<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Co-Registrants [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND (811-8286)
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST (811-4424)
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST (811-4746)
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST (811-6220)
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND (811-2851)
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND (811-734)
(Names of Co-Registrants as Specified in Their Charters)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed per Exchange Act Rules 14a-6(i)(1) and 0-11.
[ ] Fee paid previously with preliminary materials.
<PAGE> 2
APRIL 1997
IMPORTANT NOTICE
TO VAN KAMPEN AMERICAN CAPITAL
MUTUAL FUND SHAREHOLDERS
QUESTIONS
& ANSWERS
- -------------------------------------------------------------------------------
Although we recommend that you read the complete Proxy Statement, for your
convenience, we have provided a brief overview of the issues to be voted on.
- -------------------------------------------------------------------------------
Q WHY AM I RECEIVING THIS PROXY STATEMENT?
A Morgan Stanley Group Inc., the indirect corporate parent of your Fund's
investment adviser, has entered into an agreement to merge with and into Dean
Witter, Discover & Co. Your Fund is seeking shareholder approval on a new
investment advisory agreement (and where applicable, a new subadvisory
agreement), to take effect following the merger. Certain other proposals also
are included in the Proxy Statement. Please refer to the proxy statement for a
detailed explanation of the proposed items.
Q HOW WILL THIS AFFECT MY ACCOUNT?
A You can expect the same level of management expertise and high-quality
shareholder service you've grown accustomed to. The new investment advisory
agreement between your Fund and its investment adviser (and where applicable,
its subadvisor) will be substantially similar to the Fund's current investment
advisory agreement, except for certain provisions added at the request of your
trustees.
Q WILL MY VOTE MAKE A DIFFERENCE?
A Your vote is needed to ensure that the proposals can be acted upon. Your
immediate response on the enclosed proxy card(s) will help save on the costs of
any further solicitations for a shareholder vote. We encourage all shareholders
to participate in the governance of their Fund(s).
Q HOW DO THE TRUSTEES OF MY FUND SUGGEST THAT I VOTE?
A After careful consideration, the trustees of your Fund unanimously recommend
that you vote "FOR" each of the items proposed on the enclosed proxy card(s).
Q WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDERS MEETING?
A Morgan Stanley Group Inc. or its affiliates will pay for those expenses
relating to the shareholder meeting.
Q WHO DO I CALL IF I HAVE QUESTIONS?
A We will be happy to answer your questions about the proxy solicitation.
Please call us at 1-800-341-2911 (TDD users call 1-800-421-2833) between 7:00
a.m. and 7:00 p.m. Central time, Monday through Friday.
Q WHERE DO I MAIL MY PROXY CARD(S)?
A You may use the enclosed postage-paid envelope or mail your proxy card(s) to:
Proxy Tabulator
P.O. Box 9139
Hingham, MA 02043-9139
<PAGE> 3
ABOUT THE PROXY CARD
Please vote on each issue using blue or black ink to mark an X in one of the
boxes provided on the proxy card.
APPROVAL OF NEW ADVISORY AGREEMENT -- mark "For," "Against" or "Abstain"
APPROVAL OF NEW SUBADVISORY AGREEMENT (CERTAIN FUNDS ONLY) -- mark "For,"
"Against" or "Abstain"
ELECTION OF TRUSTEES -- mark "For" or "Withhold"
To withhold authority to vote for any individual nominee, write nominee's name
on the line below.
APPROVAL OF AMENDMENTS TO FUNDAMENTAL INVESTMENT POLICIES (CERTAIN FUNDS ONLY)
- -- mark "For," "Against" or "Abstain"
RATIFICATION OF INDEPENDENT ACCOUNTANTS -- mark "For," "Against" or "Abstain"
Sign, date and return the proxy card in the enclosed postage-paid envelope. All
registered owners of an account, as shown in the address, must sign the card.
When signing as attorney, trustee, executor, administrator, custodian, guardian
or corporate officer, please indicate your full title.
SAMPLE
/X/ PLEASE MARK PROXY
VOTES AS IN
THIS EXAMPLE VAN KAMPEN AMERICAN CAPITAL XXXXX FUND
JOINT SPECIAL MEETING OF SHAREHOLDERS
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<TABLE>
<S><C>
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. The proposal to approve a new / / / / / / 4. The proposal to approve 4A. / / / / / /
investment advisory agreement. certain amendments to the
fundamental investment 4B. / / / / / /
2. The proposal to approve a new policies of the High
investment subadvisory agreement: Income Corporate 4C. / / / / / /
2A. with Morgan Stanley FOR AGAINST ABSTAIN Bond Fund.
Asset Management Inc.; / / / / / / FOR AGAINST ABSTAIN
2B. with Van Kampen American 5. The proposal to approve an / / / / / /
Capital Advisors Inc. / / / / / / amendment to the fundamental
investment policies of the
3. Authority to vote for the election FOR WITHHOLD Harbor Fund.
as Trustees the nominees / / / / FOR AGAINST ABSTAIN
named below: 6. As to the proposal to ratify the / / / / / /
selection of Price Waterhouse LLP
XXXXXXXXX, XXXXXXXXX, XXXXXXXXXX, XXXXXXX, XXXXXXX, to act as the independent public
XXXXXXX, XXXXXXX, XXXXXXX, XXXXXXX, XXXXXXX accountants for the Fund's current
fiscal year.
To withhold authority to vote for any individual nominee,
write the nominee's name on the line below.
---------------------------------------------------------
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
</TABLE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE> 4
April 21, 1997
Dear Van Kampen American Capital Fund Shareholder:
The enclosed proxy statement relates to a joint meeting of the shareholders of
a number of Van Kampen American Capital funds. We are pleased to announce that
Morgan Stanley Group Inc., the indirect corporate parent of the investment
adviser of your Fund, has entered into a merger agreement with Dean Witter,
Discover & Co. Under the terms of the merger agreement, your Fund's investment
adviser will become an indirect subsidiary of the merged company, to be named
Morgan Stanley, Dean Witter, Discover & Co. Your Fund's investment adviser will
continue to provide the Fund with investment advisory and management services
following the merger.
The primary purpose of the shareholder meeting is to permit the shareholders
of each Fund to consider a new investment advisory agreement to take effect
following the merger. The new investment advisory agreement between your Fund
and its investment adviser will be substantially similar to the Fund's current
investment advisory agreement, except for certain provisions added at the
request of your trustees. The attached proxy statement seeks shareholder
approval on this and other items.
Your vote is important and your participation
in the governance of your Fund(s) does make a difference.
The proposals have been unanimously approved by the Board of Trustees of each
Fund, who recommend you vote "FOR" each of these proposals. YOUR IMMEDIATE
RESPONSE WILL HELP SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. EACH FUND
VOTES SEPARATELY, SO PLEASE SIGN AND RETURN ALL OF YOUR FUND PROXY FORMS. We
look forward to your participation, and we thank you for your continued
confidence in Van Kampen American Capital.
PLEASE SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Sincerely,
Dennis J. McDonnell
President
<PAGE> 5
Dear Van Kampen American Capital Fund Shareholder:
Each proxy card enclosed in this envelope represents your voting privilege in
a separate Van Kampen American Capital Fund. We have grouped your proxy cards
together for your convenience and to reduce postage expenses.
The meeting date for your Van Kampen American Capital Fund is May 28, 1997.
Please sign all proxy cards and return them in the postage-paid envelope
included with this material.
We appreciate the prompt return of your proxy cards.
<PAGE> 6
VAN KAMPEN AMERICAN CAPITAL FUNDS
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 341-2911
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1997
Notice is hereby given to the holders of shares of beneficial interest, par
value $0.01 per share (collectively, the "Shares"), of each of the Van Kampen
American Capital Funds listed on Annex A (the "Funds") to the attached Proxy
Statement that a Joint Special Meeting of the Shareholders of the Funds (the
"Meeting") will be held at the offices of Van Kampen American Capital, Inc., One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, on Wednesday, May 28, 1997, at
11:00 a.m., for the following purposes:
<TABLE>
<S> <C>
1. For each Fund, to approve a new investment advisory
agreement;
2. New Subadvisory Agreements:
2A. For each of Global Equity Fund, Global Government Fund,
Global Managed Assets Fund and LIT Global Equity Portfolio,
to approve a new investment subadvisory agreement with
Morgan Stanley Asset Management Inc.;
2B. For High Yield Municipal Fund, to approve a new
investment subadvisory agreement with Van Kampen American
Capital Advisors, Inc.;
3. For each Fund, to elect nine trustees to serve until their
respective successors are duly elected and qualified;
4. For the High Income Corporate Bond Fund:
4A. To approve an amendment to its fundamental investment
policy regarding unseasoned issuers;
4B. To approve an amendment to its fundamental investment
policy regarding diversification;
4C. To approve an amendment to its fundamental investment
policy regarding foreign securities;
5. For the Harbor Fund, to approve an amendment to its
fundamental investment policies regarding real estate
investment trusts;
6. For each Fund, to ratify the selection of Price Waterhouse
LLP as independent public accountants for its current fiscal
year; and
7. To transact such other business as may properly come before
the Meeting.
</TABLE>
Holders of record of the Shares of each Fund at the close of business on April
14, 1997 are entitled to notice of, and to vote at, the Meeting and any
adjournment thereof.
By order of the Board of Trustees
RONALD A. NYBERG,
Vice President and Secretary
April 21, 1997
<PAGE> 7
EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT, IF
ANY) TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE
VAN KAMPEN AMERICAN CAPITAL FUNDS BY CALLING (800) 341-2911 OR BY WRITING TO THE
RESPECTIVE FUND AT ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181.
SHAREHOLDERS OF THE FUNDS ARE INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON
THE ENCLOSED PROXY CARD WITH RESPECT TO EACH FUND IN WHICH YOU WERE A
SHAREHOLDER AS OF THE RECORD DATE, DATE AND SIGN SUCH PROXY CARD(S), AND RETURN
IT (THEM) IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND
NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU MAIL YOUR PROXY PROMPTLY.
THE BOARD OF TRUSTEES OF EACH FUND RECOMMENDS THAT YOU CAST YOUR VOTE:
- FOR approval of each new investment advisory agreement;
- FOR approval of each new investment subadvisory agreement;
- FOR each of the nominees for the Board of Trustees listed in the Proxy
Statement;
- FOR approval of certain amendments to the fundamental investment policies of
the High Income Corporate Bond Fund;
- FOR approval of an amendment to the fundamental investment policies of the
Harbor Fund; and
- FOR ratification of the independent public accountants for the current
fiscal year of each Fund.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD(S) PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 8
PROXY STATEMENT
VAN KAMPEN AMERICAN CAPITAL FUNDS
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 341-2911
JOINT SPECIAL MEETING OF SHAREHOLDERS
MAY 28, 1997
This Proxy Statement is furnished in connection with the solicitation by the
Boards of Trustees (the "Trustees" or "Board of Trustees") of each of the Van
Kampen American Capital Funds listed on Annex A to this Proxy Statement (the
"Funds") of proxies to be voted at a Joint Special Meeting of Shareholders of
the Funds, and all adjournments thereof (the "Meeting"), to be held at the
offices of Van Kampen American Capital, Inc., One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, on Wednesday, May 28, 1997, at 11:00 a.m. The
approximate mailing date of this Proxy Statement and accompanying form of proxy
is April 21, 1997.
The primary purpose of the Meeting is to permit each Fund's shareholders to
consider a New Advisory Agreement (defined below) to take effect following the
consummation of the transactions contemplated by an Agreement and Plan of
Merger, dated as of February 4, 1997 (the "Merger Agreement"), between Dean
Witter, Discover & Co. ("Dean Witter Discover") and Morgan Stanley Group Inc.
("Morgan Stanley"), the indirect parent corporation of each Fund's investment
adviser. Pursuant to the Merger Agreement, each Fund's investment adviser will
become an indirect subsidiary of the merged company, which will be called Morgan
Stanley, Dean Witter, Discover & Co. ("MSDWD").
Participating in the Meeting are holders of common shares of beneficial
interest, par value $0.01 per share (collectively, the "Shares"), of each of the
Funds. The Meeting is scheduled as a joint meeting of the shareholders of the
Funds because the shareholders of the Funds are expected to consider and vote on
similar matters. The Board of Trustees has determined that the use of a joint
proxy statement for the Meeting is in the best interest of the shareholders of
the Funds. In the event that a shareholder of any Fund present at the Meeting
objects to the holding of a joint meeting and moves for an adjournment of the
meeting of such Fund to a time immediately after the Meeting so that such Fund's
meeting may be held separately, the persons named as proxies will vote in favor
of the adjournment.
Annex A lists the abbreviated names by which the Funds sometimes are referred
to in this Proxy Statement. Please refer to Annex A for any questions you may
have regarding whether your Fund is participating at the Meeting, defined terms
relating to the Funds and abbreviated Fund names. Other Van Kampen American
Capital
<PAGE> 9
investment companies not listed on Annex A will vote at separate shareholder
meetings on proposals substantially similar to the proposals in this Proxy
Statement. They will hold separate shareholder meetings because they are
supervised by boards of trustees that are not identical to the Board of Trustees
of the Funds or their shareholders will consider proposals which do not affect
the Funds. If you are a shareholder of Van Kampen American Capital investment
companies not listed on Annex A, you will receive one or more additional proxy
statements relating to such other shareholder meetings.
The following table summarizes each proposal to be presented at the Meeting
and the Funds solicited with respect to such proposal:
<TABLE>
<CAPTION>
PROPOSAL AFFECTED FUNDS
-------- --------------
<S> <C> <C>
1. Approval of New Advisory Agreement All Funds
2. Approval of New Subadvisory Agreements:
2A. Approval of Subadvisory Agreement Global Equity Fund
with Morgan Stanley Asset Global Government Fund
Management Inc. Global Managed Assets Fund
LIT Global Equity
Portfolio
2B. Approval of a New Subadvisory High Yield Municipal Fund
Agreement with Van Kampen
American Capital Advisors, Inc.
3. Election of Trustees All Funds
4. Amendment of Fundamental Investment
Policies:
4A. Regarding unseasoned issuers High Income Corporate Bond
Fund
4B. Regarding diversification High Income Corporate Bond
Fund
4C. Regarding foreign securities High Income Corporate Bond
Fund
5. Amendment of Fundamental Investment Harbor Fund
Policy Regarding Real Estate Investment
Trusts
6. Ratification of Price Waterhouse LLP as All Funds
Independent Public Accountants
</TABLE>
EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT, IF
ANY) TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE
VAN KAMPEN AMERICAN CAPITAL FUNDS BY CALLING (800) 341-2911 OR BY WRITING TO THE
RESPECTIVE FUND AT ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181.
2
<PAGE> 10
VOTING
The Board of Trustees has fixed the close of business on April 14, 1997, as
the record date (the "Record Date") for the determination of holders of Shares
of each Fund entitled to vote at the Meeting. Shareholders of a Fund on the
Record Date will be entitled to one vote per Share with respect to each proposal
submitted to the shareholders of the Fund, with no Share having cumulative
voting rights.
The voting requirement for passage of a particular proposal depends on the
nature of the particular proposal. With respect to Proposals 1, 2, 4 and 5, the
voting requirement is the "vote of a majority of the outstanding voting
securities", which is defined under the 1940 Act, as the lesser of (i) 67% or
more of the voting securities of each respective Fund entitled to vote thereon
present in person or by proxy at the Meeting, if the holders of more than 50% of
the outstanding voting securities entitled to vote thereon are present in person
or represented by proxy or (ii) more than 50% of the outstanding voting
securities of each respective Fund entitled to vote thereon. With respect to
Proposal 3, the affirmative vote of a plurality of the Shares of a Fund present
in person or by proxy is necessary to elect each nominee to the Board of
Trustees of each Fund. With respect to Proposal 6, the affirmative vote of a
majority of the Shares of a Fund present in person or by proxy is necessary to
ratify the selection of the independent public accountants for such Fund.
The Board of Trustees of each Fund recommends that you cast your vote:
- FOR approval of each new advisory agreement;
- FOR approval of each new subadvisory agreement;
- FOR each nominee for the Board of Trustees;
- FOR amendments to the fundamental investment policies of High Income
Corporate Bond Fund;
- FOR an amendment to the fundamental investment policies of the Harbor Fund;
and
- FOR ratification of the independent public accountants for the current
fiscal year of each Fund.
All Shares of a Fund affected by a proposal will vote together as a single
class on such proposal. An unfavorable vote on a proposal by the shareholders of
a Fund will not affect such Fund's implementation of other proposals that
receive a favorable vote. An unfavorable vote on a proposal by the shareholders
of one Fund will not affect the implementation of such a proposal by another
Fund, if the proposal is
3
<PAGE> 11
approved by the shareholders of the other Fund. There is no cumulative voting
with respect to the election of Trustees.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon. Proxies received
prior to the Meeting on which no vote is indicated will be voted "for" each
proposal as to which it is entitled to vote. Abstentions do not constitute votes
"for" a proposal and are treated as votes "against" a proposal. Broker non-votes
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominees do
not have discretionary power) do not constitute votes "for" or "against" a
proposal and are disregarded in determining the "votes cast" when the voting
requirement for a proposal is based on achieving a percentage of the voting
securities entitled to vote present in person or by proxy at the meeting. Broker
non-votes do not constitute votes "for" and are treated as votes "against" when
the voting requirement for a proposal is based on achieving a percentage of the
outstanding voting securities entitled to vote. A majority of the outstanding
Shares entitled to vote on a proposal must be present in person or by proxy to
have a quorum to conduct business at the Meeting. Abstentions and broker
non-votes will be deemed present for quorum purposes.
Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the respective Fund a written notice of revocation, by
delivering a duly executed proxy bearing a later date or by attending the
Meeting and voting in person.
The Funds know of no business other than that mentioned in Proposals 1 through
6 of the Notice that will be presented for consideration at the Meeting. If any
other matters are properly presented, it is the intention of the persons named
on the enclosed proxy to vote proxies in accordance with their best judgment. In
the event a quorum is present at the Meeting but sufficient votes to approve any
of the proposals with respect to one or more Funds are not received, the persons
named as proxies may propose one or more adjournments of the Meeting of the
concerned Fund with respect to such proposal to permit further solicitation of
proxies, provided they determine that such an adjournment and additional
solicitation is reasonable and in the interest of shareholders based on a
consideration of all relevant factors, including the nature of the relevant
proposal, the percentage of votes then cast, the percentage of negative votes
then cast, the nature of the proposed solicitation activities and the nature of
the reasons for such further solicitation.
4
<PAGE> 12
- ------------------------------------------------------------------------------
PROPOSAL 1: APPROVAL OF NEW ADVISORY AGREEMENTS
- ------------------------------------------------------------------------------
THE ADVISER
Van Kampen American Capital Asset Management, Inc. ("Asset Management" or the
"Adviser") acts as investment adviser for each Fund. The Adviser currently is a
wholly-owned subsidiary of Van Kampen American Capital, Inc. ("VKAC"). VKAC is a
wholly-owned subsidiary of VK/AC Holding, Inc. ("VKAC Holding"). VKAC Holding is
an indirect wholly-owned subsidiary of Morgan Stanley. Prior to December 1994,
Asset Management provided investment advisory services under the name American
Capital Asset Management, Inc. The addresses of VKAC Holding, VKAC and the
Adviser are One Parkview Plaza, Oakbrook Terrace, Illinois 60181 and 2800 Post
Oak Blvd., Houston, Texas 77056.
INFORMATION CONCERNING MORGAN STANLEY
Morgan Stanley and various of its directly or indirectly owned subsidiaries,
including Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co."), a
registered broker-dealer, Morgan Stanley Asset Management, Inc. a registered
investment adviser, and Morgan Stanley & Co. International Limited, provide a
wide range of financial services on a global basis. Their principal businesses
include: securities underwriting, distribution and trading; merger, acquisition,
restructuring, real estate, project finance and other corporate finance advisory
activities; merchant banking and other principal investment activities; stock
brokerage and research services; asset management; trading of foreign exchange
and commodities as well as derivatives on a broad range of asset categories,
rates and indicies; real estate advice, financing and investing; and global
custody, securities clearance services and securities lending.
INFORMATION CONCERNING DEAN WITTER DISCOVER
Dean Witter Discover is a diversified financial services company offering a
broad range of nationally marketed credit and investment products with a primary
focus on individual customers. Dean Witter Discover has two principal lines of
business: credit services and securities. Its credit services business consists
primarily of the issuance, marketing and servicing of general purpose credit
cards and the provision of transaction processing services, private-label credit
card services and real estate secured loans. It is the largest single issuer of
general purpose credit cards in the United States, as measured by number of
accounts and cardmembers, and the third largest originator and servicer of
credit card receivables, as measured by managed loans. Dean Witter Discover's
securities business is conducted primarily through its wholly-owned
subsidiaries, Dean Witter Reynolds Inc. ("DWR") and Dean Witter InterCapital
Inc. ("InterCapital"). DWR is a full-service securities firm offering a wide
variety of securities products to serve the investment needs of individual
5
<PAGE> 13
clients through over 9,100 account executives located in 371 branch offices. DWR
is among the largest NYSE members and is a member of other major securities,
futures and options exchanges. InterCapital is a registered investment adviser
that, along with its subsidiaries, services investment companies, individual
accounts and institutional accounts. InterCapital and its wholly-owned
subsidiary, Dean Witter Services Company Inc., serve in various investment
management, advisory and administrative capacities to 102 investment companies
(the "InterCapital Funds") and other portfolios with net assets under management
of approximately $91.4 billion at March 31, 1997.
THE MERGER
Pursuant to the Merger Agreement, Morgan Stanley will be merged (the "Merger")
with and into Dean Witter Discover and the surviving corporation will be named
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"). Following the Merger, the
Adviser will be an indirect subsidiary of MSDWD.
Under the terms of the Merger Agreement, each of Morgan Stanley's common
shares will be converted into the right to receive 1.65 shares of MSDWD common
stock and each issued and outstanding share of Dean Witter Discover common stock
will thereafter represent one share of MSDWD common stock. Following the Merger,
Morgan Stanley's former shareholders will own approximately 45% and Dean Witter
Discover's former shareholders will own approximately 55% of the outstanding
shares of common stock of MSDWD.
The Merger is expected to be consummated in mid-1997 and is subject to certain
closing conditions, including certain regulatory approvals and the approval of
shareholders of both Morgan Stanley and Dean Witter Discover.
Under the terms of the Merger Agreement, the Board of Directors of MSDWD
initially will consist of fourteen members, two of whom will be Morgan Stanley
insiders and two of whom will be Dean Witter Discover insiders. The remaining
ten directors will be independent directors, with Morgan Stanley and Dean Witter
Discover each nominating five of the ten. The Chairman and Chief Executive
Officer of MSDWD will be the current Chairman and Chief Executive Officer of
Dean Witter Discover, Phillip Purcell. The President and Chief Operating Officer
of MSDWD will be the current President of Morgan Stanley, John Mack.
The Adviser does not anticipate any reduction in the quality of services now
provided to the Funds, and do not expect that the Merger will result in any
material changes in the business of the Adviser or in the manner in which the
Adviser renders services to the Funds. The Adviser also anticipates that neither
the Merger nor any ancillary transactions will have any adverse effect on the
Adviser's ability to fulfill its obligations under the New Advisory Agreements
(as defined below) or to operate its business in a manner consistent with past
business practices.
6
<PAGE> 14
In connection with Morgan Stanley's purchase of VKAC Holding on October 31,
1996, certain officers of the Adviser, including Dennis J. McDonnell, who
currently is a member of the Board of Trustees, and Don G. Powell, who was a
member of the Board of Trustees prior to August 1996, entered into employment
agreements with VKAC Holding which expire from between 1998 and 2000. Certain of
such officers, including Messrs. McDonnell and Powell also were granted options
to purchase shares of common stock of Morgan Stanley which vest from 1999 to
2001. Certain officers of the Adviser also entered into retention agreements
with VKAC Holding, which will remain in place following the consummation of the
Merger. The employment agreements and retention agreements are intended to
assure that the services of the officers are available to the Adviser (and thus
to the Funds) until such agreements expire. Finally, certain officers of the
Adviser, including Messrs. McDonnell and Powell, received preferred stock of
Morgan Stanley that is convertible into common stock of Morgan Stanley from 1997
to 2000. As a result of the Merger, such preferred stock shall be convertible
into common stock of MSDWD at the effective time of the Merger.
THE ADVISORY AGREEMENTS
In anticipation of the Merger, a majority of the Trustees of each Fund who are
not parties to the New Advisory Agreement or interested persons of any such
party ("Disinterested Trustees") approved a new investment advisory agreement
(the "New Advisory Agreement") between each Fund and the Adviser. The holders of
a majority of the outstanding voting securities (within the meaning of the 1940
Act) of each Fund are being asked to approve its respective New Advisory
Agreement. See "The New Advisory Agreements" below.
THE CURRENT ADVISORY AGREEMENTS. The Current Advisory Agreement for each Fund
was last approved by a majority of the Trustees, including a majority of the
Disinterested Trustees, voting in person at a meeting called for that purpose on
July 25, 1996 in connection with the acquisition of Asset Management's corporate
parent by Morgan Stanley. The Current Advisory Agreement was last approved by
shareholders of each Fund at a meeting held on October 25, 1996 relating to the
acquisition of Asset Management's corporate parent by Morgan Stanley.
Each Current Advisory Agreement provides that the Adviser will supply
investment research and portfolio management, including the selection of
securities for each Fund to purchase, hold or sell and the selection of brokers
through whom that Fund's portfolio transactions are executed. The Adviser also
administers the business affairs of each Fund, furnishes offices, necessary
facilities and equipment, provides administrative services, and permits its
officers and employees to serve without compensation as Trustees and officers of
such Fund if duly elected to such positions.
7
<PAGE> 15
Each Current Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or of law, or for any loss suffered by the particular
Fund in connection with the matters to which the Current Advisory Agreement
relates, except in the case of a loss resulting from willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties on the part of
Asset Management in the performance of its obligations and duties under each
Current Advisory Agreement.
The fees payable to Asset Management by each Fund are reduced by any
commissions, tender solicitation and other fees, brokerage or similar payments
received by Asset Management or any other direct or indirect majority-owned
subsidiary of VKAC Holding in connection with the purchase or sale of portfolio
investments of such Fund, less expenses incurred by Asset Management in
connection with such activities.
The Adviser's activities are subject to the review and supervision of the
Board of Trustees, to which the Adviser renders periodic reports with respect to
each Fund's investment activities. The Current Advisory Agreement may be
terminated by either party, at any time, without penalty, upon 60 days written
notice, and automatically terminates in the event of its assignment. The Current
Advisory Agreement also terminates if either a Fund or Asset Management goes
into liquidation or a receiver is appointed with respect to their assets or if
either party breaches the Current Advisory Agreement and fails to remedy the
breach within 30 days of receiving notice thereof from the other party.
The net assets of each of the Funds as of April 14, 1997, as well as other
investment companies sponsored by VKAC and advised by the Adviser, and the rates
of compensation to the Adviser are set forth at Annex C hereto. Each respective
Fund paid net advisory expenses, for its most recently completed fiscal year, in
the amounts set forth at Annex D hereto.
Each Fund pays all other expenses incurred in its operation including, but not
limited to, direct charges relating to the purchase and sale of its portfolio
securities, interest charges, fees and expenses of outside legal counsel and
independent accountants, taxes and governmental fees, costs of share
certificates and any other expenses (including clerical expenses) of issuance,
sale or repurchase of its Shares, expenses in connection with its dividend
reinvestment plan, membership fees in trade associations, expenses of
registering and qualifying its Shares for sale under federal and state
securities laws, expenses of printing and distribution, expenses of filing
reports and other documents filed with governmental agencies, expenses of annual
and special meetings of the trustees and shareholders, fees and disbursements of
the transfer agents, custodians and sub-custodians, expenses of disbursing
dividends and distributions, fees, expenses and out-of-pocket costs of the
trustees who are not affiliated with the Adviser, insurance premiums,
indemnification and other expenses not expressly provided for in each Current
Advisory Agreement, and any extraordinary expenses of
8
<PAGE> 16
a nonrecurring nature. Each Fund also compensates its Adviser, VKAC, the
Distributor (defined below) and ACCESS (defined below) for certain non-advisory
services provided pursuant to agreements discussed below. See "OTHER INFORMATION
- -- Non-Advisory Agreements" below.
THE NEW ADVISORY AGREEMENTS. The Board of Trustees approved a proposed New
Advisory Agreement between each Fund and Asset Management on April 15, 1997, the
form of which is attached hereto as Annex B-1. The form of the proposed New
Advisory Agreement between each Fund and the Adviser is substantially similar to
the Current Advisory Agreement. The material differences between the Current
Advisory Agreement and the New Advisory Agreement are described in this
paragraph. Each New Advisory Agreement designates certain officers of the
Adviser and the officers of each Fund as essential personnel with respect to the
operations of the respective Fund. Under the terms of the New Advisory
Agreement, the Adviser may not make any material or significant personnel
changes or replace any essential personnel or materially change the
responsibilities or duties of any essential personnel prior to the first
anniversary of the agreement without first informing the Board of Trustees in a
timely manner. Each New Advisory Agreement also prohibits the Adviser from
changing its name without the prior consent of the Board of Trustees.
The investment advisory fee as a percentage of net assets payable by each Fund
will be the same under each New Advisory Agreement as under the Current Advisory
Agreement. If the investment advisory fee under each New Advisory Agreement had
been in effect for each Fund's most recently completed fiscal year, contractual
advisory fees payable to the Adviser by each Fund would have been identical to
those payable under each Current Advisory Agreement.
In connection with approving the New Advisory Agreements, the Board of
Trustees held a special telephone meeting on February 10, 1997, special
in-person meetings on March 14, 1997 and March 27, 1997 and a regular quarterly
meeting on April 14-15, 1997. At the meetings, the Board of Trustees considered
the possible effects of the Merger upon VKAC, the Adviser, Van Kampen American
Capital Distributors, Inc., the distributor of the Funds' shares (the
"Distributor"), and ACCESS Investors Services, Inc., the transfer agent for each
of the Funds ("ACCESS"), and upon their ability to provide investment advisory,
distribution, transfer agency and other services to each respective Fund.
Representatives of Morgan Stanley, Dean Witter Discover and VKAC attended one or
more of the in-person meetings and represented to the Board of Trustees that (i)
the VKAC family of funds will be maintained and operated as a separate mutual
fund complex and will not be consolidated with Dean Witter Discover's
InterCapital Funds, and (ii) VKAC, the Adviser, the Distributor and ACCESS will
be maintained separate from their counterparts in the InterCapital Fund complex
and will be operated for the benefit of the Funds and other investment companies
sponsored by VKAC. The representatives of Morgan Stanley, Dean Witter Discover
and VKAC also stated
9
<PAGE> 17
that (i) the Funds will continue to be distributed by the Distributor through
third-party broker-dealers and, following the Merger, also will be distributed
through Dean Witter Discover's broker-dealers on a proprietary basis, and (ii)
the InterCapital Funds will continue to be distributed solely through Dean
Witter Discover broker-dealers on a proprietary basis. The representatives of
Morgan Stanley and Dean Witter Discover also described the financial and other
resources available to VKAC and its affiliates, after giving effect to the
Merger, to secure for each Fund quality investment research, investment advice,
distribution, transfer agency and other client services.
In evaluating the New Advisory Agreements, the Board of Trustees took into
account that each Fund's Current Advisory Agreement and its New Advisory
Agreement, including the terms relating to the services to be provided
thereunder by the Adviser and the fees and expenses payable by each Fund, are
substantially similar, except for those provisions added to each New Advisory
Agreement at the request of the Trustees. The Board of Trustees considered the
skills and capabilities of the Adviser, the representations of Morgan Stanley,
Dean Witter Discover and VKAC described above and the representations of
officers of Morgan Stanley and Dean Witter Discover that no material change was
planned in the current management or facilities of the Adviser as a result of
the Merger. The Board of Trustees also considered the reputation, expertise and
resources of Morgan Stanley and Dean Witter Discover and their affiliates in
domestic and international financial markets. The Board of Trustees considered
the continued employment of members of senior management of the Adviser, the
Distributor and ACCESS pursuant to current and future employment and retention
agreements to be important to help assure the continuity of the personnel
primarily responsible for maintaining the quality of investment advisory and
other services for the Funds. The Board of Trustees also considered the affect
of certain shares of preferred stock of Morgan Stanley owned by senior
management of the Adviser becoming immediately convertible into common stock of
Morgan Stanley at the time of the Merger. The Trustees considered the possible
benefits the Adviser may receive as a result of the Merger, including the
continued use, to the extent permitted by law, of Morgan Stanley & Co., DWR and
their affiliates for brokerage services.
The Board of Trustees considered the affects on the Funds of the Adviser
becoming an affiliated person of MSDWD. Following the Merger, the 1940 Act will
prohibit or impose certain conditions on the ability of the Funds to engage in
certain transactions with MSDWD and its affiliates. For example, absent
exemptive relief, the Funds will be prohibited from purchasing securities from
Morgan Stanley & Co. or DWR, both of which will be wholly-owned broker-dealer
subsidiaries of MSDWD, in transactions in which Morgan Stanley & Co. or DWR acts
as a principal, and the Funds will have to satisfy certain conditions in order
to engage in securities transactions in which Morgan Stanley & Co. or DWR act as
a broker or to purchase securities in an underwritten offering in which Morgan
Stanley & Co. or DWR is
10
<PAGE> 18
acting as an underwriter. In this connection, management of the Adviser
represented to the Board of Trustees that they do not believe these prohibitions
or conditions will have a material affect on the management or performance of
the Funds and, to the extent permitted by applicable law, VKAC anticipates that
the Funds will continue to use Morgan Stanley & Co., DWR and their affiliates
for brokerage services. The amount of commissions paid by each Fund to Morgan
Stanley & Co. and DWR, if any, during its most recently completed fiscal year is
set forth on Annex D to this Proxy Statement.
The Board of Trustees were advised that Section 15(f) of the 1940 Act is still
applicable to the Adviser as a result of Morgan Stanley's previous acquisition
of the Adviser's parent corporation on October 31, 1996. Section 15(f) of the
1940 Act permits, in the context of a change in control of an investment adviser
to a registered investment company, the receipt by such investment adviser, or
any of its affiliated persons, of an amount of benefit in connection with such
sale, provided two conditions are satisfied. First, an "unfair burden" must not
be imposed on the investment company for which the investment adviser acts in
such capacity as a result of the sale of such interest, or any express or
implied terms, conditions or understandings applicable thereto. The term "unfair
burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or indirectly,
from the investment company or its security holders (other than fees for bona
fide investment advisory and other services), or from any person in connection
with the purchase or sale of securities or other property to, from or on behalf
of the investment company (other than ordinary fees for bona fide principal
underwriting services). Management of Morgan Stanley, Dean Witter Discover and
VKAC are aware of no circumstances arising from the Merger, preparatory
transactions to the Merger or any potential financing that might result in the
imposition of an "unfair burden" on the Funds.
The second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable, at
least 75% of the subject investment company's board of directors must not be
"interested persons" (as defined in the 1940 Act) of the investment company's
investment adviser or predecessor adviser. The composition of the Board of
Trustees currently complies with such condition and, if each of the nominees set
forth in Proposal 3 below is elected to the Board of Trustees, the composition
of the Board of Trustees would comply with such condition.
The Board of Trustees, including the Disinterested Trustees, concluded that if
the Merger occurs, entry by each respective Fund into a New Advisory Agreement
would be in the best interest of each Fund and the shareholders of each Fund.
The Board of Trustees of each Fund, including the Disinterested Trustees,
unanimously
11
<PAGE> 19
approved the New Advisory Agreement for each Fund and recommended each such
agreement for approval by the shareholders of the respective Fund at the
Meeting. The New Advisory Agreement would take effect upon the later to occur of
(i) the obtaining of shareholder approval or (ii) the closing of the Merger.
Each New Advisory Agreement will continue in effect until May 31, 1999 and
thereafter for successive annual periods as long as such continuance is approved
in accordance with the 1940 Act.
In the event that shareholders of a Fund do not approve the New Advisory
Agreement with respect to a Fund and the Merger is consummated, the Board of
Trustees of such Fund would seek to obtain for the Fund interim investment
advisory services at the lesser of cost or the current fee rate either from the
respective Adviser or from another advisory organization. Thereafter, the Board
of Trustees of such Fund would either negotiate a new investment advisory
agreement with an advisory organization selected by the Board of Trustees or
make other appropriate arrangements, in either event subject to approval of the
shareholders of such Fund. In the event the Merger is not consummated, the
Adviser would continue to serve as investment adviser of the Funds pursuant to
the terms of the Current Advisory Agreement.
SHAREHOLDER APPROVAL
To become effective, each New Advisory Agreement must be approved by the vote
of a majority of the outstanding voting securities of the respective Fund. The
"vote of a majority of the outstanding voting securities" is defined under the
1940 Act as the lesser of (i) 67% or more of the Shares of the respective Fund
entitled to vote thereon present in person or by proxy at the Meeting if the
holders of more than 50% of such outstanding Shares are present in person or
represented by proxy; or (ii) more than 50% of such outstanding Shares of the
respective Fund entitled to vote thereon. Each New Advisory Agreement was
unanimously approved by the Board of Trustees after consideration of all factors
which they determined to be relevant to their deliberations, including those
discussed above. The Board of Trustees also unanimously determined to submit
each New Advisory Agreement for consideration by the shareholders of the
respective Fund. THE BOARD OF TRUSTEES OF EACH FUND RECOMMENDS A VOTE "FOR"
APPROVAL OF THE NEW ADVISORY AGREEMENT.
- ------------------------------------------------------------------------------
PROPOSAL 2: APPROVAL OF NEW SUBADVISORY AGREEMENTS
- ------------------------------------------------------------------------------
Asset Management has entered into subadvisory agreements (the "Current
Subadvisory Agreements") in connection with providing investment advisory
services to the Global Equity Fund, the Global Government Fund, the Global
Managed Assets Fund and the LIT Global Equity Portfolio (collectively, the
"Global Funds") and the High Yield Municipal Fund. The shareholders of such
12
<PAGE> 20
Funds are being asked to approve new subadvisory agreements (the "New
Subadvisory Agreements") between Asset Management and the subadvisers that will
take effect following the Merger as follows:
<TABLE>
<CAPTION>
PROPOSAL FUNDS ADVISER SUBADVISER
- -------- ----- ------- ----------
<S> <C> <C> <C>
2A. Global Equity Fund Asset Morgan Stanley Asset
Global Government Fund Management Management Inc.
Global Managed Assets Fund
LIT Global Equity Portfolio
2B. High Yield Municipal Fund Asset Van Kampen American Capital
Management Advisors, Inc.
</TABLE>
The New Subadvisory Agreements between Asset Management and the respective
subadviser will be substantially identical to the Current Subadvisory
Agreements, except for dates of execution, effectiveness and termination.
PROPOSAL 2A: APPROVAL OF SUBADVISORY AGREEMENTS WITH MORGAN STANLEY ASSET
MANAGEMENT INC.
Asset Management has entered into a separate subadvisory agreement with Morgan
Stanley Asset Management Inc. ("MSAM") in connection with providing advisory
services to each of the Global Funds (the "Current MSAM Subadvisory
Agreements"). MSAM has acted as subadviser to each of the Global Funds since
April 1, 1997.
MSAM
MSAM is a wholly-owned subsidiary of Morgan Stanley, and is an affiliate of
the Adviser. MSAM provides portfolio management and named fiduciary services to
various closed-end and open-end investment companies, taxable and nontaxable
institutions, international organizations and individuals investing in United
States and international equities and fixed income securities. At December 31,
1996, MSAM had, together with its affiliated investment management companies
(which include VKAC and Miller Andersen & Sherrard, LLP) assets under management
(including assets under fiduciary advisory control) totaling approximately $162
billion. MSAM emphasizes a global investment strategy and benefits from research
coverage of a broad spectrum of investment opportunities worldwide and draws
upon the capabilities of its asset management specialists located in various
offices throughout the world, including New York, London, Tokyo, Singapore,
Bombay, Hong Kong, Milan and Sydney. MSAM also draws upon the research
capabilities of Morgan Stanley and its other affiliates as well as the research
and investment ideas of other companies whose brokerage services MSAM utilizes.
The other mutual funds with investment objectives similar to the Global Funds
for which MSAM acts as investment adviser or investment subadviser are listed on
Annex K to this Proxy Statement together with their advisory fee rates and net
assets as of March 31, 1997. MSAM's address is 1221 Avenue of the Americas, New
York, New York, 10020.
13
<PAGE> 21
THE CURRENT MSAM SUBADVISORY AGREEMENT
The Board of Trustees of the Global Funds last approved the Current MSAM
Subadvisory Agreements between Asset Management and MSAM at a meeting called for
that purpose on August 15, 1996. The shareholders of the Global Funds last
approved the Current MSAM Subadvisory Agreements at a meeting held on October
25, 1996 relating to the acquisition of Asset Management's corporate parent by
Morgan Stanley.
Under the Current MSAM Subadvisory Agreements, Asset Management retains MSAM
to assist Asset Management with providing advisory services to the Global Funds,
including services regarding investments in securities and the selection of
broker-dealers. In this connection, the Current MSAM Subadvisory Agreements
provide that MSAM provides Asset Management and each Global Fund (i) investment
advice with respect to all or such portion of each Global Fund's assets as
determined from time to time by Asset Management and MSAM; (ii) economic,
statistical and research information and advice, including advice on the
allocation of investments among countries, relating to all or such portion of
each Global Fund's assets as MSAM and Asset Management shall from time to time
determine; (iii) recommendations as to the voting of proxies solicited by or
with respect to securities under MSAM's supervision; and (iv) an investment
program with respect to securities and recommendations as to what securities
shall be purchased, sold or exchanged, and in what portion, if any, of the
securities shall be held in money market instruments. MSAM determines the
securities to be purchased and sold by each Global Fund, places orders for the
purchase, sale and exchange of securities with broker-dealers and gives
instructions to each Global Fund's custodian and sub-custodians in connection
with such transactions.
The Current MSAM Subadvisory Agreements provide that MSAM shall not be liable
to the Global Funds or any shareholders thereof for any error of judgment or of
law, or for any loss suffered by the Global Funds in connection with the matters
in which the Current MSAM Subadvisory Agreement relates, except in the case of a
loss resulting from willful misfeasance, bad faith, negligence or reckless
disregard of its obligations or duties.
The Current MSAM Subadvisory Agreement terminates automatically on its
assignment and on the termination of the advisory agreement between Asset
Management and the respective Global Fund and may be terminated at any time,
without the payment of any penalty, by (i) the Board of Trustees, (ii) a "vote
of a majority of the outstanding voting securities" (as defined in the 1940 Act)
of the respective Global Fund, or (iii) by Asset Management or MSAM, as the case
may be, in each case on 30 days' written notice, or upon such shorter notice as
may be mutually agreed upon.
14
<PAGE> 22
The rate of compensation to MSAM under the Current MSAM Subadvisory Agreement
for each Global Securities Fund is equal to 50% of the net advisory fees
received by Asset Management under the respective Current Advisory Agreement.
During each Global Fund's most recently completed fiscal year, MSAM received no
subadvisory fees from Asset Management because MSAM did not act as subadviser to
the Global Funds during such fiscal years.
THE NEW MSAM SUBADVISORY AGREEMENT
The Boards of Trustees of the Global Funds approved the proposed new MSAM
subadvisory agreement for each Global Fund between Asset Management and MSAM on
April 15, 1997 (the "New MSAM Subadvisory Agreement"). The form of the proposed
New MSAM Subadvisory Agreement is substantially identical to the Current MSAM
Subadvisory Agreement, except for the dates of execution, effectiveness and
termination and except for certain provisions relating to each Global Fund's
previous subadviser that have expired by their terms. The investment subadvisory
fee payable by Asset Management to MSAM will be the same under each New MSAM
Subadvisory Agreement as under each Current MSAM Subadvisory Agreement. The form
of the New MSAM Subadvisory Agreement is attached to this Proxy Statement as
Annex B-2 (the "New MSAM Subadvisory Agreement").
Each New MSAM Subadvisory Agreement will take effect upon the later to occur
of (i) the obtaining of shareholder approval or (ii) the closing of the Merger.
Each New MSAM Subadvisory agreement will continue in effect until May 31, 1999
and thereafter for successive annual periods as long as such continuance is
approved in accordance with the 1940 Act.
DELIBERATIONS OF THE BOARD OF TRUSTEES
The Board of Trustees of the Global Funds held joint meetings in connection
with their consideration of the Merger as described above in Proposal 1, at
which meetings the Trustees, including the Disinterested Trustees, concluded
that if the Merger occurs, entry by each respective Global Fund into a New MSAM
Subadvisory Agreement would be in the best interest of each Global Fund and the
shareholders of each Global Fund. In evaluating the New MSAM Subadvisory
Agreements, the Board of Trustees took into account that the Current MSAM
Subadvisory Agreements and the New MSAM Subadvisory Agreements, including the
terms relating to the services to be provided thereunder by MSAM and the fees
and expenses payable to MSAM by Asset Management, would be substantially
identical, except for the dates of execution, effectiveness and termination and
except for certain provisions relating to each Global Fund's previous subadviser
that have expired by their terms. The Board of Trustees also took into
consideration those factors discussed above in Proposal 1 with respect to the
Merger and the
15
<PAGE> 23
representation of VKAC that it believes the Merger will not adversely affect the
operations, resources or finances of MSAM.
Based upon their review, the Board of Trustees concluded that the New MSAM
Subadvisory Agreement is in the best interest of each Global Fund and such
Global Fund's shareholders. Accordingly, after consideration of the above
factors, and such other factors and information that it deemed relevant, the
Board of Trustees of each Global Fund, including the Disinterested Trustees,
unanimously approved the New MSAM Subadvisory Agreement for each Global Fund and
recommended each such agreement for approval by the shareholders of the
respective Global Fund at the Meeting.
In the event that shareholders of a Fund do not approve the New MSAM
Subadvisory Agreement with respect to a Fund and the Merger is consummated, the
Board of Trustees of such Fund would seek to obtain for the Fund interim
investment subadvisory services at the lesser of cost or the current fee rate
either from MSAM or from another advisory organization. Thereafter, the Board of
Trustees of such Fund would either negotiate a new investment subadvisory
agreement with an advisory organization selected by the Board of Trustees or
make other appropriate arrangements, in either event subject to approval of the
shareholders of such Fund. In the event the Merger is not consummated, MSAM
would continue to serve as subadviser to each of the Global Funds pursuant to
the terms of the Current MSAM Subadvisory Agreement.
SHAREHOLDER APPROVAL
To become effective, each New MSAM Subadvisory Agreement must be approved by
the vote of a majority of the outstanding voting securities of the respective
Global Fund. The "vote of a majority of the outstanding voting securities" is
defined under the 1940 Act as the lesser of the vote of (i) 67% or more of the
Shares of the respective Global Fund entitled to vote thereon present at the
Meeting if the holders of more than 50% of such outstanding Shares are present
in person or represented by proxy; or (ii) more than 50% of such outstanding
Shares of the respective Global Fund entitled to vote thereon. Each New MSAM
Subadvisory Agreement was approved by the Board of Trustees after consideration
of all factors which they determined to be relevant to their deliberations,
including those discussed above. The Board of Trustees also unanimously
determined to submit each New MSAM Subadvisory Agreement for consideration by
the shareholders of the respective Global Fund. THE BOARD OF TRUSTEES OF EACH
GLOBAL FUND RECOMMENDS A VOTE "FOR" APPROVAL OF THE NEW MSAM SUBADVISORY
AGREEMENTS.
16
<PAGE> 24
PROPOSAL 2B: APPROVAL OF NEW SUBADVISORY AGREEMENT WITH VAN KAMPEN AMERICAN
CAPITAL ADVISORS, INC.
Asset Management has entered into a subadvisory agreement with Van Kampen
American Capital Advisors, Inc. ("Advisors Inc.") in connection with providing
investment advisory services to the High Yield Municipal Fund (the "Current High
Yield Municipal Subadvisory Agreement"). Advisors Inc. has acted as subadviser
for the High Yield Municipal Fund since September 14, 1993.
ADVISORS INC.
Advisors Inc. currently is a wholly-owned subsidiary of VKAC and an affiliate
of the Adviser. A description of those persons owning or controlling VKAC is set
forth above in the section of Proposal 1 captioned "The Adviser." The executive
officers of Advisors Inc., together with their principal occupations, are listed
below under "OTHER INFORMATION -- Directors and Officers of the Adviser". The
address of Advisors Inc. is 40 Broad Street, Suite 828, Boston, MA 02110.
THE CURRENT HIGH YIELD MUNICIPAL SUBADVISORY AGREEMENT
The Board of Trustees of the High Yield Municipal Fund, including the
Disinterested Trustees, last approved the Current High Yield Municipal
Subadvisory Agreement on August 15, 1996. The shareholders of the High Yield
Municipal Fund last approved the Current High Yield Municipal Subadvisory
Agreement at a meeting held on October 25, 1996 relating to the acquisition of
Advisors Inc.'s corporate parent by Morgan Stanley.
Under the Current High Yield Municipal Subadvisory Agreement, Asset Management
retains Advisors Inc. to assist Asset Management with providing investment
subadvisory services to the High Yield Municipal Fund, including (i) obtaining
and evaluating pertinent information about significant developments and
economic, statistical and financial data, with respect to the economy in
general, sectors of the municipal securities market, individual issuers and
securities in which the High Yield Municipal Fund invests, (ii) selecting
municipal securities and reporting on them to Asset Management and (iii)
formulating and implementing a continuous program for the purchase and sale of
securities and reporting thereon to Asset Management.
The Current High Yield Municipal Subadvisory Agreement provides that Advisors
Inc. shall not be liable to the High Yield Municipal Fund or any shareholders
thereof for any error of judgement or of law, or for any loss suffered by the
High Yield Municipal Fund in connection with the matters in which the Current
High Yield Municipal Subadvisory Agreement relates, except in the case of a loss
resulting from willful misfeasance, bad faith, negligence or reckless disregard
of its obligations or duties.
The Current High Yield Municipal Subadvisory Agreement terminates
automatically on its assignment and on the termination of the advisory agreement
between
17
<PAGE> 25
Asset Management and the High Yield Municipal Fund and may be terminated at
any time, without the payment of any penalty, by (i) the Board of Trustees, (ii)
a "vote of a majority of the outstanding voting securities" (as defined in the
1940 Act) of the High Yield Municipal Fund, or (iii) by Asset Management or
Advisors Inc., as the case may be, in each case on 30 days' written notice, or
upon such shorter notice as may be mutually agreed upon.
The rate of compensation to Advisors Inc. under the Current High Yield
Municipal Subadvisory Agreement is equal to 50% of the net advisory fees
received by Asset Management under its advisory agreement with the High Yield
Municipal Fund. During the High Yield Municipal Fund's most recently completed
fiscal year, Advisors Inc. received subadvisory fees from Asset Management in
the amount of $1,363,290. The High Yield Municipal Fund is the only investment
company advised or subadvised by Advisors Inc.
THE NEW HIGH YIELD MUNICIPAL SUBADVISORY AGREEMENT
The Board of Trustees of the High Yield Municipal Fund approved the proposed
New High Yield Municipal Subadvisory Agreement between Asset Management and
Advisors Inc. on April 15, 1997. The form of the proposed New High Yield
Municipal Subadvisory Agreement is substantially identical to the Current High
Yield Municipal Subadvisory Agreement, except for the dates of execution,
effectiveness and termination. The form of the New High Yield Municipal
Subadvisory Agreement is attached to this Proxy Statement as Annex B-3.
The investment subadvisory fee payable by Asset Management to Advisors Inc.
will be the same under the New High Yield Municipal Subadvisory Agreement as
under the Current High Yield Municipal Subadvisory Agreement. If the investment
subadvisory fee under the New High Yield Municipal Subadvisory Agreement had
been in effect for the High Yield Municipal Fund's most recently completed
fiscal year, subadvisory fees paid to Advisors Inc. by Asset Management would
have been identical to those paid under the Current High Yield Municipal
Subadvisory Agreement.
The New High Yield Municipal Subadvisory Agreement would take effect upon the
later to occur of (i) the obtaining of shareholder approval or (ii) the closing
of the Merger. The New High Yield Municipal Subadvisory Agreement will continue
in effect until May 31, 1999 and thereafter for successive annual periods as
long as such continuance is approved in accordance with the 1940 Act.
DELIBERATIONS OF THE BOARD OF TRUSTEES
The Board of Trustees of the High Yield Municipal Fund held meetings in
connection with their consideration of the Merger as described above in Proposal
1, at which meetings the Trustees, including the Disinterested Trustees,
concluded that if the Merger occurs, entry by the High Yield Municipal Fund into
the New
18
<PAGE> 26
High Yield Municipal Subadvisory Agreement would be in such Fund's best interest
and the best interest of its shareholders. In evaluating the New High Yield
Municipal Subadvisory Agreement, the Board of Trustees took into account that
the Current High Yield Municipal Subadvisory Agreement and the New High Yield
Municipal Subadvisory Agreement, including the terms relating to the services to
be provided thereunder by Advisors Inc. and the fees and expenses payable to
Advisors Inc. by Asset Management, would be substantially identical, except for
the dates of execution, effectiveness and termination. The Board of Trustees
also took into consideration those factors discussed above in Proposal 1 with
respect to the Merger and the representation of VKAC that the Merger will not
adversely affect the operations, resources or finances of MSAM.
Based upon its review, the Board of Trustees concluded that the New High Yield
Municipal Subadvisory Agreement is in the best interest of the High Yield
Municipal Fund. Accordingly, after consideration of the above factors, and such
other factors and information that it deemed relevant, the Board of Trustees of
the High Yield Municipal Fund, including the Disinterested Trustees, unanimously
approved the New High Yield Municipal Subadvisory Agreement and recommended such
agreement for approval by the shareholders of the High Yield Municipal Fund at
the Meeting.
In the event that shareholders of the High Yield Municipal Fund do not approve
the New High Yield Municipal Subadvisory Agreement and the Merger is
consummated, the Board of Trustees of the High Yield Municipal Fund would seek
to obtain interim investment subadvisory services at the lesser of cost or the
current fee rate either from Advisors Inc. or from another advisory
organization. Thereafter, the Board of Trustees would either negotiate a new
investment subadvisory agreement with an advisory organization selected by the
Board of Trustees or make other appropriate arrangements, in either event
subject to approval of the shareholders of the High Yield Municipal Fund. In the
event the Merger is not consummated, Advisors Inc. would continue to serve as
subadviser to the High Yield Municipal Fund pursuant to the terms of the Current
High Yield Municipal Subadvisory Agreement.
SHAREHOLDER APPROVAL
To become effective, the New High Yield Municipal Subadvisory Agreement must
be approved by the vote of a majority of the outstanding voting securities of
the High Yield Municipal Fund. The "vote of a majority of the outstanding voting
securities" is defined under the 1940 Act as the lesser of the vote of (i) 67%
or more of the Shares entitled to vote thereon present at the Meeting if the
holders of more than 50% of such outstanding Shares are present in person or
represented by proxy; or (ii) more than 50% of such outstanding Shares entitled
to vote thereon. The New High Yield Municipal Subadvisory Agreement was
unanimously
19
<PAGE> 27
approved by the Board of Trustees after consideration of all factors which they
determined to be relevant to their deliberations, including those discussed
above. The Board of Trustees also unanimously determined to submit the New High
Yield Municipal Subadvisory Agreement for consideration by the shareholders of
the High Yield Municipal Fund. THE BOARD OF TRUSTEES OF THE HIGH YIELD MUNICIPAL
FUND RECOMMENDS A VOTE "FOR" APPROVAL OF THE NEW HIGH YIELD MUNICIPAL
SUBADVISORY AGREEMENT.
- ------------------------------------------------------------------------------
PROPOSAL 3: ELECTION OF TRUSTEES
- ------------------------------------------------------------------------------
Each Fund is organized as a series of a Delaware business trust (collectively,
the "Trusts"). With respect to each Trust, nine trustees are to be elected at
the Meeting to serve until reaching their designated retirement age or until
their successors are duly elected and qualified. The election of each nominee to
the Board of Trustees of a Trust requires the affirmative vote of a plurality of
all the Shares of such Trust present in person or by proxy. The shareholders of
all of the series of a Trust will vote together as a single class to elect the
trustees of the respective Trust. Those Trusts comprised of more than one series
are indicated as such on Annex A hereto. It is the intention of the persons
named in the enclosed proxy to vote the Shares represented by them for the
election of each nominee listed below unless the proxy is marked otherwise.
THE TRUSTEES
Each of the nominees to the Board of Trustees listed below has served as a
member of the Board of Trustees since his or her initial election or appointment
to the Board of Trustees as set forth in Annex J, except that Mr. Richard M.
DeMartini has not previously served on the Board of Trustees. The Board of
Trustees has determined that adding Mr. DeMartini to the Board of Trustees is in
the best interest of shareholders of each respective Fund following the Merger.
The Board of Trustees believes that adding Mr. DeMartini to the Board of
Trustees will benefit the Funds because of his knowledge of, and experience
with, Dean Witter Discover and the InterCapital Funds. Mr. DeMartini's term on
each Board of Trustees will commence on the later of his election to the Board
of Trustees at the Meeting and the consummation of the Merger. If the Merger is
not consummated, Mr. DeMartini will not join the Board of Trustees.
With respect to each Trust, each nominee named below has agreed to serve as a
trustee if elected; however, should any nominee(s) become unable or unwilling to
accept nomination or election, the proxies will be voted for one or more
substitute nominee(s) designated by the present Board of Trustees.
20
<PAGE> 28
The following table sets forth the names, addresses, ages, principal
occupations and other information regarding the Trustee nominees.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, ADDRESS AND AGE IN PAST 5 YEARS
--------------------- -----------------------------------
<S> <C>
J. Miles Branagan................. Private investor. Co-founder, and prior to
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a subsidiary
of Getinge Industrier AB), a company which
develops, manufactures, markets and services
medical and scientific equipment. Trustee of
each of the funds in the Fund Complex
(defined below).
Richard M. DeMartini*............. President and Chief Operating
Two World Trade Center Officer, Dean Witter Capital, a division of
66th Floor DWR. Director of DWR, Intercapital, Dean
New York, NY 10048 Witter Distributors, Inc. and Dean Witter
Date of Birth: 10/12/52 Trust Company. Executive Vice President of
Dean Witter Discover. Member of Dean Witter
Discover Management Committee. Trustee of the
TCW/DW Funds. Director, National Healthcare
Resources, Inc. Formerly Vice Chairman of the
Board of the National Association of
Securities Dealers, Inc. Formerly Chairman of
the Board of The Nasdaq Stock Market, Inc.
Linda Hutton Heagy................ Partner, Ray & Berndtson, Inc.
Sears Tower an executive recruiting and management
233 South Wacker Drive consulting firm. Formerly, Executive Vice
Suite 4020 President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive
Date of Birth: 06/03/48 Vice President of La Salle National Bank.
Trustee of each of the funds in the Fund
Complex.
R. Craig Kennedy.................. President and Director, German Marshall
11 DuPont Circle, N.W. Fund of the United States. Formerly,
Washington, D.C. 20036 advisor to the Dennis Trading Group Inc.
Date of Birth: 02/29/52 Prior to 1992, President and Chief Executive
Officer, Director and Member of the
Investment Committee of the Joyce Foundation,
a private foundation. Trustee of each of the
funds in the Fund Complex.
</TABLE>
21
<PAGE> 29
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, ADDRESS AND AGE IN PAST 5 YEARS
--------------------- -----------------------------------
<S> <C>
Jack E. Nelson.................... President, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., a
member of the National Association of
Securities Dealers, Inc. ("NASD") and
Securities Investors Protection Corp.
("SIPC"). Trustee of each of the funds in the
Fund Complex.
Jerome L. Robinson................ President, Robinson Technical Products
115 River Road Corporation, a manufacturer and processor of
Edgewater, NJ 07020 welding alloys, supplies and equipment.
Date of Birth: 10/10/22 Director, Pacesetter Software, a software
programming company specializing in white
collar productivity. Director, Panasia Bank.
Trustee of each of the funds in the Fund
Complex.
Phillip B. Rooney................. Private investor. Director, Illinois Tool
348 East Third Street Works, Inc., a manufacturing company;
Hinsdale, IL 60521 Director, The Servicemaster Company, a
Date of Birth: 07/08/44 business and consumer services company;
Director, Urban Shopping Centers Inc., a
retail mall management company; Director,
Stone Container Corp., a paper manufacturing
company. Trustee, University of Notre Dame.
Formerly, President and Chief Executive
Officer, WMX Technologies Inc., an
environmental services company, and prior to
that President and Chief Operating Officer,
WMX Technologies Inc. Trustee of each of the
funds in the Fund Complex.
</TABLE>
22
<PAGE> 30
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, ADDRESS AND AGE IN PAST 5 YEARS
--------------------- -----------------------------------
<S> <C>
Fernando Sisto.................... Professor Emeritus and, prior to
155 Hickory Lane 1995, Dean of the Graduate School, Stevens
Closter, NJ 07624 Institute of Technology. Director of
Date of Birth: 08/02/24 Dynalysis of Princeton, a firm engaged in
engineering research. Trustee of each of the
funds in the Fund Complex.
Wayne W. Whalen*.................. Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex,
Date of Birth: 08/22/39 open-end investment companies advised by Van
Kampen American Capital Management, Inc. and
closed-end funds advised by Van Kampen
American Capital Investment Advisory Corp.
Trustee of each of the funds in the Fund
Complex, open-end investment companies
advised by Van Kampen American Capital
Management, Inc. and closed-end funds advised
by Van Kampen American Capital Investment
Advisory Corp.
</TABLE>
- ---------------
* Such trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. De Martini is an interested person of the Adviser and
the Funds by reason of his positions with Dean Witter Discover and its
affiliates. Mr. Whalen is an interested person of the Funds by reason of his
firm currently acting as legal counsel to the Funds and is an interested
person of the Adviser with respect to certain of the Funds by reason of his
firm in the past acting as legal counsel to Asset Management.
As of April 14, 1997, certain nominees owned, directly or beneficially, the
number of Shares of each Fund as set forth in the table below. Nominees who do
not own any Shares of the Funds have been omitted from the table. Funds which
are not owned by any nominees also have been omitted from the table.
23
<PAGE> 31
SHARES OWNED BY TRUSTEES(1)
<TABLE>
<CAPTION>
FUND NAME BRANAGAN HEAGY NELSON SISTO WHALEN
--------- -------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Global Equity Fund............................... 99 175 139 2,908 328
Global Government Securities Fund................ 111 0 0 3,244 667
Global Managed Assets Fund....................... 102 0 0 432 465
Harbor Fund...................................... 64 0 136,333 3,514 33,109
High Income Corporate Bond Fund.................. 156 394 0 12,543 789
Tax-Exempt Trust
High Yield Municipal Fund....................... 17,813 0 0 1,482 0
</TABLE>
- ---------------
(1)The trustees and officers as a group owned less than 1% of the outstanding
Shares of each Fund.
During each Fund's respective fiscal year ended in 1996, the Board of Trustees
held between 6 and 9 meetings for each Fund. All of the incumbent nominees to
the Board of Trustees attended at least 75% of the meetings of the respective
Board of Trustees and all committee meetings thereof of which such trustee was a
member during the period of such Trustee's service for each Fund's 1996 fiscal
year. During each Fund's 1996 fiscal year, the Fund had no standing committees
other than an audit committee, a brokerage committee and a retirement plan
committee.
Each Fund's audit committee currently consists of Messrs. Kennedy, Robinson
and Sisto. The audit committee makes recommendations to the Board concerning the
selection of the Fund's independent public accountants, reviews with such
accountants the scope and results of the Fund's annual audit and considers any
comments that the accountants may have regarding the Fund's financial statements
or books of account. Each Fund's brokerage committee currently consists of Ms.
Heagy and Messrs. Branagan, Nelson and Rooney. The brokerage committee reviews
the Fund's allocation of brokerage transactions and soft-dollar practices. Each
Fund's retirement plan committee currently consists of Ms. Heagy and Messrs.
Kennedy and Nelson. The retirement plan committee is responsible for reviewing
the terms of each Fund's retirement plan and reviews any administrative matters
that arise with respect thereto. During each Fund's 1996 fiscal year, the audit
committee and the brokerage committee of each Fund held between 1 and 3
meetings. The retirement plan committee does not meet on a regular basis, but
does meet on an ad hoc basis as necessary to administer the retirement plan.
The Trustees of each Fund who are not "interested persons" of such Fund (as
defined by the 1940 Act) are required to select and nominate such non-interested
Trustees and are prepared to review nominations from shareholders to fill any
vacancies in trusteeships. Nominations from shareholders should be in writing
and addressed to the non-interested Trustees at the respective Trust's office.
The non-interested Trustees of each Fund expect to be able to identify from
their own resources an ample number of qualified candidates.
24
<PAGE> 32
Each of the trustees holds the same position with each of the funds in the
Fund Complex (defined below). As of December 31, 1996, there were 51 funds in
the Fund Complex. Each trustee who is not an affiliated person of Asset
Management, the Distributor, VKAC or Morgan Stanley (each a "Non-Affiliated
Trustee") is compensated by an annual retainer and meeting fees for services to
the funds in the Fund Complex. Each fund in the Fund Complex provides a deferred
compensation plan to its Non-Affiliated Trustees that allows trustees to defer
receipt of their compensation and earn a return on such deferred amounts based
upon the return of the common shares of the funds in the Fund Complex as more
fully described below. Each fund in the Fund Complex also provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee from the Funds and other funds
in the Fund Complex that are advised by the Adviser (the "AC Funds") includes an
annual retainer in an amount equal to $35,000 per calendar year, due in four
quarterly installments on the first business day of each calendar quarter. The
AC Funds pay each Non-Affiliated Trustee a per meeting fee in the amount of
$2,000 per regular quarterly meeting attended by the Non-Affiliated Trustee, due
on the date of such meeting, plus reasonable expenses incurred by the Non-
Affiliated Trustee in connection with his or her services as a trustee. Payment
of the annual retainer and the regular meeting fee is allocated among the AC
Funds (i) 50% on the basis of the relative net assets of each AC Fund to the
aggregate net assets of all the AC Funds and (ii) 50% equally to each AC Fund,
in each case as of the last business day of the preceding calendar quarter. Each
AC Fund which is the subject of a special meeting of the trustees generally pays
each Non-Affiliated Trustee a per meeting fee in the amount of $125 per special
meeting attended by the Non-Affiliated Trustee, due on the date of such meeting,
plus reasonable expenses incurred by the Non-Affiliated Trustee in connection
with his or her services as a trustee, provided that no compensation will be
paid in connection with certain telephonic special meetings.
Each Non-Affiliated Trustee also receives compensation from funds in the Fund
Complex advised by Van Kampen American Capital Investment Advisory Corp. (the
"VK Funds"), which compensation includes an annual retainer in an amount equal
to $2,500 per calendar year, due in four quarterly installments on the first
business day of each calendar quarter. Each Non-Affiliated Trustee receives a
per meeting fee from each VK Fund in the amount of $125 per regular quarterly
meeting attended by the Non-Affiliated Trustee, due on the date of such meeting,
plus reasonable expenses incurred by the Non-Affiliated Trustee in connection
with his or her services as a trustee. Each Non-Affiliated Trustee receives a
per meeting fee from each VK Fund in the amount of $125 per special meeting
attended by the Non-Affiliated Trustee, due on the date of such meeting, plus
reasonable expenses
25
<PAGE> 33
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
The trustees approved an aggregate compensation cap with respect to funds in
the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding any
retirement benefits) for the period July 22, 1995 through December 31, 1996,
subject to the net assets and the number of funds in the Fund Complex as of July
21, 1995 and certain other exceptions. For the calendar year ended December 31,
1996, certain trustees received aggregate compensation from the funds in the
Fund Complex over $84,000 due to compensation received but not subject to the
cap, including compensation from new funds added to the Fund Complex after July
22, 1995 and certain special meetings in 1996. In addition, each of Asset
Management or Van Kampen American Capital Investment Advisory Corp., as the case
may be, agreed to reimburse each fund in the Fund Complex through December 31,
1996 for any increase in the aggregate trustee's compensation over the aggregate
compensation paid by such fund in its 1994 fiscal year, provided that if a fund
did not exist for the entire 1994 fiscal year appropriate adjustments will be
made.
Each Non-Affiliated Trustee generally can elect to defer receipt of all or a
portion of the compensation earned by such Non-Affiliated Trustee until
retirement. Amounts deferred are retained by the respective Fund and earn a rate
of return determined by reference to the return on the common shares of such
Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such Non-Affiliated
Trustee had invested in one or more funds in the Fund Complex, including the
Funds. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order to
match the deferred compensation obligation. The deferred compensation plan is
not funded and obligations thereunder represent general unsecured claims against
the general assets of the respective Fund.
Each Fund has adopted a retirement plan. Under the retirement plan, a Non-
Affiliated Trustee who is receiving trustee's compensation from a Fund prior to
such Non-Affiliated Trustee's retirement, has at least ten years of service
(including years of service prior to adoption of the retirement plan) and
retires at or after attaining the age of 60, is eligible to receive a retirement
benefit equal to $2,500 per year for each of the ten years following such
trustee's retirement. Trustees retiring prior to the age of 60 or with fewer
than 10 years but more than 5 years of service may receive reduced retirement
benefits from a Fund. Each incumbent nominee to the Board of Trustees has served
as a member of the Board of Trustees since he or she was first appointed or
elected to the Board of Trustees in the year set forth in Annex J to this Proxy
Statement. The retirement plan contains a Fund Complex retirement benefit cap of
$60,000 per year. Asset Management has reimbursed the AC Funds for expenses
related to the retirement plan through December 31, 1996.
26
<PAGE> 34
Additional information regarding compensation and benefits for trustees is set
forth below. As indicated in the notes accompanying the table, the amounts
relate to either the respective Fund's most recently completed fiscal year or
the Fund Complex' most recently completed calendar year ended December 31, 1996.
1996 COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE PENSION OR RETIREMENT ESTIMATED MAXIMUM BEFORE DEFERRAL
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM FROM FUND
BEFORE DEFERRAL PART OF FUND EACH FUND UPON COMPLEX PAID TO
NAME(1) FROM EACH FUND EXPENSES RETIREMENT(4) TRUSTEE(5)
------- --------------- --------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan* (2) (3) $2,500 $104,875
Dr. Richard E. Caruso (2) (3) -0- -0-
Philip P. Gaughan (2) (3) -0- 16,875
Linda Hutton Heagy* (2) (3) 2,500 104,895
Dr. Roger Hilsman (2) (3) 2,500 103,750
R. Craig Kennedy* (2) (3) 2,500 104,875
Donald C. Miller (2) (3) -0- 104,875
Jack E. Nelson* (2) (3) 2,500 97,875
David Rees (2) (3) 2,500 22,000
Jerome L. Robinson* (2) (3) -0- 101,625
Lawrence J. Sheehan (2) (3) -0- 22,000
Dr. Fernando Sisto* (2) (3) 2,500 104,875
Wayne W. Whalen* (2) (3) 2,500 104,875
William S. Woodside (2) (3) 2,500 104,875
</TABLE>
- ---------------
* Currently a member of the Board of Trustees and a nominee to the Board of
Trustees to be voted on by shareholders of the Funds at the Meeting. Mr.
Phillip B. Rooney also is a current member of the Board of Trustees and a
nominee to the Board of Trustees but is not included in the compensation table
because he did not serve on the Board of Trustees or receive any compensation
from the Funds prior to April 14, 1997. Messrs. McDonnell and Powell, trustees
for each Trust during all or a portion of each Fund's last fiscal year, and
Mr. DeMartini, nominee for each Trust, are affiliated persons of the Adviser
and are not eligible for compensation or retirement benefits from the Funds.
Mr. Don G. Powell resigned from the Board of Trustees on August 15, 1996. Mr.
McDonnell, currently a member of the Board of Trustees, intends to resign from
the Board of Trustees at the time of the Merger.
(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the most
recently completed fiscal year of one or more of the Funds. Mr. Caruso was
removed from the Board of Trustees effective September 7, 1995. Messrs.
Gaughan and
27
<PAGE> 35
Rees retired from the Board of Trustees on January 26, 1996 and January
29, 1996, respectively. Mr. Sheehan was removed from the Board of Trustees
effective January 29, 1996. Messrs. Hilsman, Miller and Woodside retired
from the Board of Trustees on December 31, 1996.
(2) The Aggregate Compensation before Deferral from each Fund during its 1996
fiscal year is shown in Annex E. Certain trustees deferred all or a portion
of their 1996 Aggregate Compensation from each Fund as shown in Annex F. The
cumulative deferred compensation (including interest) from each Fund at the
end of its last fiscal year is shown in Annex G. The deferred compensation
plan is described above the 1996 Compensation Table. Amounts deferred are
retained by the respective Fund and earn a rate of return determined by
reference to either the return on the common shares of such Fund or other
funds in the Fund Complex as selected by the respective Non-Affiliated
Trustee, with the same economic effect as if such Non-Affiliated Trustee had
invested in one or more funds in the Fund Complex, including the Funds. To
the extent permitted by the 1940 Act, each Fund may invest in securities of
those funds selected by the Non-Affiliated Trustees in order to match the
deferred compensation obligation.
(3) The retirement benefits accrued per Fund as part of such Fund's expenses
during its 1996 fiscal year are shown in Annex H. The Retirement Plan is
described above the 1996 Compensation Table.
(4) This is the estimated maximum annual benefits payable per Fund in each year
of the 10-year period commencing in the year of such trustee's retirement
from such Fund assuming: the trustee has 10 or more years of service on the
Board of the respective Fund (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60.
Trustees retiring prior to the age of 60 or with fewer than 10 years of
service for the respective Fund may receive reduced retirement benefits from
such Fund. The actual annual benefit may be less if the trustee is subject
to the Fund Complex retirement benefit cap or if the trustee is not fully
vested at the time of retirement. Each incumbent nominee to the Board of
Trustees has served as a member of the Board of Trustees since he or she was
first appointed or elected in the year set forth on Annex J to this Proxy
Statement.
(5) The amounts shown in this column represent the aggregate compensation paid
by all 51 of the investment companies advised by Asset Management or Van
Kampen American Capital Investment Advisory Corp. that have the same members
on each investment company's Board of Trustees as of December 31, 1996 (the
"Fund Complex") before deferral by the trustees under the deferred
compensation plan. Certain trustees deferred all or a portion of their
aggregate compensation from the Fund Complex during the calendar year ended
December 31, 1996. The deferred compensation earns a rate of return
determined by reference to the return on the shares of the funds in the Fund
Complex as selected
28
<PAGE> 36
by the respective Non-Affiliated Trustee, with the same economic effect as
if such Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex, including the Funds. To the extent permitted by the 1940 Act, the
Fund may invest in securities of those investment companies selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The trustees' Fund Complex compensation cap covered the period
July 22, 1995 through December 31, 1996. For the calendar year ended
December 31, 1996, certain trustees received compensation over $84,000 in
the aggregate due to compensation received but not subject to the cap,
including compensation from new funds added to the Fund Complex after July
22, 1995 and certain special meetings in 1996. Asset Management, Van Kampen
American Capital Investment Advisory Corp. and their affiliates also serve
as investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell, Powell and Whalen, the trustees were not
trustees of such investment companies. Combining the Fund Complex with other
investment companies advised by Asset Management, Van Kampen American
Capital Investment Advisory Corp. and their affiliates, Mr. Whalen received
Total Compensation of $243,375 during the calendar year ended December 31,
1996.
Mr. Don G. Powell served on the Board of Trustees of each Fund prior to August
15, 1996. Mr. Powell is the Chief Executive Officer and President of VKAC. He is
being nominated to the Board of Trustees of the VK Funds, but he is not being
nominated to the Board of Trustees of the AC Funds so that the AC Funds may
maintain compliance with Section 15(f) of the 1940 Act. The Board of Trustees of
the AC Funds currently anticipates appointing Mr. Powell to the Board of
Trustees of the AC Funds when permissible under Section 15(f). The Board of
Trustees has determined that adding Mr. Powell to the Board of Trustees as
described herein is in the best interest of shareholders of each respective AC
Fund, in order to fill the vacancy created by the resignation of Mr. Dennis J.
McDonnell from the Board of Trustees, whose resignation will become effective
concurrent with the closing of the Merger. Additional information with respect
to Mr. Powell is set forth below under "Other Information."
Following the Meeting, the Funds do not contemplate holding regular meetings
of shareholders to elect trustees or otherwise. When an investment company does
not hold regular annual meetings, it is the position of the staff of the SEC and
a policy of each Trust that holders of record of two-thirds of the outstanding
shares of such trusts may file a declaration in writing or may vote at a special
meeting for the purpose of removing a trustee. The Board will be required to
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any trustee when requested in writing to do so by the
record holders of not less than 10% of the total outstanding shares of such
Trust. In addition, the Board will comply with the requirements of Section 16(c)
of the 1940 Act with respect to communications with shareholders.
29
<PAGE> 37
SHAREHOLDER APPROVAL
The affirmative vote of a plurality of the Shares of a Trust present in person
or by proxy is required to elect the nominees to such Trust. THE BOARD OF
TRUSTEES OF EACH TRUST RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES.
- ------------------------------------------------------------------------------
PROPOSAL 4: AMENDMENTS TO FUNDAMENTAL INVESTMENT POLICIES OF HIGH INCOME
CORPORATE BOND FUND
- ------------------------------------------------------------------------------
The primary investment objective of the High Income Corporate Bond Fund is to
maximize current income. Capital appreciation is a secondary investment
objective which is sought only when consistent with the primary investment
objective.
The High Income Corporate Bond Fund has certain fundamental investment
restrictions, which may be amended only with shareholder approval. At meetings
of the Board of Trustees on March 27, 1997 and April 14-15, 1997, Asset
Management recommended to the Board of Trustees the termination or amendment of
three such investment restrictions that Asset Management believes no longer are
in the best interests of the High Income Corporate Bond Fund or its
shareholders.
The proposed amendments to the fundamental investment restrictions of the High
Income Corporate Bond Fund are not related to the Merger described in Proposal
1. Shareholders are being asked to consider such amendments at this time because
the High Income Corporate Bond Fund does not hold regular annual shareholder
meetings, and management believes that submitting these amendments to
shareholders together with the other proposals in this Proxy Statement will
reduce the expenses incurred by the High Income Corporate Bond Fund in
connection with soliciting approval of these amendments.
PROPOSAL 4A: AMENDMENT TO POLICY REGARDING UNSEASONED ISSUERS
The High Income Corporate Bond Fund currently has a fundamental investment
restriction that prohibits it from investing in securities of issuers that have
been in continuous operation for less than three years, which issuers sometimes
are referred to as "unseasoned issuers". Such fundamental investment restriction
currently states that the High Income Corporate Bond Fund will not:
Invest more than 5% of its total assets in companies having a record,
together with predecessors, of less than three years of continuous
operation, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
30
<PAGE> 38
Asset Management has recommended eliminating this restriction in order to
permit the High Income Corporate Bond Fund greater flexibility in seeking to
achieve its investment objective. Investment in the securities of unseasoned
issuers may be riskier than investing in securities issued by more seasoned
issuers, because unseasoned issuers have less operating history and less
information may be available with respect to unseasoned issuers. Asset
Management believes, however, that securities of unseasoned issuers may from
time to time present attractive investment opportunities for the High Income
Corporate Bond Fund and that terminating this fundamental investment restriction
would provide Asset Management with additional flexibility in seeking to achieve
the High Income Corporate Bond Fund's investment objective of maximizing current
income.
If this Proposal 4A is approved by shareholders of the High Income Corporate
Bond Fund at the Meeting, the foregoing restriction will no longer be
applicable, and the High Income Corporate Bond Fund will be permitted to invest
in unseasoned issuers.
PROPOSAL 4B: AMENDMENT TO POLICY REGARDING DIVERSIFICATION
The High Income Corporate Bond Fund is registered under the 1940 Act as a
"diversified" investment company. A "diversified" investment company is
permitted to use up to 25% of its total assets to acquire more than 10% of the
outstanding voting securities of any one issuer. The High Income Corporate Bond
Fund, however, currently has a fundamental investment restriction that prohibits
it from purchasing more than 10% of any one class of securities of any one
issuer. Such fundamental investment restriction currently states that the High
Income Corporate Bond Fund will not:
With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the U.S. Government) or
purchase more than 10% of the outstanding voting securities, or more
than 10% of any class of securities, of any one issuer, except that the
Fund may purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
Asset Management has recommended amending this restriction in order to permit
the High Income Corporate Bond Fund to exercise the full flexibility permitted
to a "diversified" investment company under the 1940 Act. The purchase of more
than 10% of the outstanding securities of any one issuer will make the High
Income Corporate Bond Fund more susceptible to the risks associated with an
investment in the securities of such issuer. Asset Management believes, however,
that from time to time it may be in the High Income Corporate Bond Fund's best
31
<PAGE> 39
interest to purchase more than 10% of the securities of an issuer, if the
securities of such issuer represent an attractive investment opportunity and
that terminating this fundamental investment restriction would provide Asset
Management with additional flexibility in seeking to achieve the High Income
Corporate Bond Fund's investment objective of maximizing current income.
If this Proposal 4B is approved by shareholders of the High Income Corporate
Bond Fund at the Meeting, the fundamental investment restriction will state that
the High Income Corporate Bond Fund will not:
With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the U.S. Government) or
purchase more than 10% of the outstanding voting securities of any one
issuer, except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.
PROPOSAL 4C: AMENDMENT TO POLICY REGARDING FOREIGN SECURITIES
The High Income Corporate Bond Fund currently has a fundamental investment
restriction that prohibits it from investing more than 20% of its total assets
in dollar denominated debt securities issued by foreign governments or other
foreign issuers, or investing more than 10% of its total assets in securities
which are payable in currencies other than U.S. dollars. Such fundamental
investment restriction currently states that the High Income Corporate Bond Fund
will not:
Invest more than 20% of its total assets in U.S. currency denominated
issues of foreign governments and other foreign issuers, or invest more
than 10% of its total assets in securities which are payable in
currencies other than U.S. dollars.
Asset Management has recommended amending this restriction to permit the High
Income Corporate Bond Fund to invest up to 35% of its total assets in debt
securities issued by foreign governments and other foreign issuers, which may be
denominated in United States dollars or in currencies other than U.S. dollars.
Amending this investment restriction will make the High Income Corporate Bond
Fund more susceptible to risks associated with investment in foreign securities,
including changes in currency rates, political or economic instability in the
country of a security's issuer, less publicly available information about
foreign issuers, less rigorous financial reporting requirements applicable to
foreign issuers, expropriation and confiscatory taxation. In the event of a
default of foreign issuers, it may be more difficult for the High Income
Corporate Bond Fund to obtain or enforce judgment against the issuer of such
securities. Asset Management believes that from time to
32
<PAGE> 40
time foreign debt securities may provide higher yields than debt securities of
domestic issuers with similar maturities. Asset Management believes that
amending this investment restriction will grant Asset Management greater
flexibility in seeking to achieve the High Income Corporate Bond Fund's
investment objective of maximizing current income and is in the best interest of
the High Income Corporate Bond Fund and its shareholders.
Asset Management also has recommended changing this fundamental investment
restriction to a nonfundamental investment policy. As a fundamental investment
restriction, this restriction currently may not be amended without shareholder
approval as required by the 1940 Act. If this Proposal 4C is approved by
shareholders of the High Income Corporate Bond Fund at the Meeting, this policy
will become a nonfundamental investment policy, which means that it may be
amended from time to time by the Board of Trustees without shareholder approval.
As amended, the nonfundamental investment policy with respect to investments in
foreign securities that will state in substance that the High Income Corporate
Bond Fund may:
Invest up to 35% of its total assets in securities issued by foreign
governments and other foreign issuers. Such securities may be
denominated in U.S. dollars or in currencies other than U.S. dollars.
SHAREHOLDER APPROVAL
To become effective, each proposed amendment to the High Income Corporate Bond
Fund's investment restrictions must be separately approved by the vote of a
majority of the High Income Corporate Bond Fund's outstanding voting securities.
The "vote of a majority of the outstanding voting securities" is defined in the
1940 Act as the lesser of the vote of (i) 67% or more of the Shares of the High
Income Corporate Bond Fund entitled to vote thereon present at the Meeting if
the holders of more than 50% of such outstanding Shares are present in person or
represented by proxy; or (ii) more than 50% of such outstanding Shares of the
High Income Corporate Bond Fund entitled to vote thereon. An unfavorable vote on
the proposed amendment to any one of the investment restrictions will not affect
the implementation of the proposed amendments to other investment restrictions,
if the proposed amendments to the other investment restrictions are approved.
The proposed amendments were approved by the Board of Trustees of the High
Income Corporate Bond Fund after consideration of all the factors they
determined to be relevant to their deliberations, including those discussed
above. The Board of Trustees also unanimously determined to submit the proposed
changes to the shareholders of the High Income Corporate Bond Fund. THE BOARD OF
TRUSTEES OF THE HIGH INCOME CORPORATE BOND FUND RECOMMENDS A VOTE "FOR" APPROVAL
OF EACH AMENDED INVESTMENT RESTRICTION.
33
<PAGE> 41
- ------------------------------------------------------------------------------
PROPOSAL 5: AMENDMENT TO FUNDAMENTAL INVESTMENT
POLICIES OF HARBOR FUND
- ------------------------------------------------------------------------------
The primary investment objective of the Harbor Fund is to seek to provide
current income, capital appreciation and conservation of capital. The Harbor
Fund seeks to achieve its investment objective by investing principally in debt
securities, primarily convertible bonds and convertible preferred stocks.
The Harbor Fund has a fundamental investment restriction that permits it to
invest in real estate investment trusts ("REITs") that invest only in mortgages
or other security interests in real estate ("Mortgage REITs"), but prohibits the
Harbor Fund from investing in real estate investment trusts that invest directly
in real estate ("Equity REITs"). Such fundamental investment restriction
currently states that the Harbor Fund will not:
Make any investment in real estate, commodities or commodities
contracts, or in any security about which information is not available
with respect to history, management, assets, earnings, and income of the
issuer; however, the Fund is not prohibited from investing in securities
issued by a real estate investment trust, provided that such trust is
not permitted to invest in real estate or interests in real estate other
than mortgages or other security interests, and the Fund is not
prohibited from entering into transactions in futures contracts or
related options;
At meetings of the Board of Trustees on March 27, 1997 and April 14-15, 1997,
Asset Management recommended to the Board of Trustees amending the Harbor Fund's
investment restriction with respect to REITs to permit the Harbor Fund to invest
in Equity REITs. Historically, the total return of Equity REITs generally has
been less volatile than the total return of Mortgage REITs. Equity REITs and
Mortgage REITs alternately have experienced higher total returns depending on
the time period analyzed. Mortgage REITs generally have experienced higher
yields. Amending this investment restriction may make the Harbor Fund more
susceptible to a downturn in the real estate market that reduces the value of
real estate owned by Equity REITs in which the Harbor Fund invests. Asset
Management believes that the majority of REITs have the capability to invest
directly in real estate and that amending the Harbor Fund's investment
restriction with respect to investment in REITs will materially increase the
number of REITs in which the Harbor Fund may invest. Asset Management believes
that amending this investment restriction will grant Asset Management greater
flexibility in seeking to achieve the Harbor Fund's investment objective because
the Harbor Fund would be permitted to invest in a greater number and variety of
REITs. Asset Management believes that this amendment is in the best interest of
the Harbor Fund and its shareholders.
34
<PAGE> 42
If this Proposal 5 is approved by shareholders of the Harbor Fund at the
Meeting, the Harbor Fund's fundamental investment restriction with respect to
investments in REITs will state that the Harbor Fund will not:
Make any investment in real estate, commodities or commodities
contracts, or in any security about which information is not available
with respect to history, management, assets, earnings, and income of the
issuer; however, the Fund is not prohibited from investing in securities
issued by a real estate investment trust, and the Fund is not prohibited
from entering into transactions in futures contracts or related options;
The proposed amendment to the Harbor Fund's fundamental investment restriction
is not related to the Merger described in Proposal 1. Shareholders are being
asked to consider the amendment at this time because the Harbor Fund does not
hold regular annual shareholder meetings, and management believes that
submitting this proposal to shareholders together with the other proposals in
this Proxy Statement will reduce the expenses incurred by the Harbor Fund in
connection with soliciting approval of this amendment.
SHAREHOLDER APPROVAL
To become effective, the proposed amendment to the Harbor Fund's investment
restriction with respect to investments in REITs must be approved by the vote of
a majority of the Harbor Fund's outstanding voting securities. The "vote of a
majority of the outstanding voting securities" is defined in the 1940 Act as the
lesser of the vote of (i) 67% or more of the Shares of the Harbor Fund entitled
to vote thereon present at the Meeting if the holders of more than 50% of such
outstanding Shares are present in person or represented by proxy; or (ii) more
than 50% of such outstanding Shares of the Harbor Fund entitled to vote thereon.
The proposed amendment was approved by the Board of Trustees of the High Income
Corporate Bond Fund after consideration of all the factors they determined to be
relevant to their deliberations, including those discussed above. The Board of
Trustees also unanimously determined to submit the proposed changes to the
shareholders of the Harbor Fund. THE BOARD OF TRUSTEES OF THE HARBOR FUND
RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDED INVESTMENT RESTRICTION.
- ------------------------------------------------------------------------------
PROPOSAL 6: RATIFICATION OF INDEPENDENT PUBLIC
ACCOUNTANTS FOR EACH FUND
- ------------------------------------------------------------------------------
The Board of Trustee of each Fund, including a majority of the Trustees who
are not "interested persons" of each Fund (as defined by the 1940 Act), has
selected the firm of Price Waterhouse LLP, independent public accountants, to
examine the financial statements for the current fiscal year of each Fund. Each
Fund knows of
35
<PAGE> 43
no direct or indirect financial interest of such firm in such Funds. The
appointment is subject to ratification or rejection by the shareholders of each
Fund.
Representatives of Price Waterhouse LLP are expected to be present at the
Meeting and will be available to respond to questions from shareholders and will
have the opportunity to make a statement if they so desire.
SHAREHOLDER APPROVAL
The shareholders of each Fund, voting with respect to such Fund as a single
class, are entitled to vote on this proposal. An affirmative vote of a majority
of the Shares of each Fund present in person or by proxy and voting is required
to ratify the selection of the independent public accountants for such Fund. THE
BOARD OF TRUSTEES OF EACH FUND RECOMMENDS A VOTE "FOR" RATIFICATION OF PRICE
WATERHOUSE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR OF
EACH FUND.
36
<PAGE> 44
- ------------------------------------------------------------------------------
OTHER INFORMATION
- ------------------------------------------------------------------------------
DIRECTORS AND OFFICERS OF THE ADVISER
The following table sets forth certain information concerning the principal
executive officers and directors of the Adviser.
DIRECTORS AND OFFICERS OF THE ADVISER
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
---------------- --------------------
<S> <C>
Don G. Powell........... Chairman, President, Chief Executive Officer
2800 Post Oak Blvd. and a Director of VKAC. Chairman, Chief
Houston, TX 77056 Executive Officer and a Director of the
Distributor, the Adviser, Van Kampen American
Capital Investment Advisory Corp. ("Advisory
Corp."), Van Kampen American Capital
Management, Inc. ("Management Inc.") and Van
Kampen American Capital Advisors, Inc.
("Advisors Inc.") Chairman and a Director of
ACCESS, Van Kampen American Capital
Recordkeeping Services, Inc. and Van Kampen
American Capital Trust Company. Chairman,
President and a Director of Van Kampen
American Capital Services, Inc. and Van
Kampen American Capital Exchange Corporation.
Prior to November, 1996, President Chief
Executive Officer and a Director of VKAC
Holding. President, Chief Executive Officer
and a Trustee/Director of certain open-end
investment companies and closed-end
investment companies advised by Asset
Management. Chairman of the Board of
Governors and the Executive Committee of the
Investment Company Institute. Prior to July
1996, President, Chief Executive Officer and
a Trustee/Director of the funds in the Fund
Complex, open-end investment companies
advised by Management Inc. and closed-end
investment companies advised by Advisory
Corp.
Dennis J. McDonnell..... President, Chief Operating Officer and a
One Parkview Plaza Director of the Adviser, Advisory Corp.,
Oakbrook Terrace, IL Management Inc. and Advisors Inc. Executive
60181 Vice President and a Director of VKAC.
Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc., MCM Asia Pacific
Company, Limited and MCM (Europe) Limited.
Prior to November, 1996, Executive Vice
President and a Director of VKAC Holding.
President and Trustee of the funds in the
Fund Complex.
</TABLE>
37
<PAGE> 45
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
---------------- --------------------
<S> <C>
Ronald A. Nyberg........ Executive Vice President, General Counsel and
One Parkview Plaza Secretary of VKAC. Executive Vice President,
Oakbrook Terrace, IL General Counsel, Assistant Secretary and a
60181 Director of the Distributor, the Adviser,
Advisory Corp., Management Inc., Van Kampen
American Capital Trust Company, Van Kampen
American Capital Recordkeeping Services, Inc.
and Van Kampen American Capital Insurance
Agency of Illinois, Inc. Executive Vice
President, General Counsel and Assistant
Secretary of Advisors Inc., Van Kampen
American Capital Exchange Corporation, ACCESS
and Van Kampen American Capital Services,
Inc. Prior to November 1996, Executive Vice
President, General Counsel and Secretary of
VKAC Holding. Vice President and Secretary of
the funds in the Fund Complex, other open-end
investment companies advised by Asset
Management, open-end investment companies
advised by Management Inc. and closed-end
investment companies advised by Asset
Management and Advisory Corp. Director of ICI
Mutual Insurance Co., a provider of insurance
to members of the Investment Company
Institute.
William R. Rybak........ Executive Vice President and Chief Financial
One Parkview Plaza Officer of VKAC since February 1993.
Oakbrook Terrace, IL Treasurer of VKAC Holding through December
60181 1993 and Executive Vice President and Chief
Financial Officer of VKAC Holding through
October 1996. Executive Vice President, Chief
Financial Officer and a Director of the
Distributor, the Adviser, Advisory Corp.,
Management Inc. and Van Kampen American
Capital Recordkeeping Services, Inc.
Executive Vice President and Chief Financial
Officer of the Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Exchange Corporation, Van Kampen American
Capital Trust Company, ACCESS, and Van Kampen
American Capital Insurance Agency of
Illinois, Inc. Director of Alliance Bancorp,
a savings and loan holding company, and prior
to February 1997, Chairman of the Board of
Hinsdale Financial Corp., a savings and loan
holding company.
Peter W. Hegel.......... Executive Vice President of Advisory Corp.,
One Parkview Plaza Management Inc. and Advisors Inc. Executive
Oakbrook Terrace, IL Vice President and Director of Asset
60181 Management. Vice President of the funds in
the Fund Complex, open-end investment
companies advised by Management Inc. and
closed-end investment companies advised by
Advisory Corp.
</TABLE>
38
<PAGE> 46
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
---------------- --------------------
<S> <C>
Alan T. Sachtleben...... Executive Vice President of Asset Management,
2800 Post Oak Blvd. Advisory Corp., Management Inc. and Executive
Houston, TX 77056 Vice President and Director of Advisors Inc.
Vice President of the funds in the Fund
Complex and certain open-end investment
companies advised by the Adviser.
</TABLE>
The following table sets forth the trustees and officers of the Funds who are
also officers of the Adviser.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE FUNDS
---- ------------------------
<S> <C>
Dennis J. McDonnell.................. President
Peter W. Hegel....................... Vice President
Curtis W. Morell..................... Vice President and Chief Accounting Officer
Ronald A. Nyberg..................... Vice President and Secretary
Alan T. Sachtleben................... Vice President
Paul R. Wolkenberg................... Vice President
Edward C. Wood III................... Vice President and Chief Financial Officer
John L. Sullivan..................... Treasurer
Tanya M. Loden....................... Controller
Nicholas Dalmaso..................... Assistant Secretary
Huey P. Falgout, Jr.................. Assistant Secretary
Scott E. Martin...................... Assistant Secretary
Weston B. Wetherell.................. Assistant Secretary
Steven M. Hill....................... Assistant Treasurer
M. Robert Sullivan................... Assistant Controller
</TABLE>
The officers of the Funds serve for one year or until their respective
successors are chosen and qualified. The Funds' officers receive no compensation
from the Funds, but are all officers of the Adviser, the Distributor, VKAC or
their affiliates and receive compensation in such capacities.
NON-ADVISORY AGREEMENTS
In connection with the Board of Trustee's review and approval of the New
Advisory Agreements as described above, the Board of Trustees reviewed and
approved certain other agreements with the Adviser, VKAC, the Distributor and
ACCESS. These agreements do not need to be voted on by the shareholders of the
Funds at the Meeting. The Adviser currently anticipates that the services
provided to the Funds pursuant to these agreements will continue to be provided
after the proposed New Advisory Agreements are approved.
Distribution Agreement, Distribution Plan and Service Plan. Each Fund has
entered into a distribution agreement with the Distributor pursuant to which the
Distributor, as principal underwriter, purchases shares for resale to the
public, either directly or through securities dealers. The address of the
Distributor is One Parkview Plaza, Oakbrook Terrace, Illinois 60181. In
connection with their consideration of the
39
<PAGE> 47
Merger, the Board of Trustees considered the affects of the Merger on the
Distributor and the ability of the Distributor to continue distributing the
shares of the Funds. The new distribution agreement between each Fund and the
Distributor is substantially similar to the current distribution agreement,
except that the new distribution agreement designates certain officers of the
Distributor and the officers of the Fund to be essential personnel with respect
to the operations of the Fund. The Distributor may not make any material or
significant personnel changes or replace any essential personnel or materially
change the responsibilities or duties of any essential personnel prior to the
first anniversary of the agreement without first informing the Board of Trustees
in a timely manner. In addition, the Distributor may not distribute shares of
any investment companies other than the Funds without the prior approval of the
Board of Trustees. The Distributor may not change its name without the prior
consent of the Board of Trustees. Under each distribution agreement, each Fund
paid the Distributor the amount set forth Annex D hereto for its most recently
completed fiscal year.
Each Fund (with the exception of the LIT Global Equity Portfolio) has adopted
a distribution plan (the "Distribution Plan") with respect to each class of its
shares pursuant to Rule 12b-1 under the 1940 Act. Each Fund also has adopted a
service plan (the "Service Plan") with respect to each class of its shares. The
Distribution Plan and the Service Plan provide that the Fund may pay to the
Distributor a portion of the Fund's average daily net assets attributable to
each class of shares in connection with distribution of the respective class of
shares and in connection with the provision of ongoing services to shareholders
of each class. The Distribution Plan and the Service Plan are implemented
through an agreement with the Distributor. The Distributor has entered into
sub-agreements with certain members of the NASD who are acting as securities
dealers, as well as NASD members or eligible non-members who are acting as
brokers or agents. The Funds have entered into similar agreements with financial
intermediaries who are acting as brokers that may provide for their customers or
clients certain services or assistance. The agreements between the Distributor
and certain brokers, dealers and agents and the agreements between the Funds and
certain financial intermediaries, which agreements implement the Distribution
Plan and the Service Plan, are referred to herein collectively as the "Selling
Agreements." Brokers, dealers and financial intermediaries that have entered
into Selling Agreements with the Distributor and sell shares of the Fund are
referred to herein as "financial intermediaries."
Each Fund (with exception of the LIT Global Equity Portfolio) may spend an
aggregate amount of up to 0.25% per year of the average daily net assets
attributable to the Class A Shares (or, for Funds with only one class of shares,
such Shares) of the respective Fund pursuant to the Distribution Plan and the
Service Plan. From such amount, each Fund may spend up to the full 0.25% per
year of its average daily net assets attributable to the Class A Shares pursuant
to the Service Plan in connection with the ongoing provision of services to
holders of such shares by the
40
<PAGE> 48
Distributor and by financial intermediaries and in connection with the
maintenance of shareholders' accounts. Each Fund (with the exception of the LIT
Global Equity Portfolio) pays the Distributor the lesser of the balance of the
0.25% not paid to such financial intermediaries or the amount of the
Distributor's actual distribution related expenses.
Each Fund (with the exception of the LIT Global Equity Portfolio) may spend up
to 0.75% per year of its average daily net assets attributable to its Class B
Shares pursuant to the Distribution Plan. In addition, each Fund may spend up to
0.25% per year of the Fund's average daily net assets attributable to the Class
B Shares pursuant to the Service Plan in connection with the ongoing provision
of services to holders of such shares by the Distributor and by financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
Each Fund (with the exception of the LIT Global Equity Portfolio) may spend up
to 0.75% per year of the average daily net assets attributable to its Class C
Shares pursuant to the Distribution Plan. From such amount, the Fund, or the
Distributor as agent for the Fund, pays financial intermediaries in connection
with the distribution of the Class C Shares up to 0.75% of the Fund's average
daily net assets attributable to Class C Shares maintained in the Fund more than
one year by such financial intermediary's customers. In addition, each Fund may
spend up to 0.25% per year of the respective Fund's average daily net assets
attributable to the Class C Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by financial intermediaries and in connection with the
maintenance of such shareholders' accounts.
Amounts payable to the Distributor with respect to the Class A Shares (or, for
Funds with only one class of shares, such Shares) under the Distribution Plan in
a given year may not fully reimburse the Distributor for its actual
distribution-related expenses during such year. In such event, with respect to
the Class A Shares, there is no carryover of such reimbursement obligations to
succeeding years.
The Distributor's actual expenses with respect to Class B Shares and Class C
Shares sold subject to a contingent deferred sales charge ("CDSC Shares") for
any given year may exceed the amounts payable to the Distributor with respect to
the CDSC Shares under the Distribution Plan, the Service Plan and payments
received pursuant to the contingent deferred sales charge. In such event, with
respect to the CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Funds do not impose any limit with respect to the number
of years into the future that such unreimbursed distribution expenses may be
carried forward (on a Fund level basis). Because a Fund's distribution expenses
are accounted for on a Fund-wide basis, a particular CDSC Share may pay
distribution expenses greater or less than
41
<PAGE> 49
the amount of the initial commission (including carrying cost) paid by the
Distributor with respect to such CDSC Share.
Transfer Agency Agreement. Each Fund has entered into a Transfer Agency
Agreement with ACCESS pursuant to which ACCESS provides transfer agency and
dividend disbursing services for such Fund. The address of ACCESS is 7501
Tiffany Springs Parkway, Kansas City, Missouri 64153. For its services, ACCESS
charges each Fund a fee that is determined in accordance with a cost allocation
model developed in conjunction with, and periodically reviewed by, Coopers &
Lybrand LLP. The model allocates among the Funds ACCESS' cost of providing the
Funds with transfer agency services, plus a profit margin approved by the Board
of Trustees. The allocation is based upon a number of factors including the
number of shareholder accounts per Fund, the number and type of shareholder
transactions experienced by each Fund and other factors. Under the Transfer
Agency Agreement, each Fund paid ACCESS the amount set forth at Annex D hereto
for its most recently completed fiscal year. In connection with their
consideration of the Merger, the Board of Trustees considered the effects of the
Merger on ACCESS and the ability of ACCESS to continue to provide transfer
agency and dividend disbursing services to the Funds. The new Transfer Agency
Agreement between the Funds and ACCESS is substantially similar to the current
Transfer Agency Agreement, except that the new Transfer Agency Agreement
designates certain officers of the transfer agent and the officers of the Fund
to be essential personnel. ACCESS may not make any material or significant
personnel changes or replace any essential personnel or materially change their
duties and responsibilities prior to the first anniversary of the agreement
without first informing the Board of Trustees in a timely manner.
Fund Accounting Agreement. Each Fund has entered into an accounting services
agreement with Advisory Corp. pursuant to which Advisory Corp. provides
accounting services supplementary to those provided by the Fund's custodian. The
Board of Trustees of each Fund has approved an amendment to each Fund's
accounting services agreement whereby Advisory Corp. will assume responsibility
for providing accounting services currently provided by the custodian of each
Fund's assets. Each AC Fund is party to the Fund Accounting Agreement, and
currently receives, or as soon as practicable will receive, all accounting
services through Advisory Corp. Each Fund shares equally, together with the
other mutual funds advised and distributed by the Adviser and the Distributor,
respectively, in 25% of the cost of providing such services, with the remaining
75% of such cost being paid by each Fund based proportionally upon their
respective net assets. Under the Fund Accounting Agreements, each Fund paid
Advisory Corp. the amount set forth at Annex D hereto for its most recently
completed fiscal year.
Legal Services Agreement. Each VK Fund has entered into a Legal Services
Agreement pursuant to which VKAC provides legal services, including without
42
<PAGE> 50
limitation maintenance of the VK Funds' minute books and records, preparation
and oversight of the VK Funds' regulatory reports, and other information
provided to shareholders, as well as responding to day-to-day legal issues.
Payment by each VK Fund for such services is made on a cost basis for the
employment of personnel as well as the overhead and equipment necessary to
render such services. Under the Legal Services Agreement, each VK Fund paid VKAC
the amount set forth at Annex D hereto for its most recently completed fiscal
year. VKAC also provides legal services for the AC Funds, which do not currently
reimburse VKAC for the provision of such services. VKAC allocates 50% of its
costs equally to each Fund and the remaining 50% of such costs are allocated to
specific Funds based on specific time allocations, or in the event services are
attributable only to types of investment companies (i.e. closed-end or
open-end), the relative amount of time spent on each type of investment
companies and then further allocated among Funds of that type based upon their
respective net asset values.
SHAREHOLDER INFORMATION
As of April 4, 1997, the "interested persons" of each Fund, as a group, owned
an aggregate of less than 5% of the outstanding shares of each Fund. The persons
who, to the knowledge of the Funds, owned beneficially more than 5% of a class
of a Fund's outstanding Shares as of April 4, 1997 are set forth at Annex I
hereto.
The number of each Fund's outstanding Shares as of April 14, 1997 is set forth
at Annex C hereto.
- ------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------
Morgan Stanley or its affiliates will pay the expense of preparing, printing
and mailing the enclosed form of proxy, the accompanying Notice and this Proxy
Statement. In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph, facsimile or personal
interview by representatives of the Funds, the Adviser or VKAC, or by dealers or
their representatives or by First Data Investor Services Group, a solicitation
firm located in Boston, Massachusetts that has been engaged to assist in proxy
solicitations at an estimated cost of approximately $268,305.
- ------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS
- ------------------------------------------------------------------------------
As a general matter, each Fund does not hold regular annual meetings of
shareholders. Any shareholder who wishes to submit proposals for consideration
at a meeting of such shareholder's Fund should send such proposal to the
respective Fund at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. To be
considered for presentation at a shareholders' meeting, rules promulgated by the
SEC require that, among other things, a shareholder's proposal must be received
at the offices of
43
<PAGE> 51
such Fund a reasonable time before a solicitation is made. Timely submission of
a proposal does not necessarily mean that such proposal will be included.
- ------------------------------------------------------------------------------
GENERAL
- ------------------------------------------------------------------------------
Management of each Fund does not intend to present and does not have reason to
believe that others will present any other items of business at the Meeting.
However, if other matters are properly presented to the Meeting for a vote, the
proxies will be voted upon such matters in accordance with the judgment of the
persons acting under the proxies.
A list of shareholders of each Fund entitled to be present and vote at the
Meeting will be available at the offices of the respective Fund, One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, for inspection by any shareholder
during regular business hours for ten days prior to the date of the Meeting.
Failure of a quorum to be present at the Meeting for any Fund may necessitate
adjournment and may subject such Fund to additional expense.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
RONALD A. NYBERG,
Vice President and Secretary
April 21, 1997
44
<PAGE> 52
ANNEX A
VAN KAMPEN AMERICAN CAPITAL FUNDS
The following list sets forth the Van Kampen American Capital mutual funds
(the "Funds") participating in the Joint Special Meeting of Shareholders to be
held at the offices of Van Kampen American Capital, Inc., One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 on Wednesday, May 28, 1997, at 11:00 a.m. Each
Fund is organized as a series of a Delaware business trust (collectively, the
"Trusts"). The name in the left hand column below is the legal name for each
Trust and each Fund and the name in the right hand column below is the
abbreviated name as used in the Proxy Statement. The Fund's abbreviated name and
the Trust's abbreviated name for purposes of this proxy are the same unless such
Trust has multiple series or has names of series that differ from the Trust
name.
<TABLE>
<CAPTION>
LEGAL NAME ABBREVIATED NAME
---------- ----------------
<S> <C>
Van Kampen American Capital Harbor Fund Harbor Fund
Van Kampen American Capital High Income Corporate High Income Corporate Bond Fund
Bond Fund
Van Kampen American Capital Global Managed Assets Global Managed Assets Fund
Fund
Van Kampen American Capital World Portfolio World Portfolio Series Trust
Series Trust:
Van Kampen American Capital Global Equity Fund Global Equity Fund
Van Kampen American Capital Global Government Global Government Fund
Securities Fund
Van Kampen American Capital Life Investment Life Investment Trust
Trust:*
Global Equity Portfolio LIT Global Equity Portfolio
Van Kampen American Capital Tax-Exempt Trust: Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal High Yield Municipal Fund
Fund
</TABLE>
- ---------------
* Other series of this Trust are voting at separate meetings with respect to the
election of trustees of this Trust. The votes of the shareholders of such
other series will be aggregated with the votes of the shareholders of the
series voting at this Meeting when determining if a nominee has received
sufficient votes to be elected to the Board of Trustees.
A-1
<PAGE> 53
ANNEX B-1
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this [DATE], by and between VAN KAMPEN
AMERICAN CAPITAL 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
B1-1
<PAGE> 54
requirement. Subject to prior authorization by the FUND's Trustees of
appropriate policies and procedures, the ADVISER may, to the extent authorized
by law, cause the FUND to pay a broker or dealer that provides brokerage and
research services to the ADVISER an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. In the event
of such authorization and to the extent authorized by law, the ADVISER shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the FUND which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the FUND's financial statements, preparation of such 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
B1-2
<PAGE> 55
between the FUND and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the FUND agree that the retention of (i) the chief executive
officer, president, chief financial officer and secretary of the ADVISER and
(ii) each director, officer and employee of the ADVISER or any of its Affiliates
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
who serves as an officer of the FUND each person referred to in (i) or (ii)
hereinafter being referred to as an "Essential Person"), in his or her current
capacities, is in the best interest of the FUND and the FUND'S shareholders. In
connection with the ADVISER'S acceptance of employment hereunder, the ADVISER
hereby agrees and covenants for itself and on behalf of its Affiliates that
neither the ADVISER nor any of its Affiliates shall make any material or
significant personnel changes or replace or seek to replace any Essential Person
or cause to be replaced any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner. In addition,
neither the ADVISER nor any Affiliate of the ADVISER shall change or seek to
change or cause to be changed, in any material respect, the duties and
responsibilities of any Essential Person, in each case without first informing
the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND may
be a shareholder, trustee, director, officer or employee of, or be otherwise
interested in, the ADVISER, and in any person controlled by or under common
control with the ADVISER, and the ADVISER, and any person controlled by or under
common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, neither the ADVISER nor any subadviser shall be subject to
liability to the FUND, or to any shareholder of the FUND, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
B1-3
<PAGE> 56
(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:
[advisory fee schedule]
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 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
B1-4
<PAGE> 57
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 become effective of the date hereof, and shall remain in
full force until May 31, 1999 unless sooner terminated as hereinafter provided.
This Agreement shall continue in force from year to year thereafter, but only so
long as such continuance is approved at least annually by the vote of a majority
of the FUND's Trustees who are not parties to this Agreement or interested
persons of any such parties, cast in person at a meeting called for the purpose
of voting on such approval, and by a vote of a majority of the FUND's Trustees
or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of a
majority of the FUND's outstanding voting securities, or by the ADVISER, on 60
days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
B1-5
<PAGE> 58
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Fund or the
Trustees of the FUND as Trustees and not individually and that the obligations
of this Agreement are not binding upon any of the Trustees, officers or
shareholders of the FUND individually but are binding only upon the assets and
property of the FUND. A Certificate of Trust in respect of the Fund is on file
with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-laws principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.
VAN KAMPEN
AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
VAN KAMPEN
AMERICAN CAPITAL
[ ] FUND
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
B1-6
<PAGE> 59
ANNEX B-2
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
AND
MORGAN STANLEY ASSET MANAGEMENT INC.
THIS AGREEMENT is made as of this [Date] by and between MORGAN STANLEY ASSET
MANAGEMENT INC., a Delaware corporation, located at 1221 Avenue of the Americas,
New York, New York 10020, and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("VKAC"), a Delaware corporation, located at 2800 Post Oak Boulevard, Houston,
Texas 77056.
WHEREAS, VKAC has heretofore sponsored and acts as Investment Adviser to Van
Kampen American Capital Fund (the "Fund"); and
WHEREAS, Morgan Stanley Asset Management Inc. ("MSAM") has available a staff of
experienced investment personnel and facilities for providing investment
sub-advisory services to the investment portfolio; and
WHEREAS, MSAM is an investment adviser registered under the Investment Advisers
Act of 1940, as amended and is willing to provide VKAC with investment advisory
services on the terms and conditions hereinafter set forth; and
WHEREAS, VKAC and MSAM (jointly referred to as "the Advisers") desire to enter
into an agreement for MSAM to provide sub-advisory services to the Fund and to
VKAC with respect to the Fund's investments.
NOW THEREFORE it is mutually agreed:
1. INVESTMENT SUB-ADVISORY SERVICES
1.1 Investment Advice
a) Effective on [ ], 1997, and subject to the overall policies, control,
direction and review of the Fund's Trustees, MSAM shall keep under review the
investments of the Fund and continuously furnish to the Fund and to VKAC (1)
investment advice with respect to all or such portion of the Fund's assets as
the Advisers agree to from time to time; (2) economic, statistical and research
information and advice, including advice on the allocation of investments among
countries, relating to all or such portion of the Fund's assets as the Advisers
shall agree to from time to time; (3) recommendations as to the voting of
proxies solicited by or with respect to securities under MSAM's supervision; and
(4) an investment program with respect to securities and recommendations as to
what
B2-1
<PAGE> 60
securities shall be purchased, sold or exchanged, and what portion, if any, of
the securities shall be held in money market instruments.
b) The Advisers are responsible for the allocation of the Fund's assets among
the various securities markets of the world. The Advisers will determine at
least quarterly the percentage of the assets that shall be allocated to each of
the Advisers (the "Asset Allocation"). The Asset Allocation will specify the
percentage and nature of the assets of the Fund allocated to each of the
Advisers for management on the effective date of the determination and will
apply to cash inflows or outflows and income and expense accruals thereafter
until such time as the Asset Allocation is redetermined. Each of the Advisers
will be responsible for the allocation of assets among the securities markets
within various regions as they agree to from time to time.
c) Unless otherwise instructed by VKAC or the Trustees, and subject to the
provisions of this Agreement and to any guidelines or limitations specified from
time to time by VKAC or by the Trustees, MSAM shall determine the securities to
be purchased and sold by the Fund and shall place orders for the purchase, sale
or exchange of securities for the Fund's accounts with brokers or dealers and to
that end MSAM is authorized by the Trustees to give instructions to the
Custodian and any Sub-Custodian of the Fund as to deliveries of such securities,
transfers of currencies and payments of cash for the account of the Fund.
d) In performing these services, MSAM shall adhere to the Fund's investment
objectives, restrictions and limitations as contained in its Prospectus,
Statement of Additional Information, or Agreement and Declaration of Trust and
shall comply with all statutory and regulatory restrictions, limitations and
requirements applicable to the activity of the Fund.
e) Unless otherwise instructed by VKAC or the Trustees, and subject to the
provisions of this Agreement and to any guidelines or limitations specified from
time to time by VKAC or by the Trustees, MSAM shall have executed and performed
on behalf of and at the expense of the Fund:
i) Purchases, sales, exchanges, conversions, and placement or orders for
execution, and
ii) Reporting of all transactions to VKAC and to other entities as directed
by VKAC or by the Trustees.
f) MSAM shall provide the Trustees at least quarterly, in advance of the
regular meetings of the Trustees, a report of its activities hereunder on behalf
of the Fund and its proposed strategy for the next quarter, all in such form and
detail as requested by the Trustees. MSAM shall also make an investment officer
available to attend such meetings of the Trustees as the Trustees may reasonably
request.
B2-2
<PAGE> 61
1.2 Restriction of MSAM's Powers
(a) MSAM shall not commit the Fund to any extent beyond the amount of the cash
and securities placed by the Fund under the control of the MSAM.
(b) In carrying out its duties hereunder MSAM shall comply with all reasonable
instruction of the Fund or VKAC in connection therewith. Such instructions may
be given by letter, telex, telefax or telephone confirmed by telex, by the
Trustees or by any other person authorized by a resolution of the Trustees
provided a certified copy of such resolution has been supplied to MSAM.
(c) All securities, cash, and other assets of the Fund shall be placed and
maintained in the care of a member bank of the Federal Reserve System of the
United States approved by the Trustees as custodian and one or more "Eligible
Foreign Custodians" (as defined in Rule 17f-5 under the Investment Company Act
of 1940 (the "1940 Act")) approved by the Trustees as sub-custodians.
(d) Persons authorized by resolution of the Trustees shall have the right to
inspect and copy contracts, notes, vouchers, and copies of entries in books or
electronic recording media relating to the Fund's transactions at the registered
office of MSAM at any time during normal business hours. Such records, in
relation to each transaction effected by MSAM on behalf of the Fund shall be
maintained by MSAM for a period of seven years from the date of such
transaction.
1.3 Purchase and Sale of Securities
In performing the services described above, MSAM shall use its best efforts to
obtain for the Fund the most favorable price and execution available. Subject to
prior authorization of appropriate policies and procedures by the Trustees, MSAM
may, to the extent authorized by law, cause the Fund to pay a broker or dealer
who provides brokerage and research services an amount of commission for
effecting the Fund's investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, in recognition of the brokerage and research services provided by
the broker or dealer. To the extent authorized by law, MSAM 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.
1.4 Custodian
MSAM shall not act as Custodian for the securities or any other assets of the
Fund. All such assets shall be held by the Custodian or Sub-Custodian appointed
by the Trustees.
B2-3
<PAGE> 62
2. DUTIES OF VKAC
2.1 Provision of Information
VKAC shall advise MSAM from time to time with respect to the Fund of its
investment objectives and of any changes or modifications thereto, as well as
any specific investment restrictions or limitations by sending to MSAM a copy of
each registration statement relating to the Fund as filed with the Securities
and Exchange Commission. As requested by MSAM, VKAC shall furnish such
information to MSAM as to holdings, purchases, and sales of the securities under
its management as will reasonably enable MSAM to furnish its investment advice
under this Agreement.
2.2 Compensation to MSAM
The fee for the services provided under this Agreement will be determined as
follows:
(a) An amount for each month (or such other valuation period as may be
mutually agreed upon) equivalent, on an annual basis, to 50% of the
compensation actually received by VKAC pursuant to the investment advisory fee
schedule set forth in the Investment Advisory Agreement between the Fund and
VKAC taking into account any waiver or return to the Fund of any or all of
such advisory fee by VKAC (with any such return of fees to be treated as if
not actually received). The value of the assets of the Fund shall be computed
as of the close of business on the last day of each valuation period for the
Fund, using the average of all the daily determinations of the net value of
the assets of the Fund.
(b) The foregoing fee shall be paid in cash by VKAC to MSAM within five (5)
business days after the last day of the valuation period.
3. MISCELLANEOUS
3.1 Activities of MSAM
The services of MSAM as Sub-Adviser to VKAC under this Agreement are not to be
deemed exclusive, MSAM and its affiliates being free to render services to
others. It is understood that shareholders, trustees, officers and employees of
MSAM may become interested in the Fund or VKAC as a shareholder, trustee,
officer, partner or otherwise.
3.2 Services to Other Clients
VKAC acknowledges that MSAM may have investment responsibilities, or render
investment advice to, or perform other investment advisory services for, other
individuals or entities ("Clients"). Subject to the provisions of this
paragraph, VKAC agrees that MSAM may give advice or exercise investment
responsibility and take such other action with respect to such Clients which may
differ from advice given or the timing or nature of action taken with respect to
the Fund,
B2-4
<PAGE> 63
provided that MSAM acts in good faith, and provided, further, that it is MSAM
policy to allocate, within its reasonable discretion, investment opportunities
to the Fund over a period of time on a fair and equitable basis relative to the
Clients, taking into account the investment objectives and policies of the Fund
and any specific investment restrictions applicable thereto. VKAC acknowledges
that one or more of the Clients may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in investments in which
the Fund may have an interest from time to time, whether in transactions which
may involve the Fund or otherwise. MSAM shall have no obligation to acquire for
the Fund a position in any investment which any Client may acquire, and VKAC
shall have no first refusal, coinvestment or other rights in respect of any such
investment, either for the Fund or otherwise.
3.3 Best Efforts
It is understood and agreed that in furnishing the investment advice and other
services as herein provided, MSAM shall use its best professional judgment to
recommend actions which will provide favorable results for the Fund. MSAM shall
not be liable to the Fund or to any shareholder of the Fund to any greater
degree than VKAC.
3.4 Duration of Agreement
a) This Agreement, unless terminated pursuant to paragraph b or c below or
Section 2.2(c), shall continue in effect through May 31, 1999, and thereafter
shall continue in effect from year to year, provided its continued applicability
is specifically approved at least annually by the Trustees or by a vote of the
holders of a majority of the outstanding shares of the Fund. In addition, such
continuation shall be approved by vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. As used
in this paragraph, the term "interested person" shall have the same meaning as
set forth in the 1940 Act.
b) This Agreement may be terminated by sixty (60) days' written notice by
either VKAC or MSAM to the other party. The Agreement may also be terminated at
any time, without the payment of any penalty, by the Fund (by vote of the
Trustees or, by the vote of a majority of the outstanding voting securities of
such Fund), on sixty (60) days' written notice to both VKAC and MSAM. This
Agreement shall automatically terminate in the event of the termination of the
investment advisory agreement between VKAC and the Fund.
c) This Agreement shall terminate in the event of its assignment. The term
"assignment" for this purpose shall have the same meaning set forth in Section
2(a)(4) of the 1940 Act.
d) Termination shall be without prejudice to the completion of any
transactions which MSAM shall have committed to on behalf of the Fund prior to
the time of
B2-5
<PAGE> 64
termination. MSAM shall not effect and the Fund shall not be entitled to
instruct MSAM to effect any further transactions on behalf of the Fund
subsequent to the time termination takes effect.
e) This Agreement shall terminate forthwith by notice in writing on the
happening of any of the following events:
i) if VKAC or MSAM shall go into liquidation (except a voluntary
liquidation for the purpose of and followed by a bona fide reconstruction or
amalgamation upon terms previously approved in writing by the party not in
liquidation) or if a receiver or receiver and manager of any of the assets of
any of them is appointed; or
ii) if either of the parties hereto shall commit any breach of the
provisions hereof and shall not have remedied such breach within 30 days after
the service of notice by the party not in breach on the other requiring the
same to be remedied.
f) On the termination of this Agreement and completion of all matters referred
to in the foregoing paragraph (d) MSAM shall deliver or cause to be delivered to
the Fund copies of all documents, records and books of the Fund required to be
maintained pursuant to Rules 31a-1 or 31a-2 of the 1940 Act which are in MSAM's
possession, power or control and which are valid and in force at the date of
termination.
3.5 Notices
Any notice, request, instruction, or other document to be given under this
Agreement by any party hereto to the other parties shall be in writing and
delivered personally or sent by mail or telecopy (with a hard copy to follow),
If to MSAM, to:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
attn: Warren J. Olsen
with a copy to:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
attn: Harold J. Schaaff, Esq.
If to VKAC, to:
Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
attn: Dennis J. McDonnell
B2-6
<PAGE> 65
with a copy to:
Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
attn: Ronald A. Nyberg, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be presumed to have
been duly given to the party to which it is addressed, on the date three (3)
days after mailing, and in the case of delivery by telecopy, on the date the
hard copy is received.
3.6 Choice of Law
This Agreement shall be construed according to, and the rights and liabilities
of the parties hereto shall be governed by, the laws of the United States and
the State of New York, without regard to the conflicts of laws principles
thereof.
3.7 Miscellaneous Provisions
The execution of this Agreement has been authorized by the Fund's Trustees and
by the shareholders. 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.
IN WITNESS WHEREOF, the Agreement has been executed as of the date first above
given.
VAN KAMPEN AMERICAN
CAPITAL ASSET
MANAGEMENT, INC.
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
MORGAN STANLEY ASSET MANAGEMENT INC.
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
B2-7
<PAGE> 66
ANNEX B-3
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST --
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
SUBADVISORY AGREEMENT
(MARKED TO SHOW CHANGES FROM CURRENT ADVISORY AGREEMENT)
THIS AGREEMENT is made this [Date], by and between VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC., a Delaware corporation (the "Adviser") and VAN KAMPEN
AMERICAN CAPITAL ADVISORS, INC., a Delaware corporation (the "Subadviser").
WHEREAS, Van Kampen American Capital Tax-Exempt Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end, diversified management investment company, consisting of multiple
series of investment portfolios;
WHEREAS, the Adviser is registered under the Investment Advisers Act of 1940, as
amended, as an investment adviser and engages in the business of acting as an
investment adviser;
WHEREAS, the Subadviser is registered under the Investment Advisers Act of 1940,
as amended, as an investment adviser;
WHEREAS, the Agreement and Declaration of Trust authorizes the Trustees of the
Trust to classify or reclassify authorized but unissued shares of the Trust, and
as of the date of this Agreement, the Trust's Trustees have authorized the
issuance of one series of shares representing interests in one investment
portfolio -- the Van Kampen American Capital High Yield Municipal Fund (the
"Fund") (such portfolio and any other portfolios hereafter added to the Trust
being referred to collectively herein as the "Funds");
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated
[Date], with the Trust (the "Investment Advisory Agreement"), pursuant to which
the Adviser shall act as investment adviser with respect to the Fund; and
WHEREAS, the securities sought for the investment portfolio of the Fund are sold
in a highly specialized market and the Adviser is desirous to engage a
subadviser in an effort to improve its access to that market and enhance its
ability to acquire investment securities that meet the Fund's investment
objectives;
WHEREAS, the Adviser wishes to retain the Subadviser for purposes of rendering
such advisory services to the Adviser in connection with the Fund upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, 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:
B3-1
<PAGE> 67
1. APPOINTMENT OF SUBADVISER. The Adviser hereby appoints the Subadviser to
render investment research and advisory services to the Adviser with respect to
the Fund, under the supervision of the Adviser and subject to the approval and
direction of the Trust's Trustees, and the Subadviser hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. INVESTMENT ANALYSIS. The duties of the Subadviser shall include:
a. obtaining and evaluating pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign
or otherwise, whether affecting the economy generally or the Fund, and whether
concerning the individual issuers whose securities are included in the Fund or
the activities in which such issuers engage, or with respect to securities
which the Subadviser considers desirable for inclusion in the Fund's
investment portfolio;
b. determining which issuers and securities shall be represented in the
Fund's investment portfolio and regularly reporting thereon to the Adviser
and, at the request of the Adviser, to the Trust's Trustees; and
c. formulating and implementing continuing programs for the purchases and
sales of the securities of such issuers and regularly reporting thereon to the
Adviser and, at the request of the Adviser, to the Trust's Trustees.
3. CONTROL BY TRUSTEES. Any investment program undertaken by the Subadviser
pursuant to this Agreement, as well as any other activities undertaken by the
Subadviser with respect to the Fund, shall at all times be subject to any
directives of the Trust's Trustees.
4. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Subadviser shall at all times conform to:
a. all applicable provisions of the Act and any rules and regulations
adopted thereunder;
b. the provisions of the registration statement of the Trust, as the same
may be amended from time to time, under the Securities Act of 1933 and the
Act;
c. the provisions of the Investment Advisory Agreement;
d. the provisions of the Agreement and Declaration of Trust of the Trust, as
the same may be amended from time to time;
e. the provisions of the by-laws of the Trust, as the same may be amended
from time to time; and
f. any other applicable provisions of state or federal law.
5. COMPENSATION. The Adviser shall pay the Subadviser, as compensation for
services rendered hereunder, an annual fee, payable monthly, which for the
initial one-year term of this Agreement shall be paid according to the following
fee schedule: 0.40% of the first $20 million of the Fund's average daily net
assets, 0.25% of the next $30 million of the Fund's average daily net assets and
0.15% of the
B3-2
<PAGE> 68
excess over $50 million of the Fund's average daily net assets. The average
daily net assets of the Fund 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 Trust's Agreement and Declaration of Trust. After the
termination of the initial term of this Agreement, such fee schedule shall be
subject to annual adjustment concurrently with renewal of this Agreement for an
additional one-year term. Each annual renewal shall be deemed to be at the fee
schedule in effect immediately prior to the expiration of the most recent term
unless a new fee schedule is set prior to renewal in writing signed by the
Adviser and the Subadviser, in which case the renewal will be deemed to be at
the fee schedule set forth in such writing.
6. EXPENSES OF THE FUND. All of the ordinary business expenses incurred in the
operations of the Fund and the offering of its shares shall be borne by the Fund
unless specifically provided otherwise in the Investment Advisory Agreement.
7. NON-EXCLUSIVITY. The services of the Subadviser to the Adviser with respect
to the Trust and the Fund are not to be deemed to be exclusive, and the
Subadviser shall be free to render investment advisory and administrative or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of the
Subadviser may serve as officers or directors/trustees of the Adviser or of the
Trust, and that officers or directors/trustees of the Adviser or of the Trust
may serve as officers or directors of the Subadviser to the extent permitted by
law; and that the officers and directors of the Subadviser are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
8. TERM AND APPROVAL. This Agreement shall have an initial term through May
31, 1999, and may be continued from year to year thereafter, provided that the
continuation of the Agreement is specifically approved at least annually:
a. (i) by the Trust's Trustees or (ii) by the vote of "a majority of the
outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of
the Act); and
b. by the affirmative vote of a majority of the trustees who are not parties
to this Agreement or "interested persons" (as defined in the Act) of a party
to this Agreement (other than as Trustees of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
9. TERMINATION. This Agreement may be terminated as to the Fund at any time,
without the payment of any penalty, by vote of the Trust's Trustees or by vote
of a majority of the Fund's outstanding voting securities, or by the Adviser, or
by the Subadviser on sixty (60) days' written notice to the other party and to
the Trust. The notice provided for herein may be waived by either party. This
Agreement shall automatically terminate in the event of its assignment, the term
"assignment" for purposes of this paragraph having the meaning defined in
Section 2(a)(4) of the Act.
B3-3
<PAGE> 69
10. LIABILITY OF SUBADVISER. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder on the
part of the Subadviser or any of its officers, directors or employees, the
Subadviser shall not be subject to liability to the Adviser 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.
11. NOTICES. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage paid to such address as may be designated for
the receipt of such notice, with a copy to the Trust. Until further notice, it
is agreed that the address of (i) the Trust shall be One Parkview Plaza,
Oakbrook Terrace, Illinois, 60181; (ii) that of the Adviser shall be 2800 Post
Oak Blvd., Houston, Texas 77056; and (iii) that of the Subadviser shall be 40
Broad Street, Suite 828, Boston, Massachusetts 02110.
12. QUESTIONS OF INTERPRETATION. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretations thereof, if any, by the United
States courts or in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission issued
pursuant to the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of the Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
13. MISCELLANEOUS PROVISIONS
The execution of this Agreement has been authorized by the Trust's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the Trust
or the Trustees of the Trust 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 Trust individually but are binding only upon the assets
and property of the Trust. A Certificate of Trust in respect of the Fund is on
file with the Secretary of State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
VAN KAMPEN
AMERICAN CAPITAL
ADVISORS, INC.
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
VAN KAMPEN
AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
B3-4
<PAGE> 70
ANNEX C
The table below sets forth, for each investment company for which Asset
Management acts as investment adviser, the number of the investment company's
outstanding shares as of April 14, 1997, the investment company's net assets as
of April 14, 1997 or as otherwise noted and the rate at which it compensates
Asset Management for investment advisory services. Funds for which Asset
Management has waived or reduced its compensation are marked by an "*". There
can be no assurance that Asset Management will continue such waiver or
reduction.
I. ADVISORY AGREEMENTS BETWEEN ASSET MANAGEMENT AND THE FUNDS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
APRIL 14, APRIL 14,
FUNDS 1997 1997 ADVISORY FEE SCHEDULE
----- ----------- ---------- ---------------------
<S> <C> <C> <C> <C>
A. Global Government Fund...................................... 16,723,146 $ 1,163,250 .750%
B. Global Managed Assets Fund.................................. 2,061,022 $ 20,785,486 1.00%
Global Equity Fund.......................................... 17,137,246 $241,129,462
LIT Global Equity Portfolio................................. 235,439 $ 2,732,398
C. High Yield Municipal Fund................................... 89,604,065 $989,077,793 First $300 Million .600
Next $300 Million .550%
Over $600 Million .500%
D. High Income Corporate Bond Fund............................. 94,853,084 $601,707,636 First $150 Million .625
Next $150 Million .550%
Over $300 Million .500%
E. Harbor Fund................................................. 29,961,766 $437,462,002 First $350 Million .550
Next $350 Million .500%
Next $350 Million .450%
Over $1.05 Billion .400%
</TABLE>
C-1
<PAGE> 71
II. ADVISORY AGREEMENTS BETWEEN ASSET MANAGEMENT AND OTHER INVESTMENT COMPANIES
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF ANNUAL
APRIL 14, APRIL 14, ADVISORY FEE
FUNDS 1997 1997 SCHEDULE
----- ----------- ---------- ------------
<S> <C> <C> <C> <C>
A. Van Kampen American Capital Bond Fund....................... 11,362,465 $ 224,186,869 First $150 Million
.500%
Van Kampen American Capital Convertible Securities Fund..... 3,241,824 $ 77,621,539 Next $100 Million .450%
Van Kampen American Capital Corporate Bond Fund............. 23,032,612 $ 187,429,712 Next $100 Million .400%
Van Kampen American Capital Equity Income Fund.............. 186,035,496 $1,223,810,799 Over $350 Million .350%
Van Kampen American Capital Growth and Income Fund.......... 55,784,083 $ 851,135,534
Van Kampen American Capital Reserve Fund.................... 695,945,171 $ 695,898,843
B. Van Kampen American Capital Government Target Fund*......... 942,418 $ 13,981,050 .500%
C. Van Kampen American Capital Limited Maturity Government
Fund....................................................... 4,971,910 $ 59,772,543 First $1 Billion .500%
Next $1 Billion .475%
Next $1 Billion .450%
Next $1 Billion .400%
Over $4 Billion .350%
D. Van Kampen American Capital Government Securities Fund...... 231,890,794 $2,257,634,251 First $1 Billion .540%
Next $1 Billion .515%
Next $1 Billion .490%
Next $1 Billion .440%
Next $1 Billion .390%
Next $1 Billion .340%
Next $1 Billion .290%
Over $7 Billion .240%
</TABLE>
C-2
<PAGE> 72
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF ANNUAL
APRIL 14, APRIL 14, ADVISORY FEE
FUNDS 1997 1997 SCHEDULE
----- ----------- ---------- ------------
<S> <C> <C> <C> <C>
E. Van Kampen American Capital Life Investment Trust Asset
Allocation Portfolio*...................................... 5,324,297 $ 57,913,862 First $500 Million
.500%
Van Kampen American Capital Life Investment Trust Domestic
Income Portfolio*.......................................... 2,016,709 $ 16,003,044 Next $500 Million .450%
Van Kampen American Capital Life Investment Trust Enterprise
Portfolio*................................................. 5,030,220 $ 80,704,506 Over $1 Billion .400%
Van Kampen American Capital Life Investment Trust Government
Portfolio*................................................. 6,284,543 $ 52,935,768
Van Kampen American Capital Life Investment Trust Growth &
Income Portfolio*.......................................... 156,976 $ 1,563,696
Van Kampen American Capital Life Investment Trust Money
Market Portfolio*.......................................... 23,758,755 $ 23,758,755
F. Van Kampen American Capital Comstock Fund................... 91,430,028 $1,276,401,194 First $1 Billion .500%
Van Kampen American Capital Enterprise Fund................. 110,441,458 $1,629,662,352 Next $1 Billion .450%
Van Kampen American Capital Pace Fund....................... 223,704,032 $2,646,295,913 Next $1 Billion .400%
Over $3 Billion .350%
G. Van Kampen American Capital U.S. Government Trust for
Income..................................................... 23,282,289 $ 185,587,365 .600%
H. Van Kampen American Capital Emerging Growth Fund............ 81,017,806 $2,494,327,277 First $350 Million
.575%
Next $350 Million .525%
Next $350 Million .475%
Over $1.05 Billion
.425%
I. Van Kampen American Capital Small Capitalization Fund....... 14,026,448 178,744,066 N/A(1)
J. Van Kampen American Capital Life Investment Trust Emerging
Growth Portfolio*.......................................... 368,876 $ 4,616,922 .700%
K. Van Kampen American Capital Real Estate Securities Fund..... 6,637,711 $ 83,760,952 1.00%
Van Kampen American Capital Life Investment Trust Real
Estate Securities Portfolio................................ 13,258,192 $ 191,417,324
L. Smith Barney Series Fund Emerging Growth Portfolio.......... 16,723,146 $ 1,163,250 .750%
M. Van Kampen American Capital Income Trust.................... 15,290,019 $ 118,048,492 .650%
N. Mosher, Inc.*............................................... 1,905,282 $ 36,073,524 .450%
O. Common Sense Trust International Equity Fund................ 1,530,939 $ 25,259,996 1.00%
</TABLE>
C-3
<PAGE> 73
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF ANNUAL
APRIL 14, APRIL 14, ADVISORY FEE
FUNDS 1997 1997 SCHEDULE
----- ----------- ---------- ------------
<S> <C> <C> <C> <C>
P. Common Sense Trust Government Fund.......................... 27,684,426 $ 278,580,795 First $1 Billion .600%
Next $1 Billion .550%
Next $1 Billion .500%
Next $1 Billion .450%
Next $1 Billion .400%
Over $5 Billion .350%
Q. Common Sense Trust Growth Fund.............................. 184,961,484 $3,147,563,776 First $1 Billion .650%
Common Sense Trust Growth and Income Fund................... 63,637,961 $1,062,007,742 Next $1 Billion .600%
Common Sense Trust Emerging Growth Fund..................... 7,061,279 $ 117,766,995 Next $1 Billion .550%
Next $1 Billion .500%
Over $4 Billion .450%
R. Common Sense Trust Money Market Fund........................ 61,825,907 $ 61,825,660 First $2 Billion .500%
Next $2 Billion .475%
Over $4 Billion .450%
S. Common Sense Trust Municipal Bond Fund...................... 8,464,420 $ 114,606,174 First $1 Billion .600%
Next $1 Billion .550%
Next $1 Billion .500%
Over $3 Billion .450%
</TABLE>
- -------------------------
(1)Fund does not charge an advisory fee; shares of the fund are held by other
funds advised by Asset Management or Advisory Corp. Assets of the fund also
are reflected in the assets of such other funds.
C-4
<PAGE> 74
ANNEX D
The following table sets forth amounts paid by each Fund during its most
recently completed fiscal year pursuant to its investment advisory, fund
accounting, transfer agency and distribution agreements and brokerage
commissions to Morgan Stanley & Co., Dean Witter Discover and their affiliates.
<TABLE>
<CAPTION>
BROKERAGE BROKERAGE
FUND TRANSFER COMMISSIONS COMMISSIONS
FISCAL ADVISORY ACCOUNTING AGENCY DISTRIBUTION PAID TO MORGAN PAID TO DEAN
FUND YEAR-END EXPENSES EXPENSES EXPENSES EXPENSES STANLEY & CO. WITTER DISCOVER
---- -------- -------- ---------- -------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Equity Fund........ 5/31 $1,605,816 $ 31,987 $852,280 $ 622,671 $55,801 $90
Global Government Fund.... 5/31 1,254,494 31,987 357,969 931,483 0 0
Global Managed Assets
Fund..................... 12/31 176,886 29,574 106,078 88,661 3,141 48
Harbor Fund............... 12/31 2,481,240 128,687 771,539 651,118 19,308 0
High Income Corporate Bond
Fund..................... 8/31 2,929,197 135,427 240,729 945,603 442 0
High Yield Municipal
Fund..................... 11/30 4,757,392 208,513 728,605 2,430,143 0 0
LIT Global Equity
Portfolio................ 12/31 0 0 0 0 467 4
</TABLE>
D-1
<PAGE> 75
ANNEX E
1996 AGGREGATE COMPENSATION FROM EACH FUND
<TABLE>
<CAPTION>
TRUSTEE
FISCAL -----------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN CARUSO GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES
--------- -------- -------- ------ ------- ----- ------- ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
Global Equity Fund............... 5/31 1,115 550 600 640 1,145 740 740 740 1,120
Global Government Fund........... 5/31 1,180 590 610 655 1,205 770 770 770 1,180
World Portfolio Series Trust
Total........................ 2,295 1,140 1,210 1,295 2,350 1,510 1,510 1,510 2,300
Global Managed Assets Fund........ 12/31 1,202 0 160 870 870 870 1,202 1,202 200
Harbor Fund....................... 12/31 1,600 0 300 1,600 1,600 1,600 1,600 1,600 370
High Income Corporate Bond Fund... 8/31 1,595 360 1,030 1,315 1,560 1,560 1,560 1,560 1,170
Tax-Exempt Trust:
High Yield Municipal Fund........ 11/30 2,532 0 780 1,920 1,920 1,920 2,532 2,532 480
Life Investment Trust:
LIT Asset Allocation
Portfolio*..................... 12/31 1,627 0 170 1,035 1,035 1,035 1,627 1,627 210
LIT Domestic Income Portfolio*... 12/31 1,577 0 160 995 995 995 1,577 1,577 200
LIT Emerging Growth Portfolio*... 12/31 1,487 0 150 925 925 925 1,487 1,487 180
LIT Enterprise Portfolio*........ 12/31 1,677 0 180 1,075 1,075 1,075 1,677 1,677 220
LIT Global Equity Portfolio...... 12/31 925 0 150 925 925 925 925 925 180
LIT Government Portfolio*........ 12/31 1,637 0 170 1,045 1,045 1,045 1,637 1,637 210
LIT Growth and Income
Portfolio*..................... 12/31 0 0 0 0 0 0 0 0 0
LIT Money Market Portfolio*...... 12/31 1,577 0 160 995 995 995 1,577 1,577 200
LIT Real Estate Portfolio*....... 12/31 1,527 0 150 955 955 955 1,527 1,527 190
Life Investment Trust Total.... 12,034 0 1,290 7,950 7,950 7,950 12,034 12,034 1,590
<CAPTION>
TRUSTEE
-----------------------------------------------
FUND NAME ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
--------- -------- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
Global Equity Fund............... 740 1,145 1,230 740 1,070
Global Government Fund........... 770 1,205 1,300 770 1,130
World Portfolio Series Trust
Total........................ 1,510 2,350 2,530 1,510 2,200
Global Managed Assets Fund........ 870 200 870 1,202 870
Harbor Fund....................... 1,600 370 1,600 1,600 1,600
High Income Corporate Bond Fund... 1,560 780 1,560 1,560 1,560
Tax-Exempt Trust:
High Yield Municipal Fund........ 1,920 480 1,920 2,532 1,920
Life Investment Trust:
LIT Asset Allocation
Portfolio*..................... 1,160 210 1,035 1,627 1,035
LIT Domestic Income Portfolio*... 1,120 200 995 1,577 995
LIT Emerging Growth Portfolio*... 1,150 180 925 1,487 925
LIT Enterprise Portfolio*........ 1,200 220 1,075 1,677 1,075
LIT Global Equity Portfolio...... 925 180 925 925 925
LIT Government Portfolio*........ 1,170 210 1,045 1,637 1,045
LIT Growth and Income
Portfolio*..................... 0 0 0 0 0
LIT Money Market Portfolio*...... 1,120 200 995 1,577 995
LIT Real Estate Portfolio*....... 1,840 190 955 1,527 955
Life Investment Trust Total.... 9,685 1,590 7,950 12,034 7,950
</TABLE>
- ---------------
* These portfolios of the Life Investment Trust are participating in a separate
meeting.
E-1
<PAGE> 76
ANNEX F
1996 AGGREGATE COMPENSATION DEFERRED FOR EACH FUND
<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------
YEAR-
FUND NAME END BRANAGAN CARUSO GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES
--------- ------ -------- ------ ------- ----- ------- ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
Global Equity Fund................... 5/31 0 550 400 400 0 500 500 500 250
Global Government Fund............... 5/31 0 590 410 410 0 510 510 510 250
World Portfolio Series Trust
Total............................ 0 1,140 810 810 0 1,010 1,010 1,010 500
Global Managed Assets Fund............ 12/31 602 0 160 710 0 400 1,202 1,202 200
Harbor Fund........................... 12/31 992 0 300 1,320 0 740 2,102 2,102 370
High Income Corporate Bond Fund....... 8/31 0 360 640 960 0 1,170 1,170 1,170 390
Tax-Exempt Trust:
High Yield Municipal Fund............ 11/30 1,102 0 780 1,560 0 1,440 2,532 2,532 0
Life Investment Trust:
LIT Asset Allocation Portfolio*...... 12/31 997 0 170 750 0 420 3,532 3,532 210
LIT Domestic Income Portfolio*....... 12/31 977 0 160 710 0 400 1,577 1,577 200
LIT Emerging Growth Portfolio*....... 12/31 947 0 150 670 0 360 1,487 1,487 180
LIT Enterprise Portfolio*............ 12/31 1,017 0 180 790 0 440 1,677 1,677 220
LIT Global Equity Portfolio.......... 12/31 947 0 150 670 0 360 1,487 1,487 180
LIT Government Portfolio*............ 12/31 1,007 0 170 760 0 420 1,637 1,637 210
LIT Growth and Income Portfolio*..... 12/31 0 0 0 0 0 0 0 0 0
LIT Money Market Portfolio*.......... 12/31 977 0 160 710 0 400 1,577 1,577 200
LIT Real Estate Portfolio*........... 12/31 957 0 150 670 0 380 1,527 1,527 190
Life Investment Trust Total:....... 7,826 0 1,290 5,730 0 3,180 14,501 14,501 1,590
<CAPTION>
TRUSTEE
----------------------------------------------
FUND NAME ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
--------- -------- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
Global Equity Fund................... 500 0 515 500 0
Global Government Fund............... 510 0 565 510 0
World Portfolio Series Trust
Total............................ 1,010 0 1,080 1,010 0
Global Managed Assets Fund............ 870 0 0 1,202 0
Harbor Fund........................... 1,600 0 0 2,102 0
High Income Corporate Bond Fund....... 1,170 0 320 1,170 0
Tax-Exempt Trust:
High Yield Municipal Fund............ 1,920 0 0 2,532 0
Life Investment Trust:
LIT Asset Allocation Portfolio*...... 1,160 0 0 1,627 0
LIT Domestic Income Portfolio*....... 1,120 0 0 1,577 0
LIT Emerging Growth Portfolio*....... 1,050 0 0 1,487 0
LIT Enterprise Portfolio*............ 1,200 0 0 1,677 0
LIT Global Equity Portfolio.......... 1,050 0 0 1,487 0
LIT Government Portfolio*............ 1,170 0 0 1,637 0
LIT Growth and Income Portfolio*..... 0 0 0 0 0
LIT Money Market Portfolio*.......... 1,120 0 0 1,577 0
LIT Real Estate Portfolio*........... 1,080 0 0 1,527 0
Life Investment Trust Total:....... 8,950 0 0 12,596 0
</TABLE>
- -------------------------
*These portfolios of the Life Investment Trust are participating at a separate
meeting.
F-1
<PAGE> 77
ANNEX G
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM EACH FUND
<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN CARUSO GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES
--------- -------- -------- ------ ------- ----- ------- ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
- --------------------------------
Global Equity Fund.............. 5/31 0 4,152 409 409 0 511 511 511 250
Global Government Fund.......... 5/31 0 4,719 417 417 0 519 519 519 250
World Portfolio Series Trust
Total...................... 0 8,871 826 826 0 1,030 1,030 1,030 500
Global Managed Assets Fund...... 12/31 328 1,497 327 879 0 668 1,186 1,221 208
Harbor Fund..................... 12/31 496 8,551 610 1,634 0 1,233 2,082 2,142 24,019
High Income Corporate Bond
Fund........................... 8/31 0 8,185 669 1,007 0 1,223 1,223 1,223 32,218
Tax Exempt Trust:
- --------------------------------
High Yield Municipal Fund.... 11/30 612 7,730 751 2,067 0 1,541 2,882 2,983 0
Life Investment Trust:
- --------------------------------
LIT Asset Allocation
Portfolio*................... 12/31 993 5,401 354 951 0 716 1,717 1,709 4,798
LIT Domestic Income
Portfolio*................... 12/31 973 4,473 310 860 0 648 1,662 1,655 3,974
LIT Emerging Growth
Portfolio*................... 12/31 943 0 326 843 0 618 1,566 1,559 187
LIT Enterprise Portfolio*...... 12/31 1,013 6,273 409 1,050 0 802 1,773 1,765 6,032
LIT Global Equity Portfolio.... 12/31 943 0 320 840 0 618 1,567 1,559 187
LIT Government Portfolio*...... 12/31 1,003 4,422 317 891 0 658 1,726 1,719 6,650
LIT Growth and Income
Portfolio*................... 12/31 0 0 0 0 0 0 0 0 0
LIT Money Market Portfolio*.... 12/31 973 3,951 303 828 0 629 1,663 1,656 6,067
LIT Real Estate Securities
Portfolio*................... 12/31 953 0 389 1,029 0 797 1,614 1,606 198
Life Investment Trust
Total...................... 7,794 24,520 2,728 7,292 0 5,486 13,288 13,228 28,093
<CAPTION>
TRUSTEE
------------------------------------------------
FUND NAME ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
--------- -------- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
- --------------------------------
Global Equity Fund.............. 511 0 3,865 511 0
Global Government Fund.......... 519 0 4,238 519 0
World Portfolio Series Trust
Total...................... 1,030 0 8,103 1,030 0
Global Managed Assets Fund...... 1,133 0 797 1,233 0
Harbor Fund..................... 2,087 0 13,857 2,164 0
High Income Corporate Bond
Fund........................... 1,223 0 15,426 1,223 0
Tax Exempt Trust:
- --------------------------------
High Yield Municipal Fund.... 2,821 0 1,821 2,982 0
Life Investment Trust:
- --------------------------------
LIT Asset Allocation
Portfolio*................... 1,133 0 6,506 1,725 0
LIT Domestic Income
Portfolio*................... 1,095 0 5,479 1,670 0
LIT Emerging Growth
Portfolio*................... 1,026 0 0 1,573 0
LIT Enterprise Portfolio*...... 1,169 0 7,898 1,782 0
LIT Global Equity Portfolio.... 1,026 0 0 1,573 0
LIT Government Portfolio*...... 1,144 0 5,615 1,734 0
LIT Growth and Income
Portfolio*................... 0 0 0 0 0
LIT Money Market Portfolio*.... 1,096 0 4,988 1,671 0
LIT Real Estate Securities
Portfolio*................... 1,054 0 0 1,621 0
Life Investment Trust
Total...................... 8,743 0 30,486 13,349 0
</TABLE>
- ---------------
* These portfolios of the Life Investment Trust are participating at a separate
meeting.
G-1
<PAGE> 78
ANNEX H
1996 RETIREMENT BENEFITS ACCRUED AS PART OF FUND EXPENSES+
<TABLE>
<CAPTION>
TRUSTEE
FISCAL ----------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN CARUSO GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES
--------- -------- -------- ------ ------- ----- ------- ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
- -------------------------------------
Global Equity Fund.................. 5/31 $224 $ 0 $ 0 $25 $1,042 $16 $ 0 $104 $ 474
Global Government Fund.............. 5/31 224 0 0 25 1,042 16 0 104 474
World Portfolio Series Trust
Total........................... 448 0 0 50 2,084 32 0 208 948
Global Managed Assets Fund........... 12/31 583 0 0 70 0 46 0 292 0
Harbor Fund.......................... 12/31 629 0 0 71 3,209 47 0 297 2,607
High Income Corporate Bond Fund...... 8/31 629 0 0 71 3,209 47 0 297 2,607
Tax-Exempt Trust:
- -------------------------------------
High Yield Municipal Fund........... 11/30 570 0 0 64 3,422 42 0 269 2,370
Life Investment Trust:
- -------------------------------------
LIT Asset Allocation Portfolio*..... 12/31 629 0 0 71 3,906 47 0 297 2,346
LIT Domestic Income Portfolio*...... 12/31 629 0 0 71 3,906 47 0 297 2,346
LIT Emerging Growth Portfolio*...... 12/31 578 0 0 70 0 46 0 292 0
LIT Enterprise Portfolio*........... 12/31 629 0 0 71 3,772 47 0 297 2,608
LIT Global Equity Portfolio......... 12/31 578 0 0 70 0 46 0 292 0
LIT Government Portfolio*........... 12/31 629 0 0 71 3,772 47 0 297 2,608
LIT Growth and Income Portfolio*.... 12/31 0 0 0 0 0 0 0 0 0
LIT Money Market Portfolio*......... 12/31 629 0 0 71 3,772 47 0 297 2,608
LIT Real Estate Securities
Portfolio*........................ 12/31 578 0 0 70 0 46 0 292 0
Life Investment Trust Total....... 4,879 0 0 565 19,128 373 0 2,361 12,516
<CAPTION>
TRUSTEE
-----------------------------------------------
FUND NAME ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
--------- -------- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
World Portfolio Series Trust:
- -------------------------------------
Global Equity Fund.................. $ 0 $ 0 $ 495 $ 71 $1,042
Global Government Fund.............. 0 0 495 71 1,042
World Portfolio Series Trust
Total........................... 0 0 990 142 2,084
Global Managed Assets Fund........... 0 0 1,018 198 0
Harbor Fund.......................... 0 0 1,260 203 3,772
High Income Corporate Bond Fund...... 0 0 1,260 203 3,722
Tax-Exempt Trust:
- -------------------------------------
High Yield Municipal Fund........... 0 0 1,193 182 3,422
Life Investment Trust:
- -------------------------------------
LIT Asset Allocation Portfolio*..... 0 0 1,325 202 3,906
LIT Domestic Income Portfolio*...... 0 0 1,325 202 3,906
LIT Emerging Growth Portfolio*...... 0 0 917 197 0
LIT Enterprise Portfolio*........... 0 0 1,315 201 3,772
LIT Global Equity Portfolio......... 0 0 917 197 0
LIT Government Portfolio*........... 0 0 1,315 201 3,772
LIT Growth and Income Portfolio*.... 0 0 0 0 0
LIT Money Market Portfolio*......... 0 0 1,315 201 3,772
LIT Real Estate Securities
Portfolio*........................ 0 0 917 197 0
Life Investment Trust Total....... 0 0 9,346 1,598 19,128
</TABLE>
- ---------------
* These portfolios of the Life Investment Trust are participating at a separate
meeting.
+ Asset Management has reimbursed each AC Fund for expenses related to the
retirement plan through December 31, 1996.
H-1
<PAGE> 79
ANNEX I
LIST OF 5% BENEFICIAL OWNERS
(AS OF APRIL 4, 1997)
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
FUND BENEFICIAL OWNER AMOUNT OF OWNERSHIP PERCENT
---- ------------------- ------------------- -------
<S> <C> <C> <C>
LIT GLOBAL EQUITY PORTFOLIO Van Kampen Am Cap Dist Inc 95,241.275 42.40%
Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Fl
New York, NY 10005
Nationwide Life Insurance Co 83,146.055 37.02%
Nationwide VLI Separate
Account
C/O IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co 46,237.123 20.58%
Nationwide Variable Separate
Account 3
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>
I-1
<PAGE> 80
ANNEX J
The table below sets forth the year in which each of the incumbent nominees to
the Board of Trustees initially was elected or appointed to the Board of
Trustees.
<TABLE>
<CAPTION>
TRUST BRANAGAN HEAGY(1) KENNEDY NELSON ROONEY ROBINSON SISTO WHALEN
----- -------- -------- ------- ------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life Investment Trust
Global Equity
Portfolio.......... 1995 1995 1995 1995 1997 1995 1995 1995
Global Managed
Assets............. 1993 1995 1995 1995 1997 1995 1993 1995
World Portfolio Series Trust
Global Equity
Fund............. 1991 1995 1995 1995 1997 1995 1990 1995
Global Government
Securities
Fund............. 1991 1995 1995 1995 1997 1995 1990 1995
Harbor Fund.......... 1991 1995 1995 1995 1997 1995 1979 1995
High Income Corporate
Bond Fund.......... 1991 1995 1995 1995 1997 1995 1979 1995
Tax-Exempt Trust
High Yield
Municipal Fund... 1991 1995 1995 1995 1997 1995 1984 1995
</TABLE>
- ---------------
(1) Ms. Heagy was appointed by the Trustees to the Board in 1995 in order to
fill a vacancy created by an increase in the number of trustees of the Fund
and has not been previously elected by shareholders. Mr. Rooney was
appointed by the Trustees to the Board in 1997 in order to fill a vacancy
created by the retirement of a former trustee and has not been previously
elected by shareholders. Each of the other incumbent trustees was last
approved by shareholders of the respective Trust at a joint meeting of
shareholders held on July 21, 1995.
J-1
<PAGE> 81
ANNEX K
The following table indicates the size of each investment company advised by
MSAM that has an investment objective similar to the Global Funds and the
respective advisory fee rate. Funds with fees subject to waivers are indicated
by an "*".
<TABLE>
<CAPTION>
OTHER FUNDS WITH ASSETS AS OF ANNUAL RATE OF MSAM'S
SIMILAR OBJECTIVE 3/31/97 ADVISORY FEES
----------------- ------------ ---------------------
<S> <C> <C>
Morgan Stanley Institutional Fund, Inc.*
Global Equity................ $ 86,950,074 0.80% of average daily net assets
Global Fixed Income.......... 99,985,239 0.50% of average daily net assets
Morgan Stanley Fund, Inc.*
Global Equity Allocation
Fund....................... $158,340,180 1.00% of average daily net assets
Global Fixed Income Fund..... 9,215,633 0.75% of average daily net assets
Morgan Stanley Universal Funds, Inc.*
Global Equity Portfolio...... $ 0(1) .80% of first $500 million
.75% from $500 million to $1
billion
.70% on excess over $1 billion as
a percentage of average daily net
assets
Fortis Series Fund
Global Asset Allocation
Series..................... $ 40,640,013 .50 of 1% of first $100 million
.40 of 1% on excess over $100
million of average daily net
assets
NASL Series Trust
Global Equity Trust.......... $731,373,891 .500% of first $50,000,000
.450% between $50,000,000 and
$200,000,000
.375% between $200,000,000 and
$500,000,000
.325% on excess over $500,000,000
of the current value of net assets
of the Portfolio
North American Funds
Global Equity Fund........... $115,766,352 .500% of first $50,000,000
.450% between $50,000,000 and
$200,000,000
.375% between $200,000,000 and
$500,000,000
.325% on excess over $500,000,000
of the current value of net assets
of the Portfolio
</TABLE>
- ---------------
(1) Fund has not yet commenced operations.
K-1
<PAGE> 82
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or
1-800-282-4404 for Morgan Stanley retail funds.
<PAGE> 83
------- A Wealth of Knowledge(R) A Knowledge of Wealth(TM) -------
VAN KAMPEN AMERICAN CAPITAL
SUB
<PAGE> 84
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE FORM OF PROXY
VAN KAMPEN AMERICAN CAPITAL XXXXXXXXXX FUND
JOINT SPECIAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of shares of VAN KAMPEN AMERICAN CAPITAL
XXXXXXXXXX FUND (the "Fund") hereby appoints Dennis J. McDonnell,
Ronald A. Nyberg and Edward C. Wood III, and each of them, with
full power of substitution and revocation, as proxies to
represent the undersigned at the Joint Meeting of Shareholders to
be held at the offices of Van Kampen American Capital, Inc., One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, on Wednesday,
May 28, 1997 at 11:00 a.m., and any and all adjournments thereof
(the "Meeting"), and thereat to vote all shares which the
undersigned would be entitled to vote, with all powers the
undersigned would possess if personally present, in accordance
with the following instructions.
Account No. No. of Shares Proxy No.
<TABLE>
<S> <C> <C> <C> <C>
1. FOR EACH FUND: to approve a new investment advisory FOR AGAINST ABSTAIN
agreement; [ ] [ ] [ ]
2a. FOR GLOBAL MANAGED ASSETS FUND, GLOBAL EQUITY FUND, GLOBAL
GOVERNMENT FUND AND LIT GLOBAL EQUITY FUND: To approve a new
subadvisory agreement with Morgan Stanley Asset Management
Inc.
2b. FOR HIGH YIELD MUNICIPAL FUND: To approve a new subadvisory
agreement with Van Kampen American Capital Advisors, Inc.
3. FOR EACH FUND: authority to vote for the election as
Trustee, the nominees named below: FOR WITHHOLD
[ ] [ ]
XXXXXXX, XXXXXXX, XXXXXXX, XXXXXXX, XXXXXXX, XXXXXXX,
XXXXXXX, XXXXXXX, XXXXXXX, XXXXXXX
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME ON THE LINE BELOW.
------------------------------------------------------------
FOR CORPORATE HIGH INCOME BOND FUND:
4.
4A. To approve an amendment to its fundamental investment
policy regarding unseasoned issuers;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4B. To approve an amendment to its fundamental investment
policy regarding diversification;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4C. To approve an amendment to its fundamental investment
policy regarding foreign securities;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
FOR HARBOR FUND: To approve an amendment to its fundamental
5. investment policy regarding real estate investment trusts; FOR AGAINST ABSTAIN
[ ] [ ] [ ]
FOR EACH FUND: To approve the proposal to ratify Price
6. Waterhouse LLP as independent accountants for the Fund's FOR AGAINST ABSTAIN
current fiscal year; and [ ] [ ] [ ]
To transact such other business as may properly come before
7. the Meeting.
</TABLE>
If more than one of the proxies, or their substitutes, are
present at the Meeting or any adjournment thereof, they jointly
(or, if only one is present and voting then that one) shall have
authority and may exercise all powers granted hereby. This Proxy,
when properly executed, will be voted in accordance with the
instructions marked hereon by the undersigned. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" EACH OF THE
PROPOSALS DESCRIBED HEREIN AND IN THE DISCRETION OF THE PROXIES
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE ACCOMPANYING
NOTICE OF MEETING AND PROXY STATEMENT FOR THE MEETING TO BE HELD
ON MAY 28, 1997.
Date , 1997
-------------------
----------------------------
Shareholder signature
----------------------------
Co-owner signature (if
applicable)
Please sign this Proxy
exactly as your name or
names appear on the books of
the Fund. When signing as
attorney, trustee, executor,
administrator, custodian,
guardian or corporate
officer, please give full
title. If shares are held
jointly, each holder should
sign.
