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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1997.
FILE NO. 811-2611
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 18 [X]
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VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
A CALIFORNIA LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THE AGREEMENT OF LIMITED PARTNERSHIP)
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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Copy to:
JOHN A. DUDLEY, ESQ.
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE
WASHINGTON, D.C. 20036
(202) 775-8190
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
Items 1, 2, 3 and 5A of Part A are omitted pursuant to Item F.4. of the general
instructions to Form N-1A.
This Prospectus, which incorporates by reference the entire Statement of
Additional Information, concisely sets forth certain information about the
Registrant that a prospective investor should know before investing in shares of
the Registrant. Shareholders should read this Prospectus carefully and retain it
for future reference. A copy of the Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related materials at the SEC's internet web site
(http://www.sec.gov).
This Prospectus is dated April 22, 1997.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
(a) (i) Van Kampen American Capital Exchange Fund (a California
Limited Partnership), formerly known as American Capital
Exchange Fund ("Registrant"), is an open-end diversified
management investment company, registered under the
Investment Company Act of 1940 (the "1940 Act") and formed on
December 4, 1975 under the Uniform Limited Partnership Act of
California. Registrant commenced business as an investment
company on December 13, 1976 under the name American General
Exchange Fund.
(ii) The Registrant's principal investment objective is long-term
growth of capital, while the production of current income is
an important secondary objective. Registrant attempts to
achieve these objectives by investing in common stocks or
convertible securities. Registrant may, however, for defensive
purposes, temporarily own other types of securities, including
investment grade bonds, preferred stocks and money market
obligations such as government securities, certificates of
deposit and commercial paper. The foregoing policies may not
be changed without approval of a majority of the Registrant's
outstanding voting securities. Registrant's temporary
investments will consist of U.S. Treasury Bills and U.S.
Treasury Bonds, both issued by and supported by the full faith
and credit of the United States Government, and commercial
paper rated P-1, if by Moody's Investors Service, Inc., or A-1
if by Standard & Poor's Ratings Group and repurchase
agreements with domestic banks and broker-dealers.
(b) INAPPLICABLE.
(c) If Registrant were unable to pay its liabilities, partners
receiving distributions could be liable to creditors of Registrant
to the extent of such distributions, plus interest.
ITEM 5. MANAGEMENT OF THE FUND
(a) The business and affairs of the Registrant are managed under the
direction of the Board of Managing General Partners of the
Registrant. Subject to the Partners' authority, the Adviser
determines the investment of Registrant's assets, provides
administrative services and manages Registrant's business and
affairs.
(b) Van Kampen American Capital Asset Management, Inc. (the "Adviser"),
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, serves as
investment adviser to Registrant.
The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American
Capital is a diversified asset management company with more than two
million retail investor accounts, extensive capabilities for
managing institutional portfolios, and more than $57 billion under
management or supervision. Van Kampen American Capital's more than
40 open-end and 38 closed-end funds and more
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than 2,500 unit investment trusts are professionally distributed by
leading financial advisers nationwide.
Van Kampen American Capital is a wholly-owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is a wholly-owned subsidiary of
MSAM Holdings II, Inc. which, in turn, is a wholly-owned subsidiary
of Morgan Stanley Group Inc.
Morgan Stanley Group Inc. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley & Co. Incorporated, a
registered broker-dealer and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services.
Their principal businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock
brokerage and research services; 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.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter,
Discover & Co. announced that they had entered into an Agreement and
Plan of Merger to form a new company to be named Morgan Stanley,
Dean Witter, Discover & Co. Subject to certain conditions being met,
it is currently anticipated that the transaction will close in
mid-1997. Thereafter, Van Kampen American Capital Asset Management,
Inc. will be an indirect subsidiary of Morgan Stanley, Dean Witter,
Discover & Co.
Dean Witter, Discover & Co. is a financial services company with
three major businesses: full service brokerage, credit services and
asset management of more than $100 billion in customer accounts.
The Registrant retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its
portfolio securities. Under an investment advisory agreement between
the Adviser and the Registrant (the "Advisory Agreement"), the
Registrant pays the Adviser a fee monthly calculated at the annual
rate of 0.50% of average daily net assets of the Registrant. Under
the Advisory Agreement, Registrant also reimburses the Adviser for
the cost of the Registrant's accounting services, which include
maintaining its financial books and records and calculating its
daily net asset value.
(c) Mr. Stephen Boyd is primarily responsible for the day-to-day
management of the Registrant's portfolio. Mr. Boyd has been manager
of the Registrant's portfolio since 1991. Mr. Boyd is a Senior Vice
President of the Adviser. Since June 1995, Mr. Boyd has been a
Senior Vice President of Van Kampen American Capital Investment
Advisory Corp.
(d) INAPPLICABLE.
(e) ACCESS Investor Services, Inc. ("ACCESS"), P.O. Box 418256, Kansas
City, Missouri 64141-9256, serves as shareholder service agent for
the Fund. ACCESS, a wholly-owned subsidiary of Van Kampen American
Capital, provides these services at cost plus a profit.
(f) For the last fiscal year, advisory fees plus the cost of accounting
services paid by the Registrant equaled 0.50% of the Registrant's
average net assets. Operating expenses paid by the Registrant
include partner service agency fees, custodial fees, legal and
accounting fees, the costs of reports and proxies to partners,
managing general partners' fees, and all other business expenses
not specifically assumed by the Adviser. For the same period, the
Registrant's other operating expenses were 0.43% of average net
assets.
(g) The Adviser places portfolio transactions for other advisory
accounts, including other investment companies. Research services
furnished by firms through which the Registrant effects its
securities transactions may be used by the Adviser in servicing all
of its accounts; not all such services may be used by the Adviser
in connection with the Registrant. In the
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opinion of the Adviser, the benefits from research services to each
of the accounts (including the Registrant) managed by the Adviser
cannot be measured separately. Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each
account for brokerage and research services will vary. In the
opinion of the Adviser, however, such costs to the Registrant will
not be disproportionate to the benefits received by the Registrant
on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell
securities by the Registrant and another advisory account. In some
cases, this procedure could have an adverse effect on the price or
the amount of securities available to the Registrant. In making such
allocations, the main factors considered by the Adviser are the
respective investment objectives, the relative size of the portfolio
holdings of the same or comparable securities, the availability of
cash for investment, the size of the investment commitments
generally held, and the opinions of the persons responsible for
recommending the investment.
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
INAPPLICABLE.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
(a) Registrant has outstanding units of partnership interest ("shares")
with equal rights to participate in distributions made by
Registrant and equal rights to Registrant's assets. Each share is
entitled to one vote and there is no cumulative voting. Shares may
be redeemed at any time at net asset value with no charge.
(b) INAPPLICABLE.
(c) INAPPLICABLE.
(d) INAPPLICABLE.
(e) Inquiries regarding Registrant or its shares should be made to the
Registrant's Secretary, Ronald A. Nyberg, at One Parkview Plaza,
Oakbrook Terrace, IL 60181.
(f) The Registrant makes quarterly distributions of net investment
income, exclusive of capital gains, to the partners. The Managing
General Partners determine each year whether and to what extent any
realized capital gains are to be distributed and such
distributions, if any, will be made annually. Distributions, when
made, are made equally among the outstanding shares held by
partners. Dividends and capital gains distributions are
automatically applied to purchase additional shares of the
Registrant at the next determined net asset value unless the
shareholder instructs otherwise.
(g) The Registrant is classified as a partnership for federal income
tax purposes. Each partner is required to report on their personal
federal income tax return their share of Registrant's income,
gains, losses, deductions or credits for the taxable year of the
Registrant ending within or with their taxable year, regardless of
whether cash or other properties are distributed. For federal
income tax purposes, capital gain or loss is allocated equally
among shares outstanding on the day recognized, and all other items
of Registrant's income, gain, loss, deduction and credit during a
year is allocated to each partner in the proportion which the total
number of shares such partner held on each day during the year
bears to the total of the outstanding shares of the Registrant on
each day during the year.
The tax basis to each partner of their shares in Registrant is
determined by reference to the basis of the securities and any money
that they contributed to the Registrant in exchange for their shares
increased by their share of the Registrant's taxable income and
decreased (but not below zero) principally by the Registrant's
distributions and their share of the Registrant's net losses. If
cash distributed exceeds basis, the excess will be taxable as gain
from the sale of
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a capital asset. The Registrant's tax basis in the securities
contributed by the partners is the same as that of the partners
contributing such securities.
Redemptions for cash will generally be taxable as capital gains to
the extent that such cash exceeds a partner's adjusted basis in his
total shares of the Registrant. The receipt of securities on
redemption is not a taxable event to the partner or to the
Registrant. The partner's basis in securities received on redemption
will be the same as the Registrant's. Net long-term capital gains
realized by the Registrant will be taxable to the partners at the
current capital gain rates.
(h) INAPPLICABLE.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
INAPPLICABLE.
ITEM 8. REDEMPTION OR REPURCHASES
(a) Partners may redeem shares at any time without charge at the next
determined net asset value by submitting a written request in
proper form to ACCESS at P.O. Box 418256, Kansas City, Missouri
64141-9256.
The net asset value of shares redeemed (other than redemptions under
a systematic withdrawal plan) may be paid in cash or securities, at
the option of Registrant, and will ordinarily be paid in whole or in
part in securities. Registrant's valuation will determine the
quantity of securities tendered. Registrant will select securities
for tender in redemptions based on tax or investment considerations.
Registrant will determine its per share net asset value as of the
close of each business day on the New York Stock Exchange.
Registrant's net assets equal the value of its portfolio securities,
plus all cash and other assets (including dividends and interest
accrued but not collected) less all liabilities (including accrued
expenses but excluding partner capital contributions). Registrant's
portfolio securities are valued at the last sales price on the
exchange where principally traded, or, if no sale occurred on that
day, at the mean between the closing bid and asked prices;
securities not so traded are valued in like manner, if market
quotations are available, or at the mean between the highest bid and
the lowest asked prices if there is no last sales price or closing
bid and asked prices. The value of any other securities and assets
is the fair value as determined in good faith by the Managing
General Partners.
Payment for shares redeemed will be made within seven days after
acceptance by ACCESS of the request and any other necessary
documents in proper order. Redemptions are not made on days during
which the New York Stock Exchange is closed. The right of redemption
may be suspended and the payment therefore may be postponed for more
than seven days during any period when (a) the New York Stock
Exchange is closed for other than customary weekends or holidays;
(b) trading on the New York Stock Exchange is restricted; (c) an
emergency exists as a result of which disposal by the Registrant of
securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Registrant to fairly determine the
value of its net assets; or (d) the SEC, by order, so permits.
(b) While there is no charge when shares are redeemed or repurchased
through the Registrant or through Van Kampen American Capital
Distributors, Inc., an affiliate of the Adviser, dealers may make a
charge for effecting a repurchase.
(c) INAPPLICABLE.
(d) Payment for shares redeemed may be postponed or the right of
redemption suspended as provided by the rules of the SEC.
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ITEM 9. PENDING LEGAL PROCEEDINGS
INAPPLICABLE.
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PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE
Van Kampen American Capital Exchange Fund (a California Limited
Partnership) is a diversified open-end management investment company registered
under the Investment Company Act of 1940 ("1940 Act") and formed on December 4,
1975 under the Uniform Limited Partnership Act of California. Registrant
commenced business as an investment company on December 13, 1976 under the name
American General Exchange Fund.
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Registrant's prospectus (the "Prospectus") dated as of the same date as this
Statement of Additional Information. This Statement of Additional Information
does not include all of the information a prospective investor should consider
before purchasing shares of the Registrant. Investors should obtain and read the
Prospectus prior to purchasing shares of the Registrant. A Prospectus may be
obtained without charge by writing or calling Van Kampen American Capital
Distributors, Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at
(800) 421-5666.
This Statement of Additional Information is dated April 22, 1997.
The Registrant's principal investment objective is long-term growth of
capital, while the production of current income is an important secondary
objective. Registrant attempts to achieve these objectives by investing in
common stocks or convertible securities. Registrant may, however, for defensive
purposes, temporarily own other types of securities, including investment grade
bonds, preferred stocks and money market obligations such as government
securities, certificates of deposit and commercial paper. The foregoing policies
may not be changed without approval of a majority of the Registrant's
outstanding voting securities. Registrant's temporary investments will consist
of U.S. Treasury Bills and U.S. Treasury Bonds, both issued by and supported by
full faith and credit of the United States Government, and commercial paper
rated P-1, if by Moody's Investors Service, Inc., or A-1 if by Standard & Poor's
Ratings Group and repurchase agreements with domestic banks and broker-dealers.
ITEM 11. TABLE OF CONTENTS
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PAGE
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General Information and History............................. B-1
Investment Objectives and Policies.......................... B-2
Management of the Fund...................................... B-3
Control Persons and Principal Holders of Securities......... B-8
Investment Advisory and Other Services...................... B-9
Brokerage Allocation and Other Practices.................... B-11
Capital Stock and Other Securities.......................... B-12
Purchase, Redemption and Pricing of Securities Being
Offered..................................................... B-12
Tax Status.................................................. B-12
Underwriters................................................ B-12
Calculation of Performance Data............................. B-12
Report of Independent Accountants........................... B-13
Financial Statements........................................ B-14
Notes to Financial Statements............................... B-20
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ITEM 12. GENERAL INFORMATION AND HISTORY
The name of the Registrant was changed from American Capital Exchange Fund
to Van Kampen American Capital Exchange Fund (a California Limited Partnership)
on April 26, 1996.
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The Registrant and Van Kampen American Capital Asset Management, Inc., (the
"Adviser") have adopted Codes of Ethics designed to recognize the fiduciary
relationship between the Registrant and the Adviser and its employees. The Codes
permit directors, trustees, officers and employees to buy and sell securities
for their personal accounts subject to certain restrictions. Persons with access
to certain sensitive information are subject to preclearance and other
procedures designed to prevent conflicts of interest.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
(a) In seeking to attain its investment objective of long-term growth of
capital, and, secondarily, production of income, Registrant will
acquire securities for long-term appreciation and does not intend to
engage to any significant degree in short-term trading. Capital
gains taxes will be considered in determining the sale of portfolio
securities. However, sales will be effected whenever believed to be
in the best interests of the Partners, even though capital gains may
be recognized thereby.
Registrant has no present intention of investing in corporate bonds,
preferred stocks or certificates of deposit in an amount in excess of 5% of the
value of its net assets.
(b) Registrant has adopted certain investment restrictions which may be
altered or rescinded only with the approval by the vote of a
majority of its outstanding voting shares, which is defined by the
Investment Company Act of 1940, as amended (the "1940 Act"), as the
lesser of (i) 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy, or (ii) more than
50% of the outstanding voting securities. Registrant may not:
(1) Purchase securities on margin or make short sales.
(2) Purchase or write any options, puts, calls, straddles, spreads
or combinations thereof.
(3) Borrow money, except from banks for a purpose other than the
purchase of securities, such borrowing not to exceed 5% of the
Registrant's total assets at market value at the time of
borrowing. Any such borrowing may be secured provided that not
more than 10% of the total assets at market value at the time of
pledging may be used as security for such borrowings.
(4) Engage in the underwriting of securities or invest in securities
subject to restrictions on resale.
(5) Invest more than 25% of its assets at market value at the time
of purchase in securities of companies all of which conduct
their principal activities in the same industry.
(6) Invest in real estate (including interests in real estate
investment trusts) or invest in oil, gas or mineral exploration
or development programs, except in publicly traded securities of
issuers which engage in such business.
(7) Buy or sell commodities or commodity contracts.
(8) Make loans of money or securities to other persons provided that
this limitation shall not prevent the purchase of a portion of
an issue of bonds, notes, debentures or other debt securities
which are publicly distributed or of a type customarily
purchased by institutional investors.
(9) Invest more than 5% of its total assets at market value at the
time of purchase in the securities of any one issuer (other than
obligations of the United States Government or any
instrumentalities thereof).
(10) Purchase securities if such purchase would result in the
Registrant owning more than 10% of the outstanding voting
securities of any one issuer at the time of purchase.
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(11) Invest in securities of companies which have a record, together
with their predecessors, of less than three years of continuous
operation.
(12) Purchase securities issued by any other investment company or
investment trust.
(13) Purchase or hold securities of any company if any of its General
Partners, or officers or directors of Registrant's investment
adviser, who beneficially own more than 0.50% of the securities
of that company together own beneficially more than 5% of the
securities of such company.
(14) Invest in companies for the purpose of exercising control or
management. (Registrant's officers may be authorized to vote
proxies issued with respect to its portfolio securities
consistently with its investment objectives).
(15) Invest in or hold warrants unless received with respect to
securities held by Registrant.
(16) Invest in foreign securities unless listed at the time of
purchase on the New York Stock Exchange.
(17) Invest more than 5% of its total assets at market value at the
time of purchase in equity securities which are not readily
marketable.
Registrant does not issue senior securities.
(c) INAPPLICABLE.
(d) The Registrant's portfolio had no turnover during the fiscal year
ended December 31, 1996.
ITEM 14. MANAGEMENT OF THE FUND
(a) The Managing General Partners and executive officers and their
principal occupations for the past five years are listed below.
For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the Adviser (excluding the
Registrant) and each of the open-end investment companies advised by Van Kampen
American Capital Investment Advisory Corp. (the "VK Adviser").
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TRUSTEES
NAME AND POSITION HELD PRINCIPAL OCCUPATIONS
ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
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Donald M. Carlton, PH.D. Managing General President and Chief Executive of Radian
Radian International, LLC Partner International L.L.C. (chemical engineering).
8501 N. Mopac Blvd. Director of National Instruments Corp. and
Bldg. #6 Central and Southwest Corporation. Formerly
Austin TX 78759 Director of The Hartford Steam Boiler
Date of Birth: 07/20/37 Inspection and Insurance Company
(insurance/engineering services).(1)
Stephen R. Gross Managing General Managing Partner of Gross, Collins & Cress,
Gross, Collins & Cress, P.C. Partner P.C. (accounting firm). Director, Charter
2625 Cumberland Parkway Bank & Trust, Marietta, Georgia.(1)
Suite 400
Atlanta, GA 30339
Date of Birth: 10/08/47
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TRUSTEES
NAME AND POSITION HELD PRINCIPAL OCCUPATIONS
ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
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Don G. Powell* Managing General President, Chief Executive Officer and a
Van Kampen Partner, Chief Director of VK/AC Holding, Inc. ("Holding")
American Capital, Inc. Executive Officer and and Van Kampen American Capital,
2800 Post Oak Blvd., Chairman of the Board Inc.("VKAC"). Chairman, Chief Executive
45th Flr. Officer and a Director of Van Kampen
Houston, TX 77056 American Capital Distributors, Inc. (the
Date of Birth: 10/19/39 "Distributor"), the Adviser, the VK Adviser,
Van Kampen American Capital Management, Inc.
and Van Kampen American Capital Advisors,
Inc. Chairman, President and a Director of
Van Kampen American Capital Exchange
Corporation, American Capital Contractual
Services, Inc. and American Capital
Shareholders Corporation. Chairman and a
Director of ACCESS Investor Services, Inc.
("ACCESS"), Van Kampen Merritt Equity
Advisors Corp., Van Kampen Merritt Equity
Holdings Corp., and VCJ Inc., McCarthy,
Crisanti & Maffei, Inc., McCarthy, Crisanti
& Maffei Acquisition and Van Kampen American
Capital Trust Company. Chairman, President
and a Director of Van Kampen American
Capital Services, Inc. Formerly President,
Chief Executive Officer and a Trustee of
each of the Van Kampen American Capital
funds advised by the Adviser and the VK
Adviser. Director, Trustee or Managing
General Partner of other open-end investment
companies and closed-end investment
companies advised by the Adviser. Chairman
of the Board of the closed-end investment
companies advised by the VK Adviser.
Alan B. Shepard, Jr. Managing General President, Seven Fourteen Enterprises, Inc.
Seven Fourteen Enterprises Partner (investments). Partner, Houston Partners
1512 Bonifacio Rd. (venture capital). Director and Vice
P.O. Box 63 Chairman, Kwik-Copy Corporation (printing).
Pebble Beach, CA Director, Allied Waste Industries (waste
93953-0063 treatment).(1)
Date of Birth: 11/18/23
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(1) A trustee of Van Kampen American Capital Bond Fund, Van Kampen American
Capital Convertible Securities Fund and Van Kampen American Capital Income
Trust, investment companies advised by the Adviser and trustee of Common
Sense Trust, an open-end investment company of which the Adviser serves as
adviser for seven of the series.
(*) Mr. Powell is an "interested person" (within the meaning of Section 2(a)(19)
of 1940 Act) of the Adviser and the Registrant by reason of his position
with the Adviser.
OFFICERS
The address for Curtis W. Morell, Alan T. Sachtleben, Paul R. Wolkenberg,
Tanya M. Loden, Huey P. Falgout, Jr. and Robert Sullivan is 2800 Post Oak Blvd.,
Houston, TX 77056. The address for Dennis J. McDonnell, Peter W. Hegel, Ronald
A. Nyberg, Edward C. Wood III, John L. Sullivan, Nicholas Dalmaso,
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Scott E. Martin, Weston B. Wetherell and Steven M. Hill is One Parkview Plaza,
Oakbrook Terrace, IL 60181.
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POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND AGE WITH THE REGISTRANT DURING PAST 5 YEARS
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Nicholas Dalmaso........ Legal Officer and Assistant Vice President and Senior
Date of Birth: Assistant Secretary Attorney of Van Kampen American Capital.
03/01/65 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the Adviser.
Prior to May 1992, attorney for Cantwell &
Cantwell, a Chicago law firm.
Huey P. Falgout, Jr..... Legal Officer and Assistant Vice President and Senior
Date of Birth: Assistant Secretary Attorney of VKAC. Assistant Vice President
11/15/63 and Assistant Secretary of the Distributor,
the Adviser, the VK Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds.
Peter W. Hegel.......... Vice President Executive Vice President of the VK Adviser,
Date of Birth: the Adviser, Van Kampen American Capital
06/25/56 Management, Inc. and Van Kampen American
Capital Advisors, Inc. Prior to September
1996, Director of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996, Director
of VSM Inc. Vice President of each of the
Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Steven M. Hill.......... Assistant Treasurer Assistant Vice President of the Adviser and
Date of Birth: VK Adviser. Assistant Treasurer of each of
10/16/64 the Van Kampen American Capital Funds.
Assistant Treasurer of the closed-end funds
advised by the VK Adviser.
Tanya M. Loden.......... Financial Officer Controller of most of the investment
Date of Birth: companies advised by the Adviser, formerly
11/19/59 Tax Manager/Assistant Controller.
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POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND AGE WITH THE REGISTRANT DURING PAST 5 YEARS
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Scott E. Martin......... Legal Officer and Senior Vice President, Deputy General
Date of Birth: Assistant Secretary Counsel and Assistant Secretary of Van
08/20/56 Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the Adviser.
Dennis J. McDonnell..... Executive Vice President President, Chief Operating Officer and a
Date of Birth: Director of the Adviser, the VK Adviser and
05/20/42 Van Kampen American Capital Management,
Inc. Executive Vice President and a
Director of VK/AC Holding, Inc. and VKAC.
Chief Executive Officer of McCarthy,
Crisanti & Maffei, Inc. Chairman and a
Director of MCM Asia Pacific Company, Ltd.
Executive Vice President and a Trustee of
each of the Van Kampen American Capital
Funds. President of the closed-end
investment companies advised by the VK
Adviser. Prior to December, 1991, Senior
Vice President of Van Kampen Merritt Inc.
Curtis W. Morell........ Vice President and Chief Vice President and Chief Accounting Officer
Date of Birth: Accounting Officer of most of the investment companies advised
08/04/46 by the Adviser.
</TABLE>
B-6
<PAGE> 13
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND AGE WITH THE REGISTRANT DURING PAST 5 YEARS
------------ --------------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg........ Vice President, Principal Executive Vice President, General Counsel
Date of Birth: Legal Officer and and Secretary of Van Kampen American
07/29/53 Secretary Capital and VK/AC Holding, Inc. Executive
Vice President, General Counsel and a
Director of the Distributor, Executive Vice
President and General Counsel of the
Adviser and the VK Adviser, Van Kampen
American Capital Management, Inc., VSU Inc.
VCJ, 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, American Capital Shareholders
Corporation, and Van Kampen American
Capital Trust Company. General Counsel of
McCarthy, Crisanti & Maffei, Inc. and
McCarthy, Crisanti & Maffei Acquisition
Corp. Vice President and Secretary of each
of the Van Kampen American Capital Funds.
Secretary of the closed-end funds advised
by the VK Adviser. Director of ICI Mutual
Insurance Co., a provider of insurance to
members of the Investment Company
Institute.
Alan T. Sachtleben...... Chief Investment Officer Executive Vice President and a Director of
Date of Birth: the Adviser. Executive Vice President of
04/20/42 the VK Adviser. Vice President of each of
the Van Kampen American Capital Funds.
John L. Sullivan........ Treasurer First Vice President of the Adviser and the
Date of Birth: VK Adviser. Treasurer of each of the Van
08/20/55 Kampen American Capital Funds. Controller
of the closed-end funds advised by the VK
Adviser. Formerly Controller of open-end
funds advised by VK Adviser.
M. Robert Sullivan...... Assistant Controller Assistant Vice President of the Adviser and
Date of Birth: the VK Adviser. Assistant Controller of
03/30/53 each of the Van Kampen American Capital
Funds and other investment companies
advised by the Adviser and the VK Adviser.
Weston B. Wetherell..... Legal Officer and Vice President, Associate General Counsel
Date of Birth: Assistant Secretary and Assistant Secretary of Van Kampen
06/15/56 American Capital, the VK Adviser, the
Adviser, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the Adviser.
</TABLE>
B-7
<PAGE> 14
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND AGE WITH THE REGISTRANT DURING PAST 5 YEARS
------------ --------------------- ---------------------
<S> <C> <C>
Paul R. Wolkenberg...... Vice President Executive Vice President of the Adviser.
Date of Birth: President, Chief Executive Officer and a
11/10/44 Director of Van Kampen American Capital
Trust Company and ACCESS. Vice President of
each of the Van Kampen American Capital
Funds.
Edward C. Wood III...... Vice President and Chief Senior Vice President of the VK Adviser.
Date of Birth: Financial Officer Vice President and Chief Financial Officer
01/11/56 of each of the Van Kampen American Capital
Funds. Vice President, Treasurer and Chief
Financial Officer of the closed-end funds
advised by the VK Adviser.
</TABLE>
(b) See Item 14(a).
(c) During the last fiscal year the four Managing General Partners who
were not affiliated with the Adviser received as a group $33,500 in
Managing General Partner's fees plus expenses from Registrant. Such
Managing General Partners also received compensation for serving as
directors of other investment companies advised by the Adviser as
identified in the notes to the foregoing table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL(2)
RETIREMENT COMPENSATION
AGGREGATE BENEFITS FROM REGISTRANT
COMPENSATION ACCRUED AS AND FUND
FROM PART OF FUND COMPLEX PAID
NAME OF PERSON REGISTRANT EXPENSES(1) TO DIRECTORS
-------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Dr. Donald M. Carlton(3).......................... $2,000 $9,000 $46,750
Stephen R. Gross(3)............................... 2,000 9,000 52,750
Dr. Norman Hackerman(4)........................... 6,000 6,750 13,500
Dr. F. Robert Paulsen(5).......................... 9,500 9,000 59,750
Alan B. Shepard, Jr. ............................. 8,250 9,000 47,750
Miller Upton(4)................................... 6,500 6,750 13,500
</TABLE>
- ---------------
(1) The Managing General Partners of the Registrant instituted a Retirement Plan
effective April 26, 1996. For the current Managing General Partners not
affiliated with the Adviser, the annual retirement benefit payable per year
for a ten year period is based upon the highest total annual compensation
received in any of the three calendar years preceding retirement. Managing
General Partners with more than five but less than ten years of service at
retirement will receive a prorated reduced benefit.
(2) Reflects eleven investment companies in the fund complex. Amounts reflected
are for the calendar year ended December 31, 1996.
(3) Messrs. Carlton and Gross were elected as Managing General Partners on April
26, 1996.
(4) Messrs. Hackerman and Upton have retired as Managing General Partners as of
April 26, 1996.
(5) Mr. Paulsen retired as a Managing General Partner as of April 10, 1997.
Sullivan & Worcester LLP serves as legal counsel to the Registrant.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) INAPPLICABLE.
B-8
<PAGE> 15
(b) At April 4, 1997, 15.01% of the Registrant's outstanding shares was
held by Comerica Bank of 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.
(c) At April 4, 1997, all Managing General Partners and officers as a
group owned less than 1% of Registrant's outstanding voting
securities.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
(a) (i) The Adviser and ACCESS, the Registrant's shareholder service
agent, are wholly-owned subsidiaries of VKAC, which is a
wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc.
which, in turn, is a wholly-owned subsidiary of Morgan
Stanley Group Inc. The Adviser's principal office is located
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Morgan Stanley Group Inc. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley & Co.
Incorporated, a registered broker-dealer and investment
adviser, and Morgan Stanley International, are engaged in a
wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance
advisory activities; merchant banking; stock brokerage and
research services; 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.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter,
Discover & Co. announced that they had entered into an
Agreement and Plan of Merger to form a new company to be named
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain
conditions being met, it is currently anticipated that the
transaction will close in mid-1997. Thereafter, Van Kampen
American Capital Asset Management, Inc. will be an indirect
subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Dean Witter, Discover & Co. is a financial services company
with three major businesses: full service brokerage, credit
services and asset management of more than $100 billion in
customer accounts.
(ii) See Item 14(a).
(iii) Registrant and the Adviser are parties to an investment
advisory agreement (the "Agreement"). Under the Advisory
Agreement, Registrant pays to the Adviser as compensation for
the services rendered, facilities furnished, and expenses paid
by it a fee payable monthly computed on average daily net
assets of Registrant at annual rate of 0.50%. The Adviser
received $187,807, $221,917 and $264,323, in advisory fees
from the Registrant during the fiscal years ended December 31,
1994, 1995 and 1996, respectively.
The average net asset value is determined by taking the average
of all of the determinations of net asset value for each
business day during a given calendar month. Such fee is payable
for each calendar month as soon as practicable after the end of
that month. The 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, in connection with
the purchase and sale of portfolio investments of the
Registrant, less any direct expenses incurred by such
subsidiary of VKAC in connection with obtaining such payments.
The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange
B-9
<PAGE> 16
offer fees for the Registrant's benefit, and to advise the
Managing General Partners of Registrant of any other
commissions, fees, brokerage or similar payments which may be
possible under applicable laws for the Adviser or any other
direct or indirect majority owned subsidiary of VKAC to receive
in connection with Registrant's portfolio transactions or other
arrangements which may benefit Registrant.
The agreement also provides that, in the event the ordinary
business expenses of Registrant for any fiscal year exceed
1 1/2% of the first $30 million of the Registrant's average net
assets, plus one percent of any excess over $30 million, the
compensation due the Adviser will be reduced by the amount of
such excess and that, if a reduction in and refund of the
advisory fee is insufficient, the Adviser will pay the
Registrant monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year. Ordinary
business expenses do not include (1) interest and taxes, (2)
brokerage commissions and (3) certain litigation and
indemnification expenses as described in the Advisory
Agreement.
The Advisory Agreement may be continued from year to year if
specifically approved at least annually (a)(i) by the
Registrant's Managing General Partners or (ii) by vote of a
majority of the Registrant's outstanding voting securities and
(b) by the affirmative vote of a majority of the Managing
General Partners who are not parties to the agreement or
interested persons of any such party by votes cast in person at
a meeting called for such purpose. The Advisory Agreement
provides that it shall terminate automatically if assigned and
that it may be terminated without penalty by either party on 30
days written notice.
(b) Under the Agreement, Registrant retains the Adviser to manage the
investment of its assets and to place orders for the purchase and
sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data
and for formulating and implementing investment programs in
furtherance of Registrant's investment objectives. The Adviser also
furnishes at no cost to Registrant (except as noted herein) the
services of sufficient executive and clerical personnel for
Registrant as are necessary to prepare registration statements,
partner reports, and notices and proxy solicitation materials. In
addition, the Adviser furnishes at no cost to Registrant the
services of a Chief Executive Officer and other executive and
clerical personnel, as needed.
Under the Agreement, Registrant bears the cost of its accounting
services, which includes maintaining its financial books and records
and calculating its daily net asset value. The costs of such
accounting services include the salaries and overhead expenses of
the Registrant's Principal Financial and Accounting Officer and the
personnel operating under his direction. For the fiscal years ended
December 31, 1994, 1995 and 1996, the Registrant paid $48,431,
$52,584 and $50,358, respectively, for such services. A portion of
these amounts were paid to the Adviser in reimbursement of
personnel, facilities and equipment costs attributable to the
provision of accounting services to Registrant. The services
provided by the Adviser are at cost which is allocated among the
investment companies advised or sub-advised by the Adviser.
Registrant also pays transfer agency fees, custodian fees, legal and
auditing fees, the costs of reports to partners and all other
ordinary expenses not specifically assumed by the Adviser.
(c) INAPPLICABLE.
(d) INAPPLICABLE.
(e) INAPPLICABLE.
(f) INAPPLICABLE.
(g) INAPPLICABLE.
B-10
<PAGE> 17
(h) The custodian of all the assets of Registrant is State Street Bank
and Trust Company located at 225 Franklin Street, Boston,
Massachusetts 02110.
KPMG Peat Marwick LLP, NationsBank Center, 700 Louisiana, Houston,
Texas 77002, are the independent auditors for Registrant.
(i) During the fiscal years ended October 31, 1994, 1995 and 1996,
ACCESS, shareholder service agent for the Registrant, received
fees aggregating $18,000, $15,514 and $15,000, respectively. These
services are provided at cost plus a profit.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
(a) The Adviser is responsible for decisions to buy and sell securities
for the Registrant and for the placement of its portfolio business
and the negotiation of the commissions paid on such transactions.
It is the policy of the Adviser to seek the best security price
available with respect to each transaction. In over-the-counter
transactions, orders are placed directly with a principal market
maker unless it is believed that a better price and execution can
be obtained by using a broker. Except to the extent that the
Registrant may pay higher brokerage commissions for brokerage and
research services (as described below) on a portion of its
transactions executed on securities exchanges, the Adviser seeks
the best security price at the most favorable commission rate. The
Registrant paid no brokerage commissions during the fiscal years
ended December 31, 1994, 1995 and 1996, respectively.
(b) INAPPLICABLE.
(c) In selecting dealers and in negotiating commissions, the Adviser
considers the firm's reliability, the quality of its execution
services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference
may be given to firms which also provide research services to
Registrant or the Adviser.
Section 28(e) of the Securities Exchange Act of 1934 ("Section
28(e)") permits an investment adviser, under certain circumstances,
to cause an account to pay a broker or dealer who supplies brokerage
and research services, a commission for effecting a securities
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction. Brokerage
and research services include (a) furnishing advice as to the value
of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers
or sellers of securities, (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and
trends, portfolio strategy, and the performance of accounts, and (c)
effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).
Pursuant to provisions of the Agreement, the Registrant's Managing
General Partners have authorized the Adviser to cause the Registrant
to incur brokerage commissions in an amount higher than the lowest
available rate in return for research services provided to the
Adviser. The Adviser is of the opinion that the continued receipt of
supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to
Registrant. The Adviser undertakes that such higher commissions will
not be paid by Registrant unless (a) the Adviser determines in good
faith that the amount is reasonable in relation to the services in
terms of the particular transaction or in terms of the Adviser's
overall responsibilities with respect to the accounts as to which it
exercises investment discretion, (b) such payment is made in
compliance with the provisions of Section 28(e) and other applicable
state and federal laws, and (c) in the opinion of the Adviser, the
total commissions paid by Registrant are reasonable in relation to
the expected benefits to Registrant over the long term. The
investment advisory fee paid by Registrant under the investment
advisory agreement is not reduced as a result of the Adviser's
receipt of research services.
B-11
<PAGE> 18
The Adviser places portfolio transactions for other advisory
accounts including other investment companies. Research services
furnished by firms through which Registrant effects its securities
transactions may be used by the Adviser in servicing all of its
accounts; not all of such services may be used by the Adviser in
connection with Registrant. In the opinion of the Adviser, the
benefits from research services to each of the accounts (including
Registrant) managed by the Adviser cannot be measured separately.
Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of the
lowest available rate paid by each account for brokerage and
research services will vary. However, in the opinion of the Adviser,
such costs to Registrant will not be disproportionate to the
benefits received by Registrant on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell
securities by Registrant and another advisory account. In some
cases, this procedure could have an adverse effect on the price or
the amount of securities available to Registrant. In making such
allocations among Registrant and other advisory accounts, the main
factors considered by the Adviser are the respective investment
objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the
size of investment commitments generally held, and opinions of the
persons responsible for recommending the investment.
(d) During the fiscal year ended December 31, 1996, the Registrant paid
no brokerage commissions.
(e) INAPPLICABLE.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
See Item 6.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
(a) INAPPLICABLE.
(b) No shares are being offered to the public. The redemption price per
share is equivalent to the net asset value per share as more fully
described in Item 8.
(c) INAPPLICABLE.
ITEM 20. TAX STATUS
See Item 6(g).
ITEM 21. UNDERWRITERS
INAPPLICABLE.
ITEM 22. CALCULATION OF PERFORMANCE DATA
INAPPLICABLE.
B-12
<PAGE> 19
ITEM 23. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS OF VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
We have audited the accompanying statement of assets and liabilities
including the portfolio of investments of Van Kampen American Capital Exchange
Fund (a California Limited Partnership), as of December 31, 1996, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the years in the two-year period then ended,
and financial highlights for each of the years in the five-year period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Van Kampen
American Capital Exchange Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
January 17, 1997
B-13
<PAGE> 20
PORTFOLIO OF INVESTMENTS
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 98.7%
CONSUMER DISTRIBUTION 7.3%
86,993 Alco Standard Corp. .................................. $ 4,491,014
-----------
CONSUMER DURABLES 0.7%
13,677 Dana Corp. ........................................... 446,212
-----------
CONSUMER NON-DURABLES 5.5%
49,712 International Flavours & Fragrances, Inc. ............ 2,237,040
49,394 McCormick & Co., Inc. ................................ 1,163,846
-----------
3,400,886
-----------
CONSUMER SERVICES 0.4%
13,367 Luby's Cafeterias, Inc. .............................. 265,669
-----------
ENERGY 13.8%
21,200 Amerada Hess Corp. ................................... 1,226,950
12,800 Amoco Corp. .......................................... 1,030,400
11,406 Apache Corp. ......................................... 403,487
25,634 Baker Hughes, Inc. ................................... 884,373
30,320 Dresser Industries, Inc. ............................. 939,920
10,900 Kerr McGee Corp. ..................................... 784,800
20,131 Mobil Corp. .......................................... 2,461,015
8,040 Schlumberger, Ltd. ................................... 802,995
-----------
8,533,940
-----------
FINANCE 2.8%
9,882 American International Group, Inc. ................... 1,069,727
7,124 Household International, Inc. ........................ 657,189
-----------
1,726,916
-----------
HEALTH CARE 21.2%
1,000 Allegiance Corp. ..................................... 27,625
28,000 American Home Products Corp. ......................... 1,641,500
5,000 Baxter International, Inc. ........................... 205,000
54,432 Johnson & Johnson..................................... 2,707,992
25,188 Merck & Co., Inc. .................................... 1,996,149
51,304 Schering Plough Corp. ................................ 3,321,934
42,430 Warner Lambert Co. ................................... 3,182,250
-----------
13,082,450
-----------
PRODUCER MANUFACTURING 2.0%
6,264 Allied Signal, Inc. .................................. 419,688
12,831 Fluor Corp. .......................................... 805,145
-----------
1,224,833
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 15.9%
54,545 Air Products & Chemicals, Inc. ....................... 3,770,423
10,774 Alcan Aluminum, Ltd. ................................. 362,276
</TABLE>
See Notes to Financial Statements
B-14
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number
of Shares Description Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
18,688 Georgia Pacific Corp. ................................ $ 1,345,536
43,400 Loctite Corp. ........................................ 2,641,975
25,970 Louisiana Pacific Corp. .............................. 548,616
37,620 Lubrizol Corp. ....................................... 1,166,220
-----------
9,835,046
-----------
TECHNOLOGY 29.1%
20,000 General Signal Corp. ................................. 855,000
126,464 Intel Corp. .......................................... 16,558,880
3,754 International Business Machines Corp. ................ 566,854
-----------
17,980,734
-----------
TOTAL LONG-TERM INVESTMENTS 98.7%
(Cost $7,652,393) (a)................................ 60,987,700
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.3%......... 774,699
OTHER ASSETS IN EXCESS OF LIABILITIES 0.0%............ 4,435
-----------
NET ASSETS 100.0%..................................... $61,766,834
-----------
</TABLE>
(a) At December 31, 1996, for federal income tax purposes cost is $3,077,184
the aggregate gross unrealized appreciation is $57,910,516 and the
aggregate gross unrealized depreciation is $-0-, resulting in net
unrealized appreciation of $57,910,516.
See Notes to Financial Statements
B-15
<PAGE> 22
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ASSETS:
<S> <C>
Long-Term Investments, at Market Value (Cost $7,652,393) (Note 1). $60,987,700
Short-Term Investments (Note 1)................................... 774,699
Cash.............................................................. 4,445
Dividends Receivable.............................................. 84,265
Other............................................................. 679
-----------
Total Assets..................................................... 61,851,788
-----------
LIABILITIES:
Payables:
Investment Advisory Fee (Note 2)................................. 25,881
Affiliates (Note 2).............................................. 4,196
Fund Shares Repurchased.......................................... 4,100
Income Distributions............................................. 1,358
Accrued Expenses.................................................. 27,825
Retirement Plan (Note 2).......................................... 21,594
-----------
Total Liabilities................................................ 84,954
-----------
NET ASSETS........................................................ $61,766,834
-----------
NET ASSETS WERE COMPRISED OF:
296,771 units of limited partnership interest..................... $60,941,549
3,524 units of non-managing general partnership interest.......... 723,722
495 units of managing general partnership interest................ 101,563
-----------
NET ASSETS........................................................ $61,766,834
-----------
NET ASSET VALUE PER UNIT ($61,766,834 divided by 300,790 units of
partnership interest outstanding)................................ $ 205.35
-----------
</TABLE>
See Notes to Financial Statements
B-16
<PAGE> 23
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends........................................................... $ 910,080
Interest............................................................ 38,820
-----------
Total Income....................................................... 948,900
-----------
EXPENSES:
Investment Advisory Fee (Note 2).................................... 264,323
Managing General Partners' Fees and Expenses (Note 2)............... 66,597
Accounting Services................................................. 50,358
Legal............................................................... 21,343
Shareholder Services (Note 2)....................................... 15,921
Custody............................................................. 11,937
Other .............................................................. 61,047
-----------
Total Expenses..................................................... 491,526
-----------
NET INVESTMENT INCOME............................................... $ 457,374
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net Realized Gain on Investments.................................... $ 1,864,174
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period............................................ 38,908,254
End of the Period.................................................. 53,335,307
-----------
Net Unrealized Appreciation on Investments During the Period........ 14,427,053
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS..................... $16,291,227
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......................... $16,748,601
-----------
</TABLE>
See Notes to Financial Statements
B-17
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 457,374 $ 516,078
Net Realized Gain on Investments......... 1,864,174 993,874
Net Unrealized Appreciation on
Investments During the Period........... 14,427,053 10,576,351
----------- -----------
Change in Net Assets from Operations..... 16,748,601 12,086,303
Distributions from Net Investment Income. (393,524) (408,602)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. 16,355,077 11,677,701
----------- -----------
FROM PARTNERSHIP UNIT TRANSACTIONS (NOTE
3):
Proceeds from Units Issued Through
Dividend Reinvestment.................... 52,164 51,670
Cost of Units Repurchased................ (2,395,079) (1,713,769)
----------- -----------
NET CHANGE IN NET ASSETS FROM PARTNERSHIP
UNIT TRANSACTIONS....................... (2,342,915) (1,662,099)
----------- -----------
TOTAL INCREASE IN NET ASSETS............. 14,012,162 10,015,602
NET ASSETS:
Beginning of the Period.................. 47,754,672 37,739,070
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of
$2,433,418 and $2,369,568,
respectively)........................... $61,766,834 $47,754,672
----------- -----------
CHANGE IN PARTNERSHIP UNITS OUTSTANDING:
Units Issued Through Dividend
Reinvestment............................ 313 377
Units Repurchased........................ (13,938) (13,104)
----------- -----------
Decrease in Partnership Units
Outstanding............................ (13,625) (12,727)
----------- -----------
</TABLE>
See Notes to Financial Statements
B-18
<PAGE> 25
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one unit of
partnership interest outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31 (a)
----------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $151.88 $115.36 $111.32 $104.40 $101.56
-------- ------- ------- ------- -------
Net Investment Income................ 1.488 1.62 1.62 1.49 1.60
Net Realized and Unrealized Gain on
Securities.......................... 53.261 36.18 3.70 6.71 2.83
-------- ------- ------- ------- -------
Total from Investment Operations...... 54.749 37.80 5.32 8.20 4.43
Less Distributions from Net Investment
Income................................ 1.280 1.28 1.28 1.28 1.59
-------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $205.349 $151.88 $115.36 $111.32 $104.40
-------- ------- ------- ------- -------
Total Return.......................... 36.21% 32.89% 4.82% 7.91% 4.42%
Net Assets at End of the Period (In
millions)............................. $61.8 $47.8 $37.7 $38.5 $38.7
Ratio of Expenses to Average Net
Assets................................ .93% .88% .89% .93% .87%
Ratio of Net Investment Income to
Average Net Assets................... .87% 1.16% 1.45% 1.38% 1.59%
Portfolio Turnover.................... 0% 0% 0% 0% 0%
</TABLE>
(a) Based on average units outstanding.
During the year ended December 31, 1996, the Fund incurred no brokerage
commissions on equity share trades. This disclosure was not required in fiscal
years prior to 1996.
See Notes to Financial Statements
B-19
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Exchange Fund (the "Fund"), a California limited
partnership is a partnership registered under the Investment Company Act of
1940, as amended, as a diversified open-end investment management company. The
Fund seeks capital appreciation in a portfolio of common stock. The Fund
commenced investment operations on December 16, 1976.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prep-
aration of financial statements in conformity with generally accepted account-
ing principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of con-
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION-Investments in securities listed on a securities ex-
change are valued at their sale price as of the close of such securities ex-
change. Fixed income investments are stated at value using market quotations.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the mean between the last reported bid and ask price.
For those securities where quotations or prices are not available, valuations
are determined in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days
or less are valued at amortized cost.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term invest-
ments whereby the Fund acquires ownership of a debt security and the seller
agrees to repurchase the security at a future time and specified price. The
Fund may invest independently in repurchase agreements, or transfer uninvested
cash balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser")
or its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such securities only upon physi-
cal delivery or evidence of book entry transfer to the account of the custo-
dian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
B-20
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- -------------------------------------------------------------------------------
C. INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discount is
amortized over the life of each applicable security. Premiums on debt securi-
ties are not amortized. Market discounts are recognized at the time of sale as
realized gains for book purposes and ordinary income for tax purposes.
D. FEDERAL INCOME TAXES-The Fund has met the qualifications to be classified as
a partnership for federal income tax purposes and intends to maintain this
qualification in the future. A partnership is not subject to federal income
tax.
E. DISTRIBUTION OF INCOME AND GAINS-Quarterly distributions to partners are
recorded on the record date. Net investment income is allocated daily to each
partner, relative to the total number of units held. Capital gains or losses
will be allocated equally among units outstanding on the day recognized.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
American Capital Asset Management, Inc., the Adviser, will provide facilities
and investment advice to the Fund for an annual fee payable monthly of .50%
based on the average daily net assets of the Fund.
For the year ended December 31, 1996, the Fund recognized expenses of
approximately $50,400 representing Van Kampen American Capital, Inc.'s or its
affiliates' (collectively "VKAC") cost of providing accounting services to the
Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended De-
cember 31, 1996, the Fund recognized expenses of approximately $15,000, repre-
senting ACCESS' cost of providing transfer agency and shareholder services plus
a profit.
Managing general partners (the "Partners") of the Fund who are not
affili- ated with the Adviser are compensated by the Fund at the annual rate of
$5,000 plus a fee of $750 per Board meeting attended.
The Partners of the Fund instituted a Retirement Plan effective April
1, 1996. The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. For the current Partners not affiliated with the Adviser, the
annual retirement benefit payable per year for a ten year period is based upon
the highest total annual compensation received in any of the three calendar
years preceding retirement.
B-21
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- -------------------------------------------------------------------------------
Partners with more than five but less than ten years service at retirement will
receive a prorated reduced benefit. Under the Plan, for the Partners retiring
with the effectiveness of the Plan, the annual retirement benefit payable per
year for a ten year period is equal to 75% of the total compensation received
from the Fund during the 1995 calendar year.
At December 31, 1996, the Adviser and Van Kampen American Capital Exchange
Corp., as non-managing general partners of the Fund, owned 354 and 3,175 units
of partnership interest, respectively.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $-0- and $2,304,182, respective-
ly.
B-22
<PAGE> 29
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Included in the Statement of Additional Information:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<S> <C>
(1)(a) Restated and Amended Certificate and Agreement of Limited
Partnership(1)
(b) Amendment to Certificate of Limited Partnership, on Form
LP-1(5)
(c) Amendment to Certificate of Limited Partnership, on Form
LP-2(6)
(2) Bylaws(2)
(3) Inapplicable
(4) Copy of Specimen Certificate(3)
(5) Investment Advisory Agreement+
(6) Inapplicable
(7) Inapplicable
(8) Amendment to Custodian Agreement(4)
(9) Inapplicable
(10) Inapplicable
(11) Consent of Independent Auditors+
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(27) Financial Data Schedule+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-5, File Number 2-55128.
(2) Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on Form N-1, File Number 2-55128.
(3) Incorporated herein by reference to Amendment No. 5 to Registrant's
Registration Statement on Form N-1, File Number 811-2611.
(4) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, File Number 2-55128, filed
April 27, 1989.
(5) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A, File Number 811-2611,
filed April 26, 1995.
(6) Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, File Number 811-2611,
filed April 29, 1996.
+ Filed Herewith.
C-1
<PAGE> 30
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
AS OF APRIL 4, 1997:
<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS
- ----------------------------- -------
<C> <C>
Units of Partnership Interest 125
</TABLE>
ITEM 27. INDEMNIFICATION
Article XIII, Section 13.4 of Registrant's Restated and Amended Certificate
and Agreement of Limited Partnership provides as follows:
"The Partnership shall indemnify each General Partner (including officers
and or directors of a corporate General Partner and including former General
Partners who have not ceased to be liable as General Partners under the
Partnership Act) against judgments, fines, amounts paid in settlement, and
expenses (including attorneys' fees) reasonably incurred by him in any civil,
criminal or investigative proceeding in which he is involved or threatened to be
involved by reason of his being a General Partner of the Partnership, provided
that he acted in good faith, within what he reasonably believed to be the scope
of his authority, and for a purpose which he reasonably believed to be within
the scope of his authority, and for a purpose which he reasonably believed to be
in the best interests of the Partnership or the Limited Partners. To the extent
that a General Partner has been successful on the merits or otherwise in defense
of any such proceeding or in defense of any claim or matter therein, he shall be
deemed to have acted in good faith and in a manner he believed to be in the best
interests of the Partnership or the Limited Partners. The determination under
any other circumstances as to whether a General Partner acted in good faith,
within what he reasonably believed to be the scope of his authority, and for a
purpose which he reasonably believed to be in the best interests of the
Partnership or the Limited Partners, shall be made by action of the General
Partners who were not parties to such proceedings, or by independent legal
counsel selected by the General Partners (who may be the regular counsel for the
Partnership) in a written opinion. No General Partner shall be indemnified under
this provision against any liability to the Partnership or its Partners to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. The indemnification provided hereunder shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any applicable
statute, agreement, vote of the General Partners or Limited Partners, or
otherwise."
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in Part A and "Management of the Fund" in the
Statement of Additional Information for information regarding the business of
the Adviser. For information as to the business, profession, vocation and
employment of a substantial nature of directors and officers of the Adviser,
reference is made to the Adviser's current Form ADV (File No. 801-1669) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 2800 Post Oak Blvd.,
Houston, Texas 77056, ACCESS Investor Services, Inc., 7501 Tiffany Springs
Parkway,
C-2
<PAGE> 31
Kansas City, Missouri 64153, or at the State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA; (ii) by the Adviser, will be maintained at its
offices, located at 2800 Post Oak Blvd., Houston, Texas 77056; and (iii) by the
Distributor, the principal underwriter, will be maintained at its offices
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
Managing General Partner or Managing General Partners and to assist in
communications with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-3
<PAGE> 32
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, Van Kampen American Capital Exchange Fund, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Oakbrook Terrace, and the
State of Illinois, on the 22nd day of April, 1997.
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
By /s/ RONALD A. NYBERG
------------------------------------------
Ronald A. Nyberg,
Principal Legal Officer and
Secretary
<PAGE> 33
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
INDEX TO EXHIBITS TO AMENDMENT NO. 18, FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1997
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
NO. EXHIBIT
- ------- --------------
<S> <C>
(5) Investment Advisory Agreement
(11) Consent of Independent Auditors
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 31st day of October, 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.
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
<PAGE> 2
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 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
2
<PAGE> 3
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 American Capital Management & Research, Inc., or
its successor, in connection with the purchase and sale of portfolio
investments of the FUND, less any direct expenses incurred by such person, in
3
<PAGE> 4
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 American Capital Management & Research, 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.
4
<PAGE> 5
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.
5
<PAGE> 6
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: /s/ DENNIS J. MCDONNELL
Name: Dennis J. McDonnell
Its: Executive Vice President
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ PETER W. HEGEL
Name: Peter W. Hegel
Its: Executive Vice President
6
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT AUDITORS
The Managing General Partners
Van Kampen American Capital Exchange Fund
We consent to the use of our report included herein.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
April 18, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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</TABLE>
