, however, to exhibit
such Fund Records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit such Fund Records to such person.
ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect from the date hereof
through June 30, 1995; provided, however, that this Agreement may be terminated
by any party with respect to that party for good and reasonable
7
<PAGE> 8
cause at any time by giving written notice to the other party at least 120 days
prior to the date on which such termination is to be effective. Any unpaid
fees or reimbursable expenses payable to ACCESS shall be due on any such
termination date. ACCESS agrees to use its best efforts to cooperate with each
of the Funds and the successor transfer agent or agents in accomplishing an
orderly transition.
7.02 Subject to the prior approval of the Board, this Agreement
shall be renewed and extended for periods of not more than one year each,
unless and until this Agreement is terminated in accordance with section 7.01
above.
ARTICLE 8. MISCELLANEOUS.
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of any of
the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of the
Funds for the acts and omissions of DST, Inc., or other qualified servicer as
it is for its own acts and omissions.
8.04 ACCESS may, without further consent on the part of any of the
Funds, provide services to its affiliated companies. Such services may be
provided at cost.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes any
prior agreement with respect thereto, whether oral or written, and this
Agreement may not be modified except by written instrument executed by the
affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees and by the shareholders of the Funds. This Plan is executed on
behalf of the Funds or the Trustees of the Funds as Trustees and not
individually and that the obligations of this Agreement are not binding upon
any of
8
<PAGE> 9
the Trustees, officers or shareholders of the Funds individually but are
binding only upon the assets and property of the Funds. A Certificate of Trust
in respect of each of the Funds is on file with the Secretary of the State of
Delaware.
8.07 For each of those Funds that have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under this
Agreement shall apply only on a portfolio-by-portfolio basis and the assets of
one portfolio shall not be liable for the obligations of any other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties hereto
agree to renegotiate such affected portions in good faith.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf and through their duly
authorized officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN
CAPITAL OPEN END FUNDS LISTED ON
SCHEDULE "A" HERETO
BY:____________________________________
Vice President
ATTEST:
____________________________
Secretary
ACCESS INVESTOR SERVICES, INC.
BY:____________________________________
President
ATTEST:
____________________________
Secretary
10
<PAGE> 11
SCHEDULE "A"
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS
<TABLE>
<CAPTION>
Type
[Corporation "C"/
Fund Name State of Business Trust "T"/
(including Portfolios) Organization Partnership "P"]
===============================================================================================================
<S> <C> <C>
[TO BE PROVIDED]
</TABLE>
11
<PAGE> 12
PRICING SCHEDULE
PRICE PER ACCOUNT PLUS OUT-OF-POCKET
______________, 1995
[TO BE PROVIDED]
12
<PAGE> 1
EXHIBIT 11.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 36, Amendment No. 26 to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated November 11, 1994, relating to the financial statements and
financial highlights of American Capital Municipal Bond Fund, Inc., the
predecessor of the registrant under the Registration Statement which appears in
such Statement of Additional Information, and to the incorporation by reference
of our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in such Prospectus and to the
reference to us under the heading "Independent Accountants" in such Statement of
Additional Information.
/s/ Price Waterhouse LLP
Houston, Texas
July 14, 1995
<PAGE> 1
EXHIBIT 11.2
CONSENT
I, Philip P. Gaughan, hereby consent to being named as a Trustee in any
Registration Statements and any and all amendments thereto, for each of the
investment companies listed on Exhibit A hereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Philip P. Gaughan Trustee July 8, 1995
- -----------------------------------------------
Philip P. Gaughan
</TABLE>
<PAGE> 2
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 3
CONSENT
I, R. Craig Kennedy, hereby consent to being named as a Trustee in any
Registration Statements and any and all amendments thereto, for each of the
investment companies listed on Exhibit A hereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. Craig Kennedy Trustee July 8, 1995
- -----------------------------------------------
R. Craig Kennedy
</TABLE>
<PAGE> 4
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 5
CONSENT
I, Donald C. Miller, hereby consent to being named as a Trustee in any
Registration Statements and any and all amendments thereto, for each of the
investment companies listed on Exhibit A hereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald C. Miller Trustee July 8, 1995
- -----------------------------------------------
Donald C. Miller
</TABLE>
<PAGE> 6
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 7
CONSENT
I, Jack E. Nelson, hereby consent to being named as a Trustee in any
Registration Statements and any and all amendments thereto, for each of the
investment companies listed on Exhibit A hereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack E. Nelson Trustee July 10, 1995
- -----------------------------------------------
Jack E. Nelson
</TABLE>
<PAGE> 8
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 9
CONSENT
I, Jerome L. Robinson, hereby consent to being named as a Trustee in any
Registration Statements and any and all amendments thereto, for each of the
investment companies listed on Exhibit A hereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jerome L. Robinson Trustee July 10, 1995
- -----------------------------------------------
Jerome L. Robinson
</TABLE>
<PAGE> 10
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 11
CONSENT
I, Wayne W. Whalen, hereby consent to being named as a Trustee in any
Registration Statements and any and all amendments thereto, for each of the
investment companies listed on Exhibit A hereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Wayne W. Whalen Trustee July 8, 1995
- -----------------------------------------------
Wayne W. Whalen
</TABLE>
<PAGE> 12
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 1
CLASS A
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
Section 1. Van Kampen American Capital Municipal Bond Fund, (the "Fund") may
act as a distributor of securities of which it is the issuer, pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act"), according to the
terms of this Distribution Plan (the "Plan").
Section 2. The Fund may incur as a distributor of securities of which it is the
issuer, expenses of up to twenty-five one-hundredths of one percent (.25%) per
annum of the Fund's average daily net assets.
Section 3. Amounts set forth in Section 2 may be expended when and if
authorized in advance by the Fund's Trustees. Such amounts may be used to
finance any activity which is primarily intended to result in the sale of the
Fund's shares or the retention of shares by investors, including but not
limited to, expenses of organizing and conducting sales seminars, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental
payments to dealers under a dealer incentive program to be established by Van
Kampen American Capital Distributors, Inc. ("VKAC") as the Fund's Distributor,
in accordance with Section 4, and the costs of administering such a program.
All amounts expended pursuant to the Plan shall be paid to VKAC. VKAC shall be
required to use such amounts exclusively to finance those activities set forth
in Sections 3 and 4 of the Plan.
Section 4. (a) Amounts expended by the Fund under the Plan shall be used
primarily for the implementation by VKAC of a dealer incentive program and to
pay the costs of administering the calculation of payment under such program.
(b) Pursuant to this program, VKAC may enter into agreements ("Servicing
Agreements") with such broker/dealers ("Dealers") as may be selected from time
to time by VKAC for the provision of distribution assistance in connection with
the sale of shares of the Fund ("Shares") to the Dealers' clients and customers
("Customers") and for the provision of administrative support services to
Customers who may from time to time directly or beneficially own Shares. The
distribution assistance and administrative support services to be rendered by
Dealers under the Servicing Agreements may include, but shall not be limited
to, the following: distributing sales literature; answering routine Customer
inquiries concerning the Fund; assisting Customers in changing dividend
options, account designations and addresses, and in enrolling into the
pre-authorized check plan, systematic<PAGE> 2
withdrawal plan or any of several tax sheltered retirement plans offered in
connection with the purchase of Shares; assisting in the establishment and
maintenance of Customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and capital gains
distributions automatically in Shares and providing such other information and
services as the Fund or the Customer may reasonably request.
Section 5. This Plan shall not take effect until it has been approved, by a
vote of at least a majority (as defined in the Act) of the outstanding voting
securities of the Fund.
Section 6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of the majority of both (a) the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
Section 7. Unless sooner terminated pursuant to Section 9, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 6.
Section 8. VKAC shall provide to the Fund's Trustees and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
Section 9. This Plan may be terminated, without payment of any penalty, at any
time by vote of a majority of the Disinterested Trustees, or by vote of a
majority of the Fund's outstanding voting securities.
Section 10. Any agreement related to this Plan shall be in writing, and shall
provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the Fund's outstanding voting securities, on not more than sixty days written
notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 11. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section
2
<PAGE> 3
5 hereof, and no material amendment to the Plan shall be made unless approved
in the manner provided for in Section 6 hereof.
Section 12. The execution of this Plan has been authorized by the Fund's
Trustees and by the sole shareholder of the Class A shares of the Fund. This
Plan is executed on behalf of the Fund or the Trustees of the Fund as Trustees
and not individually and that the obligations of this Plan are not binding upon
any of the Trustees, officers or shareholders of the Fund individually but are
binding only upon the assets and property of the Fund. A Certificate of Trust
in respect of the Fund is on file with the Secretary of the State of Delaware.
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
By: _________________________
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: ____________________, 1995
3
<PAGE> 1
CLASS B
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
WHEREAS, Van Kampen American Capital Municipal Bond Fund, (the "Fund"), engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund proposes to commence an offering of Class B shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class B shares, to make payments
in connection with the distribution of its Class B shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class B shares, and desires to adopt
a Class B Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class B shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class B shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;
WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class B shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class B Distribution Plan will benefit the
Fund and its Class B shareholders;
<PAGE> 2
NOW, THEREFORE, the Fund hereby adopts this Class B Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class B shares.
2. In consideration of the Transactional Compensation and Service Fees paid and
the other distribution services for Class B shares rendered by VKAC, the Fund
shall pay VKAC out of the assets attributable to the Class B shares an annual
distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee and Service
Fee shall equal on an annual basis up to 1.00% of the average daily net assets
of the Funds' Class B shares. Only distribution expenditures of a type and
amount authorized in advance by the Fund's Trustees and properly attributable
to the sale of Class B shares will be used to justify any fee paid pursuant to
this Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class B shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class B shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Trustees, or by
2
<PAGE> 3
vote of a majority of the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
12. The execution of this Plan has been authorized by the Fund's Trustees and
by the sole shareholder of the Class B shares of the Fund. This Plan is
executed on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.
Van Kampen American Capital Municipal Bond Fund
By: _________________________
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: ____________________, 1995
3
<PAGE> 1
CLASS C
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL BOND FUND
WHEREAS, Van Kampen American Capital Municipal Bond Fund, (the "Fund"), engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund proposes to commence an offering of Class C shares at net
asset without initial sales charge but with a contingent deferred sales charge
("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class C shares, to make payments
in connection with the distribution of its Class C shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class C shares, and desires to adopt
a Class C Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class C shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class C shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;
WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class C shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class C Distribution
<PAGE> 2
Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class C Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class C shares.
2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class C shares rendered by VKAC, the
Fund shall pay VKAC out of the assets attributable to the Class C shares an
annual distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee and Service
Fee shall equal on an annual basis up to 1.00% of the average daily net assets
of the Fund's Class C shares. Only distribution expenditures of a type and
amount authorized in advance by the Fund's Trustees and properly attributable
to the sale of Class C shares will be used to justify any fee paid pursuant to
this Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class C shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class C shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 3
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
12. The execution of this Plan has been authorized by the Fund's Trustees and
by the sole shareholder of the Class C shares of the Fund. This Plan is
executed on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.
Van Kampen American Capital Municipal Bond Fund
By: _______________________
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: ____________________, 1995
3
<PAGE> 1
EXHIBIT 15.4
SERVICING AGREEMENT RELATING TO SHARES OF
CERTAIN AMERICAN CAPITAL MUTUAL FUNDS
- --------------------------------------------------------------------------------
Dear Sir:
This Service Agreement (the "Agreement") between Van Kampen American Capital
Distributors, Inc. ("VKAC") and the undersigned authorized dealer defines the
services to be provided by the authorized dealer for which it may receive
payment pursuant to Distribution Plans (hereinafter severally referred to as the
"Plan") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act") by certain mutual funds for which VKAC serves as distributor (the
"Funds"). Each such fund has acted severally and not jointly in adopting the
Plan and the agreement and hereinafter is referred to severally as the "Fund".
The Plan and the Agreement have been approved by a majority of the Trustees of
the Fund including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or any related agreements (the "non-interested Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan. Such approval
included a determination that in the exercise of their reasonable business
judgement and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders. The Plan
has also been approved by a vote of a majority of the Fund's outstanding voting
securities, as defined in the Act.
- --------------------------------------------------------------------------------
1 To the extent you provide distribution assistance and administrative support
services to Customers who may from time to time, directly or beneficially own
shares, including but not limited to, distributing prospectuses and sales
literature, answering routine Customer inquiries regarding the Fund, assisting
Customers in changing divided options, account designations and addresses, and
in enrolling into the pre-authorized check plan, systematic withdrawal plan or
any of several tax sheltered retirement plans offered in connection with the
purchase of shares in the case of those Funds offering such Plans, assisting in
the establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions, investing dividends and
capital gains distributions automatically in shares and providing such other
services as the Fund or the Customer may reasonably request, we shall pay you
quarterly a fee as indicated in each Fund's then current prospectus based on the
net asset value of Fund shares owned shareholders whose shares are owned of
record by your firm as nominee for your Customers or which are owned by those
Customers of your firm whose records, as maintained by the Fund or its Agents,
designate your firm as the Customer's dealer of record. No such quarterly fee
will be paid to you with respect to shares purchased by you and redeemed or
repurchased by the Fund or by us as Agent within seven (7) business days after
the date of our confirmation of such purchase. No such fee shall be payable with
respect to shares purchased at net asset value without a sales charge by
investors of the classes described in the Fund's Prospectus pursuant to Rule
22d-1 under the Act, other than classes of net asset value categories pursuant
to Rule 22d-1 as may from time to time be approved by the Fund.
- --------------------------------------------------------------------------------
<PAGE> 2
2 By accepting such fee you agree to assign a representative to each account, to
require such representative to contact the Customer regularly and to pay at
least a portion of such fee to such representative. Additionally, you understand
that VKAC will monitor service levels which you provide to your Customers
pursuant to this agreement and that consistently low levels of service will
result in non-payment of the fee.
- --------------------------------------------------------------------------------
3 In accordance with your agreement to provide distribution assistance, you
agree to use your best efforts to support the asset value of the Fund to the
extent consistent with the suitability requirements of your Customer. You
understand that VKAC will monitor levels of redemption and that redemption
levels consistently above those dictated by market conditions will result in
non-payment of the fee.
- --------------------------------------------------------------------------------
4 This Agreement does not require any authorized dealer to hold Fund shares in
street name or to provide shareholder accounting and record keeping services for
any Customers who are beneficial owners of Fund shares.
- --------------------------------------------------------------------------------
5 You shall furnish us and the Fund with such information as shall reasonably be
requested by either the Trustees of the Fund or by us with respect to the fees
paid to you pursuant to this Agreement.
- --------------------------------------------------------------------------------
6 We shall furnish to the Trustees of the Fund, for their review on a quarterly
basis, a written report of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
- --------------------------------------------------------------------------------
7 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Fund except those contained in the then
current Prospectus for the Fund, and you shall have no authority to act as Agent
for the Fund or for VKAC.
- --------------------------------------------------------------------------------
8 We may enter into other similar Servicing Agreements with any other person
without your consent.
- --------------------------------------------------------------------------------
9 This Agreement may be terminated with respect to any Fund at any time without
payment of any penalty by the vote of a majority of the non-interested Trustees
or by a vote of a majority of the Fund's outstanding shares, on sixty (60) days
written notice. It will be terminated by any act which terminates either the
Fund's Underwriting Agreement with us or the Selling Group Agreement between
your firm and us and shall terminate automatically in the event of its
<PAGE> 3
assignment as that term is defined in the Act.
- --------------------------------------------------------------------------------
10 The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Plan, are incorporated herein by reference. This Agreement
shall become effective upon execution and delivery hereof and shall continue in
full force and effect so long as the continuance of the Plan and this related
Agreement are approved at least annually by a vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the foregoing address. Any notice to you shall be duly given if mailed
or telegraphed to you at the address specified by you below.
- --------------------------------------------------------------------------------
11 As described in the prospectus of each Fund which is organized as a trust,
the Agreement and Declaration of Trust ("Declaration") establishing such Trust,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder or officer of said Trust shall be held to any personal liability,
nor shall resort be had to their private property for satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Trust,
but only the assets and property of the Trust, or of the particular series of
the Trust in question, as the case may be, shall be liable. In the case of each
Fund comprised of series, all obligations of such Fund under this Agreement
shall apply only on a series by series basis and the assets of one series shall
not be liable for the obligations of any other series.
- --------------------------------------------------------------------------------
12 This Agreement shall be construed in accordance with the laws of the State of
Texas.
Van Kampen American Capital Distributors, Inc.
Dated_______________19____ By:_____________________________
Accepted:
_____________________________
Please sign both copies and return to:
Van Kampen American Capital Distributors, Inc. _____________________________
P.O. Box 1411
Houston, TX 77251-1411
By:_____________________________
Title:__________________________
<PAGE> 1
EXHIBIT 15.5
SERVICING AGREEMENT RELATING TO SHARES OF
CERTAIN AMERICAN CAPITAL MUTUAL FUNDS FOR
BANKS AND BANK AFFILIATED BROKER / DEALERS
- --------------------------------------------------------------------------------
Dear Sir:
This Servicing Agreement (the "Agreement") between Van Kampen American Capital
Distributors, Inc. ("VKAC") and the undersigned authorized bank or bank
affiliated dealer defines the services to be provided by the authorized bank or
bank affiliated dealer for which it may receive payment pursuant to Distribution
Plans (hereinafter severally referred to as the "Plan") adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by certain mutual
funds for which VKAC serves as distributor (the "Funds"). Each such fund has
acted severally and not jointly in adopting the Plan and the Agreement and
hereinafter is referred to severally as the "Fund". The Plan and the Agreement
have been approved by a majority of the Trustees of the Fund including a
majority of Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or any
related agreements (the "non-interested Trustees"), cast in person at a meeting
called for the purpose of voting on the Plan. Such approval included a
determination that in the exercise of their reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. The Plan has also been approved by a
vote of a majority of the Fund's outstanding voting securities, as defined in
the Act.
- --------------------------------------------------------------------------------
1 To the extent you provide administrative support services to your agency
clients who may from time to time, directly or beneficially own shares,
including but not limited to, distributing prospectuses, performing
sub-accounting, answering routine shareholder inquiries regarding the Fund,
assisting shareholders in changing dividend options, account designations and
addresses, and in enrolling into the pre-authorized check plan, systematic
withdrawal plan or any of several tax sheltered retirement plans offered in
connection with the purchase of shares in the case of those Funds offering such
Plans, assisting in the establishment and maintenance of customer accounts and
records and in the processing of purchase and redemption transaction, investing
dividends and capital gains distributions automatically in shares and providing
such other services as the Fund or your client may reasonably request, to the
extent you are permitted by applicable statute, rule or regulation to provide
such services, we shall pay you quarterly a fee as indicated in each Fund's then
current prospectus based on the net asset value of Fund shares owned by
shareholders whose shares are owned of record by your bank or bank affiliated
dealer as nominee for your clients or which are owned by your agency clients
whose records, as maintained by the Fund or its Agent, designate your bank or
bank affiliated dealer as the shareholder's dealer of record. No such quarterly
fee will be paid to you with respect to shares purchased by your agency client
and redeemed or repurchased by the Fund or by us as Agent within seven (7)
<PAGE> 2
business days after the date of our confirmation of such purchase. No such fee
shall be payable with respect to shares purchased at net asset value without a
sales charge by investors of the classes described in the Fund's Prospectus
pursuant to Rule 22d-1 under the Act, other than classes of net asset value
categories pursuant to Rule 22d-1 as may from time to time be approved by the
Board.
- --------------------------------------------------------------------------------
2 By accepting such fee you agree to contact your client regularly.
Additionally, you understand that VKAC will monitor service levels which you
provide to your Customers pursuant to this agreement and that consistently low
levels of service will result in non-payment of the fee.
- --------------------------------------------------------------------------------
3 This Agreement does not require any authorized bank or bank affiliated dealer
to hold Fund shares in street name or to provide shareholder accounting and
record keeping services for any clients who are beneficial owners of Fund
shares.
- --------------------------------------------------------------------------------
4 You shall furnish us and the Fund with such information as shall reasonably be
requested by either the Trustees of the Fund or by us with respect to the fees
paid to you pursuant to this Agreement.
- --------------------------------------------------------------------------------
5 We shall furnish to the Trustees of the Fund, for their review on a quarterly
basis, a written report of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
- --------------------------------------------------------------------------------
6 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Fund except those contained in the then
current prospectus for the Fund, and you shall have no authority to act as agent
for the Fund or for VKAC.
- --------------------------------------------------------------------------------
7 We may enter into other similar Servicing Agreements with any other person
without your consent.
- --------------------------------------------------------------------------------
8 This Agreement may be terminated with respect to any Fund at any time without
payment of any penalty by the vote of a majority of the non-interested Trustees
or by a vote of a majority of the Fund's outstanding shares on sixty (60) days
written notice. It will be terminated by any act
<PAGE> 3
which terminates either the Fund's Underwriting Agreement with us or the Selling
Group Agreement between you and us and shall terminate automatically in the
event of its assignment as that term is defined in the Act.
- --------------------------------------------------------------------------------
9 The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Plan, are incorporated herein by reference. This Agreement
shall become effective upon execution and delivery hereof and shall continue in
full force and effect so long as the continuance of the Plan and this related
Agreement are approved at least annually by a vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the foregoing address. Any notice to you shall be duly given if mailed
or telegraphed to you at the address specified by you below.
- --------------------------------------------------------------------------------
10 As described in the prospectus of each Fund which is organized as a trust,
the Agreement and Declaration of Trust ("Declaration") establishing such Trust,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder or officer of said Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Trust,
but only the assets and property of the Trust, or of the particular series of
the Trust in question, as the case may be, shall be liable. In the case of each
Fund comprised of series, all obligations of such Fund under this Agreement
shall apply only on a series by series basis and the assets of one series shall
not be liable for the obligations of any other series.
- --------------------------------------------------------------------------------
11 This Agreement shall be construed in accordance with the laws of the State of
Texas.
Van Kampen American Capital Distributors, Inc.
Dated _____________19___ By:____________________________________________
Accepted:
____________________________________________
Bank or Dealer's Name
____________________________________________
Address
By:____________________________________________
Title:_________________________________________
<PAGE> 1
EXHIBIT 16
COMPUTATION MEASURE FOR PERFORMANCE INFORMATION
CALCULATION OF TOTAL RETURN -- CLASS A SHARES
The Fund calculates its average annual total return quotations for Class A
shares for the one, five and ten year periods ended on the date of the most
recent balance sheet included in the registration statement, by finding the
average annual compounded rates of return over the one, five and ten year
periods that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1+T)n=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated one, five and ten year period or periods at the
end of the designated one, five and ten year period or periods (or fractional
portion thereof);
</TABLE>
These calculations incorporate the following assumptions:
1. The maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 payment.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated one, five and ten year period or periods and the
deduction of all nonrecurring charges, if any, deducted at the end of such
period or periods.
<PAGE> 2
CALCULATION OF TOTAL RETURN -- CLASS B SHARES
The Fund calculates its average annual total return quotations for Class B
shares, by finding the average annual compounded rates of return over the
designated period or periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)n=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods at the end of the designated
period or periods (or fractional portion thereof);
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with the applicable contingent
deferred sales charge imposed upon redemption.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 3
CALCULATION OF TOTAL RETURN -- CLASS C SHARES
The Fund calculates its average annual total return quotations for Class C
shares, by finding the average annual compounded rates of return over the
designated period or periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)n=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods at the end of the designated
period or periods (or fractional portion thereof);
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with a 1% contingent deferred
sale charge imposed if redeemed during the first year.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 4
CALCULATION OF YIELD
The Fund calculates its yield quotations based on a 30-day period ended on
the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last date of the period,
according to the following formula:
<TABLE>
<S> <C> <C>
a-b
YIELD (y) = 2[(----- + 1)6 - 1]
cd
</TABLE>
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ------------------ --------------- ---------------
<S> <C> <C>
a = $ 1,558,277 a = $ 197,996 a = $ 40,426
b = $ 235,335 b = $ 56,762 b = $ 11,592
c = 30,757,170 c = 3,908,244 c = 797,506
d = $ 10.48 d = $ 9.98 d = $ 9.99
y = 4.98% y = 4.39% y = 4.38%
</TABLE>
<PAGE> 5
CALCULATION OF TAX EQUIVALENT YIELD
The Fund calculates its tax equivalent yield based on an assumption of a
tax rate of 36% for a 30-day period ended on the date of the most recent balance
sheet included in the registration statement, computed by dividing that portion
of the yield of the Fund as disclosed above which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Tax Equivalent Yield: 7.77% 6.85% 6.84%
</TABLE>
<PAGE> 1
EXHIBIT 17.1
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
JULY 13, 1995
Van Kampen Merritt U.S. Government Trust
Van Kampen Merritt Tax Free Fund
Van Kampen Merritt Insured Tax Free Income Fund
Van Kampen Merritt Tax Free High Income Fund
Van Kampen Merritt California Insured Tax Free Fund
Van Kampen Merritt Municipal Income Fund
Van Kampen Merritt Limited Term Municipal Income Fund
Van Kampen Merritt Florida Insured Tax Free Income Fund
Van Kampen Merritt New Jersey Tax Free Income Fund
Van Kampen Merritt New York Tax Free Income Fund
Van Kampen Merritt Trust
Van Kampen Merritt High Yield Fund
Van Kampen Merritt Short-Term Global Income Fund
Van Kampen Merritt Adjustable Rate U.S. Government Fund
Van Kampen Merritt Strategic Income Fund
Van Kampen Merritt Emerging Markets Income Fund
Van Kampen Merritt Growth Fund
Van Kampen Merritt Equity Trust
Van Kampen Merritt Growth and Income Fund
Van Kampen Merritt Utility Fund
Van Kampen Merritt Balanced Fund
Van Kampen Merritt Total Return Fund
Van Kampen Merritt Pennsylvania Tax Free Income Fund
Van Kampen Merritt Money Market Trust
Van Kampen Merritt Money Market Fund
Van Kampen Merritt Tax Free Money Fund
Van Kampen Merritt Prime Rate Income Trust
Van Kampen Merritt Series Trust
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc..
American Capital Reserve Fund, Inc.
American Capital Tax -Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
The Govett Funds, Inc.
<PAGE> 2
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 352
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . Series 1 through
1009 Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . Series 5 through 84
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 9 through 80
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 142
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . Series 1 through 20
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 27
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 95
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . Series 1 through 12
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 76
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 55
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 72
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 130
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 55
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 90
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 104
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust-Intermediate . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 127
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . Series 1 through 81
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 97
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 204
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . Series 1 through 79
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-31
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 65
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>
<PAGE> 1
EXHIBIT 17.2
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Robert J. Froehlich Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
Howard A. Doss Vice President Tampa, FL
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Erich P. Gerth Vice President Dallas, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Ruth L. McKeel Vice President Oakbrook Terrace, IL
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Colette Saucedo Vice President Houston, TX
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Jeffrey A. Urbina Vice President Oakbrook Terrace, IL
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jeanette M. Dierkes Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Scott M. Pulkrabek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Secretary Houston, TX
Nori L. Gabert Asst. Secretary Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
<PAGE> 1
EXHIBIT 18
MULTIPLE CLASS PLAN
As Adopted April 7, 1995
This Multiple Class Plan ("Plan") adopted in accordance with Rule
18f-3 promulgated under the Investment Company Act of 1940 shall govern the
terms and conditions under which the investment companies listed on Exhibit A
attached hereto (the "Funds") may issue multiple classes of shares. The Funds
may issue, redeem, exchange and otherwise deal in multiple classes of their
shares subject to the terms, conditions and provisions described in the
exemptive application attached hereto as Exhibit B, which is incorporated
herein by reference.
<PAGE> 2
Exhibit A
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Tax-Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
<PAGE> 3
Exhibit B
File No. 812-9014
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECOND AMENDED AND RESTATED APPLICATION
FOR AN ORDER PURSUANT TO
SECTION 6(c) OF THE INVESTMENT COMPANY ACT OF
1940 FOR AN EXEMPTION FROM THE PROVISIONS OF
SECTIONS 2(a)(32), 2(a)(35), 18(f),
18(g), 18(i), 22(c) AND 22(d) OF SUCH ACT AND
RULE 22c-1 THEREUNDER
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Tax-Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
Van Kampen American Capital Asset Management, Inc.
Van Kampen American Capital Distributors, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
(Address of Applicants' Principal Office)
Communications, Notice and Order to:
Nori L. Gabert
Vice President and Associate General Counsel
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd.
Houston, Texas 77056
(713) 993-4243
1
<PAGE> 4
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<S> <C>
- ------------------------------------------------------------
In The Matter Of : Second Amended and Restated Application
: For an Order Pursuant to Section 6(c) of the
American Capital Comstock Fund, Inc. : Investment Company Act of 1940 for an
American Capital Corporate Bond Fund, Inc. : exemption from the provisions of Sections
American Capital Emerging Growth Fund, Inc. : 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c)
American Capital Enterprise Fund, Inc. : and 22(d) of such Act and Rule 22c-1
American Capital Equity Income Fund, Inc. : thereunder.
American Capital Federal Mortgage Trust :
American Capital Global Managed Assets Fund, Inc. :
American Capital Government Securities, Inc. :
American Capital Growth and Income Fund, Inc. :
American Capital Harbor Fund, Inc. :
American Capital High Yield Investments, Inc. :
American Capital Municipal Bond Fund, Inc. :
American Capital Pace Fund, Inc. :
American Capital Real Estate Securities Fund, Inc. :
American Capital Reserve Fund, Inc. :
American Capital Tax-Exempt Trust :
American Capital Texas Municipal Securities, Inc. :
American Capital U.S. Government Trust for Income :
American Capital Utilities Income Fund, Inc. :
American Capital World Portfolio Series, Inc. :
Van Kampen American Capital Asset Management, Inc. :
Van Kampen American Capital Distributors, Inc. :
:
Investment Company Act of 1940, as amended :
File No. 812-9014 :
- ------------------------------------------------------------
</TABLE>
American Capital Comstock Fund, Inc., American Capital Corporate Bond
Fund, Inc., American Capital Emerging Growth Fund, Inc., American Capital
Enterprise Fund, Inc., American Capital Equity Income Fund, Inc., American
Capital Federal Mortgage Trust, American Capital Global Managed Assets Fund,
Inc., American Capital Government Securities, Inc., American Capital Growth and
Income Fund, Inc., American Capital Harbor Fund, Inc.,
2
<PAGE> 5
American Capital High Yield Investments, Inc., American Capital Municipal Bond
Fund, Inc., American Capital Pace Fund, Inc., American Capital Real Estate
Securities Fund, Inc., American Capital Reserve Fund, Inc. ("Reserve Fund"),
American Capital Tax- Exempt Trust, American Capital Texas Municipal
Securities, Inc., American Capital U.S. Government Trust for Income, American
Capital Utilities Income Fund, Inc. and American Capital World Portfolio
Series, Inc. and each portfolio thereof, and any future portfolios thereof that
will issue multiple classes of shares which are identical in all material
respects to the classes described herein, and any other open-end management
investment companies established or acquired in the future that are in the same
"group of investment companies" as that term is defined in Rule 11a-3 under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
which issue multiple classes of shares that are identical in all material
respects to the classes described herein (all of the above being referred to
collectively, in whole or in part, as the context requires, as the "Funds" or
"Fund"), Van Kampen American Capital Asset Management, Inc. (the "Adviser") and
Van Kampen American Capital Distributors, Inc. (the "Distributor") (all of the
foregoing being referred to collectively, in whole or in part, as the context
requires, as the "Applicants") hereby apply, pursuant to Section 6(c) of the
Investment Company Act for an order superceding certain prior orders of
exemption ("Prior Orders") issued by the Securities and Exchange Commission
(the "Commission") exempting the Funds other than Reserve Fund from the
provisions of Sections 18(f), 18(g) and 18(i) of the Investment Company Act so
that Reserve Fund may issue an unlimited number of classes of shares which
shall have differing voting rights, conversion rights and expense allocations,
as described below and to otherwise utilize the Multiple Distribution System
utilized by other Funds (the "Multiple Pricing System").
The Applicants hereby also apply for an order superceding the Prior
Orders pursuant to Section 6(c) of the Investment Company Act exempting the
Funds from the provisions of Sections 2(a)(32), 2(a)(35), 22(c) and 22(d) of
the Investment Company Act, and Rule 22c-1 thereunder, so that Reserve Fund may
impose a contingent deferred sales charge ("CDSC") in connection with the
redemption of shares of Reserve Fund as described below.
3
<PAGE> 6
On October 17, 1991 the Commission issued an order of exemption which
exempted the issuance and sale of two classes of shares by the Funds other than
Reserve Fund from Sections 18(f), 18(g) and 18(i) and from Sections 2(a)(32),
2(a)(35), 22(c) and 22(d) of the Investment Company Act and Rule 22c-1
thereunder, to the extent necessary or appropriate to permit the imposition of
a CDSC in connection with the redemption of the shares of the Funds (the
"Original Order").
On March 9, 1993, the Commission issued an order of exemption (the
"Amended Order") amending the Original Order to permit the Funds other than
Reserve Fund to issue an unlimited number of classes of shares, expand the
investor's exchange privileges, and permit Applicants to waive the CDSC in four
additional circumstances as described in the Fourth Amended and Restated
Application ("Prior Application") filed in connection with the amendment to the
Original Order. The two previous orders are referred to collectively herein as
the "Prior Orders."
An additional revision to certain procedures described in the Prior
Orders was effected via no action letter. Effective March 29, 1994, in
reliance on a no action letter issued by the staff of the Commission dated as
of that date (Reference No. 94-5-ICR), the Applicants revised the procedures
for calculating the CDSC period for Class B and Class C shares that are
exchanged into Reserve Fund by including the period during which such shares
are held in Reserve Fund in the CDSC time period. Previously the CDSC period
was tolled while such shares were held in Reserve Fund.
I.
PRELIMINARY STATEMENT
The Applicants are requesting exemptive relief from the above
provisions of the Investment Company Act in connection with a proposed revision
to the Multiple Pricing System. Under the Multiple Pricing System, certain of
the Funds currently offer investors the option of purchasing shares with (1) a
so-called "front-end" sales load together with an ongoing fee pursuant to a
plan of distribution adopted pursuant to Rule 12b-1 under the Investment
Company Act ("Rule 12b-1 Fee") at an annual rate of up to 0.25% of average
daily net assets (the "Front-End Option"), (2) subject to a CDSC and a Rule
12b-1 plan providing for a Rule 12b-1 Fee at an annual rate of up to
4
<PAGE> 7
1% of average daily net assets (the "Deferred Option") or (3) with either a
front-end sales load or at net asset value and subject, in either case, to a
CDSC and a Rule 12b-1 plan providing for a Rule 12b-1 Fee at an annual rate of
up to 1% of average daily net assets (the "Level Load Option")(1). With respect
to the Front-End Option, Reserve Fund proposes to impose a front-end load of
$0, or rather to offer Class A shares at net asset value.
The Multiple Pricing System was implemented by having certain of the
Funds create another class of shares so that such Funds may offer three classes
of shares, the Front-End Option offered through "Class A" shares, the Deferred
Option offered through "Class B" shares and the Level Load Option offered
through "Class C" shares. The classes each represent interests in the same
portfolio of investments of each Fund. The three classes are identical except
that (i) the Rule 12b-1 Fee payable by a Fund to the Distributor attributable
to each class pursuant to its particular Rule 12b-1 distribution plan adopted
by the Fund in accordance with Rule 12b-1 under the Investment Company Act is
higher for Class B and Class C shares; (ii) transfer agency costs attributable
to each class are higher for Class B and Class C shares; (iii) Class B and
Class C shares will bear any other expenses resulting from the deferred sales
arrangement subsequently identified which shall be approved by the Commission
pursuant to an amended order; (iv) the classes have different exchange
privileges; (v) only Class B and Class C shares have a conversion feature; and
(vi) each class votes separately as a class with respect to its particular Rule
12b-1 distribution plan. In addition, the Applicants have the authority to
exchange shares of each class of each Fund for shares of Reserve Fund and waive
the CDSC on certain redemptions as described below.
From time to time the Funds may create additional classes of shares.
These additional classes may differ from the classes specifically described
herein only in the following respects: (i) any such class may be subject to
different Rule 12b-1 Fee; (ii) any such class may bear different identifying
designations; (iii) any such class will have
____________________
(1) The Front-End Option, the Deferred Option and the Level Load Option are
currently offered as investment choices for American Capital Comstock Fund,
Inc., American Capital Corporate Bond Fund, Inc., American Capital Emerging
Growth Fund, Inc., American Capital Enterprise Fund, Inc., American Capital
Equity Income Fund, Inc., American Capital Global Managed Assets Fund, Inc.,
American Capital Government Securities, Inc., American Capital Growth and
Income Fund, Inc., American Capital Harbor Fund, Inc., American Capital High
Yield Investments, Inc., American Capital Municipal Bond Fund, Inc., American
Capital Pace Fund, Inc., American Capital Real Estate Securities Fund, Inc.,
American Capital Tax-Exempt Trust, American Capital Texas Municipal
Securities, Inc., American Capital Utilities Income Fund, Inc., American
Capital U.S. Government Trust for Income, and American Capital World Portfolio
Series, Inc. Reserve Fund offers its shares at net asset value and a Rule 12b-1
plan providing for a service fee at an annual rate of up to 0.15% of average
daily net assets. American Capital Federal Mortgage Trust currently offers
only the Front End Option and the Level Load Option.
5
<PAGE> 8
exclusive voting rights with respect to any Rule 12b-1 Plan adopted exclusively
with respect to such class except as provided in condition 15; (iv) any such
class may have different exchange privileges; (v) any such class may be subject
to incremental transfer agency costs attributable to such class; and (vi) any
such class may or may not have a conversion feature.(2) The existence of a
conversion feature for such additional classes will be determined on a
class-by-class basis. In no event would a class of shares have a conversion
feature that would automatically convert shares of such class into shares of a
class with a distribution arrangement that could be viewed as less favorable to
the shareholder from the point of view of overall cost. The purpose of the
conversion feature, as described herein, is to relieve the holders of such
shares that have been outstanding for a period of time sufficient for the
Distributor to have been substantially compensated for distribution expenses
related to such shares from most of the burden of such distribution-related
expenses.(3) No Fund, whether currently existing or newly created, would be
required to offer any additional classes, and it is contemplated that many
existing Funds will choose not to create any new classes.
The NASD Rules of Fair Practice ("NASD Rules") subject "asset-based"
sales charges, including Rule 12b-1 distribution fees and service fees, to
regulation as sales charges under those rules. The NASD Rules, among other
things, limit the annual "asset-based" distribution fees that an investment
company is able to impose to 0.75% of the investment company's average annual
net assets. However, a fund imposing such a fee is also able to impose an
annual 0.25% "service fee" if that amount is attributable to ongoing payments
made to broker-dealers for providing client services. In addition to the
annual limitations on distribution and service fees, the NASD Rules subject all
asset-based distribution fees and sales charges in the aggregate to an ongoing
cap of either 6.25% or 7.25% of total new gross sales(4) plus interest charges
on such amounts equal to prime rate plus one percent per annum, depending
____________________
(2) In the event any such class may be subject to any other incremental
expenses that should be properly allocated to such class, other than those
described herein for Class A shares, Class B shares or Class C shares as
the case may be, such class shall be submitted for approval by the Commission
pursuant to an amended order.
(3) See discussion herein at pages 14 and 15.
(4) As defined in the NASD Rules, the term "new gross sales" excludes
sales from reinvestment of distributions and exchanges of shares between
investment companies in a single complex, between classes of shares of an
investment company with multiple classes of shares or between series shares of
a series investment company.
6
<PAGE> 9
on whether or not the subject investment company also charges a service fee,(5)
and further limit the maximum allowable front-end or deferred sales charge
arising from individual transactions involving such investment companies to
6.25% and 7.25% of the amount invested, on the same basis.
The distribution structure for all classes of shares, as set forth
herein, will comply with applicable NASD regulations relating to "asset-based"
sales charges, including Rule 12b-1 distribution fees and service fees,
contained in the NASD Rules, as they may be amended or modified from time to
time. As described more fully above, the Rule 12b-1 Fee to which the various
classes of shares will be subject pursuant to their respective Rule 12b-1 plans
will not exceed the percentage limits promulgated by the NASD. In addition,
any service fees imposed will meet the NASD definition of service fee and are
included in the term "Rule 12b-1 Fee" previously defined. Furthermore,
aggregate sales charges and Rule 12b-1 distribution fees imposed with respect
to all applicable classes of shares will comply with the applicable percentage
caps relating to such charges on both a total gross sales and transactional
basis.
II.
DESCRIPTION OF THE APPLICANTS
1. The Funds. Each of the Funds is an open-end management investment
company registered under the Investment Company Act. The investment objectives
of each Fund are set forth in Exhibit A hereto. Each Fund has entered into or
will enter into an investment advisory agreement with the Adviser pursuant to
which, subject to the general supervision of the Directors(6) of the Fund, the
Adviser determines the investment of the Fund's assets, provides administrative
services and manages the Fund's business and affairs. Each Fund has entered
into or will enter into an underwriting agreement pursuant to which the
Distributor acts as principal underwriter for the Fund.
____________________
(5) The aggregate distribution fees and sales charges that may be imposed
by an investment company which has adopted a plan under which service fees are
paid shall not exceed 6.25% of total new gross sales; the aggregate
distribution fees and sales charges that may be imposed by an investment
company that does not pay a service fee is 7.25% of total new gross sales.
(6) The term "Directors" is used herein to refer both to the members of
the boards of directors of the funds that are organized as corporations, and
to the members of the boards of trustees of the funds that are organized as
business trusts.
7
<PAGE> 10
Shares of all of the Fund(7) other than Reserve Fund and American
Capital Federal Mortgage Trust are currently offered with the Front-End Option,
the Deferred Option and the Level Load Option.(8)
Class A shares of the Funds other than Reserve Fund may incur a sales
charge when they are purchased. Class A shares are subject to an ongoing
service fee at an annual rate of up to 0.25% of a Fund's aggregate daily net
assets attributable to the Class A shares.(9) Shares of Reserve Fund are
subject to an ongoing service fee at an annual rate of up to 0.15% of a Fund's
aggregate daily net assets.
Class B shares and Class C shares of the Funds other than Reserve Fund
do not incur a sales charge when they are purchased, but are subject to a sales
charge if they are redeemed within a specified period of time after purchase
(which may be at least three years but may not exceed six years). Class B
shares and Class C shares are subject to an ongoing Rule 12b-1 Fee at an annual
rate of up to 1.00% of a Fund's average daily net assets attributable to the
respective class. Class B shares and Class C shares will automatically convert
to Class A shares a certain number of years after the end of the calendar month
in which the shareholder's order to purchase was accepted. The CDSC is imposed
pursuant to the exemptive relief granted to the Funds other than Reserve Fund
in the Prior Orders.
As of September 30, 1994, the 20 Funds had aggregate net assets of
approximately $12 billion. Information as to the net assets of each of the
Funds is set forth in Exhibit B hereto.
2. The Adviser. The Adviser is an indirect wholly owned subsidiary
of Van Kampen American Capital, Inc. ("VKAC") which, in turn, is a wholly owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is
____________________
(7) See footnote 1.
(8) The Applicants obtained on order of exemption which permit the
Funds to impose and waive a CDSC on redemptions of their shares in certain
cases. See, American Capital Comstock Fund, Inc., et. al., IC-17889 (November
30, 1990). See footnote 1.
(9) For American Capital Corporate Bond Fund, Inc., American Capital
Emerging Growth Fund, Inc., American Capital Enterprise Fund, Inc., American
Capital Growth and Income Fund, Inc., American Capital Harbor Fund, Inc.,
American Capital High Yield Investments, Inc., American Capital Municipal Bond
Fund, Inc., and American Capital Pace Fund, Inc., payment of the Distribution
Fee is based on an annual percentage of the value of Fund shares held in
shareholder accounts at the rate of 0.15% annually with respect to shares in
such accounts on September 29, 1989 and 0.25% annually with respect to shares
purchased after that date. With respect to American Capital Equity Income
Fund, Inc., payment is based at the rate 0.15% annually with respect to shares
in such accounts on June 30, 1990, and 0.25% annually with respect to shares
purchased after that date. With respect to American Capital Comstock Fund, Inc.
a similar incremental rate of 0.15% applies to accounts opened as of October
19, 1992.
8
<PAGE> 11
controlled, through the ownership of a substantial majority of its common
stock, by The Clayton & Dubilier Private Equity Fund IV Limited Partnership
(the "C&D L.P.") a Connecticut limited partnership. C&D L.P. is managed by
Clayton, Dubilier & Rice, Inc., a New York private investment firm. The
general partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates
L.P. are Joseph L. Rice, III, B. Charles Ames, Alberto Cribiore, Donald J.
Gogel and Hubbard C. Howe, each of whom is a principal of Clayton, Dubilier &
Rice, Inc. In addition, certain officers, directors and employees of VKAC own
in the aggregate, not more than 6% of the common stock of VK/AC Holding, Inc.
and have the right to acquire, upon the exercise of options, approximately an
additional 10% of the common stock of VK/AC Holding, Inc. The Adviser is
registered with the Commission as an investment adviser under the Investment
Advisers Act of 1940 and provides investment advisory, administrative and
management services to the Funds.
3. The Distributor. The Distributor, an indirect wholly owned
subsidiary of Travelers, is registered as a broker/dealer under the Securities
Exchange Act of 1934.
III
THE AMENDED MULTIPLE PRICING SYSTEM
Based upon the recommendation of the Adviser and the Distributor, the
Directors, including a majority of the Independent Directors, of the Funds have
approved proposed amendments to the Multiple Pricing System that would allow
Reserve Fund to issue multiple classes of shares and impose a CDSC in the same
manner as permitted for other Funds. Under the Multiple Pricing System, as
amended, Reserve Fund and each of the other Funds would have the opportunity to
provide investors with the option of purchasing shares in one of three manners:
(1) with a conventional front-end sales load and subject to a Rule 12b-1 Fee
(Class A shares or Front-End Option), (2) subject to a CDSC for a specified
period of time (which may be at least three years but may not exceed six years)
and a Rule 12b-1 Fee (Class B shares or Deferred Option); such shares presently
have a conversion feature (between four and eight years), or (3) either with a
front-end sales load or at net asset value and subject, in either case, to a
CDSC for a specified period of time (which will be not more than five years)
and a Rule 12b-1 Fee (Class C shares or
9
<PAGE> 12
Level Load Option); such shares may have a conversion feature of not more than
twelve years.(10) With respect to the Front-End Option, Reserve Fund proposed to
impose a front-end load of $0, or rather to offer the shares at net asset
value. The Board of each of the Funds, including a majority of the Independent
Directors, has approved or will approve the creation and issuance of multiple
classes of shares and the offering of such class of shares by means of the
amended Multiple Pricing System,(11) although some Funds may not in fact create
or issue all such classes of shares. Each class of shares of a Fund will have
its respective Rule 12b-1 plan. The Board of each of the Funds, including a
majority of the Independent Directors, has approved or will approve the terms
of the respective Rule 12b-1 plans for Class A shares, for Class B shares and
for Class C shares. The Adviser, as the initial sole shareholder of each new
class of shares of each Fund, is expected to approve a specific distribution
plan for each class of shares prior to implementation of such plan. The
minutes of the meetings of the Boards of the Funds regarding the deliberations
of the Directors with respect to the approvals will reflect in detail the
reasons for determining that the amended Multiple Pricing System is in the best
interest of both the Funds and their respective shareholders.
The Applicants do not believe that the implementation of the revisions
to the Multiple Pricing System will give rise to any conflicts of interest. On
an ongoing basis, the Directors of each Fund, pursuant to their fiduciary
responsibilities under the Investment Company Act and otherwise, will monitor
each respective Fund for the existence of any material conflicts between the
interests of the holders of the different classes of shares.(12) The Board of
each Fund, including a majority of the Independent Directors, shall take such
action as is reasonably necessary to eliminate any such conflicts that may
develop. The Adviser and the Distributor agree that they will be responsible
for reporting any potential or existing conflicts to the Directors. If a
conflict arises, the Adviser and the Distributor at
____________________
(10) The front-end load, the CDSC and the sum thereof may vary between
zero and the amount permitted under applicable regulations.
(11) In determining whether to approve the offering of Fund shares by
means of the amended Multiple Pricing System, each Board will consider or has
considered the extent to which such system, as amended, can reasonably be
expected to improve the distribution of Fund shares and benefit the Fund and
its existing shareholders.
(12) In this regard, the fact that the method of allocating direct and
shared distribution expenses among the three classes with Rule 12b-1 plans is
largely, if not entirely, predetermined furtherserves to eliminate any
potential conflicts of interest.
10
<PAGE> 13
their own cost will remedy such conflict up to and including establishing a new
registered management investment company.
The Applicants believe that the interests of the multiple classes of
shares as to the advisory fee of each Fund participating in the Multiple
Pricing System are the same and not in conflict. These fees are used to
compensate the Adviser for providing management and advisory services that are
common to all investors, regardless of the class of shares held.(13)
Also, the Rule 12b-1 plan used in conjunction with the new class of
shares of each Fund offered with such a plan will be approved by both the Board
of the Fund and the initial sole shareholder prior to implementation. All
approvals of the Rule 12b-1 plans will be obtained pursuant to the requirements
of Rule 12b-1 both currently and as that rule may be modified in the future.
Class A shares may be purchased by investors at their then current net
asset value plus a front-end sales load, which in the case of Reserve Fund
would be $0. The sales loads are at rates competitive in the industry and
generally are subject to reductions for larger purchases, under a combined
purchase privilege, and under a right of accumulation or under a letter of
intent. The loads are subject to certain other reductions permitted by Section
22(d) of the Investment Company Act and Rule 22d-1 thereunder and set forth in
the registration statement of each Fund. The public offering price for the
Class A shares is computed in compliance with Rule 22c-1, Section 22(d) and
other relevant provisions of the Investment Company Act and the rules and
regulations thereunder.
In addition, Class A shareholders are assessed an ongoing Rule 12b-1
Fee under a Rule 12b-1 plan based upon a percentage of the average daily net
assets of the Class A shares. Proceeds from the front-end load and Rule
____________________
(13) It was noted by the Commission staff in Investment Company Act
Release Nos. 10862 (September 7, 1979) and 11414 (October 28, 1980), both
issued in connection with Rule 12b-1, that "legitimate profits" (i.e., profits
that are not "excessive" and are the result of contracts that have been duly
approved by the independent Directors/Trustees) are for an adviser to use as
it sees fit. Moreover, as the federal courts have recognized, Congress has made
it very clear in its legislative history that it rejected any concept that
Section 36(b) of the Investment Company Act should impose a "cost-plus basis"
as a standard or that the courts should engage in "rate making" for investment
advisers. See, Gartenberg v. Merrill Lynch Asset Management, Inc., 528 F.
Supp. 1038, 1045 (S.D.N.Y. 1981), aff'd. 694 F. 2d 932 (2d Cir. 1982). The
Adviser, therefore, is permitted to use legitimate profits to advertise the
Funds or for any other purpose. Any advertising expenditures paid out of the
Adviser's profits are not considered in the determination of advisory fees and
will not be presented to the Directors to support higher advisory or
management fees as to any class of shares of the Fund. Therefore, the
Applicants do not believe that this is an area where conflicts among the
classes of shares of the Funds participating in the Multiple Distribution
System are anticipated.
11
<PAGE> 14
12b-1 Fee are used by the Distributor primarily to pay initial commissions and
ongoing service fees to certain financial institutions (which may include
banks), securities dealers and other industry professionals (collectively,
"Service Organizations").(14)
The Prior Orders exempt the Applicants from Sections 2(a)(32),
2(a)(35), 22(c) and 22(d) of the Investment Company Act and Rule 22c-1
thereunder, to the extent necessary or appropriate to permit the imposition of
a CDSC in connection with redemptions of an unlimited number of classes of
shares. The CDSC applicable to such classes of shares are calculated as
described herein.
Under the Prior Orders the Funds other than Reserve Fund may create an
unlimited number of classes of shares and, specifically, three classes of
shares, Class A, Class B and Class C shares. Investors may purchase Class B
and Class C shares at their then current net asset value per share without the
imposition of a sales load at the time of purchase. Class B and Class C shares
are subject to a Rule 12b-1 Fee at an annual rate of up to 1% of average daily
net assets pursuant to a Rule 12b-1 plan. In addition, an investor's proceeds
from a redemption of Class B and Class C shares made within a specified period
(which may be at least three years but may not exceed six years for Class B
shares and is not expected to be more than five years for Class C shares)
(hereinafter such period referred to as the "CDSC Period") of his or her
purchase may be subject to a CDSC which is paid to the Distributor. Currently,
for Class B shares the percentage varies from a maximum of 5% for redemptions
made during the first year after purchase to 1% for redemptions made during the
fifth year since purchase. Currently, for Class C shares the rate is 1% on
shares redeemed during the first year after purchase and no CDSC is imposed on
shares held more than one year. However, the Prior Orders permit the Funds
other than Reserve Fund to impose other schedules with lower initial
percentages and different periods over which the CDSC is charged on the Class B
and Class C shares. The CDSC is subject to the conditions set forth in the
Prior Orders which are proposed to be superseded by this Application. This
Application also seeks to permit Reserve Fund to issue multiple classes of
shares under the same terms and conditions as the other Funds.
____________________
(14) No compensation will be paid at the time of sale of Class A shares
of Reserve Fund, because no sales load will be charged.
12
<PAGE> 15
Both Class B shares and Class C shares are designed to permit the
Distributor to pay Service Organizations selling shares of each Fund a
commission on the sale of the Class B shares and Class C shares. The public
offering price of Class B shares is, and the public offering price of the Class
C shares may be, the then current net asset value of such shares, as determined
in accordance with Rule 22c-1, Section 22(d) and other relevant provisions of
the Investment Company Act and the rules and regulations thereunder. Because
both Class B shares and Class C shares are subject to a CDSC, a Rule 12b-1 Fee
for a specified period of time following purchase, a Rule 12b-1 Fee after the
completion of the period subject to a CDSC, and to a Rule 12b-1 Fee if
converted to Class A shares, such shares are designed for investors intending
to hold their Fund shares for the designated period prior to any such
conversion.
Under each Fund's distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of each class of
shares of the Fund or other specific amount. As described above, each Fund
will pay to the Distributor a Rule 12b-1 Fee pursuant to its distribution plans
at an annual rate of up to .25% of the average daily net assets of such Fund's
Class A shares and will pay up to 1% of the average daily net asset value of
such Fund's Class B shares and Class C shares. Under each Fund's distribution
plans, payments will be made only to reimburse the Distributor for expenses
incurred in providing distribution-related services (including, in the case of
the Class B shares and Class C shares, commission expenses as described in more
detail below) and service fees paid. Each Fund will accrue at a rate (but not
in excess of the applicable maximum percentage rate) which is reviewed by the
Fund's Board of Directors quarterly. Such rate is intended to provide for
accrual of expenses at a rate that will not exceed the unreimbursed amounts
actually expended for distribution by the Distributor on behalf of such Fund.
If for any fiscal year of a Fund the amount accrued by the Fund would exceed
the amount of distribution expenses incurred by the Distributor with respect to
such Fund during the fiscal year (plus, in the case of Class B shares and Class
C shares, prior unreimbursed commission-related expenses), then the rate of
accrual will be adjusted accordingly. In no event will the amount paid by the
Fund to the Distributor exceed the unreimbursed expenses previously incurred by
the Distributor in providing distribution-related services.
Proceeds from the Rule 12b-1 Fee will be used to compensate Service
Organizations in an amount of up to .25 of 1%, annualized, of the average daily
net assets of the Class A shares, Class B shares or Class C shares maintained
in the Fund by their customers and, in the case of Class B shares and Class C
shares, proceeds from the
13
<PAGE> 16
CDSC will be used to defray the expenses of the Distributor with respect to
providing distribution related services, including upfront and/or ongoing
commissions relating to the sale of Class B shares and Class C shares.
The proceeds from the CDSC imposed on Class B shares and Class C
shares will reduce the amount of distribution expense for which the Distributor
may be reimbursed. To the extent the Distributor does not use the Rule 12b-1
Fee or CDSC (including, in the case of Class B shares and Class C shares,
related interest or carrying charges) to fund payments to Service
Organizations, under the Front-End Option, the Deferred Option or the Level
Load Option, the Distributor may use the Rule 12b-1 Fee attributable to shares
of each class to defray its expenses incurred in distributing shares of that
class, including preparing, printing and distributing advertising and sales
literature and printing and distributing the Funds' prospectus and statement of
additional information and reports used in connection with the sale of the
shares of that class. Under the Front-End Option, distribution expenses
relating to the Class A shares accrued by the Distributor in one year may not
be reimbursed from the Rule 12b-1 Fee received from the Fund in subsequent
fiscal years.
It is contemplated that the amounts expended by the Distributor upon
the initial purchase of Class B shares and Class C shares will be in excess of
the amounts received from the Rule 12b-1 Fee and CDSC attributable to such
shares in any given year. While the Distributor would expect to be compensated
from these sources for distribution services over a period of years, there will
be no assurance that the independent Directors of the Funds will approve the
continuance of the Rule 12b-1 distribution plans (pursuant to which the
distribution fee is paid) from year to year. If the distribution plans for
either Class B shares or Class C shares were terminated the Funds would have no
obligation with respect to unreimbursed expenses (other than expenses accrued
but not yet paid) incurred by the Distributor in connection with the sale of
such Class B shares or Class C shares to investors.
Class B shares will and Class C shares of each Fund may automatically
convert to Class A shares a certain number of years after the end of the
calendar month in which the shareholder's order to purchase was accepted, in
the circumstances and subject to the qualifications described herein. After
any such conversion Class B and Class C shares will be subject to Rule 12b-1
Fees equal to those borne by Class A shares. The conversion feature and the
number of years applicable will be the same with respect to a particular class
of shares of each Fund. For Class B shares such number of years may be between
four and eight; for Class C shares such number of years may be not
14
<PAGE> 17
more than twelve. The purpose of the conversion feature is to relieve the
holders of Class B shares and Class C shares that have been outstanding for a
period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares and Class C
shares from most of the burden of such distribution-related expenses. Thus,
Class A shares will consist of shares purchased by investors prior to the
implementation of the Multiple Pricing System, shares purchased pursuant to the
Front-End Option, Class B shares and Class C shares (including Class B shares
and Class C shares purchased through the reinvestment of dividends and other
distributions in respect of Class B shares and Class C shares) that have
converted to Class A status, and shares purchased by holders of outstanding
Class A shares through the reinvestment of dividends and distributions paid in
respect of those outstanding Class A shares.
The conversion feature of shares purchased through the reinvestment of
dividends and distributions paid in respect of Class B shares and Class C
shares differs from the conversion feature described in the preceding paragraph
(which applies to Class B shares and Class C shares purchased other than
through reinvestments). Shares purchased through the reinvestment of dividends
and other distributions in respect of Class B shares and Class C shares will be
treated as Class B shares or Class C shares, respectively, for purposes of the
additional Rule 12b-1 Fee. However, for purposes of conversion to Class A, all
shares in a shareholder's account which were purchased through the reinvestment
of dividends and distributions paid in respect of Class B shares or Class C
shares, respectively, (and which have not converted to Class A shares as
provided in the following sentence) will be considered held in a separate
sub-account. Each time any Class B shares or Class C shares in the
shareholder's account (other than those in the sub-account referred to in the
preceding sentence) convert to Class A, an equal pro rata portion of the Class
B shares or Class C shares in the sub-account will also convert to Class A.
The Funds have, or will have, obtained an opinion of counsel or
private letter ruling that the assessment of the additional distribution fee
and transfer agency costs and any other special allocations described above
with respect to Class B shares and Class C shares does not result in any
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986, as amended ("IRC"), and that the conversion of
Class B shares and Class C shares to Class A shares does not constitute a
taxable event under current federal income tax law. The conversion of Class B
shares and Class C shares to Class A shares may be suspended if an opinion or
ruling is no
15
<PAGE> 18
longer available at the time such conversion is to occur that such conversion
does not constitute a taxable event. In that event, no further conversions of
Class B shares or Class C shares would occur, and shares might continue to be
subject to the additional Rule 12b-1 Fee for an indefinite period which may
extend beyond the time at which the conversion of the shares would otherwise
have occurred.
Currently the Distributor furnishes the Directors of the Funds with
quarterly statements of distribution revenues and expenditures ("Statements")
(in accordance with the requirements of paragraph (b)(3)(ii) of Rule 12b-1) to
enable the Directors to make the findings required by paragraphs (d) and (e) of
Rule 12b-1. After implementation of the Multiple Pricing System, the Directors
will receive Statements which will set forth distribution revenues and
expenditures with respect to each class. In the Statements, only distribution
expenditures properly attributable to the sale of either the Class A, Class B
or Class C shares will be used to support the Rule 12b-1 Fee charged to
shareholders of such class of shares. Expenditures not related to the sale of
a particular class will not be presented to the Directors to support the Rule
12b-1 Fee charged to shareholders of such class of shares. Distribution
expenses attributable to the sale of the three classes of shares will be
allocated to each class of shares based upon the ratio in which the sales of
each class of shares bears to the sales of all the shares of each Fund. For
this purpose, shares issued upon reinvestment of dividends or distributions or
upon conversion from Class B shares or Class C shares to Class A shares will
not be considered sales.
On a quarterly basis, the Directors will receive Statements containing
sufficient information in order that they may generally monitor distribution
revenues and expenditures with respect to each class. On an annual basis, the
Directors will receive annual Statements which set forth the distribution
revenues received by the Distributor from the Rule 12b-1 Fee, the CDSC, and the
sales load and the distribution expenses to be considered by the Directors in
determining that there is a reasonable likelihood that each Rule 12b-1 plan
will benefit the Funds and their respective shareholders. The Applicants
undertake that the Directors of the Funds will receive the quarterly and annual
statements complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be
amended from time to time. The Statements, including the allocations on which
they are based, will be subject to the review and approval of the independent
Directors in exercise of their fiduciary duties under Rule 12b-1.
16
<PAGE> 19
In their analysis of the reasonableness of the advisory fee and the
Rule 12b-1 Fee under Section 36(b) of the Investment Company Act, the Directors
shall be mindful of the fact that while the advisory fee is borne by all
shares, the Rule 12b-1 Fee attributable to each class will be borne only by the
shareholders of that class. Consequently, only distribution expenditures
properly attributable to the sale of a particular class will be used to support
the Rule 12b-1 Fee charged to shareholders of such class of shares.
Expenditures not related to the sale of a particular class will not be
presented to the Directors to support the Rule 12b-1 Fee attributable to
shareholders of such class of shares.
The decision as to whether a particular distribution expenditure or
category of distribution expenditures is properly attributable to the sale of a
particular class or to the sale of multiple classes of shares (and thus
allocated to each class of shares in accordance with the method described
above) will be subject to the review and approval of the Directors. Currently,
it is anticipated that all distribution expenditures will be determined to be
attributable to the sale of all classes of shares except (i) commission
expenses related to the sale of the Class B shares or Class C shares and (ii)
Rule 12b-1 Fee payments (which will be separately calculated with respect to
each class). In the future, however, the Directors may determine that
particular distribution expenditures, in addition to the two categories listed
in the immediately preceding sentence, are attributable to the sale of a
particular class. The Statements will disclose whether the distribution
expenditures listed are attributable to the sale of a particular class or to
the sale of multiple classes of shares.
It is noted that Service Organizations will be compensated differently
as a result of whether an investor chooses the Front-End Option, the Deferred
Option or the Level Load Option. In the case of the Front-End Option, a
Service Organization will receive out of the purchase price some of its
compensation in connection with the sale of Class A shares at the time of the
sale of the shares(15) and some continuing compensation and/or Rule 12b-1 Fee
for as long as the investor remains a holder of such shares. The compensation
which the Service Organization receives at the time of the sale of the shares
will be based upon the amount of the applicable front-end sales load. In the
case of the Deferred Option or the Level Load Option, a Service Organization
will receive some compensation
____________________
(15) See Footnote 14
17
<PAGE> 20
from the Distributor in connection with the sale of either Class B shares or
Class C shares at the time of the sale of the shares and some continuing
compensation or a Rule 12b-1 Fee for as long as the investor remains a holder
of such shares. The relative size of a Service Organization's compensation
will vary from case to case depending on breakpoints, length of payment of a
service fee, etc. Accordingly, it is not possible to generalize as to which
class will provide the Service Organization with the highest level of
compensation. The Applicants will include a statement in each Fund's
prospectus to the effect that Service Organizations may receive different
compensation for selling Class A, Class B or Class C shares. Also, the
Distributor will adopt compliance standards, as to when Class A, Class B and
Class C shares may appropriately be sold to particular investors. Applicants
will require all Service Organizations selling shares of the Funds to agree to
conform to such standards.
The disparity in sales compensation is not unique to the Multiple
Pricing System. The Service Organization typically sells a vast variety of
other different financial products that provide for different compensation.
Furthermore, the Service Organization may refer a client to innumerable
non-mutual fund products, including equities, bonds, unit investment trusts,
real estate partnerships, buy-write programs, etc., which may be subject to
different compensation arrangements. It is, of course, not feasible for all
the compensation arrangements for all these competing investment products to be
described to a potential investor. Rather, the fiduciary responsibilities of
securities professionals to their clients and the selection of particular
investment products is ultimately a compliance matter.
Each class of shares of each Fund will have identical voting,
dividend, liquidation and other rights, preferences, powers, restrictions,
limitations, qualifications, designations and terms and conditions, except that
(i) Class B shares and Class C shares may be subject to a higher Rule 12b-1 Fee
than Class A shares; (ii) Class B shares and Class C shares will be subject to
higher transfer agency costs and any other incremental expenses resulting from
the deferred sales arrangement subsequently identified which shall be approved
by the Commission pursuant to an amended order; (iii) only Class B shares will
have and Class C shares may have a conversion feature; (iv) the classes will
have different exchange privileges; and (v) each class will vote separately as
a class with respect to such Fund's Rule 12b-1 distribution plans, except as
provided in condition 15.
18
<PAGE> 21
On a daily basis, the investment income will be allocated pro rata to
each class on the basis of the relative net asset value of the respective
classes. All expenses incurred by the Funds not attributable to a specific
class will be allocated pro rata to each class on the basis of the relative net
asset value of the respective classes except for the expenses of the
distribution plan and incremental transfer agency costs, which will be borne by
Class B or Class C, respectively. Because of the additional expenses that will
be borne solely by Class B or Class C, the net income attributable to and the
dividends payable on either Class B or Class C shares are expected to be lower
than the net income attributable to and the dividends payable on Class A
shares. To provide an example, if the Rule 12b-1 Fee payable by Class A was at
the annual rate of 0.25% of the net asset value of the Class A shares and the
Rule 12b-1 Fee payable by Class B or Class C was at the annual rate of 1% of
the net asset value of such class, and the net income and dividend rate prior
to the imposition of such Rule 12b-1 Fee was 6%, the dividend rate would be
5.75% on the Class A shares and 5% on the Class B shares and 5% on Class C
shares (assuming for this example no incremental transfer agency costs). The
net asset value per share of the Class A, Class B, and Class C shares are
expected to be substantially the same. Under certain circumstances, however,
the per share net asset value of the Class B and Class C shares may differ from
the per share net asset value of the Class A shares, reflecting the daily
expense accruals of the incremental Rule 12b-1 Fee and transfer agency fees
applicable with respect to the Class B and Class C shares and the differential
in the dividends paid on the three classes of shares.
The Applicants have established the manner in which the net asset
value of the three classes of shares will be determined and the manner in which
dividends and distributions will be paid. Attached hereto as Exhibit C is a
revised procedures memorandum and worksheets with respect to the net asset
value and dividends and distributions determinations.
The Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the net asset
value and the dividends and distributions of the three classes and that the
proper allocation of income and expenses among the classes under the amended
Multiple Pricing System has been reviewed by an expert (the "Expert")(16) who h
as rendered a report to Applicants, which has been provided to the
____________________
(16) Price Waterhouse served as the Expert in connection with the Amended
Order and has rendered the initial report for the Applicants in connection
with the amended Multiple Pricing System. It is expected that such firm will
render the ongoing reports.
19
<PAGE> 22
staff of the Commission, that such methodology and procedures are adequate to
ensure that such calculations and allocations will be made in an appropriate
manner, subject to the conditions and limitations in that report. On an
ongoing basis, the Expert, or an appropriate substitute Expert, will monitor
the manner in which the calculations and allocations are being made and, based
upon such review, will render at least annually a report to the Funds that the
calculations and allocations are being made properly. The Applicants agree to
take immediate corrective action if this representation is not concurred in by
the Expert or appropriate substitute Expert.
The reports of the Expert shall be filed as part of the periodic
reports filed with the Commission pursuant to Sections 30(a) and 30(b)(1) of
the Investment Company Act. The work papers of the Expert with respect to such
reports, following request by the Funds (which the Funds agree to make), will
be available for inspection by the Commission staff upon the written request
for such work papers by a senior member of the Division of Investment
Management, limited to the Director, an Associate Director, and any Regional
Administrators or Associate and Assistant Administrators. The initial report
of the Expert is a "report on policies and procedures placed in operation and
the ongoing reports will be reports on "policies and procedures placed in
operation and tests of operating effectiveness" as defined and described in the
Statement of Auditing Standards No. 70 ("SAS No. 70") of the American Institute
of Certified Public Accountants (the "AICPA") , as it may be amended from time
to time, or in similar auditing standards as may be adopted by the AICPA from
time to time.
The Applicants will maintain the records of calculations of net asset
value, dividends and distributions, expenses and expense allocations in
connection with the multiple classes of shares of the Funds for a period of not
less than six years, the first two years in an easily accessible place, and
such calculations will be available for inspection by the Commission staff
during such time period.
Another difference among the Class A, Class B and Class C shares will
be the terms of the exchange privilege applicable to the shares. Under the
Amended Order, shares of each class of each Fund other than Reserve Fund may be
exchanged for shares of the same class of another Fund or for shares of Reserve
Fund. Reserve Fund shares are exchangeable for Class A shares of a Fund or, if
the Reserve Fund shares were originally acquired in exchange for Class B or
Class C shares of a Fund, those Reserve Fund Shares are exchangeable only for
the class of shares involved in the original exchange into Reserve Fund shares.
When the common stock of Reserve Fund
20
<PAGE> 23
is reclassified into three classes, all the currently outstanding Reserve Fund
shares will be classified as Class A shares. Some of those Reserve Fund shares
were acquired in exchange for Class B or Class C shares of other Funds.
However, under the Amended Order Class A shares of a Fund may generally only be
exchanged for Class A shares of another Fund. Therefore, if a special
exception is not created for Reserve Fund any current shareholders who
originally acquired their Reserve Fund shares in exchange for Class B or Class
C shares of another Fund would be adversely affected because they would no
longer be able to exchange their Reserve Fund shares for Class B or Class C
shares of another Fund. They would have to redeem those shares and purchase
shares of another Fund with the proceeds. Depending on how long they held
their Reserve Fund shares they may incur a CDSC. Alternatively, their Reserve
Fund shares could be converted to Class A shares upon reclassifying Reserve
Fund's shares, but in that case these shareholders could receive an
inappropriate windfall and the Distributor would be unfairly and unnecessarily
disadvantaged. The Applicants want to solve this problem by altering the
exchange conditions so that Class A shares of Reserve Fund that were originally
acquired before the reclassification of Reserve Fund shares in exchange for
Class B or Class C shares of another Fund may be exchanged for Class B or Class
C shares, respectively, of a Fund, just as is currently the case for Reserve
Fund under the Amended Order. Any Reserve Fund shareholder who did not
originally acquire his shares in exchange for Class B or Class C shares of
another Fund will be able to exchange his shares for Class A shares of another
Fund, also just as is currently the case for Reserve Fund under the Amended
Order.(17)
Only such shares held in Reserve Fund immediately prior to the
reclassification of its shares will be affected by this special exchange
procedure. After Class B and Class C shares of Reserve Fund are available for
public distribution, exchanges into Reserve Fund will be handled the same as
exchanges into any other Fund. Class A, Class B and Class C shares of a Fund
will only be exchangeable for the same class of shares of Reserve Fund. Class
B and Class C shares of Reserve Fund will be exchangeable for Class B or Class
C shares, respectively, of another Fund.
____________________
(17) In connection with such an exchange the shareholder must pay the
excess, if any, of the sales charge rate applicable to the shares being
acquired over the sales charge rate, if any, previously paid.
21
<PAGE> 24
The exchange privileges applicable to the various classes will comply
with Rule 11a-3 under the Investment Company Act. Various Funds presently
require a 30 day holding period prior to an exchange and presently impose an
exchange fee of $5 per exchange transaction.
The Multiple Pricing System permits investors to choose the method of
purchasing shares that is most beneficial given the amount of their purchase,
the length of time the investor expects to hold his or her shares and other
relevant circumstances. By offering the investor the choice of either a
Front-End Option, a Deferred Option or a Level Load Option within the same
fund, the Multiple Pricing System enables the investor to choose the sales
financing method which best suits his or her particular situation. For
example, certain investors may be better off paying a front-end load rather
than incurring deferred charges either because they are entitled to a reduced
load or because of the length of time the investor intends to maintain his
investment in a Fund.
IV
RATIONALE FOR MULTIPLE PRICING SYSTEM AND
AMENDMENT OF THAT SYSTEM
Investment companies and their principal underwriters essentially have
three alternative methods available to market and distribute shares to the
investing public. The front-end sales load arrangement exemplifies the method
which, historically, has predominated in the mutual fund industry --
distribution through one or more broker-dealers which have entered into dealer
agreements with the fund's principal underwriter. This type of marketing
effort relies on the promotion of the fund by the dealer and active
solicitation of the dealer's clients by its brokers or other sales personnel.
Since mutual funds compete with the universe of other investment alternatives
offered by brokers to their clients, compensation of the broker is an essential
element in the marketing of a fund through a dealer network. Until recently,
such compensation was accomplished by the dealer charging the customer a sales
commission or "load" on the purchase of fund shares and crediting a commission
to the broker making the sale.
A second method of marketing fund shares to the public relies
primarily on the extensive use of print, other mass media advertising, and
direct mail solicitation. The marketing expenses are borne by either the
fund's principal
22
<PAGE> 25
underwriter or investment adviser or, in some cases, by the fund itself. In
this second method of marketing, shares are not sold through broker-dealers.
Since the marketing effort does not rely on a dealer's sales personnel
compensated on a commission basis, such funds may be sold to the public at net
asset value per share without any sales load to the investor.
Each of these distribution methods offers certain advantages to the
investor. No-load funds offer the obvious advantage of saving the investor the
expense of a sales charge with the total amount of the purchase price being
invested in the fund. While funds sold through dealer networks with
traditional sales charges cannot compete with no-load funds on a cost basis,
the typical investor in such funds has access to the investment expertise,
experience and research facilities of his securities firm and the personalized
service of his broker.
In 1982, a third distribution method was implemented for the
conventional mutual fund sold through securities dealers which permits an
investor to purchase shares of such funds through his dealer without the
investor being assessed a front-end load but which nevertheless provides the
dealer with the revenue necessary to compensate its brokers at rates comparable
to those historically paid by load funds. This distribution mechanism combines
the CDSC with a Rule 12b-1 distribution plan. As is the case with a front-end
load fund, the dealer shares with the broker the commission on the sales of
fund shares received from the fund's distributor. The distributor is in turn
compensated over a period of several years for its marketing effort, including
its out-of- pocket commission expenses, by means of a Rule 12b-1 Fee
periodically paid by the fund at a rate based on the fund's average daily net
assets or some portion thereof. Each shareholder of the fund in effect bears
his or her proportionate share of the fee. Since "early" redemptions of shares
(i.e., those occurring within three to six years of purchase) could preclude
the distributor from receiving sufficient revenue under the distribution plan
to justify the expense of the initial sale and the ongoing services provided to
the investor, the fund deducts a CDSC from the proceeds of such "early"
redemption and pays all or a portion of the charge to the distributor. The
amount of the CDSC payable on a redemption declines each year following the
initial purchase, and typically, after four to six years, a redemption would
not be subject to any CDSC.
The response of investors to this deferred distribution mechanism has
been favorable. As a result, since 1982 an increasing number of funds which
are sold through broker-dealers have featured a CDSC and a Rule 12b-1
23
<PAGE> 26
distribution plan rather than a traditional front-end sales load. In addition,
many existing funds have converted their front-end sales load arrangement to
this method of selling shares.
In order to address the differing requirements and preferences of
potential investors, a number of the Adviser's competitors have reorganized or
are in the process of reorganizing the mutual funds managed or distributed by
them, including their money market funds like Reserve Fund, to offer two or
more classes of shares featuring, with some variations, distribution
arrangements similar to the Front-End Option, and the Deferred Option and the
Level Load Option. The opportunity to purchase shares pursuant to any of these
three options has distinct advantages for investors.
The purpose of adding Class B and Class C shares in Reserve Fund is to
enable an investor to directly purchase Class B and Class C shares in Reserve
Fund and later exchange such shares into other Funds' Class B or Class C
shares. Under the Amended Order, shares of Reserve Fund may only be exchanged
for Class A shares of a Fund. This modification to the present structure
provides greater flexibility for those investors who want a "safe harbor" for
their investment until they select a more permanent investment, and extends the
systematic exchange functionality to Class B and Class C shares. Current
Reserve Fund shareholders will not be adversely affected because following the
reclassification of Reserve Fund shares they will hold Class A shares that are
functionally equivalent to the shares they now hold and there will be no
changes in the fees to which they are subject. Furthermore, several other
money market funds offer the flexibility of multiple classes of shares and
Reserve Fund is at a competitive disadvantage because it does not.(18)
V
EXEMPTION FROM SECTIONS 18(f), 18(g) AND
18(i) UNDER THE INVESTMENT COMPANY ACT
____________________
(18) For example, see SunAmerica Money Market Securities, Inc. [Sun
American Capital Appreciation Fund, Inc., et al., Investment Company Act
Release Nos. 19579 (July 21, 1993) (notice) and 19631 (August 17, 1993)
(order)]; Putnam Daily Dividend Trust [Putnam Adjustable Rate U.S. Government
Fund, et al., Investment Company Release Nos. 18637 (March 30, 1992) (notice)
and 18676 (April 24, 1992) (order)]; MetLife - State Street Money Market Trust
[MetLife - State Street Equity Trust , et al., Investment Company Act Release
Nos. 19227 (January 22, 1993) (notice) and 19268 (February 17, 1993) (order)]
24
<PAGE> 27
The Applicants are requesting an exemptive order to the extent that
the proposed issuance and sale of an unlimited number of classes of shares
representing interests in the Funds might be deemed (i) to result in the
issuance of a "senior security" within the meaning of Section 18(g) of the
Investment Company Act and thus to be prohibited by Section 18(f)(1) of the
Investment Company Act and (ii) to violate the equal voting provisions of
Section 18(i) of the Investment Company Act.
Section 18(f)(1) provides, with certain exceptions not here relevant,
that "it shall be unlawful for any registered open- end company to issue any
class of senior security or to sell any senior security of which it is the
issuer . . . ." Section 18(g) provides:
Unless otherwise provided: "Senior security" means any bond,
debenture, note, or similar obligation or instrument constituting a
security and evidencing indebtedness, and any stock of a class having
priority over any other class as to distribution of assets or payment
of dividends; and "senior security representing indebtedness" means
any senior security other than stock.
Section 18(i) provides:
Except as provided in subsection (a) of this section, or as otherwise
required by law, every share of stock hereafter issued by a registered
management company . . . shall be a voting stock and have equal voting
rights with every other outstanding voting stock: Provided, that this
subsection shall not apply . . . to shares issued in accordance with
any rules, regulations, or orders which the Commission may make
permitting such issue.
The creation of multiple classes of shares may result in shares of a class
having "priority over [another] class as to . . . payment of dividends" and
having unequal voting rights because under the proposed arrangement the holders
of the Class B and Class C shares would bear a proportionately higher share of
each Fund's distribution expenses and transfer agency costs than holders of the
Class A shares and each class would vote separately as a class with respect to
such Fund's Rule 12b-1 distribution plans. In addition, the differing rights
of the three classes of shares as to exchanges and conversion may result in
shares of a class having "priority over [another] class as to distribution of
assets".
The Commission is authorized by Section 6(c) of the Investment Company
Act to exempt, inter alia, any "security, or transaction, or any class or
classes of . . . securities, or transactions", from any provision of the
Investment Company Act or any rule thereunder, "if and to the extent that such
exemption is necessary or appropriate in the public interest and consistent
with the protection of investors and the purposes fairly intended by the policy
and provisions of [the Investment Company Act]".
25
<PAGE> 28
In support of the relief requested, the Applicants believe that the
issuance and sale by the Funds of an unlimited number of classes will better
enable the Funds to meet the competitive demands of today's financial services
industry. Under the amended Multiple Pricing System, an investor will be able
to choose the method of purchasing shares that is most beneficial given the
amount of his or her purchase, the length of time the investor expects to hold
his or her shares and other relevant circumstances. The proposed arrangement
would permit the Funds to facilitate both the distribution of their securities
and provide investors with a broader choice as to the method of purchasing
shares without assuming excessive accounting and bookkeeping costs or
unnecessary investment risks. It would also offer investors greater
flexibility in exchanging shares among Funds. The establishment of multiple
shares may attract assets to the Fund to the benefit of the holders of all
classes. In addition, if the Funds were required to organize separate
investment portfolios for each class of shares, management of such new
portfolios might be hampered. For example, unless each new portfolio grew at a
sufficient rate and to a sufficient size, it could be faced with liquidity and
diversification problems that would prevent the portfolio from producing a
favorable return. The risk that the new series would ultimately fail because
of duplicative costs and management problems would not be insignificant in
light of today's extremely competitive environment, in which investors may
choose from a broad array of investment alternatives suited to their needs.
Under the proposal, investors will also be able to benefit from the
additional safety and stability resulting from their ability to invest in
established, sizeable investment portfolios. Moreover, as further discussed
herein, owners of each class of shares may be relieved under the Multiple
Pricing System of a portion of the fixed costs normally associated with
investing in mutual funds since such costs would, potentially, be spread over a
greater number of shares than they would be otherwise. Similarly, the owners
of Class A, Class B and Class C shares in those Funds with management
agreements under which the fee rates decrease as the net assets of the
particular Fund increase(19) could expect to enjoy, under the proposed
arrangement, lower effective management fee rates than they
____________________
(19) American Capital Comstock Fund, Inc., American Capital Corporate Bond
Fund, Inc., American Capital Emerging Growth Fund, Inc., American Capital
Enterprise Fund, Inc., American Capital Equity Income Fund, Inc., American
Capital Federal Mortgage Trust, American Capital Growth and Income Fund, Inc.,
American Capital Government Securities, Inc., American Capital Harbor Fund,
Inc., American Capital High Yield Investments, Inc., American Capital Pace
Fund, Inc., American Capital Reserve Fund, Inc., American Capital Tax-Exempt
Trust, and American Capital Texas Municipal Securities, Inc.
26
<PAGE> 29
would enjoy if the arrangement is not implemented. Therefore, in order to
achieve these potential benefits and obviate the risks associated with the
creation of a separate series for each new class of shares, the Funds
originally proposed to establish, and now propose to amend, the Multiple
Pricing System.
The Applicants believe that the proposed allocation of expenses and
voting rights relating to the Rule 12b-1 plans in the manner described above is
equitable and would not discriminate against any group of shareholders. With
respect to any Fund, the rights and privileges of each class of shares are
substantially identical, the possibility that their interests would ever
conflict would be remote and, in any event, the interests of the Class A, Class
B and Class C shareholders with respect to the Rule 12b-1 Fee would be
adequately protected since the Rule 12b-1 plans for each of those classes will
conform to the requirements of Rule 12b-1, including the requirement that their
implementation and continuance be approved on an annual basis by both the full
Board and the Independent Directors of the Fund.
As noted above, the Class A, Class B and Class C shares of all of the
Funds will bear, pro rata, all of the expenses of the Funds, except that the
holders of Class B and Class C shares will bear a proportionately higher Rule
12b-1 Fee and transfer agency costs than the holders of the Class A shares.
By allowing the Funds in effect to offer an unlimited number of
classes of shares, the Funds (and their shareholders) will save the
organizational and other continuing costs that would be incurred if the Funds
were required to establish a separate investment portfolio in order to offer
Class B and Class C shares subject to a CDSC. Moreover, as discussed above, to
the extent that the Funds are able, through the Multiple Pricing System, as
amended, to maintain and expand their shareholder base, shareholders,
irrespective of class, will benefit to the extent that the Funds' pro rata
operating expenses per share are lower than they would be otherwise.
The Funds are aware of the need for full disclosure of the Multiple
Pricing System in each Fund's prospectus (and to the extent necessary, the
statement of additional information) of the differences between the various
class of shares and the different expenses of each class of shares. Each Fund
will disclose the respective expenses, performance data, distribution
arrangements, services, fees, sales loads, deferred sales loads, and exchange
privileges applicable to each class of shares in every prospectus, regardless
of whether all classes of shares are offered through each prospectus. The
shareholder reports of each Fund will disclose the respective expenses and
27
<PAGE> 30
performance data applicable to each class of shares. The shareholder reports
will contain, in the statement of assets and liabilities and statement of
operations, information related to the Fund as a whole generally and not on a
per class basis. Each Fund's per share data, however, will be prepared on a
per class basis with respect to all classes of shares of such Fund. To the
extent any advertisement or sales literature describes the expenses or
performance data applicable to a particular class of shares, it will disclose
the expenses and/or performance data applicable for all classes of shares. The
information provided by Applicants for publication in any newspaper or similar
listing of the Funds' net asset values and public offering prices will
separately present each class of shares.
The abuses that Section 18 of the Investment Company Act is intended
to redress are set forth in Section 1(b) of the Investment Company Act which
declares "that the national public interest and the interest of investors are
adversely affected... (7) when investment companies by excessive borrowing and
the issuance of excessive amounts of senior securities increase unduly the
speculative character of their junior securities; or (8) when investment
companies operate without adequate assets or reserves." The Multiple Pricing
System described in this application does not involve borrowings and will not
affect the Funds' assets or reserves. Nor will the proposed arrangement
increase the speculative character of the shares of the Funds, since all such
shares will participate pro rata in all of each Fund's income and all of each
Fund's expenses (with the exception of the differing Rule 12b-1 Fees and
transfer agency costs).
As noted above, under the Multiple Pricing System mutuality of risk
will be preserved with respect to each class of shares in the Funds. Further,
since each class of shares will be redeemable at all times (subject to the same
limitations set forth in the Fund's prospectus and statement of additional
information), since no class of shares will have any preference or priority
over any other class in each Fund in the usual sense (that is, no class will
have distribution or liquidation preferences with respect to particular assets,
no class will have any right to require that lapsed dividends be paid before
dividends are declared on the other class and no class will be protected by any
reserve or other account), and since the similarities (and, with respect to the
Rule 12b-1 distribution plans and associated voting rights, the conversion
feature, the transfer agency costs, and the exchange privileges,
dissimilarities)
28
<PAGE> 31
of each class of shares will be fully disclosed in each Fund's prospectus and
statement of additional information, investors will not be given misleading
impressions as to the safety or risk of any class of shares and the nature of a
particular class of shares will not be rendered speculative.
Moreover, the Funds' capital structure under the proposed arrangement
will not induce any group of shareholders to invest in risky securities to the
detriment of any other group of shareholders since the investment risks of the
Funds will be borne equally by all of its shareholders. The Funds' capital
structure under the proposed arrangement will not enable insiders to manipulate
the expenses and profits among the various classes of shares since the Funds
are not organized in a pyramid fashion and since all the expenses and profits
of the Funds will be allocated pro rata to each class on the basis of the
relative net asset value of the respective classes, except the disproportionate
Rule 12b-1 Fee under the Rule 12b-1 distribution plans and the incremental
transfer agency costs, which will be borne by Class B and Class C. In
addition, all shareholders will have equal voting rights (except with respect
to matters pertaining to the Class A, Class B and Class C Rule 12b-1
distribution plans). In addition, under the proposed arrangement, the level of
Rule 12b-1 Fee attributable to each class of the Funds will be subject to
annual approval by the Fund's Directors, including the Directors who are not
interested persons of the Funds and have no direct or indirect financial
interest in the operation of the plans.
Similarly, the concerns that complex capital structures may facilitate
control without equity or other investment and may make it difficult for
investors to value the securities of the Funds are not present under the
proposed Multiple Pricing System. With respect to this latter concern, it may
be noted that the Applicants represent herein that they will take appropriate
steps to ensure that the respective yields on the various classes of shares of
the Funds are fairly disclosed in their respective registration statements,
shareholder reports and any advertising materials, including newspaper
advertisements. Also, the Applicants represent herein that the information
provided by the Applicants to any newspaper or similar listing of any Fund's
net asset value and public offering price will separately present each class of
shares.
The classes of securities that were present in the capital structures
that prompted the Commission to recommend the adoption of Section 18 (i.e.,
funded debt, preference stocks and convertible securities) are not present in
the Multiple Pricing System. It should be noted further that the Multiple
Pricing System involves less complex
29
<PAGE> 32
capital structures than other kinds of capital structures permitted by the
Commission in the past with respect to open-end management investment companies
(see, for example, the orders entered on exemption applications concerning
so-called dual funds, e.g., Federated Dual-Exchange Fund Incorporated, IC-6319
(January 6, 1971) and IC-6757 (October 1, 1971)).
In August 1988, the Commission issued an order permitting the creation
of separate classes of shares in an analogous situation. See Merrill Lynch
California Municipal Bond Trust, et al., IC-16503 (July 28, 1988) (notice) and
IC-16535 (August 23, 1988) (order). This order (the "Merrill Lynch Funds
Order"), which was obtained by a group of funds sponsored by Merrill Lynch
Funds Distributor, Inc., permits each fund to offer two classes of shares
featuring separate sales arrangements. One class is sold pursuant to a
front-end load without any ongoing distribution fees and the second class is
sold subject to a CDSC and a Rule 12b-1 distribution plan. The classes differ
only in that the class of shares sold subject to the CDSC bears the costs of
the Rule 12b-1 distribution plan and certain incremental transfer agency costs.
The CDSC class of shares has exclusive voting rights with respect to matters
affecting its Rule 12b-1 distribution plan and each class of shares has
different exchange privileges.
Several distinctions exist between the amended Multiple Pricing System
and the dual distribution arrangements approved by the Commission in the
Merrill Lynch Funds Order. First, the Funds propose to offer an unlimited
number of classes, and specifically, a third class of shares - Class C shares.
The Merrill Lynch shares sold subject to a front-end sales load do not bear the
cost of any ongoing distribution fees(20) while the Multiple Pricing System
involves an ongoing Rule 12b-1 Fee in connection with its Front-End Option.
While not present in the Merrill Lynch arrangement, this aspect of the Multiple
Pricing System has been approved by the Commission.(21) In addition, the
Commission has previously granted exemptive relief to another fund group
permitting those funds
____________________
(20) However, Merrill Lynch received amended relief to permit it to impose
a 12b-1 fee on its Class A front-end load shares. See Merrill Lynch Short-Term
Global Income Fund, Investment Company Act Release Nos. 18015 (February 22,
1991) and 18059 (March 22, 1991).
(21) See Prudential-Bache California Municipal Fund, et al., Investment
Company Act Release Nos. 17277 (December 20, 1989) and 17308 (January 18,
1990).
30
<PAGE> 33
to offer multiple classes of shares.(22) Finally, the Multiple Pricing System
provides that Class B shares shall convert and Class C shares may convert to
Class A shares a certain number of years after purchase. The multiple
distribution arrangements approved by the Commission in the Merrill Lynch Funds
Order did not have such a conversion feature.
In February 1990, the Commission issued an order permitting the
creation of separate classes of shares in an analogous situation. See Alliance
Short-Term Multi-Market Trust, Inc., et al., IC-17295 (January 8, 1990)(notice)
and IC-17330 (February 2, 1990)(order). This order (the "Alliance Fund
Order"), which was obtained by a fund sponsored by Alliance Fund Distributors,
Inc., permits the fund to offer two classes of shares featuring separate sales
arrangements. One class is sold pursuant to a front-end load without any
ongoing distribution fees and the second class is sold subject to a CDSC and a
Rule 12b-1 distribution plan. The classes differ only in that the class of
shares sold subject to the CDSC bears the costs of the Rule 12b-1 distribution
plan and certain incremental transfer agency costs. The CDSC class of shares
has exclusive voting rights with respect to matters affecting its Rule 12b-1
distribution plan and each class of shares has different exchange privileges.
The Alliance Fund Order provides for the conversion of the Class B shares into
Class A shares a certain number of years after purchase. The Multiple Pricing
System and the dual distribution arrangements approved by the Commission in the
Alliance Fund Order are very similar except that the Funds propose to offer an
unlimited number of classes of shares. Several exemptive orders have been
granted by the Commission, however, authorizing a conversion feature having
characteristics substantially similar to that proposed by the Applicants.(23)
Notwithstanding these differences, Applicants believe that the Multiple Pricing
System is similar in all material respects to the dual distribution
arrangements approved by the Commission in the Merrill Lynch Funds Order and in
the Alliance Fund Order for purposes of determining the merits for granting the
exemptions requested herein.
____________________
(22) See The Horizon Funds, Investment Company Act Release Nos. 17157
(September 29, 1989) and 17226 (November 17, 1989) (three classes); SEI Liquid
Asset Trust, Investment Company Act Release Nos. 17878 (November 27, 1990) and
17915 (December 24, 1990) (five classes); Paine Webber America Fund, et. al.,
Investment Company Act Release Nos. 18084 (April 9, 1991) and 18126 (May 1,
1991).
(23) See The Equitable Funds, Investment Company Act Release Nos. 17506
(May 23, 1990) and 17546 (June 20, 1990); Colonial Value Investing Portfolios,
Investment Company Act Release Nos. 17438 (April 16, 1990) and 17495 (May 16,
1990).
31
<PAGE> 34
The Applicants agree that the prospectus and statement of additional
information of the Funds will (i) describe the services rendered and
compensation paid under the Rule 12b-1 distribution plans with respect to each
class and the Rule 12b-1 Fee payable by the Funds for such services; (ii)
disclose all material information concerning each class of shares in a manner
that will enable an investor to make a comparative analysis of such classes and
facilitate the making of an investment decision as to which class would be more
advantageous to the investor; and (iii) include a statement to the effect that
a sales person and any other person entitled to receive any portion of a Rule
12b-1 Fee may receive different compensation for selling one particular class
of shares over another in the same Fund.
The Applicants believe that the Multiple Pricing System, as amended,
will provide a meaningful choice for public investors under all foreseeable
circumstances. An investor's decision to invest in Class A, Class B or Class C
shares at any given time will depend on a number of factors, including the
amount of money to be invested initially and over a period of time, the current
level of front-end sales load or CDSC imposed by the Fund, the period of time
over which the investor proposes to retain his or her investment in the Fund,
the anticipated level of yield from the Class A, Class B and Class C shares,
etc. Because all of these factors vary from time to time and from investor to
investor, it would be misleading as well as impracticable to give examples
illustrating the investor's choice under all circumstances.
The Applicants believe that providing public investors with each of
these three options in the same fund and the same disclosure document better
enables the investor to make the appropriate choice. The Applicants believe
that the public interest in the present matter is no less than the interest
that prompted relief in the Merrill Lynch Funds Order and the Alliance Funds
Order.
VI
RELIEF REQUESTED
The Applicants hereby request an exemptive order pursuant to Section
6(c) of the Investment Company Act to the extent that the proposed issuance and
sale of an unlimited number of classes of shares of the Funds, including the
allocation of voting rights thereto, the payment of dividends thereon and the
conversion feature as described
32
<PAGE> 35
above, might be deemed: (1) to result in the issuance of a "senior security
within the meaning of Section 18(g) of the Investment Company Act and to be
prohibited by Section 18(f)(1) of the Investment Company Act; and (2) to
violate the requirement in Section 18(i) of the Investment Company Act that
every share of stock issued by a registered management investment company shall
have equal voting rights with every other outstanding voting stock. The
Applicants agree that the order of the Commission granting the requested relief
shall be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of the Funds, and be identical in all
respects, except as set forth below. The only differences
among various classes of shares of the same Fund will relate
solely to: (a) the impact of the respective Rule 12b-1
distribution plans payments allocated to each class of
shareholders, the incremental transfer agency costs
attributable to the respective classes resulting from the
various distribution alternatives, and any other incremental
expenses that should be properly allocated to one class which
shall be approved by the Commission pursuant to an amended
order, (b) the fact that each class will vote separately as a
class with respect to its particular Fund's Rule 12b-1
distribution plans, except as provided in condition 15, (c)
the different exchange privileges of the various classes of
shares, (d) the fact that each class of shares that is subject
to a Rule 12b-1 fee, other than Class A shares, may have a
conversion feature, and (e) the designation of each class of
shares of the Funds.
2. The Directors of a Fund, including a majority of the
independent Directors, will approve the Multiple Pricing
System. The minutes of the meetings of the Directors of the
Funds regarding the deliberations of the Directors with
respect to the approvals necessary to implement or amend the
Multiple Pricing System will reflect in detail the reasons for
the Directors' determination that the proposed Multiple
Pricing System, or the amendment thereof, is in the best
interests of both the Funds and their respective shareholders.
3. On an ongoing basis, the Directors of the Funds, pursuant to
their fiduciary responsibilities under the Investment Company
Act and otherwise, will monitor the Funds for the existence of
any material conflicts between the interests of the various
classes of shares. The Directors, including
33
<PAGE> 36
a majority of the independent Directors, shall take such
action as is reasonably necessary to eliminate any such
conflicts that may develop. The Adviser and the Distributor
will be responsible for reporting any potential or existing
conflicts to the Directors. If a conflict arises, the Adviser
and the Distributor at their own cost will remedy such
conflict up to and including establishing a new registered
management investment company.
4. The Directors of the Funds will receive quarterly and annual
Statements concerning distribution and shareholder servicing
expenditures complying with paragraph (b)(3)(ii) of Rule
12b-1, as it may be amended from time to time. In the
Statements, only distribution expenditures properly
attributable to the sale or servicing of a particular class of
shares will be used to justify the Rule 12b-1 Fee charged to
that class. Expenditures not related to the sale or servicing
of a particular class of shares will not be presented to the
Directors to justify any fee attributable to that class. The
Statements, including the allocations upon which they are
based, will be subject to the review and approval of the
independent Directors in the exercise of their fiduciary
duties.
5. Dividends paid by a Fund with respect to each class of its
shares, to the extent any dividends are paid, will be
calculated in the same manner at the same time on the same day
and will be in the same amount, except that Rule 12b-1 Fee
payments relating to each respective class of shares will be
borne exclusively by that class and any incremental transfer
agency costs relating to a particular class of shares will be
borne exclusively by that class.
6. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes
and the proper allocation of income and expenses among such
classes has been reviewed by an expert (the "Expert") who has
rendered a report to Applicants, which has been provided to
the staff of the Commission, that such methodology and
procedures are adequate to ensure that such calculations and
allocations will be made in an appropriate manner. On an
ongoing basis, the Expert, or an appropriate substitute
Expert, will monitor the manner in which the calculations and
allocations are being made and, based upon such review, will
render at least annually a report to the Funds that the
calculations and allocations are being made properly. The
34
<PAGE> 37
reports of the Expert shall be filed as part of the periodic
reports filed with the Commission pursuant to Sections 30(a)
and 30(b)(1) of the Investment Company Act. The work papers
of the Expert with respect to such reports, following request
by a Fund (which the Fund agrees to provide), will be
available for inspection by the Commission staff upon the
written request to the Fund for such work papers by a senior
member of the Division of Investment Management, limited to
the Director, an Associate Director and any Regional
Administrators or Associate and Assistant Administrators. The
initial report of the Expert is a "report on policies and
procedures placed in operation" as defined and described in
SAS No. 70 of the AICPA, and the ongoing reports will be
"reports on policies and procedures placed in operation and
test of operating effectiveness," as defined and described in
SAS No. 70 of the AICPA, as it may be amended from time to
time, or in similar auditing standards as may be adopted by
the AICPA from time to time.
7. The Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for
calculating the net asset value and dividends and
distributions among the various classes of shares and the
proper allocation of income and expenses among such classes of
shares and this representation will be concurred with by the
Expert in the initial report referred to in condition (6)
above and will be concurred with by the Expert, or an
appropriate substitute Expert, on an ongoing basis at least
annually in the ongoing reports referred to in condition (6)
above. Applicants will take immediate corrective measures if
this representation is not concurred in by the Expert or
appropriate substitute Expert.
8. The prospectus of each Fund will contain a statement to the
effect that a salesperson and any other person entitled to
receive compensation for selling or servicing Fund shares may
receive different compensation for selling one particular
class of shares over another in the Fund.
9. The Distributor will adopt compliance standards as to when a
particular class of shares may appropriately be sold to
particular investors. Applicants will require all persons
selling shares of the Funds to agree to conform to such
standards.
35
<PAGE> 38
10. The conditions pursuant to which the exemptive order is
granted and the duties and responsibilities of the Directors
of the Funds with respect to the Multiple Pricing System will
be set forth in guidelines which will be furnished to the
Directors.
11. Each Fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads,
deferred sales loads, and exchange privileges applicable to
each class of shares in every prospectus, regardless of
whether all classes of shares are offered through each
prospectus. Each Fund will disclose the respective expenses
and performance data applicable to each class of shares in
every shareholder report. The shareholder reports will
contain, in the statement of assets and liabilities and
statement of operations, information related to the Fund as a
whole generally and not on a per class basis. Each Fund's per
share data, however, will be prepared on a per class basis
with respect to all classes of shares of such Fund. To the
extent any advertisement or sales literature describes the
expenses or performance data applicable to a particular class
of shares, it will also disclose the expenses and/or
performance data applicable to all classes of shares. The
information provided by Applicants for publication in any
newspaper or similar listing of the Funds' net asset values
and public offering prices will present each class of shares
separately.
12. The Applicants acknowledge that the grant of the exemptive
order requested by this Application will not imply Commission
approval, authorization or acquiescence in any particular
level of payments that the Funds may make pursuant to their
Rule 12b-1 distribution plans in reliance on the exemptive
order.
13. Any class of shares with a conversion feature ("Purchase
Class") will convert into another class ("Target Class") of
shares on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee, or
other charge. After conversion, the converted shares will be
subject to an asset-based sales charge and/or service fee (as
those terms are defined in Article III, Section 26 of the
NASD's Rules of Fair Practice), if any, that in the aggregate
are lower than the asset-based sales charge and service fee to
which they were subject prior to the conversion.
36
<PAGE> 39
14. Applicants will comply with the provisions of proposed Rule
6c-10 under the Investment Company Act, Investment Company Act
Release No. 16619 (November 2, 1988) as such rule is currently
proposed and as it may be reproposed, adopted or amended.
15. If a Fund implements any amendment to a Rule 12b-1 plan (or,
if presented to shareholders, adopts or implements any
amendment of a non-Rule 12b-1 shareholder services plan) that
would increase materially the amount that may be borne by the
Target Class shares under the plan, Purchase Class shares will
stop converting into Target Class shares unless shareholders
of the Purchase Class, voting separately as a class, approve
the proposal. The Directors shall take such action as is
necessary to ensure that existing Purchase Class shares are
exchanged or converted into a new class of shares ("New Target
Class"), identical in all material respects to the Target
Class as it existed prior to implementation of the proposal,
no later than the date such shares previously were scheduled
to convert into Target Class shares. If deemed advisable by
the Directors to implement the foregoing, such action may
include the exchange of all existing Purchase Class shares for
a new class ("New Purchase Class"), identical to such existing
Purchase Class shares in all material respects except that the
New Purchase Class will convert into the New Target Class.
The New Target Class and New Purchase Class may be formed
without further exemptive relief. Exchanges or conversions
described in this condition shall be effected in a manner that
the Directors reasonably believe will not be subject to
federal taxation. In accordance with condition 3, any
additional cost associated with the creation, exchange, or
conversion of the New Target Class or New Purchase Class shall
be borne solely by the Adviser and the Distributor. Purchase
Class shares sold after the implementation of the proposal may
convert into Target Class shares subject to the higher maximum
payment, provided that the material features of the Target
Class plan and the relationship of such plan to the Purchase
Class are disclosed in an effective registration statement.
For the reasons set forth above, the Applicants believe that the
relief requested is based upon the legitimate needs of the Funds and
particularly Reserve Fund and their respective shareholders, and will not
adversely affect the
37
<PAGE> 40
interests of any shareholders. Further, the Applicants submit that the
requested exemption is appropriate in the public interest and is consistent
with the protection of investors and the purposes fairly intended by the policy
and provisions of the Investment Company Act.
VII
EXEMPTIONS FROM SECTIONS 2(a)(32), 2(a)(35),
22(c) AND 22(d) OF THE INVESTMENT COMPANY
ACT AND RULE 22c-1 THEREUNDER
The Applicants are requesting an exemption from the provisions of
Sections 2(a)(32), 2(a)(35), 22(c) and 22(d) of the Investment Company Act and
Rule 22c-1 thereunder, to the extent necessary to permit the Funds to assess a
CDSC on certain redemptions of an unlimited number of classes of shares of the
Funds, and, as described below, to permit the Funds to waive the CDSC with
respect to certain types of redemptions.
A. Description of CDSC.
As noted herein, the Class A shares of the Funds will be sold subject
to a traditional front-end sales load, which may be $0 as will be the case for
Reserve Fund, and a Rule 12b-1 Fee at a rate of up to .25% per annum of the
average daily net assets of the Class A shares. The Class B and Class C shares
will be subject to deferred charges consisting of a Rule 12b-1 Fee at a rate of
up to 1% per annum of the average daily net assets of the respective class of
shares and a CDSC. In addition, Class C shares may be sold with a front-end
sales load. The Class B and Class C Rule 12b-1 Fee and the CDSC will be paid
to the Distributor to defray the cost of paying sales commissions to Service
Organizations on the sale of Class B and Class C shares of the Funds.
The CDSC will not be imposed on redemptions of shares which were
purchased more than a fixed number of years prior to their redemption (the
"CDSC Period") or on Class B shares or Class C shares derived from reinvestment
of distributions. Furthermore, no CDSC will be imposed on an amount which
represents an increase in the value of the shareholder's account resulting from
capital appreciation above the amount paid for shares purchased during the CDSC
Period. In determining whether a CDSC is applicable, it will be assumed that a
redemption is made first of any shares in the shareholder's Fund account that
are not subject to a CDSC, second of
38
<PAGE> 41
shares derived from reinvestment of distributions, third of shares held for a
period longer than the CDSC Period, and fourth of shares held for a period not
longer than the CDSC Period.
The CDSC will be assessed on an amount equal to the lesser of the then
current market value or the cost of shares being redeemed.
The amount of the CDSC to be imposed will depend on the number of
years since the investor made the purchase payment from which an amount is
being redeemed and the net asset value of the shares at the time of redemption
as set forth in a Fund's prospectus. For example, if the CDSC is imposed for a
three-year period, the schedule would be as follows:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Year Since Purchase as a Percentage of Net Asset
Payment Made Value of Shares Redeemed
------------ ------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
</TABLE>
This schedule is only an example of a CDSC schedule. The CDSC of the Funds may
be higher or lower than that set forth in this example. It is expected that
the CDSC schedule and CDSC Period of the Funds will depend in part on the
front-end sales loads on the Class A shares of the Funds and the compensation
paid to financial intermediaries for selling shares of the Funds.
The following examples illustrate the operation of the CDSC as it
relates to the schedule above:
Assume that an investor invested $1,000 in the Class B shares of a
Fund and 2-1/2 years later the value of such shareholder's account (including
additional shares credited to the shareholder's account through the Fund's
automatic reinvestment program) had grown to $1,200. If the shareholder
redeemed Class B shares worth $200 or less, no CDSC at all would be charged.
If the shareholder, however, redeemed all $1,200 worth of Class B shares at
that time, the CDSC would be charged on $1,000. Since the redemption would
have been made in the third year after the purchase (i.e., the investor has
owned the shares for 2-1/2 years), the CDSC would be imposed at the rate of
1.0% and would be in the amount of $10.00.
As another example, assume that an investor invested $10,000 in the
Class B shares of a Fund and 3-1/2 years later, despite the fact that
distributions reinvested in the Fund during that time period had a current
value of
39
<PAGE> 42
$2,000, the value of the account including such distributions had declined to
$9,000. If the investor redeemed up to $2,000 no CDSC would be imposed since
the amount of the redemption would be deemed to be derived from reinvestment of
distributions. Any redemption exceeding $2,000, however, would result in the
imposition of a CDSC, on that amount in excess of $2,000. However, in this
scenario, there would be no CDSC imposed because the three year period had
expired.
In determining the rate of any applicable CDSC, it will be assumed that
a redemption is made of Class B shares or Class C shares held by the investor
for the longest period of the time within the CDSC Period.
B. Exercise of Exchange Privilege.
The CDSC will not be imposed in connection with the exercise of an
exchange privilege whereby an investor exchanges Class B or Class C shares of a
Fund for Class B or Class C shares of another Fund. In the case of the
exercise of an exchange privilege between the Funds, a Fund will "tack" the
period for which the original shares of a class of the Fund were held on to the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, CDSC is applicable in the event that such acquired
shares are redeemed following the exchange. Furthermore, in the event of
redemptions of shares after exchanges, an investor will be subject to the CDSC
schedule of the original fund.
C. Waiver or Reduction of CDSC.
In addition, as discussed below, Applicants request relief to permit
each Fund to waive or reduce the CDSC in certain circumstances. Any waiver
will comply with the conditions in paragraphs (a) through (d) of Rule 22d-1 of
the Investment Company Act.
D. Exemption Requested.
The Applicants believe that arguments can be made that the proposed
CDSC on the Class B and Class C shares of the Funds is consistent with all
provisions of the Investment Company Act and that no exemptive relief would be
required in order to implement the proposed transactions. However, to avoid
any possibility that questions may be raised as to the potential applicability
of various definitional and regulatory sections of the Investment
40
<PAGE> 43
Company Act, the Applicants, pursuant to Section 6(c) of the Investment Company
Act, hereby request an exemptive order of the Commission in connection with the
offering of the Class B and Class C shares of the Funds, as amended, to the
extent necessary, from the provisions of the Investment Company Act detailed
below.
Section 2(a)(32) of the Investment Company Act defines a "redeemable
security" as "any security, other than short-term paper, under the terms of
which the holder, upon its presentation to the issuer or to a person designed
by the issuer, is entitled...to receive approximately his proportionate share
of the issuer's current net assets, or the cash equivalent thereof." Section
5(a)(1) of the Investment Company Act defines an "open-end company" as "a
management company which is offering for sale or has outstanding any redeemable
security of which it is the issuer."
Section 2(a)(35) of the Investment Company Act, in pertinent part,
defines "sales load" as "...the difference between the price of a security to
the public and that portion of the proceeds from its sale which is received and
invested or held for investment by the issuer...."
Section 22(c) of the Investment Company Act empowers the Commission to
"...make rules and regulations applicable to registered investment companies
and to principal underwriters of, and dealers in, the redeemable securities of
any registered investment company...." Rule 22c-1 thereunder, in pertinent
part, prohibits a registered investment company issuing a redeemable security
from selling, redeeming or repurchasing any such security except at a price
based on the current net asset value of such security.
Section 22(d) of the Investment Company Act provides, in pertinent
part, that "[n]o registered investment company shall sell any redeemable
security issued by it to any person except either to or through a principal
underwriter for distribution...and...no principal underwriter of such security
and no dealer shall sell any such security to any person except a dealer, a
principal underwriter or the issuer, except at a current offering price
described in the prospectus."
The Applicants believe that the imposition of the CDSC in the manner
described above would not cause shares of the Funds to fall outside the
definition of "redeemable security" in Section 2(a)(32) of the Investment
Company Act, and the Applicants believe, therefore, that the Funds qualify as
open-end investment companies under Section 5(a)(1) of the Investment Company
Act. The CDSC in no way restricts a shareholder from receiving his
proportionate share of the current net assets of a Fund, but merely defers the
deduction of a sales charge and makes
41
<PAGE> 44
it contingent upon an event which may never occur. Moreover, while the CDSC is
not a redemption charge in the ordinary sense, it is relevant to note that the
conditions of Section 10(d) of the Investment Company Act contemplate that an
investment company may both be an open-end company (subparagraph (1)) and
impose a discount from net asset value on redemption of its shares
(subparagraph (4)).
Nevertheless, the Applicants recognize that there may be some
disagreement with their interpretation of Section 2(a)(32). In order to avoid
uncertainty as to the Funds' status as open-end companies, the Applicants
request an exemption from the operation of Section 2(a)(32) of the Investment
Company Act to the extent necessary to permit implementation of the proposed
CDSC in connection with the Funds.
Similarly, the Applicants believe that the proposed CDSC qualifies as a
"sales load" within the meaning of Section 2(a)(35). A CDSC is functionally a
sales charge because it is paid to the Distributor to reimburse it for expenses
related to offering Class B and Class C shares of the Funds for sale to the
public. Although mutual funds sold with a sales charge traditionally impose
such charge at the time of purchase, as in the case of the Class A shares,
there is no reason to prohibit imposition of a sales charge at another time.
In fact, it would seem that policy considerations would permit the CDSC to be
levied in the manner proposed. The contingent nature of the proposed charge
makes the purchaser better off than if a sales load were imposed at the time of
sale, since in the case of the CDSC the shareholder enjoys the possibility that
he will have to pay only a reduced sales charge, or no sales charge at all.
Also, because the CDSC will never be imposed on an amount in excess of the
market value of the shares being redeemed, an investor whose account declines
in value may ultimately pay a lower sales charge than if a conventional sales
charge were imposed at the time of purchase. The deferral of the sales charge,
and its contingency upon the occurrence of an event which might not occur, does
not change the basic nature of this charge, which is in every other respect a
sales charge. Nevertheless, in view of the possibility that Section 2(a)(35)
might be construed to apply only to sales loads charged at the time of
purchase, Applicants request an exemption from the provisions of Section
2(a)(35), to the extent necessary to implement the proposed charge in
connection with the Class B and Class C shares of the Funds.
The Applicants also believe that implementation of the proposed CDSC is
not violative of Section 22(c) or Rule 22c-1 thereunder. When a redemption of
a Fund's shares is effected, the price of the shares on redemption will
42
<PAGE> 45
be based on current net asset value. The CDSC will merely be deducted at the
time of redemption in arriving at the shareholder's proportionate redemption
proceeds. However, in order to avoid any possibility that questions might be
raised as to the Funds' compliance with Section 22(c) and Rule 22c-1, the
Applicants request an exemption from the operation of the provisions of Rule
22c-1 to the extent necessary or appropriate to permit the Funds to implement
the proposed CDSC.
Rule 22d-1, in substance, permits variation or elimination of sales
loads to "particular classes of investors or transactions," provided that such
variation or elimination is described in the investment company's registration
statement. Because the CDSC and the waivers therefrom, as amended, will be
applied as described in each Fund's registration statement, the Applicants
believe that Rule 22d-1 exempts the CDSC and the waivers therefrom from the
prohibitions of Section 22(d) of the Investment Company Act. Nonetheless, to
preclude any assertion that Rule 22d-1 is inapplicable to the CDSC, the
Applicants request an exemption from Section 22(d) to the extent necessary or
appropriate to implement the CDSC and waivers therefrom as described above.
The Applicants believe that such an order would, in all events, be consistent
with the policies embodied in Rule 22d-1, since the Funds intend to disclose
fully those charges and the waivers in their respective prospectus.
E. Statement in Support of Exemption.
Section 6(c) of the Investment Company Act provides in part that the
Commission, by order upon application, may conditionally or unconditionally
exempt any person, security or transaction, or any class or classes of persons,
securities or transactions from any provision of the Investment Company Act, if
and to the extent that such exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the purposes
fairly intended by the policy and provisions of the Investment Company Act.
The Applicants submit that its request for the exemptive relief set forth above
is consistent with this standard.
The Applicants believe that the imposition of the CDSC on the Class B
shares and Class C shares of the Funds is fair and in the best interests of its
shareholders. The CDSC described above is fair to Class B and Class C
shareholders because it applies only to amounts representing purchase payments
and does not apply to amounts
43
<PAGE> 46
representing increases in the value of an investor's account through capital
appreciation, or to amounts representing reinvestment of distributions.
Moreover, the imposition of the CDSC under the circumstances described
above is appropriate in light of the relationship between the CDSC and the
Fund's Rule 12b-1 distribution plans. As noted above, the Funds finance the
distribution expenses of Class B shares pursuant to its Class B Plan and the
CDSC and finance the distribution expenses of Class C shares pursuant to its
Class C Plan and CDSC. Under the Class B and Class C Plans, the Funds will pay
a distribution fee to the Distributor as reimbursement for expenses related to
the offering of the Class B and Class C shares. These expenses include but are
not limited to one or more of the following: the payment of sales commissions,
including distribution fee payments, advertising and promotional costs,
including the cost of distributing materials to shareholders, and the costs of
printing and distributing the Fund's prospectus and statement of additional
information to prospective investors. Each Class B and Class C Plan expenses
will be calculated on the basis of a percentage of the average daily net assets
of the Class B and Class C shares (at an annual rate of up to 1%). Each Fund
will expense all charges made under the Rule 12b-1 distribution plans.
Proceeds from the CDSC will be paid to the Distributor and also will be used by
the Distributor to defray the cost of paying sales commissions to dealers in
the sale of Class B shares and Class C shares of the Funds.
The Applicants believe that where amounts attributable to Class B and
Class C shares purchased less than a fixed number of years prior to redemption
(or such other period depending on a Fund's CDSC schedule) are redeemed (and
thus no longer contribute to the annual Rule 12b-1 Fee) it is fair (1) to
impose on the withdrawing Class B and Class C shareholder a lump sum payment
reflecting expenses which have not been recovered through payments by the Fund
and (2) to remove the Class B and Class C assets on which the CDSC was imposed
from the base amount on which the Fund's Class B and Class C Rule 12b-1 Fee is
calculated. The amount, computation and timing of the CDSC thus are designed
to promote fair treatment of all Class B and Class C shareholders, while
permitting a Fund to offer investors the advantage of having purchase payments
fully invested on their behalf immediately. In their review of the Rule 12b-1
distribution plans, the Directors of the Funds will take into account the use
by the Distributor of revenues raised by the CDSC. Waiver of the CDSC in
accordance with the conditions
44
<PAGE> 47
contained herein will not harm the Funds or its remaining Class A, Class B or
Class C shareholders or unfairly discriminate among shareholders or purchases.
VIII
RELIEF REQUESTED
For the reasons set forth above, the Applicants believe that
implementation of the CDSC in the manner and under the circumstances described
above would be fair and in the best interests of shareholders of the Funds.
Thus, the granting of the order requested herein would be appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Investment Company
Act.
Therefore, for the reasons set forth herein, the Applicants request
that the Commission issue an order pursuant to Section 6(c) of the Investment
Company Act exempting the Funds from the provisions of Sections 2(a)(32),
2(a)(35), 22(c) and 22(d) of the Investment Company Act and Rule 22c-1
thereunder. In addition, Applicant's represent that the exchange privilege of
the various classes of shares of the Funds will comply with the provisions of
Rule 11a-3 under the Investment Company Act.
45
<PAGE> 48
IX
ADDITIONAL INFORMATION
Attached hereto as Exhibit D is a proposed notice of the proceeding
initiated by this Application.
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Tax-Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
Van Kampen American Capital Asset Management, Inc.
By: /s/ Nori L. Gabert
Nori L. Gabert
Van Kampen American Capital Distributors, Inc.
By: /s/ Scott E. Martin
Scott E. Martin
Dated: January 25, 1995
<PAGE> 49
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Comstock Fund, Inc. declares
that this Application is signed by Nori L. Gabert, Vice President and Secretary
of said Fund, pursuant to the general authority vested in her as such by its
Articles of Incorporation, by its By-Laws and by the resolution of the Board of
Directors dated June 9, 1994.
AMERICAN CAPITAL COMSTOCK FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Comstock Fund, Inc.; that she is Vice President and Secretary
of such Fund; and that all action by bodies necessary to authorize deponent to
execute and file such instrument has been taken. Deponent further says that
she is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 50
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Corporate Bond Fund, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Corporate Bond Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 51
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Emerging Growth Fund, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL EMERGING GROWTH FUND,
INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Emerging Growth Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 52
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Enterprise Fund, Inc. declares
that this Application is signed by Nori L. Gabert, Vice President and Secretary
of said Fund, pursuant to the general authority vested in her as such by its
Articles of Incorporation, by its By-Laws and by the resolution of the Board of
Directors dated June 9, 1994.
AMERICAN CAPITAL ENTERPRISE FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Enterprise Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 53
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Equity Income Fund, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL EQUITY INCOME FUND,
INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Equity Income Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 54
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Federal Mortgage Trust
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Agreement and Declaration of Trust, by its By-Laws and by the resolution
of the Board of Trustees dated June 9, 1994.
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Federal Mortgage Trust; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 55
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Global Managed Assets Fund
Inc. declares that this Application is signed by Nori L. Gabert, Vice President
and Secretary of said Fund, pursuant to the general authority vested in her as
such by its Articles of Incorporation, by its By-Laws and by the resolution of
the Board of Directors dated June 9, 1994.
AMERICAN CAPITAL GLOBAL MANAGED ASSETS
FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Global Managed Assets Fund Inc.; that she is Vice President
and Secretary of such Fund; and that all action by bodies necessary to
authorize deponent to execute and file such instrument has been taken.
Deponent further says that she is familiar with such instrument and the
contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 56
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Government Securities, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL GOVERNMENT SECURITIES,
INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Government Securities, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 57
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Growth and Income Fund, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL GROWTH AND INCOME FUND,
INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Growth and Income Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 58
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Harbor Fund declares that this
Application is signed by Nori L. Gabert, Vice President and Secretary of said
Fund, pursuant to the general authority vested in her as such by its Articles
of Incorporation, by its By-Laws and by the resolution of the Board of
Directors dated June 9, 1994.
AMERICAN CAPITAL HARBOR FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Harbor Fund, Inc.; that she is Vice President and Secretary of
such Fund; and that all action by bodies necessary to authorize deponent to
execute and file such instrument has been taken. Deponent further says that
she is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 59
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital High Yield Investments, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL HIGH YIELD INVESTMENTS,
INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital High Yield Investments, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 60
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Municipal Bond Fund, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL MUNICIPAL BOND FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Municipal Bond Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 61
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Pace Fund, Inc. declares that
this Application is signed by Nori L. Gabert, Vice President and Secretary of
said Fund, pursuant to the general authority vested in her as such by its
Articles of Incorporation, by its By-Laws and by the resolution of the Board of
Directors dated June 9, 1994.
AMERICAN CAPITAL PACE FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Pace Fund, Inc.; that she is Vice President and Secretary of
such Fund; and that all action by bodies necessary to authorize deponent to
execute and file such instrument has been taken. Deponent further says that
she is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 62
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Real Estate Securities Fund,
Inc. declares that this Application is signed by Nori L. Gabert, Vice President
and Secretary of said Fund, pursuant to the general authority vested in her as
such by its Articles of Incorporation, by its By-Laws and by the resolution of
the Board of Directors dated June 9, 1994.
AMERICAN CAPITAL REAL ESTATE SECURITIES
FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Real Estate Securities Fund, Inc.; that she is Vice President
and Secretary of such Fund; and that all action by bodies necessary to
authorize deponent to execute and file such instrument has been taken.
Deponent further says that she is familiar with such instrument and the
contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 63
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Reserve Fund, Inc. declares
that this Application is signed by Nori L. Gabert, Vice President and Secretary
of said Fund, pursuant to the general authority vested in her as such by its
Articles of Incorporation, by its By-Laws and by the resolution of the Board of
Directors dated June 9, 1994.
AMERICAN CAPITAL RESERVE FUND,
INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Reserve Fund, Inc.; that she is Vice President and Secretary
of such Fund; and that all action by bodies necessary to authorize deponent to
execute and file such instrument has been taken. Deponent further says that
she is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 64
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Tax- Exempt Trust declares
that this Application is signed by Nori L. Gabert, Vice President and Secretary
of said Fund, pursuant to the general authority vested in her as such by its
Agreement and Declaration of Trust, by its By-Laws and by the resolution of the
Board of Trustees dated June 9, 1994.
AMERICAN CAPITAL TAX-EXEMPT TRUST
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Tax-Exempt Trust; that she is Vice President and Secretary of
such Fund; and that all action by bodies necessary to authorize deponent to
execute and file such instrument has been taken. Deponent further says that
she is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of her knowledge, information and
belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 65
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Texas Municipal Securities,
Inc. declares that this Application is signed by Nori L. Gabert, Vice President
and Secretary of said Fund, pursuant to the general authority vested in her as
such by its Articles of Incorporation, by its By-Laws and by the resolution of
the Board of Directors dated June 9, 1994.
AMERICAN CAPITAL TEXAS MUNICIPAL
SECURITIES, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Texas Municipal Securities, Inc.; that she is Vice President
and Secretary of such Fund; and that all action by bodies necessary to
authorize deponent to execute and file such instrument has been taken.
Deponent further says that she is familiar with such instrument and the
contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 66
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital U.S. Government Trust for
Income declares that this Application is signed by Nori L. Gabert, Vice
President and Secretary of said Fund, pursuant to the general authority vested
in her as such by its Agreement and Declaration of Trust, by its By-Laws and by
the resolution of the Board of Directors dated June 9, 1994.
AMERICAN CAPITAL U.S. GOVERNMENT
TRUST FOR INCOME
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital U.S. Government Trust for Income; that she is Vice President
and Secretary of such Fund; and that all action by bodies necessary to
authorize deponent to execute and file such instrument has been taken.
Deponent further says that she is familiar with such instrument and the
contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 67
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital Utilities Income Fund, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital Utilities Income Fund, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 68
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, American Capital World Portfolio Series, Inc.
declares that this Application is signed by Nori L. Gabert, Vice President and
Secretary of said Fund, pursuant to the general authority vested in her as such
by its Articles of Incorporation, by its By-Laws and by the resolution of the
Board of Directors dated June 9, 1994.
AMERICAN CAPITAL WORLD PORTFOLIO SERIES, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached application dated January 25, 1995 for and on behalf of
American Capital World Portfolio Series, Inc.; that she is Vice President and
Secretary of such Fund; and that all action by bodies necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further
says that she is familiar with such instrument and the contents thereof, and
that the facts therein set forth are true to the best of her knowledge,
information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 69
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, Van Kampen American Capital Distributors, Inc.
declares that this Application is signed by Scott E. Martin, First Vice
President of said Company, pursuant to the general authority vested in him as
such officer.
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS,
INC.
By /s/ Scott E. Martin
Scott E. Martin
__________________________
Dated: January 25, 1995
STATE OF ILLINOIS )
: ss.:
COUNTY OF COOK )
The undersigned, being duly sworn, deposes and says that he has duly
executed the attached application dated January 25, 1995 for and on behalf of
Van Kampen American Capital Distributors, Inc.; that he is First Vice President
of such Company; and that all action by bodies necessary to authorize deponent
to execute and file such instrument has been taken. Deponent further says that
he is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of his knowledge, information and
belief.
/s/ Scott E. Martin
Scott E. Martin
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ Sue Ann Beardsley
Sue Ann Beardsley
<PAGE> 70
Pursuant to Rule 0-2 of the General Rules and Regulations under the
Investment Company Act of 1940, Van Kampen American Capital Asset Management,
Inc. declares that this Application is signed by Nori L. Gabert, Vice
President and Secretary of said corporation, pursuant to the general authority
vested in her as such officer.
VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC.
By /s/ Nori L. Gabert
Nori L. Gabert
Vice President and Secretary
Houston, Texas
Dated: January 25, 1995
STATE OF TEXAS )
: ss.:
COUNTY OF HARRIS )
The undersigned, being duly sworn, deposes and says that she has duly
executed the attached Application dated January 25, 1995, for and on behalf of
Van Kampen American Capital Asset Management, Inc., that she is Vice President
and Secretary of such corporation; and that all action by bodies necessary to
authorize deponent to execute and file such instrument has been taken.
Deponent further says that she is familiar with such instrument and the
contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information and belief.
/s/ Nori L. Gabert
Nori L. Gabert
Subscribed and sworn to before
me a Notary Public this
25th day of January, 1995.
/s/ JoAnn Jaehne
JoAnn Jaehne
<PAGE> 71
Exhibit A
Investment Objectives of Funds
American Capital Comstock Fund, Inc.
Seeks capital growth and income.
American Capital Corporate Bond Fund, Inc.
Seeks current income with conservation of capital.
American Capital Emerging Growth Fund, Inc.
Seeks capital appreciation.
American Capital Enterprise Fund, Inc.
Seeks capital appreciation.
American Capital Equity Income Fund, Inc.
Seeks highest possible income consistent with safety of principal.
American Capital Federal Mortgage Trust
Seeks high current return and relative safety of capital.
American Capital Global Managed Assets Fund, Inc.
Seeks total return.
American Capital Government Securities, Inc.
Seeks high current income.
American Capital Growth and Income Fund, Inc.
Seeks income and long-term growth of capital.
A-1
<PAGE> 72
American Capital Harbor Fund, Inc.
Seeks current income, capital appreciation and conservation of capital.
American Capital High Yield Investments, Inc.
Seeks to maximize current income.
American Capital Municipal Bond Fund, Inc.
Seeks interest income exempt from federal income tax.
American Capital Pace Fund, Inc.
Seeks capital growth.
American Capital Real Estate Securities Fund, Inc.
Seeks long-term growth of capital.
American Capital Reserve Fund, Inc.
Seeks protection of capital and high current income.
American Capital Tax-Exempt Trust (Series Fund)
High Yield Municipal Portfolio
Insured Municipal Portfolio
Seeks as high a level of interest income exempt from federal income tax as is
consistent with the investment policies of each Portfolio.
American Capital Texas Municipal Securities, Inc.
Seeks as high a level of interest income exempt from federal income tax and
Texas state income tax, if any, as is consistent with the Fund's investment
policies.
American Capital U.S. Government Trust for Income
Seeks a high level of current income.
A-2
<PAGE> 73
American Capital Utilities Income Fund, Inc.
Seeks current income.
American Capital World Portfolio Series, Inc. (Series Fund)
American Capital Global Equity Fund - seeks long term growth of capital.
American Capital Global Government Securities Fund - seeks a high level of
current income.
A-3
<PAGE> 74
Exhibit B
Net Assets of Funds
<TABLE>
<CAPTION>
Net Assets at
December 31, 1994
Fund (in millions)
- ---- ----------------
<S> <C>
American Capital Comstock Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . $ 895,807,638
American Capital Corporate Bond Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . 178,134,889
American Capital Emerging Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . 982,503,214
American Capital Enterprise Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 850,271,563
American Capital Equity Income Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 509,043,204
American Capital Federal Mortgage Trust . . . . . . . . . . . . . . . . . . . . . . . . . 65,432,879
American Capital Global Managed Assets Fund, Inc. . . . . . . . . . . . . . . . . . . . . 19,985,228
American Capital Government Securities, Inc. . . . . . . . . . . . . . . . . . . . . . 2,891,266,277
American Capital Growth and Income Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . 228,599,158
American Capital Harbor Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,324,812
American Capital High Yield Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . 442,627,297
American Capital Municipal Bond Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . 339,869,072
American Capital Pace Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,105,847,401
American Capital Real Estate Securities Fund, Inc. . . . . . . . . . . . . . . . . . . . 14,871,369
American Capital Reserve Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 456,130,367
American Capital Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703,225,669
American Capital Texas Municipal Securities, Inc. . . . . . . . . . . . . . . . . . . . . 20,484,459
American Capital U.S. Government Trust for Income . . . . . . . . . . . . . . . . . . . . 311,732,594
American Capital Utilities Income Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . 21,752,229
American Capital World Portfolio Series, Inc.
American Capital Global Equity Fund . . . . . . . . . . . . . . . . . . . . . . 130,670,888
American Capital Global Government Securities Fund . . . . . . . . . . . . . . . 199,526,168
</TABLE>
<PAGE> 75
Exhibit C
AMERICAN CAPITAL MUTUAL FUNDS
MULTIPLE CLASS FUNDS
SECTION I
Description of the Alternate Purchase Plans
Mutual Funds that adopt a multiple class of share structure are required to
maintain records that account for each class of shares of the fund. Shares
which are subject to contingent deferred sales load (CDSL) versus paying only a
front-end sales load (FESL) are charged with a higher distribution fee (12b-1
fee) on a daily basis. Since the 12b-1 fees charged will be higher for CDSL
shares and multiple classes of shares exist, separate Net Asset Values (NAV)
and dividend/distributions must be calculated for each class of shares.
NAV Calculation
Income: Income of the Fund (all classes combined) will be allocated to the
individual classes based on the relative adjusted net assets of each class or
the relative value of adjusted dividend qualifying shares of each class (the
net assets at the beginning of the day after reflecting the prior day's capital
share transactions) as appropriate, depending on the type of fund.
Expenses: Expenses of the Fund not specific to one or more classes will be
allocated to all classes based on the adjusted net assets of each class or the
relative value of adjusted dividend qualifying shares of each class. Expenses
attributable to a particular class will be charged only to that class. Expenses
attributable to a particular class may include the following:
- - Rule 12b-1 fees
- - Transfer agent cost
Unrealized Appreciation/Depreciation and Realized Gains/Losses
The change in the market value of investments will be allocated each day based
on the relative adjusted net assets of each class or the relative value of
adjusted dividend qualifying shares of each class as appropriate, depending on
the type of fund. Realized gains and losses will be allocated to the classes on
the same basis.
Dividend/Distributions Paid to Shareholders
The amount of dividends and distribution of gains paid to shareholders of each
class will be determined by the dividend/distribution calculation methodology
described below. The actual amounts paid to each class will be used to
calculate the net asset value of each class.
C-1
<PAGE> 76
Pricing Worksheet
The Multiple Shares NAV Worksheet (Exhibit III) will be used in the daily net
asset value calculation. Utilizing data reviewed by the fund accountant, the
computer system generates the above worksheet for the total fund and each
respective class.
For non-daily dividend funds, the class allocation is based on the relative
adjusted net assets of each class. The allocation is derived by taking prior
day's net assets plus the actual dollars booked from prior day capital stock
activity for each class compared to the total fund. For daily dividend funds,
the class allocation is based on the relative value of adjusted dividend
qualifying shares of each class. The allocation is derived by using dividend
shares times prior day's NAV compared to the fund total.
This class allocation is used to allocate income, non-class-specific expenses,
and realized and unrealized gains and losses. Class specific expenses and
dividend/distributions are applied to the appropriate class. This determines
the net assets for the current day which is divided by outstanding shares for
the NAV per share for each class.
Dividend/Distributions Calculation Methodology
The amount available for dividends, or the projected amount available, will be
based on the combined undistributed net investment income of the Fund. The per
share dividend rates for each class will differ by approximately the expense
rate differential, based on average daily NAV, between the classes of shares
for the applicable period, i.e. daily, monthly, etc.
The maximum distribution rate per share for net realized gains will be
determined by dividing the total fund shares outstanding on the ex-dividend
date into the undistributed net realized gains of the fund (all classes
combined) for the applicable period.
SECTION II
Specified Control Objectives
The following are the specific control objectives of the system of internal
accounting control relating to the allocation of income and expenses and the
calculation of net asset values and dividend distribution amounts for the
multiple classes of shares contemplated above:
1. That the expenses attributable to a particular class are properly
recorded for that class.
2. That income, other operating expenses, and realized and unrealized gains
and losses are allocated properly to each class as described in Section
I.
3. That capital share transactions, including dividends and distributions,
are properly allocated as described in Section I.
4. That net asset value is properly calculated as described in Section I.
C-2
<PAGE> 77
SECTION III
Policies and Procedures to Achieve Specified Control Objectives
The following procedures are designed to account for the various classes of
shares in each fund. From time to time, policies and procedures may be revised
to improve or enhance operations and maintain adherence to specified control
objectives.
1. On a daily basis, the fund accountant completes the "Daily Net Asset
Reconciliation and NAV Proof" (proof sheet) on Exhibit II.
2. Using the proof sheet, the fund accountant reviews the allocation of daily
income and expenses and realized and unrealized gains and losses of each
class.
3. The fund accountant verifies the shares outstanding on the proof sheet to
the amounts supplied by the Transfer Agent.
4. On a daily basis, the fund supervisor reviews the allocations and the net
asset value calculation. On a test basis, the supervisor verifies the
amounts entered by the fund accountant on the proof sheet by agreeing the
amounts entered to source documents and reviewing for reasonableness.
The supervisor initials the worksheet to evidence this review.
5. On a monthly basis, the fund supervisor reviews the monthly financial
statement including the calculations of all income and expense items.
6. For periodic distributions (monthly, quarterly or annually, as
applicable), the calculation is performed by the fund accountant according
to the methodology described in Section 1. The calculation is verified by
a supervisor's initials on the calculation.
SECTION IV
Financial Statement Disclosure for Funds with Multiple Classes of Shares
Portfolio of Investments
- - Will be shown in accordance with standard reporting practices.
Statement of Assets and Liabilities
- - Assets and liabilities will be disclosed on a combined basis.
- - Net asset value and offering price per share data will be presented for
each class.
- - The composition of net assets (Summary of Shareholders Equity) will be
presented on a combined basis, but will include a description of each
class (par, outstanding shares, etc.).
Statement of Operations
- - A standard reporting format will be used.
C-3
<PAGE> 78
Statement of Changes in Net Assets
A standard reporting format will be used with separate disclosure of
dividends and capital gain distributions to shareholders and dollar value
of capital share transactions for each class.
Financial Highlights
A standard reporting format will be used and the per share data and
ratios will be shown for each class (portfolio turnover which will be
shown in total).
Notes to Financial Statements
The notes to the finanical statements will include the following additional
disclosures in the footnotes:
- - Description of each class of shares and the related class-specific
expenses.
- - Information on the 12b-1 fee arrangements for each class.
- - Capital shares transactions for each class for the most recent period and
the prior year.
C-4
<PAGE> 79
Exhibit II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 1
FUND_________________ DATE_________________
DAILY NAV PROOF
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Line Activity CLASS A CLASS B CLASS C TOTAL FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Shares Outstanding
- -------------------------- ---------------- ---------------- ----------------- ----------------
1 Prior Day's NAV (4 decimals)
---------------- ---------------- ----------------- ----------------
PER SHARE IMPACT ON NAV
CAPITAL SHARE TRANSACTIONS
2 Capital Share Transactions
from Page 3) ================ ================ ================= ================
NET INVESTMENT INCOME
3 Today's Net Investment Income* $ $ $
*(from R707 Cost-P) ---------------- ---------------- -----------------
4 Net Investment Income
================ ================ ================= ================
EX-DIVIDEND/DISTRIBUTION
5 Income Dividend (from page 3) ( ) ( ) ( ) ( )
================ ================ ================= ================
Capital Gain Distribution per class ( ) ( ) ( ) ( )
================ ================ ================= ================
MARKET VALUE ACTION
7 Per Class Allocation
(9 DECIMALS FROM R707) ---------------- ---------------- -----------------
8 Total Impact (line 23 x line 7) $ $ $
---------------- ---------------- -----------------
9 Per Share Effect of Market change
================ ================ ================= ================
10 Calculated Price Per Share
(SUM OF LINES 1,2,4,5,6,&9) ---------------- ---------------- ----------------- ----------------
11 System Generated Price ( ) ( ) ( ) ( )
---------------- ---------------- ----------------- ----------------
12 Difference should not exceed .0002
================ ================ ================= ================
MARKET VALUE ACTION
13 R403 Current Market Value of all Investments
-----------------
14 R403 Today's Mark-to-Market on Futures
-----------------
15 P/D R403 Prior Day's Market Value ( )
----------------
16 R314 Today's Discount Earned ( )
----------------
17 R314 Today's Accretion of OID ( )
----------------
18 R314 Today's Amortization of Premium
----------------
19 R309 Investments purchased - at C ( )
----------------
20 R309 Investments sold - at proceeds
----------------
21 R810 P I K/I O Adjustments ( )
----------------
R309 Adjusting Marks on Futures Trades
----------------
Subtotal ( )
-----------------
23 Change in Market Value
=================
</TABLE>
<PAGE> 80
Exhibit II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 2
FUND_________________ DATE_________________
DAILY NET ASSET RECONCILIATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
G/L PRIOR Percent
Line Report Activity ACCT DAY Amount of Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DAILY ACCRUALS
INCOME
1 R303 Dividend Income CPO5
----------------- -------------------- ------------
2 R810 Bond Interest Income Non-taxable CP10
----------------- -------------------- ------------
3 R810 Bond Interest Income Taxable CP13
----------------- -------------------- ------------
4 R810 Short-term Interest Income Non-taxable CP16
----------------- -------------------- ------------
5 R810 Short-term Intrerest Income Taxable CP19
----------------- -------------------- ------------
6 R314 Acquisition Discount Earned CP31
----------------- -------------------- ------------
7 R314 Accretion of OID - Taxable CP34
----------------- -------------------- ------------
8 R314 Accretion of OID - Non-taxable CP35
----------------- -------------------- ------------
9 R314 Amortization of Premium - Taxable CP37 ( ) ( )
----------------- -------------------- ------------
10 R314 Amortization of Premium - Non-taxable CP38 ( ) ( )
----------------- -------------------- ------------
11 Other Income CP45
----------------- -------------------- ------------
12 Interim Income Adjustments CP46
----------------- -------------------- ------------
13 GROSS INVESTMENT INCOME
====================
EXPENSES
14 Operating Expense Accrual CP5095 ( )
--------------------
15 12-b1 Expense Accrual CP53/CP54B/CP54C +/-
--------------------
Direct Expense Payments +/-
--------------------
16 NET INVESTMENT INCOME TODAY
====================
To Page 1, Line 3 TF
To Page 2, line 18
NET ASSETS AT COST RECONCILIATION
17 R701 Prior Day's Net Assets at Cost
--------------------
18 Today's Net Investment Income (Line 16, page 2)
--------------------
19 Today's Total Net Share Activity (Line 6, Page 3)
--------------------
20 R302 Today's Net Gain/Loss (exct. Futures)
--------------------
21 R309 Mark-to-Market on Futures
--------------------
22 R810 PIK / IO Adjustments * ( )
-------------------------- --------------------
23 Today's Distributiions (Line 31, page 3 or
amounts from Lines 5 & 6, page 1) ( )
--------------------
24 Below Adjustments *
--------------------
25 R701 TODAY'S NET ASSETS AT COST
====================
(Pre-priced)
* Detail of Adjustments
$
- ----------------------------------
$
- ----------------------------------
$
- ----------------------------------
$
- ----------------------------------
</TABLE>
<PAGE> 81
Exhibit II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 3
FUND____________________ DATE__________________
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Line Report Activity Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Shares Outstanding
- --------------------------
CAPITAL SHARE TRANSACTIONS-IMPACT ON NAV
CLASS A CLASS B CLASS C
1 S/R Today's Net Dollars to Fund
-------------- -------------- --------------
2 Est Today's Net Est. Dollars
-------------- -------------- --------------
3 P/D Reverse P/D Net Est. Dollars
-------------- -------------- --------------
4 Reinvestment Dollars to Fund
-------------- -------------- --------------
5 Today's Dollar Impact = = =
-------------- -------------- --------------
6 Today's Total Dollar Impact +A+B+C =
--------------------------- --------------
7 S/R Today's Net Shares to Fund
-------------- -------------- --------------
8 Est. Today's Net Est. Shares
-------------- -------------- --------------
9 P/D Reverse P/D Net Est. Shares
-------------- -------------- --------------
10 Reinvestment Shares to Fund
-------------- -------------- --------------
11 Today's Share Impact per ( = = =
-------------- -------------- --------------
12 Prior Day's NAV x x x
-------------- -------------- --------------
13 = = =
-------------- -------------- --------------
15 Change in Capital Shares (L5-L13) = =
============== ============== ==============
PER SHARE EFFECT **
============== ============== ==============
17 +A+B+C =
--------------
18 ** If answer exceeds +/- .0005 notify supervisor PER SHARE TF
Equalization Factor
-------------- -------------- --------------
CLASS A CLASS B CLASS C
19 S/R Current Shares Outstanding
-------------- -------------- --------------
20 Est. Share Estimates - Sales
-------------- -------------- --------------
21 Est. Share Est - Redemptions ( ) ( ) ( )
-------------- -------------- --------------
22 Est. Share Est - Reinvestments
-------------- -------------- --------------
23 Adj Shares Outstanding GL Total =
-------------- -------------- --------------
24 S/R Unsettled Sales CS80A ( ) CS80B ( ) CS80C ( )
-------------- -------------- --------------
25 S/R Unsettled Redemptions CS90A CS90B CS90C
-------------- -------------- --------------
26 Current Distribution Shares GL Total
-------------- -------------- --------------
TOTAL OUTSTANDING SHARES A+B+C
==============================
DIVIDENDS AND DISTRIBUTIONS
27 S/R T/A Reported Amount
-------------- -------------- --------------
28 P/D Estimate Div.
-------------- -------------- --------------
29 Tie-in Adjustment Needed
-------------- -------------- --------------
30 Current Day's Total Dividend **
** Line 23 or 25 X Line 31 ============== ============== ==============
31 Dividend Rate
-------------- -------------- --------------
</TABLE>
<PAGE> 82
Exhibit II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 4
FUND____________________ DATE__________________
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Line Report Activity Long Positions Short Positions
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Par/Shares Cost Par/Shares Cost
1 P/D R104 Prior Day's Total Par/Shares & Cost + +
----------- ----------- ------------ ------------
2 Trade Tkts Purchases - L/I Inv + +
----------- ----------- ------------ ------------
3 Trade Tkts Purchases - S/I Inv + +
----------- ----------- ------------ ------------
4 Trade Tkts Opening Contracts + +
----------- ----------- ------------ ------------
5 R302 Sales - -
----------- ----------- ------------ ------------
6 P/D R104 Maturities - -
----------- ----------- ------------ ------------
7 R302 Closing Contracts - -
----------- ----------- ------------ ------------
8 R104 Current Day's Total Par/Shares & Cost = =
----------- ----------- ------------ ------------
9 R301/04/05 Capital Change Impact +
----------- ----------- ------------ ------------
10 Bond Tkts Correcting Adjustments +/- +/-
----------- ----------- ------------ ------------
11 R104 Rev. Revised Par/Shares & Cost = =
----------- ----------- ------------ ------------
12 R104 Subtract Futures Par & Cost - -
----------- ----------- ------------ ------------
13 Total Par & Cost = =
=========== =========== ============ ============
G/L Acct G/L Acct
GENERAL LEDGER COST RECONCILIATION
12 R701 Investments at Cost/Written Options AS10 + LS10 +
----------- ------------
13 R701 Short-term Investments (cost) AS70 +
-----------
14 R701 Short Securities LS20 +
----------- ----------- ------------
16 Total Reconciled Cost Above (Line 13) = =
=========== ============
17 Proof of R403 Par/Shares
-----------
Prepared by Reviewer's Initials
-------------------------------
</TABLE>
<PAGE> 83
Exhibit C-2
AMERICAN CAPITAL COMPANIES, INC.
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
REPORT IDENTIFIER: NAV-P
NAV WORKSHEET FOR TOTAL FUND
- ----------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
DISTRIBUTION FEES
SERVICE FEES
OTHER EXPENSES
NET ADJUSTMENT TO EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
FOR STATISTICAL USE ONLY
------------------------
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
NET ASSETS FOR TOTAL FUND PER NAV WORKSHEET
NET ASSETS FOR TOTAL FUND PER R403
- ---- DIFFERENCE
<PAGE> 84
AMERICAN CAPITAL COMPANIES, INC.
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
NAV WORKSHEET FOR CLASS A SHARES
- --------------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
SERVICE FEES
OTHER EXPENSES
NET ADJUSTMENT TO CLASS A EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
CLASS A FRONT-END LOAD FACTOR (1 - LOAD)
MAXIMUM OFFERING PRICE (CLASS A)
NET ASSETS FOR CLASS A PER NAV WORKSHEET
NET ASSETS FOR CLASS A PER R403
- ---- DIFFERENCE
<PAGE> 85
AMERICAN CAPITAL COMPANIES, INC.
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
NAV WORKSHEET FOR CLASS B SHARES
- --------------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
DISTRIBUTION FEES
SERVICE FEES
OTHER EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
CLASS B FRONT-END LOAD FACTOR (1 - LOAD)
MAXIMUM OFFERING PRICE (CLASS B)
NET ASSETS FOR CLASS B PER NAV WORKSHEET
NET ASSETS FOR CLASS B PER R403
- ---- DIFFERENCE
<PAGE> 86
AMERICAN CAPITAL COMPANIES, INC.
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
NAV WORKSHEET FOR CLASS C SHARES
- --------------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
DISTRIBUTION FEES
SERVICE FEES
OTHER EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
CLASS C FRONT-END LOAD FACTOR (1 - LOAD)
MAXIMUM OFFERING PRICE (CLASS C)
NET ASSETS FOR CLASS C PER NAV WORKSHEET
NET ASSETS FOR CLASS C PER R403
- ---- DIFFERENCE
<PAGE> 1
EXHIBIT 19
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Miles Branagan Trustee June 21, 1995
- -----------------------------------------------
J. Miles Branagan
</TABLE>
<PAGE> 2
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard E. Caruso Trustee June 21, 1995
- -----------------------------------------------
Richard E. Caruso
</TABLE>
<PAGE> 4
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Roger Hilsman Trustee June 21, 1995
- ----------------------------------------------
Roger Hilsman
</TABLE>
<PAGE> 6
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
either of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Don G. Powell Trustee June 22, 1995
- -----------------------------------------------
Don G. Powell
</TABLE>
<PAGE> 8
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David Rees Trustee June 21, 1995
- ----------------------------------------------
David Rees
</TABLE>
<PAGE> 10
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lawrence J. Sheehan Trustee June 21, 1995
- -----------------------------------------------
Lawrence J. Sheehan
</TABLE>
<PAGE> 12
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Fernando Sisto Trustee June 21, 1995
- -----------------------------------------------
Fernando Sisto
</TABLE>
<PAGE> 14
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<PAGE> 15
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William S. Woodside Trustee June 21, 1995
- -----------------------------------------------
William S. Woodside
</TABLE>
<PAGE> 16
Exhibit A
Van Kampen American Capital Comstock Trust
Van Kampen American Capital Corporate Bond Trust
Van Kampen American Capital Emerging Growth Trust
Van Kampen American Capital Enterprise Trust
Van Kampen American Capital Equity Income Trust
Van Kampen American Capital Global Managed Assets Trust
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Series
Van Kampen American Capital Growth and Income Trust
Van Kampen American Capital Harbor Trust
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Limited Maturity Government Trust
Van Kampen American Capital Municipal Bond Trust
Van Kampen American Capital Pace Trust
Van Kampen American Capital Real Estate Securities Trust
Van Kampen American Capital Reserve Trust
Van Kampen American Capital Small Capitalization Trust
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital Texas Municipal Securities Trust
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Trust
Van Kampen American Capital World Portfolio Series Trust
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000201085
<NAME> AC MUNICIPAL BOND-A
<SERIES>
<NUMBER> 1
<NAME> CLASS A SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 326,930,927
<INVESTMENTS-AT-VALUE> 347,730,328
<RECEIVABLES> 7,444,445
<ASSETS-OTHER> 2,683
<OTHER-ITEMS-ASSETS> 63,719
<TOTAL-ASSETS> 355,241,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,211,389
<TOTAL-LIABILITIES> 2,211,389
<SENIOR-EQUITY> 353,883
<PAID-IN-CAPITAL-COMMON> 342,630,860
<SHARES-COMMON-STOCK> 30,671,176
<SHARES-COMMON-PRIOR> 31,463,264
<ACCUMULATED-NII-CURRENT> (878,838)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,875,520)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,799,401
<NET-ASSETS> 353,029,786
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,361,124
<OTHER-INCOME> 0
<EXPENSES-NET> 1,792,984
<NET-INVESTMENT-INCOME> 10,568,140
<REALIZED-GAINS-CURRENT> (406,001)
<APPREC-INCREASE-CURRENT> 5,430,649
<NET-CHANGE-FROM-OPS> 15,592,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,121,444
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,519,426
<NUMBER-OF-SHARES-REDEEMED> 2,866,089
<SHARES-REINVESTED> 554,575
<NET-CHANGE-IN-ASSETS> (1,227,282)
<ACCUMULATED-NII-PRIOR> (9,469,519)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,127,187)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 865,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,792,984
<AVERAGE-NET-ASSETS> 300,892,193
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .156
<PER-SHARE-DIVIDEND> .296
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> .93<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000201085
<NAME> AC MUNICIPAL BOND-B
<SERIES>
<NUMBER> 2
<NAME> CLASS B SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,922,453
<SHARES-COMMON-PRIOR> 3,791,614
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 992,532
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 617,796
<NUMBER-OF-SHARES-REDEEMED> 549,554
<SHARES-REINVESTED> 62,597
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 37,345,574
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> .149
<PER-SHARE-DIVIDEND> .259
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 1.74<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000201085
<NAME> AC MUNICIPAL BOND-C
<SERIES>
<NUMBER> 3
<NAME> CLASS C SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 794,623
<SHARES-COMMON-PRIOR> 814,200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 205,815
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 110,152
<NUMBER-OF-SHARES-REDEEMED> 143,583
<SHARES-REINVESTED> 13,854
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 7,775,177
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> .159
<PER-SHARE-DIVIDEND> .259
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.74<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
