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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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September 4, 1996
Dear Van Kampen American Capital Exchange Fund Partner:
The enclosed proxy statement relates to a meeting of the partners of Van
Kampen American Capital Exchange Fund (the "Fund"). VK/AC Holding, Inc., the
corporate parent of the Fund's investment adviser, has entered into a merger
agreement with Morgan Stanley Group Inc. ("Morgan Stanley") and certain of
Morgan Stanley's affiliates. Pursuant to the merger agreement, your Fund's
investment adviser will become an indirect subsidiary of Morgan Stanley. Your
Fund's current investment adviser will continue to provide the Fund with
investment advisory and management services following the merger. The primary
purpose of the meeting is to permit the Fund's partners to consider a new
investment advisory agreement to take effect following the merger, as required
by the federal securities laws. The new investment advisory agreement between
your Fund and its investment adviser will be substantially identical to the
Fund's current investment advisory agreement, except for the dates of execution,
effectiveness and termination.
The attached proxy statement seeks partner approval on this item. Although we
encourage you to read carefully the full proxy statement, we have created a
brief question-and-answer section for your convenience.
Your vote is important and your participation
in the governance of your Fund does make a difference.
The proposal has been unanimously approved by the Managing General Partners of
the Fund, who recommend you vote "FOR" the proposal. YOUR IMMEDIATE RESPONSE
WILL HELP SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. 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 IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Sincerely,
Don G. Powell
Chief Executive Officer
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INFORMATION ABOUT YOUR PROXY STATEMENT
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. Federal securities laws require a vote by the Fund's partners on certain
matters whenever the Fund's investment adviser, or its parent corporation,
is subject to a change in control. Morgan Stanley's acquisition of the
corporate parent of your Fund's investment adviser may be deemed to be a
change of control. The proposed item your Fund is seeking partner approval
on is:
- approval of a new investment advisory agreement
Please refer to the proxy statement for a detailed explanation of the
proposed item.
Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. Your can expect the same management expertise and high quality shareholder
service you've grown accustomed to. The new investment advisory agreement
between your Fund and its investment adviser will be substantially
identical to the Fund's current investment advisory agreement, except for
the dates of execution, effectiveness and termination. The acquisition
will not cause a change in the portfolio manager of your Fund.
Q. WHY DO I NEED TO VOTE?
A. Your vote is needed to ensure that the proposal can be acted upon. Your
immediate response on the enclosed proxy card will help save on the costs
of any further solicitations for a partner vote. We encourage all partners
to participate in the governance of their Fund.
Q. HOW DO THE MANAGING GENERAL PARTNERS SUGGEST THAT I VOTE?
A. After careful consideration, the Managing General Partners of your Fund
unanimously recommend that you vote "FOR" the item proposed on the
enclosed proxy card.
Q. WHO IS PAYING FOR EXPENSES RELATED TO THE PARTNER MEETING?
A. Van Kampen American Capital will pay for those expenses relating to
reapproval of the investment advisory agreement.
Q. WHERE DO I MAIL MY PROXY CARD?
A. You may use the enclosed postage-paid envelope or mail
your proxy card to:
Proxy Tabulator
P.O. Box 9111
Hingham, MA 02043
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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 between 7:00 a.m. and 7:00 p.m. Central
time, Monday through Friday.
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VAN KAMPEN AMERICAN CAPITAL
EXCHANGE FUND
A CALIFORNIA LIMITED PARTNERSHIP
2800 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
TELEPHONE (800) 341-2911
NOTICE OF SPECIAL MEETING OF
PARTNERS
TO BE HELD OCTOBER 29, 1996
A Special Meeting of Partners (the "Meeting") of Van Kampen American Capital
Exchange Fund, a California limited partnership (the "Fund"), will be held at
the offices of Van Kampen American Capital, Inc., 2800 Post Oak Boulevard,
Houston, Texas 77056, in the 46th floor conference room, on Tuesday, October 29,
1996 at 2:30 p.m. for the following purposes:
1. To approve or disapprove a new investment advisory agreement; and
2. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
Partners of record at the close of business on September 3, 1996 are entitled
to notice of and to vote at this meeting or any adjournment thereof.
By Order of the Managing General Partners
Nori L. Gabert, Secretary
September 4, 1996
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THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT
(AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT) TO A
PARTNER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE FUND BY CALLING
(800) 341-2911 OR BY WRITING TO THE FUND AT 2800 POST OAK BOULEVARD, HOUSTON,
TEXAS 77056.
PARTNERS OF THE FUND 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 IN WHICH YOU WERE A PARTNER AS OF THE RECORD DATE, DATE
AND SIGN SUCH PROXY CARD, AND RETURN IT 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 MANAGING GENERAL PARTNERS RECOMMEND THAT YOU CAST YOUR VOTE:
- FOR APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
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PROXY STATEMENT
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
A CALIFORNIA LIMITED PARTNERSHIP
2800 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
TELEPHONE (800) 341-2911
SPECIAL MEETING OF PARTNERS
OCTOBER 29, 1996
This proxy statement is furnished in connection with the solicitation by the
Managing General Partners (the "Managers") of Van Kampen American Capital
Exchange Fund, a California limited partnership (the "Fund"), of proxies to be
voted at a Special Meeting of Partners, and all adjournments thereof (the
"Meeting"), to be held at the offices of Van Kampen American Capital, Inc., 2800
Post Oak Boulevard, Houston, Texas 77056, in the 46th floor conference room,
Tuesday, October 29, 1996, at 2:30 p.m. The approximate mailing date of this
proxy statement and accompanying form of proxy is September 4, 1996.
The primary purpose of the Meeting is to permit the Fund's partners 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 June 21, 1996 (the "Merger Agreement"), among Morgan Stanley
Group Inc. ("Morgan Stanley"), MSAM Holdings II, Inc., MSAM Acquisition Inc. and
VK/AC Holding, Inc. ("VKAC Holding"), the indirect parent corporation of the
Fund's investment adviser. Pursuant to the Merger Agreement, the Fund's
investment adviser will become an indirect subsidiary of Morgan Stanley. The
partner vote on the New Advisory Agreement is required under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a result of Morgan
Stanley's contemplated acquisition of the investment adviser. The Fund's New
Advisory Agreement is substantially identical to the Fund's Current Advisory
Agreement (defined below), except for the dates of execution, effectiveness and
termination.
Participating in the Meeting are holders of units of partnership interest
(collectively, the "Shares"), of the Fund.
The Meeting is scheduled as a meeting of the partners of the Fund (the
"Partners") to be held jointly with a meeting of the shareholders of other
investment companies advised by the Adviser (defined below). In the event that
any Partner present at the Meeting objects to the holding of a joint meeting and
moves for an adjournment of the meeting of the Fund to a time immediately after
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the Meeting so that the Fund's meeting may be held separately, the persons named
as proxies will vote in favor of the adjournment.
The Managers have fixed the close of business on September 3, 1996, as the
record date (the "Record Date") for the determination of holders of Shares of
the Fund entitled to vote at the Meeting. Partners of the Fund on the Record
Date will be entitled to one vote per Share with respect to the proposal
submitted to the Partners of the Fund for each Share of the Fund then held, with
no Share having cumulative voting rights.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT
(AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT) TO A
PARTNER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE FUND BY CALLING
(800) 341-2911 OR BY WRITING TO THE FUND, 2800 POST OAK BOULEVARD, HOUSTON,
TEXAS 77056.
At the close of business on August 12, 1996, there were issued and outstanding
305,671 Shares of the Fund.
As of August 12, 1996, 14.7% was held by Comerica Bank Detroit and Edward
Mardigian, P.O. Box 75000, Detroit, Michigan 48275-0001, as Trustees under a
revocable trust established by and for the benefit of Helen Mardigian, address
c/o the Trustees. To the knowledge of the Fund, no other person beneficially
owned more than 5% of the Fund's outstanding Shares.
VOTING
With respect to Proposal 1, a vote of a "majority of the outstanding voting
securities" is required, which is defined under the 1940 Act as the lesser of
(i) 67% or more of the voting securities of the 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 the Fund entitled to vote thereon.
The Managers recommend that you cast your vote:
- FOR approval of the New Advisory Agreement.
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" the
proposal as to which it is entitled to vote. A Partner who abstains from voting
on any or all matters will be deemed present at the meeting for quorum purposes,
but will not be deemed to have voted on the particular matter (or matters) as to
which the Partner has
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abstained. Similarly, in the event a nominee (such as a brokerage firm) holding
shares for beneficial owners votes on certain matters pursuant to discretionary
authority or instructions from beneficial owners, but with respect to one or
more other matters does not receive instructions from beneficial owners and/or
does not exercise discretionary authority (a so-called "non-vote"), the Shares
held by the nominee will be deemed present at the meeting for quorum purposes
but will not be deemed to have voted on such other matters. 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.
Partners who execute proxies may revoke them at any time before they are voted
by filing with the 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 Fund knows of no business other than that mentioned in Proposal 1 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 the
proposal are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies provided
they determine that such an adjournment and additional solicitation is
reasonable and in the interest of Partners based on a consideration of all
relevant factors, including the nature of the relevant proposal, the percentage
of affirmative 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.
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PROPOSAL 1: APPROVAL OF NEW ADVISORY AGREEMENT
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THE ADVISER
Van Kampen American Capital Asset Management, Inc. (the "Adviser") acts as
investment adviser for the Fund. The Adviser has acted as investment adviser for
the Fund since the Fund commenced its investment operations.
The Adviser currently is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VKAC Holding,
which in turn is controlled, through the ownership of a substantial majority of
its common stock, by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
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Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of VKAC own, in the
aggregate, approximately 6% of the common stock of VKAC Holding and have the
right to acquire, upon the exercise of options (whether or not vested),
approximately an additional 12% of the common stock of VKAC Holding. Currently,
and after giving effect to the exercise of such options, no officer or trustee
of the Fund owns or would own 5% of more of the common stock of VKAC Holding.
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.
Prior to December, 1994, the Adviser provided investment advisory services
under the name "American Capital Asset Management, Inc."
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 and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange, commodities and swaps
(involving foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; and global custody, securities clearance
services and securities lending. Morgan Stanley Asset Management Inc. ("MSAM")
also is a wholly-owned subsidiary of Morgan Stanley. As of June 30, 1996, MSAM,
together with its affiliated investment advisory companies, had approximately
$103.5 billion of assets under management and fiduciary advice.
THE ACQUISITION
Pursuant to the Merger Agreement, MSAM Acquisition Inc. will be merged with
and into VKAC Holding and VKAC Holding will be the surviving corporation (the
"Acquisition"). Following the Acquisition, VKAC Holding and the Adviser will be
indirect subsidiaries of Morgan Stanley.
The Adviser anticipates that the consummation of the Acquisition will occur by
the end of November 1996 provided that a number of conditions set forth in the
Merger Agreement are met or waived. The conditions require, among other things,
that as of the closing the shareholders of certain investment companies
(including the Funds) and investors in certain accounts advised by the Adviser
or its affiliates, which investment companies and accounts have aggregate assets
in excess of a specified minimum amount, have approved new investment advisory
agreements or
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consented to the assignment of existing advisory agreements. At the closing,
MSAM Acquisition Inc. will pay approximately $740 million (based on VKAC's
long-term debt outstanding as of July 31, 1996) in cash to the stockholders of
VKAC Holding (excluding certain management stockholders), and to persons owning
options to purchase stock of VKAC Holding, subject to certain purchase price
adjustments set forth in the Merger Agreement. As of July 31, 1996, VKAC had
long-term debt outstanding of approximately $410 million. To the extent that
pre-tax income of VKAC prior to the closing of the Acquisition permits the
repayment of its long-term debt, the purchase price for the equity interests in
VKAC Holding will be increased by the amount of long-term debt repaid. The
purchase price also is subject to certain adjustments based, among other things,
on assets under management of VKAC and its subsidiaries at the time of closing.
The Adviser also contemplates that, as part of the Acquisition, certain officers
and directors of VKAC Holding and its affiliates will contribute to MSAM
Holdings II, Inc. their existing shares of common stock of VKAC Holding in
exchange for approximately $25 million of shares of preferred stock of MSAM
Holdings II, Inc. which, in turn, will be exchangeable into common stock, par
value $1.00 per share, of Morgan Stanley at specified times over a four year
period. Such shares of preferred stock will represent, in the aggregate, 5% of
the combined voting power in MSAM Holdings II, Inc., the remainder of which will
be indirectly owned by Morgan Stanley.
VKAC Holding will engage in certain preparatory transactions prior to the
Acquisition, including the distribution to stockholders of VKAC Holding of (i)
all of VKAC Holding's investment in McCarthy, Crisanti & Maffei, Inc., a wholly-
owned subsidiary engaged in the business of distributing research and financial
information, (ii) all of VKAC Holding's investment in Hansberger Global
Investors, Inc., a company in which VKAC Holding made a minority investment in
May 1996, and (iii) certain related cash amounts.
There is no financing condition to the closing of the Acquisition. VKAC has
been advised by Morgan Stanley that as of August , 1996, no determination has
been made whether any additional indebtedness will be incurred by Morgan Stanley
and its affiliates or VKAC and its affiliates in connection with the
Acquisition. In addition, the disposition of VKAC's outstanding long-term
indebtedness (including its bank loans and senior notes) in connection with the
Acquisition has not yet been determined.
The operating revenue of VKAC and its subsidiaries for the fiscal year ended
December 31, 1995, less expenses for the same period, was more than adequate to
service VKAC's outstanding debt. VKAC prepaid $80 million of its long-term debt
in 1995, and has continued to make debt prepayments during 1996. VKAC Holding
and VKAC believe, based on the earnings experience of VKAC and its subsidiaries,
that after the Acquisition the operating revenue of VKAC and its subsidiaries
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should be more than sufficient to service their debt and that VKAC and its
subsidiaries should be able to conduct their respective operations as now
conducted and as proposed to be conducted.
The Merger Agreement does not contemplate any changes, other than changes in
the ordinary course of business, in the management or operation of the Adviser
relating to the Fund, the personnel managing the Fund or other services or
business activities of the Fund. The Acquisition is not expected to result in
material changes in the business, corporate structure or composition of the
senior management or personnel of the Adviser, or in the manner in which the
Adviser renders services to the Fund. Morgan Stanley has agreed in the Merger
Agreement that, for a period of two years from the date of the Acquisition, it
will cause the Adviser to provide compensation and employee benefits which are
substantially comparable in the aggregate to those presently provided. The
Adviser does not anticipate that the Acquisition or any ancillary transactions
will cause a reduction in the quality of services now provided to the Fund, or
have any adverse effect on the Adviser's ability to fulfill its obligations
under the New Advisory Agreement (defined below) or operate its business in a
manner consistent with past business practices.
Certain officers of the Adviser, including Don G. Powell, who also is a
Manager, previously entered into employment agreements with VKAC Holding which
expire from between 1997 and 2000. Certain officers of the Adviser also
previously entered into retention agreements with VKAC Holding, which will
remain in place for two years following the consummation of the Acquisition. The
Merger Agreement contemplates that Morgan Stanley will, and will cause VKAC
Holding to, honor such employment and retention agreements. 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 Fund) for a remaining
term of two to four years. As described above, certain officers and employees of
VKAC and the Adviser, including Mr. Powell, are expected to contribute their
existing shares of common stock of VKAC Holding to MSAM Holdings II, Inc. in
exchange for approximately $25 million of preferred stock in MSAM Holdings II,
Inc. which, in turn, will be exchangeable into common stock, par value $1.00 per
share, of Morgan Stanley at specified times over a four year period. Such shares
of preferred stock will represent, in the aggregate, 5% of the combined voting
power in MSAM Holdings II, Inc.
THE ADVISORY AGREEMENTS
Consummation of the Acquisition may constitute an "assignment" (as defined in
the 1940 Act) of the investment advisory agreement currently in effect between
the Fund and the Adviser (the "Current Advisory Agreement"). As required by the
1940 Act, the Current Advisory Agreement provides for its automatic termination
in the event of an assignment. See "The Current Advisory Agreement" below.
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In anticipation of the Acquisition and in order for the Adviser to continue to
serve as investment adviser to the Fund after consummation of the Acquisition, a
new investment advisory agreement (the "New Advisory Agreement") between the
Fund and the Adviser must be approved (i) by a majority of the Managers of the
Fund who are not parties to the New Advisory Agreement or interested persons of
any such party ("Disinterested Managers") and (ii) by the holders of a majority
of the outstanding voting securities (within the meaning of the 1940 Act) of the
Fund. See "The New Advisory Agreement" below.
The following summary of the Current Advisory Agreement and the New Advisory
Agreement set forth herein is qualified by reference to Annex A.
THE CURRENT ADVISORY AGREEMENT. The Current Advisory Agreement for the Fund
was last approved by a majority of the Managers, including a majority of the
Disinterested Managers, voting in person at a meeting called for that purpose on
June 12, 1996, to continue the Current Advisory Agreement for a period of one
year. The Current Advisory Agreement was last approved by Partners of the Fund
at a meeting held on December 16, 1994 relating to the acquisition of the
Adviser's corporate parent by The Van Kampen Merritt Companies, Inc.
The Current Advisory Agreement provides that the Adviser will supply
investment research and portfolio management, including the selection of
securities for the 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 the Fund, furnishes offices, necessary
facilities and equipment, provides administrative services, and permits its
officers and employees to serve without compensation as Managers and officers of
the Fund if duly elected to such positions.
The 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 Fund in
connection with the matters to which the Current Advisory Agreement relates
except a loss resulting from willful misfeasance, bad faith, negligence or
reckless disregard of its obligations or duties under the Current Advisory
Agreement.
Under the Current Advisory Agreement the Fund pays the Adviser as compensation
for the services rendered a monthly fee computed at the annual rate of one half
of one percent ( 1/2%) of the Fund's average net assets. The Fund's average net
assets are determined by taking the average of all determinations of the net
assets during a given calendar month. The advisory fee is payable for each
calendar month as soon as practicable after the end of that month. The fee
payable to the Adviser is reduced by any commissions, tender solicitation and
other fees, brokerage or similar payments received by the Adviser or any other
direct or indirect majority owned subsidiary of VKAC Holding, or its successors,
in connection with the purchase and sale of assets of the Fund, less any direct
expenses incurred by such person in
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connection with obtaining such commissions, fees, brokerage or similar payments.
Under the Current Advisory Agreement, the Adviser agrees to use its best efforts
to recapture tender offer solicitation fees and exchange offer fees in
connection with the Fund's transactions and to advise the Managers 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 VKAC
Holding, or its successor, to receive in connection with the Fund's portfolio
transactions or other arrangements which may benefit the Fund.
The Adviser's activities are subject to the review and supervision of the
Managers to which the Adviser renders periodic reports with respect to the
Fund's investment activities. The Current Advisory Agreement may be terminated
by either party, at any time, without penalty, on not more than 60 days nor less
than 30 days written notice, or upon such shorter notice as may be mutually
agreed upon, and will automatically terminate in the event of its assignment.
The net assets of the Fund as of August 12, 1996, as well as other investment
companies advised by the Adviser, and other investment companies for which the
Adviser acts as subadviser, the rates of compensation to the Adviser, the
aggregate amount of advisory fees paid by the Fund to the Adviser and the
aggregate amount of any other material payments by the Fund to the Adviser are
set forth at Annex B hereto.
The 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 auditors, 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
Managers and Partners, 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 a nonrecurring nature. The Fund also compensates ACCESS (defined below) for
transfer agency services provided pursuant to an agreement discussed below. See
"OTHER INFORMATION -- Transfer Agency and Service Agreement."
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THE NEW ADVISORY AGREEMENT. The Managers approved a proposed New Advisory
Agreement between the Fund and the Adviser on July 22, 1996, the form of which
is attached as Annex B. The form of the proposed New Advisory Agreement is
substantially identical to as the Current Advisory Agreement, except for the
dates of execution, effectiveness and termination.
The investment advisory fee as a percentage of net assets payable by the Fund
will be the same under the New Advisory Agreement as under the Current Advisory
Agreement. If the investment advisory fee under the New Advisory Agreement had
been in effect for the Fund's most recently completed fiscal year, advisory fees
paid to the Adviser by the Fund would have been identical to those paid under
the Current Advisory Agreement.
The Managers of the Fund held a meeting on July 22, 1996, at which meeting the
Managers, including the Disinterested Managers, unanimously approved the New
Advisory Agreement for the Fund and recommended the agreement for approval by
the Partners of the Fund at the Meeting. The New Advisory Agreement would take
effect as to the Fund upon the later to occur of (i) the obtaining of Partner
approval or (ii) the closing of the Acquisition. The New Advisory Agreement will
continue in effect for an initial two year term and thereafter for successive
annual periods as long as such continuance is approved in accordance with the
1940 Act.
In evaluating the New Advisory Agreement, the Managers took into account that
the 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 the Fund, are substantially identical, except
for the dates of execution, effectiveness and termination. The Managers also
considered other possible benefits to the Adviser and Morgan Stanley that may
result from the Acquisition, including the continued use of Morgan Stanley & Co.
and its affiliates, to the extent permitted by law, for brokerage services and
the possible retention of MSAM as a subadviser to certain Van Kampen American
Capital investment companies (not including the Fund).
The Managers also considered the terms of the Merger Agreement and the
possible effects of the Acquisition upon VKAC's and the Adviser's organization
and upon the ability of the Adviser to provide advisory services to the Fund.
The Managers considered the skills and capabilities of the Adviser and the
representations of Morgan Stanley that no material change was planned in the
current management or facilities of the Adviser. In this regard, representatives
of Morgan Stanley met with the Managers at the board meeting at which time such
representatives described the resources available to VKAC and the Adviser, after
giving effect to the Acquisition, to secure for the Fund quality investment
research, investment advice and other client services. The Managers considered
the financial resources of Morgan Stanley and Morgan Stanley's representation to
the Managers that it will provide sufficient capital to support the operations
of the Adviser. The
9
<PAGE> 16
Managers considered the reputation, expertise and resources of Morgan Stanley
and its affiliates in domestic and international financial markets. The Managers
considered the continued employment of members of senior management of the
Adviser and VKAC pursuant to employment and retention agreements and the
incentives provided to such members and other key employees of the Adviser and
VKAC, to be important to help to assure continuity of the personnel primarily
responsible for maintaining the quality of investment advisory and other
services for the Fund.
The Managers also considered the effect on the Fund of the Adviser becoming an
affiliate of Morgan Stanley. Following the Acquisition, the 1940 Act will
prohibit or impose certain conditions on the ability of the Fund to engage in
certain transactions with Morgan Stanley and its affiliates. For example, absent
exemptive relief the Fund will be prohibited from purchasing securities from
Morgan Stanley & Co., a wholly-owned broker-dealer subsidiary of Morgan Stanley,
in transactions in which Morgan Stanley & Co. acts as a principal, and the Fund
will have to satisfy certain conditions in order to engage in securities
transactions in which Morgan Stanley & Co. acts as a broker or to purchase
securities in an underwritten offering in which Morgan Stanley & Co. is acting
as an underwriter. In this connection, management of the Adviser represented to
the Managers that they do not believe these prohibitions or conditions will have
a material effect on the management or performance of the Fund.
The Managers were advised that Section 15(f) of the 1940 Act is applicable to
the Acquisition. 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, as long as 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 securities 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 the Fund is aware of no circumstances arising from the
Acquisition, preparatory transactions to the Acquisition or any potential
financing that might result in the imposition of an "unfair burden" on the Fund.
Moreover, Morgan Stanley has agreed in the Merger Agreement that, upon
consummation of the Acquisition, it will take no action which would have the
effect, directly or
10
<PAGE> 17
indirectly, of violating any of the provisions of Section 15(f) of the 1940 Act
in respect of the Acquisition. In this regard, the Merger Agreement provides
that Morgan Stanley will use its reasonable best efforts to assure that (i) no
"unfair burden" will be imposed on the Fund as a result of the transactions
contemplated by the Merger Agreement and (ii) except as provided in the Merger
Agreement, the investment advisory fees paid by the Fund will not be increased
for a period of two years from the closing of the Acquisition and that, during
such period, advisory fee waivers shall not be permitted to expire except in
accordance with their terms. The Adviser may permit a voluntary fee waiver
unilaterally adopted by it to expire at any time and no assurance can be given
that voluntary waivers will not be permitted to expire during the two year
period. During the two year period following the Acquisition, the Adviser does
not intend to change its policies with respect to the circumstances under which
voluntary fee waivers may be permitted to expire. Following the Acquisition, to
the extent permitted by applicable law, VKAC anticipates that the Fund will
continue to use Morgan Stanley & Co. and its affiliates for brokerage services.
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 current composition of the
Managers of the Fund would be in compliance with such condition subsequent to
the Acquisition.
After consideration of the above factors, and such other factors and
information that the Managers deemed relevant, the Managers, including the
Disinterested Managers, unanimously approved the New Advisory Agreement with
respect to the Fund and voted to recommend its approval to the Partners of the
Fund.
In the event that Partners of the Fund do not approve the New Advisory
Agreement and the Acquisition is consummated, the Managers would seek to obtain
for the Fund interim investment advisory services at the lesser of cost or the
current fee rate either from the Adviser or from another advisory organization.
Thereafter, the Managers would either negotiate a new investment advisory
agreement with an advisory organization selected by the Managers or make
appropriate arrangements, in either event subject to approval of the Partners of
the Fund. In the event the Acquisition is not consummated, the Adviser would
continue to serve as investment adviser of the Fund pursuant to the terms of the
Current Advisory Agreement.
PARTNER APPROVAL
To become effective, the New Advisory Agreement must be approved by a majority
of the outstanding voting securities of the Fund. The vote of "a majority of the
outstanding voting securities" is defined under the 1940 Act as the lesser of
the
11
<PAGE> 18
vote of (i) 67% or more of the Shares of the 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 Fund entitled to vote thereon. The New Advisory
Agreement was unanimously approved by the Managers after consideration of all
factors which they determined to be relevant to their deliberations, including
those discussed above. The Managers also unanimously determined to submit the
New Advisory Agreement for consideration by the Partners of the Fund. THE
MANAGING GENERAL PARTNERS OF THE FUND RECOMMEND A VOTE "FOR" APPROVAL OF THE NEW
ADVISORY AGREEMENT.
- ------------------------------------------------------------------------------
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. The address of each of the
following persons is noted below.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ----------------------------------------------
<S> <C>
Don G. Powell............... President, Chief Executive Officer and a
2800 Post Oak Blvd. Director of VKAC Holding and VKAC and
Houston, TX 77056 Chairman, Chief Executive Officer and a
Director of Van Kampen American Capital
Distributors, Inc. ("Distributors"), the
Adviser, Van Kampen American Capital
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser"),
and Van Kampen American Capital Advisors, Inc.
Chairman, President and a Director of Van
Kampen American Capital Exchange Corporation,
American Capital Contractual Services, Inc.,
Van Kampen Merritt Equity Holdings Corp., and
American Capital Shareholders Corporation.
Chairman and a Director of ACCESS Investor
Services, Inc. ("ACCESS"), Van Kampen Merritt
Equity Advisors Corp., McCarthy, Crisanti &
Maffei, Inc., and Van Kampen American Capital
Trust Company, Chairman, President and a
Director of Van Kampen American Capital
Services, Inc. Prior to July 1996, Chairman
and Director of VSM, Inc. and VCJ Inc. Prior
to July 1996, President, Chief Executive
Officer and a Trustee/ Director of certain
open-end investment companies and closed end
investment companies advised by the Adviser
and the VK Adviser. Chairman of the Board,
President and Managing General Partner of the
Fund. Director or Trustee of other open-end
investment companies and closed-end investment
companies advised by the Adviser.
</TABLE>
12
<PAGE> 19
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ----------------------------------------------
<S> <C>
Dennis J. McDonnell......... President, Chief Operating Officer and a
One Parkview Plaza Director of the Adviser, the VK Adviser, Van
Oakbrook Terrace, IL 60181 Kampen American Capital Advisors, Inc. and Van
Kampen American Capital Management, Inc.
Executive Vice President and a Director of
VKAC Holding and VKAC. President and Director
of Van Kampen Merritt Equity Advisors Corp.
Director of Van Kampen Merritt Equity Holding
Corp. and McCarthy, Crisanti & Maffei, S.A.
Chief Executive Officer and Director of
McCarthy, Crisanti & Maffei, Inc. Chairman and
a Director of MCM Asia Pacific Company,
Limited. President and a Trustee/Director of
open-end investment companies and closed-end
investment companies advised by the Adviser
and the VK Adviser. Executive Vice President
of certain open-end investment companies and
closed-end investment companies advised by the
Adviser. Prior to July 1996, President, Chief
Operating Officer and Director of VSM Inc. and
VCJ Inc. Prior to December, 1991, Senior Vice
President of Van Kampen Merritt Inc.
Ronald A. Nyberg............ Executive Vice President, General Counsel and
One Parkview Plaza Secretary of VKAC Holding and VKAC. Executive
Oakbrook Terrace, IL 60181 Vice President, General Counsel and a Director
of the Distributors, the Adviser, the VK
Adviser. Van Kampen American Capital
Management, Inc., Van Kampen Merritt Equity
Advisors Corp., and Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel and Assistant Secretary of Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services, Inc.,
Van Kampen American Capital Exchange
Corporation, ACCESS, Van Kampen American
Capital Services, Inc. and American Capital
Shareholders Corporation. Executive Vice
President, General Counsel, Assistant
Secretary and Director of Van Kampen American
Capital Trust Company. General Counsel of
McCarthy, Crisanti & Maffei, Inc. Vice
President and Secretary of open-end investment
companies and closed-end investment companies
advised by the VK Adviser. Vice President of
open-end investment companies and closed-end
investment companies advised by the Adviser.
Director of ICI Mutual Insurance Co., a
provider of insurance to members of the
Investment Company Institute. Prior to July
1996, Executive Vice President and General
Counsel of VSM Inc., and Executive Vice
President, General Counsel and Director of
VCI.
</TABLE>
13
<PAGE> 20
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ----------------------------------------------
<S> <C>
William R. Rybak............ Executive Vice President and Chief Financial
One Parkview Plaza Officer of VKAC Holding and VKAC since
Oakbrook Terrace, IL 60181 February 1993, and Treasurer of VKAC Holding
through December 1993. Executive Vice
President, Chief Financial Officer and a
Director of Distributors, the Adviser, the VK
Adviser and Van Kampen American Capital
Management, Inc. Executive Vice President,
Chief Financial Officer, Treasurer and
Director of Van Kampen Merritt Equity Advisors
Corp. 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
American Capital Contractual Services, Inc.
Executive Vice President, Chief Financial
Officer and Treasurer of American Capital
Shareholders Corporation, Van Kampen American
Capital Services, Inc. and Van Kampen Merritt
Equity Holdings Corp. Chief Financial Officer
and Treasurer of McCarthy, Crisanti & Maffei,
Inc. Chairman of the Board of Hinsdale
Financial Corp., a savings and loan holding
company. Prior to July 1996, Executive Vice
President, Chief Financial Officer and a
Director of VCJ Inc., and Executive Vice
President and Chief Financial Officer of VSM
Inc.
Peter W. Hegel.............. Executive Vice President of the Adviser, the
One Parkview Plaza VK Adviser, and Van Kampen American Capital
Oakbrook Terrace, IL 60181 Advisors, Inc. Director of McCarthy, Crisanti
& Maffei, Inc. and Van Kampen American Capital
Management, Inc. Vice President of open-end
investment companies and certain closed-end
investment companies advised by the Adviser
and VK Adviser. Prior to July 1996, Director
of VSM Inc.
Robert C. Peck, Jr.......... Executive Vice President of the VK Adviser.
2800 Post Oak Blvd. Executive Vice President and Director of the
Houston, TX 77056 Adviser. Vice President of certain open-end
investment companies and certain closed-end
investment companies advised by the Adviser
and the VK Adviser.
Alan T. Sachtleben.......... Executive Vice President of the VK Adviser.
2800 Post Oak Boulevard Executive Vice President and Director of the
Houston, Texas 77056 Adviser. Vice President of certain open-end
investment companies and closed-end investment
companies advised by the Adviser and the VK
Adviser.
</TABLE>
14
<PAGE> 21
The following table sets forth the Managers and officers of the Fund who are
also officers of the Adviser.
<TABLE>
<CAPTION>
NAME POSITION WITH THE FUNDS
- ------------------------------- -------------------------------------------
<S> <C>
Don G. Powell.................. President
Dennis J. McDonnell............ Executive Vice President
William N. Brown............... Vice President
Nori L. Gabert................. Principal Legal Officer and Secretary
Curtis W. Morell............... Vice President and Chief Accounting Officer
Ronald A. Nyberg............... Vice President
Alan T. Sachtleben............. Chief Investment Officer
Edward C. Wood III............. Vice President and Chief Financial Officer
John L. Sullivan............... Treasurer
Tanya M. Loden................. Controller
Huey P. Falgout, Jr. .......... Assistant Secretary
Steven M. Hill................. Assistant Treasurer
Robert Sullivan................ Assistant Controller
</TABLE>
The officers of the Fund serve for one year or until their respective
successors are chosen and qualified. The Fund's officers receive no compensation
from the Fund but may also be officers of the Adviser or officers of affiliates
of the Adviser and receive compensation in such capacities.
With respect to the Fund, as of August 12, 1996, the Managers and officers as
a group owned less than 1% of the outstanding shares of the Fund. At such date
the "interested persons" of the Fund as a group owned an aggregate of less than
5% of the outstanding shares of the Fund.
No Manager, other than Mr. Powell, has owned any securities of or has had any
other material interest in, or a material interest in a material transaction
with, the Adviser or its respective affiliates since the beginning of the Fund's
most recent fiscal year.
Following the Acquisition, the Adviser will be an affiliate of Morgan Stanley
& Co., a registered broker-dealer. The Fund paid no commissions to Morgan &
Stanley Co. during its most recently completed fiscal year.
TRANSFER AGENCY AND SERVICE AGREEMENT
The Fund has entered into a Transfer Agency and Service Agreement with ACCESS
Investor Services, Inc. ("ACCESS"), the transfer agent for the Fund and an
affiliate of the Adviser, or VKAC, as the case may be, pursuant to which ACCESS
provides transfer agency and dividend disbursing services for the Fund. Under
the Transfer Agency and Service Agreement, the Fund paid ACCESS $15,514 for its
most recently completed fiscal year.
15
<PAGE> 22
- ------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------
VKAC Holding will bear the expense of preparing, printing and mailing the
enclosed form of proxy, the accompanying Notice, this Proxy Statement.
In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph or personal interview by
representatives of the Fund, the Adviser or VKAC, or by First Data Investors
Services Group, a solicitation firm located in Boston, Massachusetts that has
been engaged to assist in proxy solicitation at an estimated cost of
approximately $ .
- ------------------------------------------------------------------------------
PARTNER PROPOSALS
- ------------------------------------------------------------------------------
Partner proposals intended to be presented at the 1997 Annual Meeting of the
Partners of the Fund must be received by May 6, 1997 to be included in the proxy
statement and the form of proxy relating to that meeting.
- ------------------------------------------------------------------------------
GENERAL
- ------------------------------------------------------------------------------
Management of the 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 Partners of the Fund entitled to be present and vote at the Meeting
will be available at the offices of the Fund, 2800 Post Oak Boulevard, Houston,
Texas 77056, for inspection by any Partner 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 the Fund may necessitate
adjournment and may subject the 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.
NORI L. GABERT, Secretary
September 4, 1996
16
<PAGE> 23
ANNEX A
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY AGREEMENT
- ------------------------------------------------------------------------------
AGREEMENT made this day of , 1996, by and between VAN KAMPEN
AMERICAN CAPITAL EXCHANGE FUND, a California Limited Partnership 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 Managing
General Partners of the FUND and in conformity with applicable laws, the FUND's
Certificate and Agreement of Limited Partnership, Bylaws, 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 legal services except for services provided by outside
counsel to the FUND selected by the Managing General Partners, and the
supervision of the FUND's Principal Financial and Accounting Officer 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 Managing General Partner and
FUND officer who is an affiliated person of the ADVISER, except the
compensation of the FUND's Principal Financial and Accounting Officer and
related expenses as provided below.
A-1
<PAGE> 24
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Managing General Partners 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 Managing General Partners and officers other than those who
are affiliated persons of the ADVISER; (iv) compensation of its Principal
Financial and Accounting Officer, compensation of personnel working under the
Principal Financial and Accounting Officer's direction, and expenses of office
space, facilities, and equipment used by the Principal Financial and Accounting
Officer 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 Partners; (v) fees of
outside counsel to and of independent accountants of the FUND selected by the
Managing General Partners; (vi) custodian, registrar and transfer 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 Limited Partners including proxy solicitations therefor; (xii)
expenses for servicing the Limited Partners' 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 Managing General
A-2
<PAGE> 25
Partners; 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
partners with respect thereto. To the extent that any of the foregoing expenses
are allocated between the FUND and any other party, such allocations shall be
pursuant to methods approved by the Managing General Partners.
(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 any of the
Partners, officers and employees of the FUND may be a shareholder, director,
officer or employee of, or be otherwise interested in, the ADVISER, and in any
person controlled by or under common control with the ADVISER, and the ADVISER,
and any person controlled by or under common control with the ADVISER, may have
an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or to
any Partner of the FUND, for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may be sustained in
the purchase, holding or sale of any security.
(3) COMPENSATION PAYABLE TO ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed at
the annual rate of one half of one percent ( 1/2%) of the FUND's average net
assets. The ADVISER hereby agrees that it shall look for payment of such
compensation solely to the FUND's assets and not to any personal assets of any
partner of the FUND.
Such average net assets shall be determined by taking the average of all of
the determinations of net asset value, made in the manner provided in the FUND's
Certificate and Agreement of Limited Partnership, for each business day during a
given calendar month. 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. or its successor, in connection
A-3
<PAGE> 26
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
Managing General Partners 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., or its successor, 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 1 1/2% of the first $30 million of the FUND's average daily
net assets determined in the manner described in Section 3, plus 1% of any
excess over $30 million of such average daily net assets so taken, 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 exclude expenses incurred by the FUND (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; and (v) any
indemnification paid by the FUND to its officers and Managing General Partners
and the ADVISER in accordance with applicable state and federal laws as a result
of such litigation.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) DURATION OF AGREEMENT
This Agreement shall have an initial term of two years from the date hereof
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved at least annually by the vote of a majority of the
FUND's Managing General Partners 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 Managing General Partners or a majority of the FUND's outstanding voting
securities.
A-4
<PAGE> 27
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Managing General
Partners, by vote of a majority of the FUND's outstanding voting securities, or
by the ADVISER, on not more than 60 days', nor less than 30 days' written
notice, or upon such shorter notice as may be mutually agreed upon. Such
termination shall be without payment of any penalty.
Notwithstanding the foregoing, the ADVISER hereby agrees that should any
Limited Partner be sued for any obligation of the FUND as a general partner,
which obligation or alleged obligation was incurred by the FUND while the
ADVISER acted as such pursuant to this or any successor agreement, the ADVISER
will indemnify such Limited Partner against any liability as general partner
provided that such Limited Partner promptly notifies ADVISER in writing of the
pendency of the action (unless the ADVISER is otherwise on notice) and provided
the ADVISER has the opportunity to participate in the defense of the case.
The ADVISER hereby acknowledges that it is familiar with the provisions of the
FUND's Partnership Agreement, and specifically Article 8.4 under which action
may be taken only by majority vote of the Managing General Partners and no
individual Managing General Partner is authorized to act on behalf of the FUND
or to bind it except on such majority vote.
As further consideration for its being chosen as investment adviser for the
FUND, ADVISER will cause VAN KAMPEN AMERICAN CAPITAL EXCHANGE CORPORATION, its
wholly owned subsidiary, to own not less than 1% of the FUND's outstanding
Shares, acquired for cash at net asset value, so long as such subsidiary shall
remain a Non-Managing General Partner of the FUND, except that if the ADVISER
ceases to continue as investment adviser to the FUND, it shall be permitted to
withdraw its subsidiary's capital contribution on the earlier of two years
following the termination of such status or two business days following the due
approval at a meeting of Partners of a qualified successor as investment
adviser.
(5) 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 Investment
Company Act of 1940 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, or such interpretive positions as may be
taken by the Commission or its staff, under said 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.
A-5
<PAGE> 28
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 EXCHANGE FUND
By:
- --------------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------
Its:
- --------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By:
- --------------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------
Its:
- --------------------------------------------------------------------------
A-6
<PAGE> 29
ANNEX B
The following table indicates the size of each investment company advised or
subadvised by the Adviser, the advisory fee rate, the amount of advisory fees or
subadvisory fees paid to the Adviser for the last fiscal year, and the amount of
other material fees paid to such persons for such fiscal year. Average net
assets are calculated on a daily basis for open-end funds and on a weekly basis
for closed-end funds.
<TABLE>
<CAPTION>
AMOUNT
OF OTHER
MATERIAL
ANNUAL AGGREGATE PAYMENTS
MANAGEMENT AMOUNT OF TO
NET FEE AS ADVISER/ ADVISER/
ASSETS PERCENT SUBADVISER'S SUBADVISER
ON OF FEE FOR FOR THE
AUGUST AVERAGE LAST LAST
12, NET FISCAL FISCAL
NAME 1996 ASSETS YEAR YEAR
- ------------------------------ -------- -------- --------- --------
<S> <C> <C> <C> <C>
(IN MILLIONS)
ADVISER
OPEN-END:
Van Kampen American Capital
Comstock Fund............... $1,200.7 (12) $5,080,809 $146,156
Van Kampen American Capital
Corporate Bond Fund......... 195.6 (1) 907,960 71,183
Van Kampen American Capital
Emerging Growth Fund........ 2,261.0 (20) 5,810,837 158,937
Van Kampen American Capital
Enterprise Fund............. 1,372.9 (12) 5,293,215 131,706
Van Kampen American Capital
Equity Income Fund.......... 989.4 (1) 2,603,866 108,597
Van Kampen American Capital
Exchange Fund............... 51.8 (2) 221,917 52,584
Van Kampen American Capital
Global Managed Assets Fund.. 29.6 (15) 27,072 29,687
Van Kampen American Capital
Government Securities
Fund........................ 2,551.3 (4) 14,930,811 361,240
Van Kampen American Capital
Government Target Fund...... 16.0 (2) 78,242+ 49,880
Van Kampen American Capital
Growth and Income Fund...... 678.6 (1) 1,412,556 76,989
Van Kampen American Capital
Harbor Fund................. 447.7 (17) 2,494,437 91,039
Van Kampen American Capital
High Incorporate Bond
Fund........................ 551.0 (5) 2,650,114 107,087
Van Kampen American Capital
Life Investment Trust
Asset Allocation Fund....... 62.4 (6) 216,539+ 57,576
Domestic Income Fund........ 22.0 (6) 43,177+ 49,819
Emerging Growth Fund........ 5.3 (26) (15,060)+ 3,222
</TABLE>
B-1
<PAGE> 30
<TABLE>
<CAPTION>
AMOUNT
OF OTHER
MATERIAL
ANNUAL AGGREGATE PAYMENTS
MANAGEMENT AMOUNT OF TO
NET FEE AS ADVISER/ ADVISER/
ASSETS PERCENT SUBADVISER'S SUBADVISER
ON OF FEE FOR FOR THE
AUGUST AVERAGE LAST LAST
12, NET FISCAL FISCAL
NAME 1996 ASSETS YEAR YEAR
- ------------------------------ -------- -------- --------- --------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Enterprise Fund............. $ 79.3 (6) $ 299,035+ $ 55,772
Global Equity Fund.......... 3.4 (15) (32,048)+ 7,200
Growth and Income Fund...... * (27) * *
Government Fund............. 59.8 (6) 256,026+ 57,526
Money Market Fund........... 20.6 (6) 40,915+ 48,109
Real Estate Securities
Fund...................... 35.8 (15) 10,963+ 3,153
Van Kampen American Capital
Limited Maturity Government
Fund........................ 72.3 (3) 312,558+ 65,703
Van Kampen American Capital
Real Estate Securities
Fund........................ 29.6 (15) 98,904+ 48,971
Van Kampen American Capital
Reserve Fund................ 536.0 (1) 1,836,244+ 127,090
Van Kampen American Capital
Pace Fund................... 2,530.8 (12) 11,589,844 351,270
Van Kampen American Capital
Small Capitalization Fund... 219.1 (23) -- 23,710
Van Kampen American Capital
Tax-Exempt Trust High Yield
Municipal Fund.............. 850.8 (17) 3,897,884+ 158,098
Van Kampen American Capital
Texas Tax Free Income Fund.. 17.1 (16) 61,589+ 67,413
Van Kampen American Capital
U.S. Government Trust For
Income...................... 224.5 (18) 1,874,427+ 91,294
Van Kampen American Capital
World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund........ 209.0 (15) 1,600,616+ 31,987
Van Kampen American Capital
Global Government
Securities Fund........... 140.4 (14) 1,249,294+ 31,987
Common Sense Trust
Common Sense Emerging Growth
Fund...................... 72.5 (9) 2,169+ 6,365
Common Sense Government
Fund...................... 318.8 (13) 1,979,623 92,277
Common Sense Growth Fund.... 2,943.9 (9) 14,436,748 277,991
</TABLE>
B-2
<PAGE> 31
<TABLE>
<CAPTION>
AMOUNT
OF OTHER
MATERIAL
ANNUAL AGGREGATE PAYMENTS
MANAGEMENT AMOUNT OF TO
NET FEE AS ADVISER/ ADVISER/
ASSETS PERCENT SUBADVISER'S SUBADVISER
ON OF FEE FOR FOR THE
AUGUST AVERAGE LAST LAST
12, NET FISCAL FISCAL
NAME 1996 ASSETS YEAR YEAR
- ------------------------------ -------- -------- --------- --------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Common Sense Growth and
Income Fund............... $ 984.7 (9) $4,937,121 $123,458
Common Sense International
Equity Fund............... 15.5 (15) (46,974)+ 4,807
Common Sense Money Market
Fund...................... 60.8 (10) (118,614) 57,491
Common Sense Municipal Bond
Fund...................... 122.4 (11) 678,530 90,522
Smith Barney Series Fund
Emerging Growth Portfolio... 19.0 (21) 80,733 0
Smith Barney/Travelers Series
Van Kampen American Capital
Enterprise Portfolio...... 84.7 (24) 41,601 0
WRL Series Fund, Inc
Emerging Growth Portfolio... 392.6 (19) 1,838,573 0
WNL Series Trust
Emerging Growth Portfolio... 1.1 (2) ** **
CLOSED-END:
Van Kampen American Capital
Bond Fund, Inc. 231.6 (1) 1,126,704 82,097
Van Kampen American Capital
Convertible Securities,
Inc......................... 80.3 (1) 382,525 56,504
Van Kampen American Capital
Income Trust................ 119.9 (8) 763,485 65,526
Mosher, Inc. ................. 37.3 (22) 147,821+ 0
</TABLE>
- ---------------
(1) 0.50% on the first $150 million; 0.45% on the next $100 million; 0.40% on
the next $100 million; and 0.35% on the excess over $350 million.
(2) 0.50% on the Fund's average net assets.
(3) 0.50% on the first $1 billion; 0.475% on the next $1 billion; 0.45% of the
next $1 billion; 0.40% on the next $1 billion; and 0.35% on the excess over
$4 billion.
(4) 0.540% on the first $1 billion; 0.515% on the next $1 billion; 0.490% on
the next $1 billion; 0.440% on the next $1 billion; 0.390% on the next $1
billion; 0.340% on the next $1 billion; 0.290% on the next $1 billion; and
0.240% on the excess of over $7 billion.
B-3
<PAGE> 32
(5) 0.625% on the first $150 million; 0.55% on the next $150 million; and 0.50%
on the next $300 million.
(6) 0.50% on the first $500 million of the combined net assets of all Funds;
0.45% on the next $500 million; and 0.40% on the excess over $1 billion.
(7) 0.60% on the first $300 million: 0.55% on the next $300 million; and 0.50%
on the excess over $600 million.
(8) 0.65% of the Fund's average weekly net assets.
(9) 0.65% on the first $1 billion; 0.60% on the next $1 billion; 0.55% on the
next $1 billion; 0.50% on the next $1 billion; and 0.45% on the excess over
$4 billion.
(10) 0.50% on the first $2 billion; 0.475% on the next $2 billion; and 0.45% on
the excess over $4 billion.
(11) 0.60% on the first $1 billion; 0.55% on the next $1 billion; 0.50% on the
next $1 billion; and 0.45% on the excess over $3 billion.
(12) 0.50% on the first $1 billion; 0.45% on the next $1 billion; 0.40% on the
next $1 billion; and 0.35% on the excess over $3 billion.
(13) 0.60% on the first $1 billion; 0.55% on the next $1 billion; 0.50% on the
next $1 billion; 0.45% on the next $1 billion; 0.40% in the next $1
billion; and 0.35% on the excess over $5 billion.
(14) 0.75% of the Fund's average daily net assets.
(15) 1.00% of the Fund's average daily net assets.
(16) 0.60% on the first $300 million; 0.55% on the next $300 million; and 0.50%
on the excess over $600 million.
(17) 0.55% on the first $350 million; 0.50% on the next $350 million; 0.45% on
the next $350 million; and 0.40% on the excess over $1.05 billion.
(18) 0.60% of the Fund's average daily net assets.
(19) 50% of the fees received by the investment adviser to the Portfolio less
50% of the amount of the excess expenses paid by the investment adviser on
behalf of the Portfolio.
(20) 0.575% on the first $350 million; 0.525% on the next $350 million; 0.475%
on the next $350 million; and 0.425% on the excess over $1.05 billion.
(21) 0.75 of 1.00% of the Portfolio's average daily net assets.
(22) 0.45% on the Fund's average weekly net assets.
(23) The Adviser serves as investment adviser without fee for Van Kampen
American Capital Small Capitalization Fund ("Small Cap"), the shares of
which are held by other Van Kampen American Capital Funds listed above. The
assets in Small Cap are also reflected in the assets of the Funds that own
shares of Small Cap.
B-4
<PAGE> 33
(24) 0.325% of the Portfolio's average daily net assets.
(25) 0.65% of the Fund's average daily net assets.
(26) 0.70% of the Fund's average daily net assets.
(27) 0.60% on the first $500 million; 0.55% on the excess over $500 million.
* This fund has not commenced operations.
** This fund has not yet completed a full year of operations.
N/A Not applicable
+ This amount is net of either a voluntary advisory fee waiver or expense
reduction.
B-5
<PAGE> 34
Vote this proxy card TODAY!
Your prompt response will
save the expense of additional mailings.
Please be sure to sign and date this Proxy.
Please return the proxy card in the
enclosed envelope.
-- Please fold and detach card at perforation before mailing --
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND, FOR THE MEETING OF PARTNERS
A CALIFORNIA LIMITED PARTNERSHIP TO BE HELD ON OCTOBER 29, 1996
PROXY SOLICITED BY THE MANAGING GENERAL PARTNERS
The undersigned, revoking previous proxies, hereby appoint(s) Don G. Powell,
Robert A. Nyberg and Nori L. Gabert or any one of them, proxies, with full
power of substitution, to vote all units of partnership interest of the Fund
which the undersigned is entitled to vote at the scheduled Special Meeting of
Partners of the Fund to be held in the 46th floor conference room of Van Kampen
American Capital, Inc., 2800 Post Oak Boulevard, Houston, Texas 77056 on
October 29, 1996 at 2:30 p.m., and at any adjournment of the meeting. They shall
vote as recommended by the Managing General Partners, unless otherwise
indicated on the reverse side, and in their discretion upon such other matters
as may properly come before the meeting. Receipt of the Notice of the Meeting
and the accompanying Proxy Statement is hereby acknowledged.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date ______________________, 1996
NOTE: Please sign exactly as your
name appears on this Proxy. When
signing in a fiduciary capacity,
such as executor, administrator,
trustee, attorney, guardian, etc.,
please so indicate. Corporate and
partnership proxies should be
signed by an authorized person
indicating the person's title.
----------------------------------
| |
| |
----------------------------------
Signature(s) (Title(s) if applicable)
WHERE UNITS OF PARTNERSHIP INTEREST
ARE REGISTERED WITH JOINT OWNERS,
ALL JOINT OWNERS SHOULD SIGN. 626
<PAGE> 35
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Please return the proxy card in the enclosed envelope.
-- Please fold and detach card at perforation before mailing --
Please refer to the Proxy Statement discussion of the following matters.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSAL.
As to any other matter, said proxies shall vote in accordance with their best
judgment.
THE MANAGING GENERAL PARTNERS RECOMMEND A VOTE FOR THE FOLLOWING:
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW, AS SHOWN, USING BLUE OR
BLACK INK OR DARK PENCIL. DO NOT USE RED INK. [ ]
FOR AGAINST ABSTAIN
1. TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT. / / / / / / 1.
