<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Co-Registrants /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the Com-
mission Only (as permitted
by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST (811-3950)
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST (811-4386)
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND (811-4983)
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST (811-4805)
VAN KAMPEN AMERICAN CAPITAL TRUST (811-4629)
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND (811-4718)
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND (811-7571)
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND (811-1570)
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND (811-2423)
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND (811-2424)
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND (811-630)
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND (811-919)
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND (811-4003)
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND (811-6127)
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND (811-1228)
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND (811-734)
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND (811-2851)
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST (811-4424)
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND (811-4491)
VAN KAMPEN AMERICAN CAPITAL PACE FUND (811-1792)
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND (811-2482)
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND (811-6421)
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME (811-6724)
(Names of Co-Registrants as Specified in Their Charters)
Payment of Filing Fee (Check the appropriate box):
/ /$125 per each Co-Registrant (an aggregate of $2,875 for the Co-Registrants
listed above) per Item 22(a)(2) of Schedule 14A.
/X/ Fee paid previously with preliminary materials.
<PAGE> 2
- SEPTEMBER 1996 -
IMPORTANT NOTICE
TO VAN KAMPEN AMERICAN CAPITAL
MUTUAL FUND SHAREHOLDERS
QUESTIONS
& ANSWERS
- - -------------------------------------------------------------------------------
Although we recommend that you read the complete Proxy Statement, for your
convenience, we have provided a brief overview of the issues to be voted on.
- - -------------------------------------------------------------------------------
Q WHY AM I RECEIVING THIS PROXY STATEMENT?
A Federal securities laws require a vote by each Fund's shareholders
whenever the Fund's investment adviser, or its parent corporation, is subject
to a change in control. Morgan Stanley Group Inc. and certain of its
affiliates have entered into an agreement to acquire the corporate parent of
your Fund's investment adviser, which may be considered a change of control.
Items your Fund is seeking shareholder approval on include:
- - - a new investment advisory agreement
- - - amendments to certain fundamental investment policies
- - - ratification of the independent public accountants
Please refer to the proxy statement for a detailed explanation of the proposed
items.
Q HOW WILL THIS AFFECT MY ACCOUNT?
A You can expect the same level of management expertise and high-quality
shareholder service you've grown accustomed to. The new investment advisory
agreement between your Fund and its investment adviser will be substantially
identical to the Fund's current investment advisory agreement, except for the
dates of execution, effectiveness and termination.
Q WILL MY VOTE MAKE A DIFFERENCE?
A Your vote is needed to ensure that the proposals can be acted upon.
Additionally, your immediate response on the enclosed proxy card(s) will help
save on the costs of any further solicitations for a shareholder vote. We
encourage all shareholders to participate in the governance of their Fund(s).
Q HOW DO THE TRUSTEES OF MY FUND SUGGEST THAT I VOTE?
A After careful consideration, the trustees of your Fund unanimously
recommend that you vote "FOR" each of the items proposed on the enclosed proxy
card(s).
Q WHO DO I CALL IF I HAVE QUESTIONS?
A We will be happy to answer your questions about the proxy solicitation.
Please call us at 1-800-421-5666 (TDD users call 1-800-772-8889) between 7:00
a.m. and 7:00 p.m. Central time, Monday through Friday.
Q WHERE DO I MAIL MY PROXY CARD(S)?
A You may use the enclosed postage-paid envelope or mail your proxy
card(s) to:
Proxy Tabulator
P.O. Box 9111
Hingham, MA 02043
<PAGE> 3
ABOUT THE PROXY CARD
Please vote on each issue using blue or black ink to mark an X in one of the
boxes provided on the proxy card.
APPROVAL OF NEW ADVISORY AGREEMENT - mark "For," "Against" or "Abstain"
APPROVAL OF CHANGES IN CERTAIN FUNDAMENTAL INVESTMENT POLICIES - mark "For,"
"Against" or "Abstain"
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS - mark "For,"
"Against" or "Abstain"
OTHER BUSINESS - mark "For," "Against" or "Abstain"
Sign, date and return the proxy card in the enclosed postage-paid envelope. All
registered owners of an account, as shown in the address, must sign the card.
When signing as attorney, trustee, executor, administrator, custodian, guardian
or corporate officer, please indicate your full title.
PROXY
VAN KAMPEN AMERICAN CAPITAL XXXXX FUND
JOINT SPECIAL MEETING OF SHAREHOLDERS
SAMPLE
<TABLE>
<S><C>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
1. THE PROPOSAL TO APPROVE A NEW FOR / / AGAINST / / ABSTAIN / /
INVESTMENT ADVISORY AGREEMENT.
2. THE PROPOSAL TO APPROVE CHANGES IN FOR / / AGAINST / / ABSTAIN / /
CERTAIN FUNDAMENTAL INVESTMENT POLICIES.
3A. THE PROPOSAL TO RATIFY THE SELECTION OF FOR / / AGAINST / / ABSTAIN / /
KPMG PEAT MARWICK LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
VK FUNDS.
3B. THE PROPOSAL TO RATIFY THE SELECTION OF FOR / / AGAINST / / ABSTAIN / /
PRICE WATERHOUSE LLP AS THE INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE AC FUNDS.
4. TO ACT UPON ANY AND ALL OTHER BUSINESS.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 4
September 6, 1996
Dear Van Kampen American Capital Fund Shareholder:
The enclosed proxy statement relates to a joint meeting of the shareholders of
a number of Van Kampen American Capital funds. We are pleased to announce that
VK/AC Holding, Inc., the corporate parent of the investment adviser of your
Fund, has entered into a merger agreement with Morgan Stanley Group Inc. and
certain of its affiliates. According to the merger agreement, your Fund's
investment adviser will become an indirect subsidiary of Morgan Stanley. Your
Fund's current investment adviser will continue to provide the Fund with
investment advisory and management services following the merger.
The primary purpose of the shareholder meeting is to permit each Fund's
shareholders to consider a new investment advisory agreement to take effect
following the merger, as required by federal securities laws. The new investment
advisory agreement between your Fund and its investment adviser will be
substantially identical to the Fund's current investment advisory agreement,
except for the dates of execution, effectiveness and termination. The attached
proxy statement seeks shareholder approval on this and other items.
Your vote is important and your participation
in the governance of your Fund(s) does make a difference.
The proposals have been unanimously approved by the Board of Trustees of each
Fund, who recommend you vote "FOR" each of these proposals. YOUR IMMEDIATE
RESPONSE WILL HELP SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. EACH FUND
VOTES SEPARATELY, SO PLEASE SIGN AND RETURN ALL OF YOUR FUND PROXY FORMS. We
look forward to your participation, and we thank you for your continued
confidence in Van Kampen American Capital.
PLEASE SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Sincerely,
Dennis J. McDonnell
President
<PAGE> 5
Dear Van Kampen American Capital Fund Shareholder:
Each proxy card enclosed in this envelope represents your voting privilege in
a separate Van Kampen American Capital Fund. We have grouped your proxy cards
together for your convenience and to reduce postage expenses.
The meeting date for your Van Kampen American Capital Fund is October 25,
1996. Please sign all proxy cards and return them in the postage-paid envelope
included with this material.
We appreciate the prompt return of your proxy cards.
<PAGE> 6
VAN KAMPEN AMERICAN CAPITAL FUNDS
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 421-5666
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 25, 1996
Notice is hereby given to the holders of shares of beneficial interest, par
value $0.01 per share (collectively, the "Shares"), of each of the Van Kampen
American Capital Funds listed on Annex A (the "Funds") to the attached Proxy
Statement that a Joint Special Meeting of the Shareholders of the Funds (the
"Meeting") will be held at the offices of Van Kampen American Capital, Inc., One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, on Friday, October 25, 1996,
at 1:00 p.m., for the following purposes:
<TABLE>
<S> <C>
1. For each Fund, to approve or disapprove a new investment advisory
agreement;
2. For each Fund, to approve or disapprove certain changes to its
fundamental investment policies with respect to investments in
other investment companies;
3. Independent Public Accountants
3A. For each VK Fund (as defined in Annex A), to ratify or
reject the selection of KPMG Peat Marwick LLP as independent
public accountants for its current fiscal year;
3B. For each AC Fund (as defined in Annex A), to ratify or
reject the selection of Price Waterhouse LLP as independent
public accountants for its current fiscal year; and
4. To transact such other business as may properly come before the
Meeting.
</TABLE>
Holders of record of the Shares of each Fund at the close of business on
August 27, 1996 are entitled to notice of, and to vote at, the Meeting and any
adjournment thereof.
By order of the Board of Trustees
RONALD A. NYBERG,
Vice President and Secretary
September 6, 1996
<PAGE> 7
EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT, IF
ANY) TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE
VAN KAMPEN AMERICAN CAPITAL FUNDS BY CALLING (800) 421-5666 OR BY WRITING TO THE
RESPECTIVE FUND AT ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181.
SHAREHOLDERS OF THE FUNDS ARE INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON
THE ENCLOSED PROXY CARD WITH RESPECT TO EACH FUND IN WHICH YOU WERE A
SHAREHOLDER AS OF THE RECORD DATE, DATE AND SIGN SUCH PROXY CARD(S), AND RETURN
IT (THEM) IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND
NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU MAIL YOUR PROXY PROMPTLY.
THE BOARD OF TRUSTEES OF EACH FUND RECOMMENDS THAT YOU CAST YOUR VOTE:
- FOR approval of each new investment advisory agreement;
- FOR approval of changes in certain fundamental investment policies of each
Fund relating to investments in other investment companies; and
- FOR the ratification of the selection of independent public accountants for
the current fiscal year of each Fund.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD(S) PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 8
PROXY STATEMENT
VAN KAMPEN AMERICAN CAPITAL FUNDS
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 421-5666
JOINT SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 25, 1996
This Proxy Statement is furnished in connection with the solicitation by the
Board of Trustees (the "Trustees" or "Board of Trustees") of each of the Van
Kampen American Capital Funds listed on Annex A to this Proxy Statement (the
"Funds") of proxies to be voted at a Joint Special Meeting of Shareholders, and
all adjournments thereof (the "Meeting"), of the Funds, to be held at the
offices of Van Kampen American Capital, Inc., One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, on Friday, October 25, 1996, at 1:00 p.m. The
approximate mailing date of this Proxy Statement and accompanying form of proxy
is September 6, 1996.
The primary purpose of the Meeting is to permit each Fund's shareholders to
consider a New Advisory Agreement (defined below) to take effect following the
consummation of the transactions contemplated by an Agreement and Plan of
Merger, dated as of June 21, 1996 (the "Merger Agreement"), among Morgan Stanley
Group Inc. ("Morgan Stanley"), MSAM Holdings II, Inc., MSAM Acquisition Inc. and
VK/AC Holding, Inc. ("VKAC Holding"), the indirect parent corporation of each
Fund's investment adviser. Pursuant to the Merger Agreement, each Fund's
investment adviser will become an indirect subsidiary of Morgan Stanley. The
shareholder vote on the New Advisory Agreements is required under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a result of Morgan
Stanley's contemplated acquisition of the investment advisers. Each Fund's New
Advisory Agreement is substantially identical to such Fund's Current Advisory
Agreement (defined below), except for the dates of execution, effectiveness and
termination.
Participating in the Meeting are holders of common shares of beneficial
interest, par value $0.01 per share (collectively, the "Shares"), of each of the
Funds. The Meeting is scheduled as a joint meeting of the respective
shareholders of the Funds, because the shareholders of each of the Funds are
expected to consider and vote on similar matters. The Board of Trustees has
determined that the use of a joint Proxy Statement for the Meeting is in the
best interest of the shareholders of each of the Funds. In the event that a
shareholder of any Fund present at the Meeting objects to the holding of a joint
meeting and moves for an adjournment of the meeting of such Fund to a time
immediately after the Meeting so that such Fund's meeting
<PAGE> 9
may be held separately, the persons named as proxies will vote in favor of the
adjournment.
Annex A lists the abbreviated names by which the Funds sometimes are referred
to in this Proxy Statement and groups the Funds into "AC Funds" and "VK Funds".
Please refer to Annex A for any questions you may have regarding whether your
Fund is participating at the Meeting, defined terms relating to the Funds and
abbreviated Fund names. The Van Kampen American Capital investment companies not
listed on Annex A will vote at separate shareholder meetings on proposals
substantially similar to the proposals in this Proxy Statement. They will hold
separate shareholder meetings because their shareholders also will consider
proposals that do not affect the Funds. If you are a shareholder of Van Kampen
American Capital investment companies not listed on Annex A, you will receive
one or more additional proxy statements relating to such other shareholder
meetings.
The following table summarizes each proposal to be presented at the Meeting
and the Funds solicited with respect to such proposal:
<TABLE>
<CAPTION>
PROPOSAL AFFECTED FUNDS
------------------------------------------------------ --------------
<S> <C> <C>
1. Approval of New Advisory Agreement All Funds
2. Amendment of Fundamental Investment Policies All Funds
3. Ratification of Independent Public Accountants
3A. Ratification of KPMG Peat Marwick LLP as VK Funds
Independent Public Accountants
3B. Ratification of Price Waterhouse LLP as AC Funds
Independent Public Accountants
</TABLE>
EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT, IF
ANY) TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE
VAN KAMPEN AMERICAN CAPITAL FUNDS BY CALLING (800) 421-5666 OR BY WRITING TO THE
RESPECTIVE FUND AT ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181.
VOTING
The Board of Trustees has fixed the close of business on August 27, 1996, as
the record date (the "Record Date") for the determination of holders of Shares
of each Fund entitled to vote at the Meeting. Shareholders of a Fund on the
Record Date will be entitled to one vote per share with respect to each proposal
submitted to the shareholders of the Fund, with no Share having cumulative
voting rights.
The voting requirement for passage of a particular proposal depends on the
nature of the particular proposal. With respect to Proposals 1 and 2, the "vote
of a majority
2
<PAGE> 10
of the outstanding voting securities" is required, which is defined under the
1940 Act as the lesser of (i) 67% or more of the voting securities of each
respective Fund entitled to vote thereon present in person or by proxy at the
Meeting, if the holders of more than 50% of the outstanding voting securities
entitled to vote thereon are present in person or represented by proxy, or (ii)
more than 50% of the outstanding voting securities of each respective Fund
entitled to vote thereon. With respect to Proposal 3, an affirmative vote of a
majority of the Shares of a Fund present in person or by proxy is necessary to
ratify the selection of the independent public accountants for such Fund.
The Board of Trustees of each Fund recommends that you cast your vote:
- FOR approval of each New Advisory Agreement;
- FOR approval of changes in certain fundamental investment policies of each
Fund regarding investment in other investment companies; and
- FOR the ratification of the selection of independent public accountants for
the current fiscal year of each Fund.
All Shares of a Fund affected by a proposal will vote together as a single
class on such proposal. An unfavorable vote on a proposal by the shareholders of
one Fund will not affect the implementation of such a proposal by another Fund,
if the proposal is approved by the shareholders of the other Fund.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon. Proxies received
prior to the Meeting on which no vote is indicated will be voted "for" each
proposal as to which it is entitled to vote. Abstentions do not constitute votes
"for" a proposal and are treated as votes "against" a proposal. Broker non-votes
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominees do
not have discretionary power) do not constitute votes "for" or "against" a
proposal and are disregarded in determining the "votes cast" when the voting
requirement for a proposal is based on achieving a percentage of the voting
securities entitled to vote present in person or by proxy at the meeting. Broker
non-votes do not constitute votes "for" and are treated as votes "against" when
the voting requirement for a proposal is based on achieving a percentage of the
outstanding voting securities entitled to vote. A majority of the outstanding
Shares entitled to vote on a proposal must be present in person or by proxy to
have a quorum to conduct business at the Meeting. Abstentions and broker
non-votes will be deemed present for quorum purposes.
Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the respective Fund a written notice of revocation, by
delivering a duly executed proxy bearing a later date or by attending the
Meeting and voting in person.
3
<PAGE> 11
The Funds know of no business other than that mentioned in Proposals 1, 2 and
3 of the Notice that will be presented for consideration at the Meeting. If any
other matters are properly presented, it is the intention of the persons named
on the enclosed proxy to vote proxies in accordance with their best judgment. In
the event a quorum is present at the Meeting but sufficient votes to approve any
of the proposals with respect to one or more Funds are not received, the persons
named as proxies may propose one or more adjournments of the Meeting of the
concerned Fund to permit further solicitation of proxies, provided they
determine that such an adjournment and additional solicitation is reasonable and
in the interest of shareholders based on a consideration of all relevant
factors, including the nature of the relevant proposal, the percentage of votes
then cast, the percentage of negative votes then cast, the nature of the
proposed solicitation activities and the nature of the reasons for such further
solicitation.
- - ------------------------------------------------------------------------------
PROPOSAL 1: APPROVAL OF NEW ADVISORY AGREEMENTS
- - ------------------------------------------------------------------------------
THE ADVISERS
Van Kampen American Capital Asset Management, Inc. ("Asset Management") acts
as investment adviser for each AC Fund. Van Kampen American Capital Investment
Advisory Corp. ("Advisory Corp.") acts as investment adviser for each VK Fund.
Asset Management and Advisory Corp. sometimes are referred to herein
collectively as the "Advisers" or individually as an "Adviser".
The Advisers currently are wholly-owned subsidiaries of Van Kampen American
Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VKAC Holding,
which in turn is controlled, through the ownership of a substantial majority of
its common stock, by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates L.P.
are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore,
Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson,
each of whom is a principal of Clayton, Dubilier & Rice, Inc. In addition,
certain officers, directors and employees of VKAC own, in the aggregate,
approximately 6% of the common stock of VKAC Holding and have the right to
acquire, upon the exercise of options (whether or not vested), approximately an
additional 12% of the common stock of VKAC Holding. Currently, and after giving
effect to the exercise of such options, no officer or trustee of the Funds owns
or would own 5% of more of the common stock of VKAC Holding. The addresses of
VKAC Holding, VKAC and the Advisers are One Parkview Plaza, Oakbrook Terrace,
Illinois 60181 and 2800 Post Oak Blvd., Houston, Texas 77056.
4
<PAGE> 12
Prior to December 1994, Asset Management provided investment advisory services
under the name "American Capital Asset Management, Inc." Prior to 1988, Advisory
Corp. provided investment advisory services under the name "American Portfolio
Advisory Services Inc." On December 31, 1987, Advisory Corp. changed its name to
Van Kampen Merritt Investment Advisory Corp. In January 1995, Advisory Corp.
changed its name to Van Kampen American Capital Investment Advisory Corp.
INFORMATION CONCERNING MORGAN STANLEY
Morgan Stanley and various of its directly or indirectly owned subsidiaries,
including Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co."), a
registered broker-dealer and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange, commodities and swaps
(involving foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; and global custody, securities clearance
services and securities lending. Morgan Stanley Asset Management Inc. also is a
wholly-owned subsidiary of Morgan Stanley. As of June 30, 1996, Morgan Stanley
Asset Management Inc., together with its affiliated investment advisory
companies, had approximately $103.5 billion of assets under management and
fiduciary advice.
THE ACQUISITION
Pursuant to the Merger Agreement, MSAM Acquisition Inc. will be merged with
and into VKAC Holding and VKAC Holding will be the surviving corporation (the
"Acquisition"). Following the Acquisition, VKAC Holding and each of the Advisers
will be indirect subsidiaries of Morgan Stanley.
The Advisers anticipate that the consummation of the Acquisition will occur by
the end of November 1996 provided that a number of conditions set forth in the
Merger Agreement are met or waived. The conditions require, among other things,
that as of the closing the shareholders of certain investment companies
(including the Funds) and investors in certain accounts advised by the Advisers
or their affiliates, which investment companies and accounts have aggregate
assets in excess of a specified minimum amount, have approved new investment
advisory agreements or consented to the assignment of existing investment
advisory agreements. At the closing, MSAM Acquisition Inc. will pay
approximately $740 million (based on VKAC's long-term debt outstanding as of
July 31, 1996) in cash to the stockholders of VKAC Holding (excluding certain
management stockholders), and to persons owning options to purchase stock of
VKAC Holding, subject to certain purchase price adjustments set forth in the
Merger Agreement. As of July 31, 1996, VKAC had long-term debt outstanding of
approximately $410 million. To the
5
<PAGE> 13
extent that pre-tax income of VKAC prior to the closing of the Acquisition
permits the repayment of its long-term debt, the purchase price for the equity
interests in VKAC Holding will be increased by the amount of long-term debt
repaid. The purchase price also is subject to certain adjustments based, among
other things, on assets under management of VKAC and its subsidiaries at the
time of closing. The Advisers also contemplate that, as part of the Acquisition,
certain officers and directors of VKAC Holding and its affiliates will
contribute to MSAM Holdings II, Inc. their existing shares of common stock of
VKAC Holding in exchange for approximately $25 million of shares of preferred
stock of MSAM Holdings II, Inc. which, in turn, will be exchangeable into common
stock, par value $1.00 per share, of Morgan Stanley at specified times over a
four year period. Such shares of preferred stock will represent, in the
aggregate, 5% of the combined voting power in MSAM Holdings II, Inc., the
remainder of which will be indirectly owned by Morgan Stanley.
VKAC Holding will engage in certain preparatory transactions prior to the
Acquisition, including the distribution to stockholders of VKAC Holding of (i)
all of VKAC Holding's investment in McCarthy, Crisanti & Maffei, Inc., a
wholly-owned subsidiary engaged in the business of distributing research and
financial information, (ii) all of VKAC Holding's investment in Hansberger
Global Investors, Inc. ("HGI"), a company in which VKAC Holding made a minority
investment in May 1996, and (iii) certain related cash amounts.
There is no financing condition to the closing of the Acquisition. VKAC has
been advised by Morgan Stanley that as of August 30, 1996, no determination has
been made whether any additional indebtedness will be incurred by Morgan Stanley
and its affiliates or VKAC and its affiliates in connection with the
Acquisition. In addition, the disposition of VKAC's outstanding long-term
indebtedness (including its bank loans and senior notes) in connection with the
Acquisition has not yet been determined.
The operating revenue of VKAC and its subsidiaries for the fiscal year ended
December 31, 1995, less expenses for the same period, was more than adequate to
service VKAC's outstanding debt. VKAC prepaid $80 million of its long-term debt
in 1995, and has continued to make debt prepayments during 1996. VKAC Holding
and VKAC believe, based on the earnings experience of VKAC and its subsidiaries,
that after the Acquisition the operating revenue of VKAC and its subsidiaries
should be more than sufficient to service their debt and that VKAC and its
subsidiaries should be able to conduct their respective operations as now
conducted and as proposed to be conducted.
The Merger Agreement does not contemplate any changes, other than changes in
the ordinary course of business, in the management or operation of the Advisers
relating to the Funds, the personnel managing the Funds or other services or
business activities of the Funds. The Acquisition is not expected to result in
6
<PAGE> 14
material changes in the business, corporate structure or composition of the
senior management or personnel of the Advisers, or in the manner in which the
Advisers render services to the Funds. Morgan Stanley has agreed in the Merger
Agreement that, for a period of two years from the date of the Acquisition, it
will cause the Advisers to provide compensation and employee benefits which are
substantially comparable in the aggregate to those presently provided. The
Advisers do not anticipate that the Acquisition or any ancillary transactions
will cause a reduction in the quality of services now provided to the Funds, or
have any adverse effect on the Advisers' ability to fulfill their respective
obligations under the New Advisory Agreements or to operate their businesses in
a manner consistent with past business practices.
Certain officers of the Advisers, including Dennis J. McDonnell who is a
member of the Board of Trustees and Don G. Powell who was a member of the Board
of Trustees prior to August 1996, previously entered into employment agreements
with VKAC Holding which expire from between 1997 and 2000. Certain officers of
the Advisers also previously entered into retention agreements with VKAC
Holding, which will remain in place for two years following the consummation of
the Acquisition. The Merger Agreement contemplates that Morgan Stanley will, and
will cause VKAC Holding to, honor such employment and retention agreements. The
employment agreements and retention agreements are intended to assure that the
services of the officers are available to the Advisers (and thus to the Funds)
for a remaining term of two to four years. As described above, certain officers
and employees of VKAC and the Advisers, including Mr. McDonnell and Mr. Powell,
are expected to contribute their existing shares of common stock of VKAC Holding
to MSAM Holdings II, Inc. in exchange for approximately $25 million of preferred
stock in MSAM Holdings II, Inc. which, in turn, will be exchangeable into common
stock, par value $1.00 per share, of Morgan Stanley at specified times over a
four year period. Such shares of preferred stock will represent, in the
aggregate, 5% of the combined voting power in MSAM Holdings II, Inc.
THE ADVISORY AGREEMENTS
Consummation of the Acquisition may constitute an "assignment" (as defined in
the 1940 Act) of the investment advisory agreement currently in effect between
each Fund and the respective Fund's Adviser (the "Current Advisory Agreement").
As required by the 1940 Act, the Current Advisory Agreement provides for its
automatic termination in the event of an assignment. See "The Current Advisory
Agreements" below.
In anticipation of the Acquisition and in order for the Advisers to continue
to serve as investment adviser to the Funds after consummation of the
Acquisition, a new investment advisory agreement (the "New Advisory Agreement")
between each Fund and the respective Fund's Adviser must be approved (i) by a
majority of the Trustees of each Fund who are not parties to the New Advisory
Agreement or
7
<PAGE> 15
interested persons of any such party ("Disinterested Trustees") and (ii) by
holders of a majority of the outstanding voting securities (within the meaning
of the 1940 Act) of each Fund. See "The New Advisory Agreements" below.
THE CURRENT ADVISORY AGREEMENTS. The Current Advisory Agreement for each AC
Fund was last approved by a majority of the Trustees, including a majority of
the Disinterested Trustees, voting in person at a meeting called for that
purpose on May 10, 1995, to continue the Current Advisory Agreement for a period
of two years. The Current Advisory Agreement was last approved by shareholders
of each AC Fund at a meeting held on December 16, 1994 relating to the
acquisition of Asset Management's corporate parent by The Van Kampen Merritt
Companies, Inc., except that Asset Management, as sole initial shareholder,
approved the investment advisory agreements of those AC Funds organized after
such date.
The Current Advisory Agreement for each VK Fund was last approved by a
majority of the Trustees, including a majority of the Disinterested Trustees,
voting in person at a meeting called for that purpose on April 26, 1996 to
continue the Current Advisory Agreement for a period of one year (except for the
Current Advisory Agreement of the High Yield Fund which was approved on July 25,
1996 and is reviewed by the Board of Trustees on a quarterly basis). The Current
Advisory Agreement was last approved by the shareholders of each VK Fund at a
meeting held on January 14, 1993 relating to the acquisition by CDV Acquisition
Corporation of Advisory Corp.'s corporate parent from Xerox Financial Services,
Inc., except that Advisory Corp., as sole initial shareholder, approved the
investment advisory agreements of those VK Funds organized after such date.
Each Current Advisory Agreement provides that the Adviser will supply
investment research and portfolio management, including the selection of
securities for each Fund to purchase, hold or sell and the selection of brokers
through whom that Fund's portfolio transactions are executed. The Adviser also
administers the business affairs of each Fund, furnishes offices, necessary
facilities and equipment, provides administrative services, and permits its
officers and employees to serve without compensation as Trustees and officers of
such Fund if duly elected to such positions.
Each Current Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or of law, or for any loss suffered by the particular
Fund in connection with the matters to which the Current Advisory Agreement
relates, except (i) in the case of the agreement between each VK Fund and
Advisory Corp., a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under each Current Advisory Agreement, and (ii) in the case of the agreement
between each AC Fund and Asset
8
<PAGE> 16
Management, a loss resulting from willful misfeasance, bad faith, negligence or
reckless disregard of obligations or duties under each Current Advisory
Agreement.
The fees payable to Asset Management by the AC Funds are reduced by any
commissions, tender solicitation and other fees, brokerage or similar payments
received by Asset Management or any other direct or indirect majority-owned
subsidiary of VKAC Holding in connection with the purchase or sale of portfolio
investments of the AC Funds, less expenses incurred by Asset Management in
connection with such activities.
The Advisers' activities are subject to the review and supervision of the
Board of Trustees to which the Advisers render periodic reports with respect to
each Fund's investment activities. The Current Advisory Agreement may be
terminated by either party, at any time, without penalty, upon 60 days written
notice, and automatically terminates in the event of its assignment. In the case
of the AC Funds, the Current Advisory Agreement also terminates if either an AC
Fund or Asset Management goes into liquidation or a receiver is appointed with
respect to their assets or if either party breaches the Current Advisory
Agreement and fails to remedy the breach within 30 days of receiving notice
thereof from the other party.
The net assets of each of the Funds as of August 27, 1996, as well as other
investment companies sponsored by VKAC and advised by either of the Advisers,
and the rates of compensation to the Adviser are set forth at Annex C hereto.
Each respective Fund recognized net advisory expenses, for its most recently
completed fiscal year, in the amounts set forth at Annex D hereto.
Each Fund pays all other expenses incurred in its operation including, but not
limited to, direct charges relating to the purchase and sale of its portfolio
securities, interest charges, fees and expenses of outside legal counsel and
independent auditors, taxes and governmental fees, costs of share certificates
and any other expenses (including clerical expenses) of issuance, sale or
repurchase of its Shares, expenses in connection with its dividend reinvestment
plan, membership fees in trade associations, expenses of registering and
qualifying its Shares for sale under federal and state securities laws, expenses
of printing and distribution, expenses of filing reports and other documents
filed with governmental agencies, expenses of annual and special meetings of the
trustees and shareholders, fees and disbursements of the transfer agents,
custodians and sub-custodians, expenses of disbursing dividends and
distributions, fees, expenses and out-of-pocket costs of the trustees who are
not affiliated with the Adviser, insurance premiums, indemnification and other
expenses not expressly provided for in each Current Advisory Agreement, and any
extraordinary expenses of a nonrecurring nature. Each Fund also compensates its
Adviser, VKAC, the Distributor (defined below) and ACCESS (defined below) for
certain non-advisory services provided pursuant to agreements discussed below.
See "OTHER INFORMATION -- Non-Advisory Agreements" below.
9
<PAGE> 17
The foregoing summary of the Current Advisory Agreement between each
respective AC Fund and Asset Management is qualified by reference to the form of
New Advisory Agreement attached to this Proxy Statement as Annex B-1, which has
been marked to show changes from such Current Advisory Agreement. The foregoing
summary of the Current Advisory Agreement between each respective VK Fund and
Advisory Corp. is qualified by reference to the form of New Advisory Agreement
attached to this Proxy Statement as Annex B-2, which has been marked to show
changes from such Current Advisory Agreement.
THE NEW ADVISORY AGREEMENTS. The Board of Trustees approved a proposed New
Advisory Agreement between each AC Fund and Asset Management on July 25, 1996,
the form of which is attached hereto as Annex B-1. The form of the proposed New
Advisory Agreement is substantially identical to the Current Advisory Agreement
between each AC Fund and Asset Management, except for the dates of execution,
effectiveness and termination.
The Board of Trustees approved a proposed New Advisory Agreement between each
VK Fund and Advisory Corp. on July 25, 1996, the form of which is attached
hereto as Annex B-2. The form of the proposed New Advisory Agreement is
substantially identical to the Advisory Agreement between each VK Fund and
Advisory Corp., except for the dates of execution, effectiveness and
termination.
The investment advisory fee as a percentage of net assets payable by each Fund
will be the same under each New Advisory Agreement as under the Current Advisory
Agreement. If the investment advisory fee under each New Advisory Agreement had
been in effect for each Fund's most recently completed fiscal year, advisory
fees paid to the respective Adviser by each Fund would have been identical to
those paid under each Current Advisory Agreement.
The Board of Trustees of each Fund held a joint meeting on July 25, 1996, at
which meeting the Trustees, including the Disinterested Trustees, concluded that
if the Acquisition occurs, entry by each respective Fund into a New Advisory
Agreement would be in the best interest of each Fund and the shareholders of
each Fund. The Board of Trustees of each Fund, including the Disinterested
Trustees, unanimously approved the New Advisory Agreement for each Fund and
recommended each such agreement for approval by the shareholders of the
respective Fund at the Meeting. The New Advisory Agreement would take effect
upon the later to occur of (i) the obtaining of shareholder approval or (ii) the
closing of the Acquisition. Each New Advisory Agreement will continue in effect
until May 30, 1997 and thereafter for successive annual periods as long as such
continuance is approved in accordance with the 1940 Act.
In evaluating the New Advisory Agreements, the Boards of Trustees of the Funds
took into account that each Fund's Current Advisory Agreement and its
10
<PAGE> 18
New Advisory Agreement, including the terms relating to the services to be
provided thereunder by the Adviser and the fees and expenses payable by such
Fund, are substantially identical, except for the dates of execution,
effectiveness and termination. The Trustees also considered other possible
benefits to the Advisers and Morgan Stanley that may result from the
Acquisition, including the continued use, to the extent permitted by law, of
Morgan Stanley & Co. and its affiliates for brokerage services and the possible
retention of Morgan Stanley Asset Management Inc. as a subadviser to certain Van
Kampen American Capital investment companies (not including the Funds).
The Boards of Trustees also considered the terms of the Merger Agreement and
the possible effects of the Acquisition upon VKAC's and the Advisers'
organization and upon the ability of the Advisers to provide advisory services
to each respective Fund. The Boards of Trustees considered the skills and
capabilities of the Advisers and the representations of Morgan Stanley that no
material change was planned in the current management or facilities of the
Advisers. In this regard, representatives of Morgan Stanley met with the Boards
of Trustees at the joint board meeting at which time such representatives
described the resources available to VKAC and the Advisers, after giving effect
to the Acquisition, to secure for each Fund quality investment research,
investment advice and other client services. The Board considered the financial
resources of Morgan Stanley and Morgan Stanley's representation to the Board
that it will provide sufficient capital to support the operations of the
Advisers. The Board of Trustees also considered the reputation, expertise and
resources of Morgan Stanley and its affiliates in domestic and international
financial markets. The Boards of Trustees considered the continued employment of
members of senior management of the Advisers and VKAC pursuant to employment and
retention agreements and the incentives provided to such members and other key
employees of the Advisers and VKAC, to be important to help to assure continuity
of the personnel primarily responsible for maintaining the quality of investment
advisory and other services for the Funds.
The Boards of Trustees considered the effects on the Funds of the Advisers
becoming affiliated persons of Morgan Stanley. Following the Acquisition, the
1940 Act will prohibit or impose certain conditions on the ability of the Funds
to engage in certain transactions with Morgan Stanley and its affiliates. For
example, absent exemptive relief, the Funds will be prohibited from purchasing
securities from Morgan Stanley & Co., a wholly-owned broker-dealer subsidiary of
Morgan Stanley, in transactions in which Morgan Stanley & Co. acts as a
principal, and the Funds will have to satisfy certain conditions in order to
engage in securities transactions in which Morgan Stanley & Co. acts as a broker
or to purchase securities in an underwritten offering in which Morgan Stanley &
Co. is acting as an underwriter. In this connection, management of the Advisers
represented to the Boards of Trustees that they do not believe these
prohibitions or conditions will have a material effect on the management or
performance of the Funds.
11
<PAGE> 19
The Boards of Trustees were advised that Section 15(f) of the 1940 Act is
applicable to the Acquisition. Section 15(f) of the 1940 Act permits, in the
context of a change in control of an investment adviser to a registered
investment company, the receipt by such investment adviser, or any of its
affiliated persons, of an amount of benefit in connection with such sale, as
long as two conditions are satisfied. First, an "unfair burden" must not be
imposed on the investment company for which the investment adviser acts in such
capacity as a result of the sale of such interest, or any express or implied
terms, conditions or understandings applicable thereto. The term "unfair
burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or indirectly,
from the investment company or its security holders (other than fees for bona
fide investment advisory and other services), or from any person in connection
with the purchase or sale of securities or other property to, from or on behalf
of the investment company (other than ordinary fees for bona fide principal
underwriting services).
Management of each Fund is aware of no circumstances arising from the
Acquisition, preparatory transactions to the Acquisition or any potential
financing that might result in the imposition of an "unfair burden" on the
Funds. Moreover, Morgan Stanley has agreed in the Merger Agreement that, upon
consummation of the Acquisition, it will take no action which would have the
effect, directly or indirectly, of violating any of the provisions of Section
15(f) of the 1940 Act in respect of the Acquisition. In this regard, the Merger
Agreement provides that Morgan Stanley will use its reasonable best efforts to
assure that (i) no "unfair burden" will be imposed on any Fund as a result of
the transactions contemplated by the Merger Agreement and (ii) except as
provided in the Merger Agreement, the investment advisory fees paid by the Funds
will not be increased for a period of two years from the closing of the
Acquisition and that, during such period, advisory fee waivers shall not be
permitted to expire except in accordance with their terms. An Adviser may permit
a voluntary fee waiver unilaterally adopted by it to expire at any time and no
assurance can be given that voluntary waivers will not be permitted to expire
during the two year period. During the two year period following the
Acquisition, the Advisers do not intend to change their policies with respect to
the circumstances under which voluntary fee waivers may be permitted to expire.
Following the Acquisition, to the extent permitted by applicable law, VKAC
anticipates that the Funds will continue to use Morgan Stanley & Co. and its
affiliates for brokerage services.
The second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable, at
least 75% of the subject investment company's board of directors must not be
"interested persons" (as defined in the 1940 Act) of the investment company's
investment adviser or predecessor adviser. The current composition of the Board
of Trustees of
12
<PAGE> 20
each Fund would be in compliance with such condition subsequent to the
Acquisition.
Based upon its review, the Boards of Trustees concluded that the New Advisory
Agreement is in the best interest of each respective Fund and such Fund's
shareholders. Accordingly, after consideration of the above factors, and such
other factors and information that it deemed relevant, the Board of Trustees of
each Fund, including the Disinterested Trustees, unanimously approved the New
Advisory Agreement and voted to recommend its approval to the shareholders of
the respective Fund.
In the event that shareholders of a Fund do not approve the New Advisory
Agreement with respect to a Fund and the Acquisition is consummated, the Board
of Trustees of such Fund would seek to obtain for the Fund interim investment
advisory services at the lesser of cost or the current fee rate either from the
respective Adviser or from another advisory organization. Thereafter, the Board
of Trustees of such Fund would either negotiate a new investment advisory
agreement with an advisory organization selected by the Board of Trustees or
make appropriate arrangements, in either event subject to approval of the
shareholders of such Fund. In the event the Acquisition is not consummated, the
Advisers would continue to serve as investment adviser of the Funds pursuant to
the terms of the Current Advisory Agreement.
SHAREHOLDER APPROVAL
To become effective, each New Advisory Agreement must be approved by the vote
of a majority of the outstanding voting securities of the respective Fund. The
"vote of a majority of the outstanding voting securities" is defined under the
1940 Act as the lesser of the vote of (i) 67% or more of the Shares of the
respective Fund entitled to vote thereon present at the Meeting if the holders
of more than 50% of such outstanding Shares are present in person or represented
by proxy; or (ii) more than 50% of such outstanding Shares of the Fund entitled
to vote thereon. Each New Advisory Agreement was unanimously approved by the
Board of Trustees after consideration of all factors which they determined to be
relevant to their deliberations, including those discussed above. The Board of
Trustees also unanimously determined to submit each New Advisory Agreement for
consideration by the shareholders of the respective Fund. THE BOARD OF TRUSTEES
OF EACH FUND RECOMMENDS A VOTE "FOR" APPROVAL OF THE NEW ADVISORY AGREEMENT.
- - ------------------------------------------------------------------------------
PROPOSAL 2: APPROVAL OF CHANGES TO FUNDAMENTAL INVESTMENT POLICIES
- - ------------------------------------------------------------------------------
Section 12 of the 1940 Act generally prohibits each Fund from (i) owning more
than 3% of the total outstanding voting stock of any other investment company;
(ii) investing more than 5% of its total assets in the securities of any one
other
13
<PAGE> 21
investment company; and (iii) investing more than 10% of its total assets (in
the aggregate) in the securities of other investment companies.
On and before June 18, 1996, the Securities and Exchange Commission issued a
series of exemptive orders granting the Advisers and certain of the Funds
exemptive relief to permit such Funds to invest their assets in shares of Small
Capitalization Fund and Foreign Securities Fund in excess of the limitations
imposed by Section 12 of the 1940 Act. On August 22, 1996, the Boards of
Trustees authorized the Advisers and the Funds, together with certain other
investment companies managed by the Advisers and their affiliates, to seek
additional exemptive relief from the Securities and Exchange Commission to
permit the Funds to purchase securities of the Reserve Fund and the Tax Free
Money Fund in excess of the limitations imposed by Section 12 of the 1940 Act.
The exemptive orders granted with respect to the Small Capitalization Fund and
the Foreign Securities Fund and similar exemptive orders that may be obtained by
the Funds and the Advisers in the future are referred to herein collectively as
the "Exemptive Orders." The Small Capitalization Fund, the Foreign Securities
Fund and any other Van Kampen American Capital funds in which the Funds may
invest pursuant to exemptive relief similar to the Exemptive Orders are referred
to herein collectively as the "Exemptive Order Funds."
The Funds and the Advisers obtained, and may seek future, Exemptive Orders
because they believe each Fund can more effectively invest in small
capitalization securities, foreign securities and certain other types of
securities through pooled investment vehicles such as the Exemptive Order Funds.
By pooling their investments in small capitalization securities, foreign
securities or other types of securities, the Funds have the ability to invest in
a wider range of issuers, industries and markets, thereby seeking to decrease
volatility and risk while at the same time providing greater liquidity than a
Fund would have available to it investing in such securities by itself. Pooling
investments also allows the Funds to increase the efficiency of portfolio
management by permitting each Fund's portfolio manager to concentrate on those
investments that comprise the bulk of the Fund's assets and not spend a
disproportionate amount of time on specialized areas such as small
capitalization stocks and foreign securities.
If the proposed amendments to the Funds' investment restrictions are approved,
each Fund will invest in securities of the Small Capitalization Fund, the
Foreign Securities Fund and other Exemptive Order Funds only to the extent
consistent with the respective Fund's investment objectives and policies as set
forth from time to time in its prospectus. For example, the Comstock Fund may
invest up to 15% of its assets in foreign securities. If this Proposal 2 is
approved by shareholders of the Comstock Fund, the Comstock Fund may elect to
invest up to 15% of its assets in the Foreign Securities Fund instead of
purchasing individual foreign securities. The
14
<PAGE> 22
Funds also may be limited in their ability to invest in Exemptive Order Funds by
state securities laws and regulations.
The Advisers will not charge advisory fees for managing the Small
Capitalization Fund or the Foreign Securities Fund, nor is any sales load or
other sales charge imposed in connection with the Funds' purchases of their
shares. In connection with obtaining future Exemptive Orders, the Advisers may
agree to waive fees applicable to the Funds and collect fees from the Exemptive
Order Funds. Other expenses incurred by the Exemptive Order Funds (such as audit
and custodial fees) will be borne by them, and thus indirectly by the Funds.
Management of the Advisers, however, anticipates that cost savings in the areas
of administration, out-of-pocket expenses (such as audit and custodial fees) and
portfolio transaction expenses will mitigate such additional expenses.
Certain of the Funds currently have fundamental investment restrictions that
prohibit them from purchasing securities issued by other investment companies in
excess of the percentage limitations imposed by Section 12 of the 1940 Act. In
order to take full advantage of the exemptive relief granted by the Securities
and Exchange Commission and to invest in shares of the Exemptive Order Funds in
excess of the percentage limitations imposed by Section 12, each such Fund is
seeking shareholder approval to amend this investment restriction. The amended
investment restriction would state:
The Fund may not invest in securities issued by other investment companies
except as part of a merger, reorganization or other acquisition and except
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the Securities and Exchange
Commission under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
Certain of the Funds also have adopted other fundamental investment
restrictions that may prohibit each such Fund from taking full advantage of the
Exemptive Orders. These fundamental restrictions may include one or more of the
following:
1.Diversification. Your Fund may be prohibited from investing more than 5% of
its assets in securities of a single issuer or holding more than 10% of the
outstanding voting securities of an issuer, except that the Fund may be able
to invest up to 25% (50% for a nondiversified Fund) of its assets without
regard to such restrictions. From time to time, a Fund may desire to invest
more than 5% of its assets in, or own more than 10% of the assets of, one or
more Exemptive Order Funds.
2. Control. Your Fund may be prohibited from making investments for the
purpose of exercising control or participation in management, except to the
extent that exercise by the Fund of its rights under agreements related to
securities owned by the Fund would be deemed to constitute such control or
participation. The 1940 Act deems a person to have presumptive control over
15
<PAGE> 23
another person if it beneficially owns more than 25% of the other person's
voting securities. From time to time, a Fund may own more than 25% of the
voting securities of the of one or more Exemptive Order Funds.
3. Unseasoned Issuers. Your Fund may be prohibited from investing in
securities of issuers that have less than three years of continuous
operation or may be prohibited from investing more than a certain
percentage of its assets in such issuers. Each of the Funds may want to
invest in one or more Exemptive Order Funds prior to the third anniversary
of the commencement of investment operations of the respective Exemptive
Order Funds.
4. Restricted Securities. Your Fund may be prohibited from investing more than
a certain percentage of its assets in restricted securities. Although each
Exemptive Order Fund will redeem its shares within seven days of
presentment for redemption as required by the 1940 Act, shares issued by
the Exemptive Order Funds may be deemed to be restricted securities because
they are not registered under the Securities Act of 1933. From time to
time, each Fund may desire to purchase shares of an Exemptive Order Fund in
excess of the percentage limitations imposed by its restricted securities
investment restriction.
The foregoing restrictions may be worded differently from Fund to Fund, but
the substance of the restrictions is as set forth above. Additional information
regarding your Fund's fundamental investment restrictions may be obtained
without cost by telephoning VKAC at 1-800-421-5666 and requesting a copy of your
Fund's Statement of Additional Information.
In order to take full advantage of the Exemptive Orders, each Fund subject to
one or more of the foregoing investment restrictions seeks shareholder approval
to amend such restrictions by adding the following exception to each
restriction:
..., except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from time
to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.
The proposed amendments to each Fund's investment restrictions are not related
to the Acquisition described in Proposal 1. Shareholders are being asked to
consider such amendments at this time because the Funds do not regularly hold
annual shareholder meetings, and management of the Funds believes that
submitting this proposal together with Proposal 1 may reduce the expenses
incurred by each Fund in connection with soliciting approval of this proposal.
SHAREHOLDER APPROVAL
To become effective, the proposed amendments to each Fund's investment
restrictions must be approved by the vote of a majority of the outstanding
voting securities of the respective Fund. The "vote of a majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of the
vote of (i) 67% or more of
16
<PAGE> 24
the Shares of the respective Fund entitled to vote thereon present at the
Meeting if the holders of more than 50% of such outstanding Shares are present
in person or represented by proxy; or (ii) more than 50% of such outstanding
Shares of the Fund entitled to vote thereon. The proposed amendments were
approved by the Board of Trustees of each Fund after consideration of all the
factors they determined to be relevant to their deliberations, including those
discussed above. The Board of Trustees also unanimously determined to submit the
proposed changes to the Shareholders of the Funds. THE BOARD OF TRUSTEES OF EACH
FUND RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDED INVESTMENT RESTRICTIONS.
- - ------------------------------------------------------------------------------
PROPOSAL 3A: RATIFICATION OF INDEPENDENT PUBLIC
ACCOUNTANTS FOR VK FUNDS
- - ------------------------------------------------------------------------------
The Boards of Trustees, including a majority of the Disinterested Trustees,
have selected the firm of KPMG Peat Marwick LLP, independent public accountants,
to examine the financial statements for the current fiscal year of each VK Fund.
Each VK Fund knows of no direct or indirect financial interest of the
accountants in the VK Funds. Such appointment is subject to ratification or
rejection by the shareholders of each VK Fund. It is expected that KPMG Peat
Marwick LLP will also act as independent public accountants for VKAC Holding,
VKAC, Advisory Corp., Asset Management, the Distributor (defined below) and
ACCESS (defined below).
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Meeting and will be available to respond to questions from shareholders and will
have the opportunity to make a statement if they so desire.
SHAREHOLDER APPROVAL
The shareholders of each VK Fund, voting with respect to such VK Fund as a
single class, are entitled to vote on this issue. An affirmative vote of a
majority of the Shares of each VK Fund present in person or by proxy and voting
is required to ratify the selection of the accountants for such VK Fund. THE
BOARD OF TRUSTEES OF EACH VK FUND RECOMMENDS A VOTE "FOR" RATIFICATION OF KPMG
PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR
OF EACH VK FUND.
- - ------------------------------------------------------------------------------
PROPOSAL 3B: RATIFICATION OF INDEPENDENT PUBLIC
ACCOUNTANTS FOR AC FUNDS
- - ------------------------------------------------------------------------------
The Boards of Trustees, including a majority of the Disinterested Trustees,
have selected the firm of Price Waterhouse LLP, independent public accountants,
to examine the financial statements for the current fiscal year of each AC Fund.
Each AC Fund knows of no direct or indirect financial interest of the
accountants in the
17
<PAGE> 25
AC Funds. Such appointment is subject to ratification or rejection by the
shareholders of each AC Fund.
Representatives of Price Waterhouse LLP are expected to be present at the
Meeting and will be available to respond to questions from shareholders and will
have the opportunity to make a statement if they so desire.
SHAREHOLDER APPROVAL
The shareholders of each AC Fund, voting with respect to such AC Fund as a
single class, are entitled to vote on this issue. An affirmative vote of a
majority of the Shares of each AC Fund present in person or by proxy and voting
is required to ratify the selection of the accountants for such AC Fund. THE
BOARD OF TRUSTEES OF EACH AC FUND RECOMMENDS A VOTE "FOR" RATIFICATION OF PRICE
WATERHOUSE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR OF
EACH AC FUND.
- - ------------------------------------------------------------------------------
OTHER INFORMATION
- - ------------------------------------------------------------------------------
DIRECTORS AND OFFICERS OF THE ADVISERS
The following table sets forth certain information concerning the principal
executive officers and directors of each of the Advisers.
DIRECTORS AND OFFICERS OF THE ADVISERS
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- - ------------------------- -----------------------------------------------------
<S> <C>
Don G. Powell............ President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VKAC Holding and VKAC and Chairman, Chief Executive
Houston, TX 77056 Officer and a Director of Van Kampen American Capital
Distributors, Inc. (the "Distributor"), the Advisers,
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., Van Kampen Merritt Equity
Holdings Corp., and American Capital Shareholders
Corporation. Chairman and a Director of ACCESS
Investor Services, Inc. ("ACCESS"), Van Kampen
Merritt Equity Advisors Corp., McCarthy, Crisanti &
Maffei, Inc., and Van Kampen American Capital Trust
Company. Chairman, President and a Director of Van
Kampen American Capital Services, Inc. President,
Chief Executive Officer and a Trustee/Director of
certain open-end investment companies and closed-end
investment companies advised by the Texas Adviser.
Prior to July 1996, Chairman and Director of VSM Inc.
and VCJ Inc. Prior to July 1996, President, Chief
Executive Officer and a Trustee/Director of certain
open-end investment companies and certain closed-end
investment companies advised by Asset Management.
</TABLE>
18
<PAGE> 26
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- - ------------------------- -----------------------------------------------------
<S> <C>
Dennis J. McDonnell...... President, Chief Operating Officer and a Director of
One Parkview Plaza Advisers, Van Kampen American Capital Advisors, Inc.
Oakbrook Terrace, IL and Van Kampen American Capital Management, Inc.
60181 Executive Vice President and a Director of VKAC
Holding and VKAC. President and Director of Van
Kampen Merritt Equity Advisors Corp. Director of Van
Kampen Merritt Equity Holdings Corp. and McCarthy,
Crisanti & Maffei, S.A. Chief Executive Officer and
Director of McCarthy, Crisanti & Maffei, Inc.
Chairman and a Director of MCM Asia Pacific Company,
Limited. President and Trustee/Director of open-end
investment companies and closed-end investment
companies advised by the Advisers. Prior to July
1996, President, Chief Operating Officer and Director
of VSM Inc. and VCJ Inc. Prior to December, 1991,
Senior Vice President of Van Kampen Merritt, Inc.
Ronald A. Nyberg......... Executive Vice President, General Counsel and
One Parkview Plaza Secretary of VKAC Holding and VKAC. Executive Vice
Oakbrook Terrace, IL President, General Counsel and a Director of the
60181 Distributor, the Advisers, Van Kampen American
Capital Management, Inc., Van Kampen Merritt Equity
Advisors Corp., and Van Kampen Merritt Equity
Holdings Corp. Executive Vice President, General
Counsel and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American Capital
Contractual Services, Inc., Van Kampen American
Capital Exchange Corporation, ACCESS, Van Kampen
American Capital Services, Inc. and American Capital
Shareholders Corporation. Executive Vice President,
General Counsel, Assistant Secretary and Director of
Van Kampen American Capital Trust Company. General
Counsel of McCarthy, Crisanti & Maffei, Inc. Vice
President and Secretary of open-end investment
companies and closed-end investment companies advised
by the Advisers. Director of ICI Mutual Insurance
Co., a provider of insurance to members of the
Investment Company Institute. Prior to July 1996,
Executive Vice President and General Counsel of VSM
Inc., and Executive Vice President, General Counsel
and Director of VCJ Inc.
</TABLE>
19
<PAGE> 27
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- - ------------------------- -----------------------------------------------------
<S> <C>
William R. Rybak......... Executive Vice President and Chief Financial Officer
One Parkview Plaza of VKAC Holding and VKAC since February 1993, and
Oakbrook Terrace, IL Treasurer of VKAC Holding through December 1993.
60181 Executive Vice President, Chief Financial Officer and
a Director of the Distributor, the Advisers, and Van
Kampen American Capital Management, Inc. Executive
Vice President, Chief Financial Officer, Treasurer
and a Director of Van Kampen Merritt Equity Advisors
Corp. and Van Kampen Merritt Equity Holdings Corp.
Executive Vice President and Chief Financial Officer
of the Van Kampen American Capital Advisors, Inc.,
Van Kampen American Capital Exchange Corporation, Van
Kampen American Capital Trust Company, ACCESS, and
American Capital Contractual Services, Inc. Executive
Vice President, Chief Financial Officer and Treasurer
of American Capital Shareholders Corporation and Van
Kampen American Capital Services, Inc. Chief
Financial Officer and Treasurer of McCarthy, Crisanti
& Maffei, Inc. Chairman of the Board of Hinsdale
Financial Corp., a savings and loan holding company.
Prior to July 1996, Executive Vice President, Chief
Financial Officer and a Director of VCJ Inc., and
Executive Vice President and Chief Financial Officer
of VSM Inc.
Peter W. Hegel........... Executive Vice President of Advisory Corp., Van
One Parkview Plaza Kampen American Capital Advisors, Inc., and Van
Oakbrook Terrace, IL Kampen American Capital Management, Inc. Executive
60181 Vice President and Director of Asset Management.
Director of McCarthy, Crisanti & Maffei, Inc. Vice
President of open-end investment companies and
closed-end investment companies advised by the
Advisers. Prior to July 1996, Director of VSM Inc.
Robert C. Peck, Jr. ..... Executive Vice President of Advisory Corp. and Van
2800 Post Oak Blvd. Kampen American Capital Management, Inc. Executive
Houston, TX 77056 Vice President and Director of Asset Management and
Van Kampen American Capital Advisors, Inc. Vice
President of open-end investment companies advised by
the Advisers.
Alan T. Sachtleben....... Executive Vice President of Advisory Corp. and Van
2800 Post Oak Blvd. Kampen American Capital Management, Inc. Executive
Houston, TX 77056 Vice President and a Director of Asset Management and
Van Kampen American Capital Advisors, Inc. Vice
President of open-end investment companies advised by
the Advisers.
</TABLE>
20
<PAGE> 28
The following table sets forth the trustees and officers of the Funds who are
also officers of the Advisers.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE FUNDS
- - ------------------------------------- ---------------------------------------------
<S> <C>
Dennis J. McDonnell.................. Trustee and President
William N. Brown..................... Vice President
Peter W. Hegel....................... Vice President
Curtis W. Morell..................... Vice President and Chief Accounting Officer
Ronald A. Nyberg..................... Vice President and Secretary
Robert C. Peck, Jr................... Vice President
Alan T. Sachtleben................... Vice President
Paul R. Wolkenberg................... Vice President
Edward C. Wood III................... Vice President and Chief Financial Officer
John L. Sullivan..................... Treasurer
Tanya M. Loden....................... Controller
Nicholas Dalmaso..................... Assistant Secretary
Huey P. Falgout, Jr.................. Assistant Secretary
Scott E. Martin...................... Assistant Secretary
Weston B. Wetherell.................. Assistant Secretary
Steven M. Hill....................... Assistant Treasurer
Robert Sullivan...................... Assistant Controller
</TABLE>
The officers of the Funds serve for one year or until their respective
successors are chosen and qualified. The Funds' officers receive no compensation
from the Funds, but are all officers of the Advisers, the Distributor, VKAC or
their affiliates and receive compensation in such capacities.
NON-ADVISORY AGREEMENTS
Each Fund has entered into certain other agreements with its Adviser, Van
Kampen American Capital Distributors, Inc., the distributor of the Shares and an
affiliate of the Advisers (the "Distributor"), ACCESS Investor Services, Inc.,
the transfer agent for each respective Fund ("ACCESS") and an affiliate of the
Advisers, or VKAC, as the case may be. These agreements are not terminated by
the change in control and do not need to be voted on by the shareholders of the
Funds at the Meeting.
Fund Accounting Agreement. Each VK Fund has entered into an accounting
services agreement with Advisory Corp. pursuant to which Advisory Corp. provides
accounting services supplementary to those provided by the custodian of each VK
Fund's assets. The Board of Trustees of each VK Fund recently approved an
amendment to each VK Fund's accounting services agreement whereby Advisory Corp.
will assume responsibility for providing accounting services currently provided
by the custodian of each VK Fund's assets, and it is currently anticipated that
Advisory Corp. will assume responsibility for providing such services for each
VK Fund no later than May 1, 1997. Each AC Fund is party to the Fund
21
<PAGE> 29
Accounting Agreement, and currently receives all accounting services through
Advisory Corp. Each Fund shares equally, together with the other mutual funds
advised and distributed by the Advisers and the Distributor, respectively, in
25% of the cost of providing such services, with the remaining 75% of such cost
being paid by each Fund based proportionally upon their respective net assets.
Under the Fund Accounting Agreements, each Fund paid Advisory Corp. the amount
set forth at Annex D hereto for its most recently completed fiscal year.
Transfer Agency Agreement. Each Fund has entered into a Transfer Agency
Agreement with ACCESS pursuant to which ACCESS provides transfer agency and
dividend disbursing services for such Fund. For its services, ACCESS charges
each Fund a fee that is determined in accordance with a cost allocation model
developed in conjunction with, and periodically reviewed by, Coopers & Lybrand
LLP. The model allocates among the Funds ACCESS's cost of providing the Funds
with transfer agency services, plus a profit margin approved by the Board of
Trustees. The allocation is based upon a number of factors including the number
of shareholder accounts per Fund, the number and type of shareholder
transactions experienced by each Fund and other factors. Under the Transfer
Agency Agreement, each Fund paid ACCESS the amount set forth at Annex D hereto
for its most recently completed fiscal year.
Legal Services Agreement. Each VK Fund has entered into a Legal Services
Agreement pursuant to which VKAC provides legal services, including without
limitation maintenance of the VK Funds' minute books and records, preparation
and oversight of the VK Funds' regulatory reports, and other information
provided to shareholders, as well as responding to day-to-day legal issues.
Payment by each VK Fund for such services is made on a cost basis for the
employment of personnel as well as the overhead and equipment necessary to
render such services. Under the Legal Services Agreement, each VK Fund paid VKAC
the amount set forth at Annex D hereto for its most recently completed fiscal
year. VKAC also provides legal services for the AC Funds, which do not currently
reimburse VKAC for the provision of such services. VKAC allocates 50% of its
costs equally to each Fund and the remaining 50% of such costs are allocated to
specific Funds based on specific time allocations, or in the event services are
attributable only to types of investment companies (i.e. closed-end or
open-end), the relative amount of time spent on each type of investment
companies and then further allocated among Funds of that type based upon their
respective net asset values.
Distribution Agreement, Distribution Plan and Service Plan. Each Fund has
executed a distribution agreement with the Distributor pursuant to which the
Distributor, as principal underwriter, purchases shares for resale to the
public, either directly or through securities dealers. Under each Distribution
Agreement, each Fund paid the Distributor the amount set forth at Annex D hereto
for its most recently completed fiscal year.
22
<PAGE> 30
Each Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
Each Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may pay to the Distributor a portion of the Fund's average daily
net assets attributable to each class of shares in connection with distribution
of the respective class of shares and in connection with the provision of
ongoing services to shareholders of each class. The Distribution Plan and the
Service Plan are implemented through an agreement with the Distributor. The
Distributor has entered into sub-agreements with certain members of the NASD who
are acting as securities dealers, as well as NASD members or eligible
non-members who are acting as brokers or agents. The Funds have entered into
similar agreements with financial intermediaries who are acting as brokers that
may provide for their customers or clients certain services or assistance. The
agreements between the Distributor and certain brokers, dealers and agents and
the agreements between the Funds and certain financial intermediaries, which
agreements implement the Distribution Plan and the Service Plan, are referred to
herein collectively as the "Selling Agreements." Brokers, dealers and financial
intermediaries that have entered into Selling Agreements with the Distributor
and sell shares of the Fund are referred to herein as "financial
intermediaries."
Each Fund may spend an aggregate amount of up to 0.25% per year of the average
daily net assets attributable to the Class A Shares of the respective Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, each
Fund may spend up to the full 0.25% per year of its average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by financial intermediaries and in connection with the
maintenance of shareholders' accounts. Each Fund pays the Distributor the lesser
of the balance of the 0.25% not paid to such financial intermediaries or the
amount of the Distributor's actual distribution related expenses.
Each Fund may spend up to 0.75% per year of its average daily net assets
attributable to its Class B Shares pursuant to the Distribution Plan. In
addition, each Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class B Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by financial intermediaries and in connection with the
maintenance of such shareholders' accounts.
Each Fund may spend up to 0.75% per year of the average daily net assets
attributable to its Class C Shares pursuant to the Distribution Plan. From such
amount, the Fund, or the Distributor as agent for the Fund, pays financial
intermediaries in connection with the distribution of the Class C Shares up to
0.75%
23
<PAGE> 31
of the Fund's average daily net assets attributable to Class C Shares maintained
in the Fund more than one year by such financial intermediary's customers. In
addition, each Fund may spend up to 0.25% per year of the respective Fund's
average daily net assets attributable to the Class C Shares pursuant to the
Service Plan in connection with the ongoing provision of services to holders of
such shares by the Distributor and by financial intermediaries and in connection
with the maintenance of such shareholders' accounts.
Amounts payable to the Distributor with respect to the Class A Shares under
the Distribution Plan in a given year may not fully reimburse the Distributor
for its actual distribution-related expenses during such year. In such event,
with respect to the Class A Shares, there is no carryover of such reimbursement
obligations to succeeding years.
The Distributor's actual expenses with respect to Class B Shares and Class C
Shares sold subject to a contingent deferred sales charge ("CDSC Shares") for
any given year may exceed the amounts payable to the Distributor with respect to
the CDSC Shares under the Distribution Plan, the Service Plan and payments
received pursuant to the contingent deferred sales charge. In such event, with
respect to the CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Funds do not impose any limit with respect to the number
of years into the future that such unreimbursed distribution expenses may be
carried forward (on a Fund level basis). Because such expenses are accounted for
on a Fund-wide basis, a particular CDSC Share may be greater or less than the
amount of the initial commission (including carrying cost) paid by the
Distributor with respect to such CDSC Share.
The address of the Distributor is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Following the Acquisition, the Advisers will be affiliates of Morgan Stanley &
Co., a registered broker-dealer. The amount of commissions paid by each Fund to
Morgan Stanley & Co., if any, during its most recently completed fiscal year is
set forth on Annex D to this Proxy Statement.
SHAREHOLDER INFORMATION
As of August 27, 1996, the trustees and officers of the Funds as a group owned
less than 1% of the outstanding shares of each Fund, except for the Tax Free
Money Fund, in which trustees and officers of the Fund owned approximately
19.42% of the Fund. At such date the "interested persons" of each Fund, as a
group, owned an aggregate of less than 5% of the outstanding shares of the Fund.
The number of each Fund's outstanding Shares as of August 27, 1996 is set
forth at Annex C hereto. The persons who, to the knowledge of the Funds, owned
beneficially more than 5% of a class of a Fund's outstanding Shares as of August
16, 1996 are set forth at Annex E hereto.
24
<PAGE> 32
- - ------------------------------------------------------------------------------
EXPENSES
- - ------------------------------------------------------------------------------
VKAC Holding and the Funds will share the expense of preparing, printing and
mailing the enclosed form of proxy, the accompanying Notice and this Proxy
Statement. VKAC Holding will bear such expenses to the extent that they relate
to the Acquisition (i.e., Proposal 1). The Funds will bear such expenses to the
extent that they relate to the management or governance of the Funds (i.e.,
Proposals 2 and 3).
In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph, facsimile or personal
interview by representatives of the Funds, the Advisers or VKAC, or by dealers
or their representatives or by First Data Investor Services Group, a
solicitation firm located in Boston, Massachusetts that has been engaged to
assist in proxy solicitations at an estimated cost of approximately $1,545,000.
- - ------------------------------------------------------------------------------
SHAREHOLDER PROPOSALS
- - ------------------------------------------------------------------------------
As a general matter, each Fund does not hold regular annual meetings of
shareholders. Any shareholder who wishes to submit proposals for consideration
at a meeting of such shareholder's Fund should send such proposal to the
respective Fund at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. To be
considered for presentation at a shareholders' meeting, rules promulgated by the
Securities and Exchange Commission require that, among other things, a
shareholder's proposal must be received at the offices of such Fund a reasonable
time before a solicitation is made. Timely submission of a proposal does not
necessarily mean that such proposal will be included.
- - ------------------------------------------------------------------------------
GENERAL
- - ------------------------------------------------------------------------------
Management of each Fund does not intend to present and does not have reason to
believe that others will present any other items of business at the Meeting.
However, if other matters are properly presented to the Meeting for a vote, the
proxies will be voted upon such matters in accordance with the judgment of the
persons acting under the proxies.
A list of shareholders of each Fund entitled to be present and vote at the
Meeting will be available at the offices of the respective Fund, One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, for inspection by any shareholder
during regular business hours for ten days prior to the date of the Meeting.
Failure of a quorum to be present at the Meeting for any Fund may necessitate
adjournment and may subject such Fund to additional expense.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
RONALD A. NYBERG,
Vice President and Secretary
September 6, 1996
25
<PAGE> 33
ANNEX A
VAN KAMPEN AMERICAN CAPITAL FUNDS
The following list sets forth the Van Kampen American Capital mutual funds
(the "Funds") participating in the Joint Special Meeting of Shareholders to be
held at the offices of Van Kampen American Capital, Inc., One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 on Friday, October 25, 1996, at 1:00 p.m. Those
Funds listed under the heading "AC Funds" have entered into an investment
advisory agreement with Van Kampen American Capital Asset Management, Inc. Those
Funds listed under the heading "VK Funds" have entered into an investment
advisory agreement with Van Kampen American Capital Investment Advisory Corp.
The name in the left hand column below is the legal name for each Fund and the
name in the right hand column is the abbreviated name as used in the Proxy
Statement.
AC FUNDS
<TABLE>
<CAPTION>
LEGAL NAME ABBREVIATED NAME
- - -------------------------------------------------- ------------------------------------
<S> <C>
Van Kampen American Capital Comstock Fund Comstock Fund
Van Kampen American Capital Corporate Bond Fund Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund Emerging Growth Fund
Van Kampen American Capital Enterprise Fund Enterprise Fund
Van Kampen American Capital Equity Income Fund Equity Income Fund
Van Kampen American Capital Government Securities Government Securities Fund
Fund
Van Kampen American Capital Government Target Fund Government Target '97
Van Kampen American Capital Growth and Income Fund Growth and Income Fund
Van Kampen American Capital Harbor Fund Harbor Fund
Van Kampen American Capital High Income Corporate High Income Corporate Bond Fund
Bond Fund
Van Kampen American Capital Life Investment Trust:
Asset Allocation Portfolio LIT Asset Allocation Portfolio
Domestic Income Portfolio LIT Domestic Income Portfolio
Emerging Growth Portfolio LIT Emerging Growth Portfolio
Enterprise Portfolio LIT Enterprise Portfolio
Government Portfolio LIT Government Portfolio
Money Market Portfolio LIT Money Market Portfolio
Van Kampen American Capital Limited Maturity Limited Maturity Government Fund
Government Fund
Van Kampen American Capital Pace Fund Pace Fund
Van Kampen American Capital Reserve Fund Reserve Fund
Van Kampen American Capital Small Capitalization Small Capitalization Fund
Fund
Van Kampen American Capital Texas Tax Free Income Texas Fund
Fund
Van Kampen American Capital U.S. Government Trust U.S. Government Trust for Income
for Income
</TABLE>
A-1
<PAGE> 34
VK FUNDS
<TABLE>
<CAPTION>
LEGAL NAME ABBREVIATED NAME
- - ------------------------------------------------ --------------------------------------
<S> <C>
Van Kampen American Capital U.S. Government Trust:
Van Kampen American Capital U.S. Government U.S. Government Fund
Fund
Van Kampen American Capital Tax Free Trust:
Van Kampen American Capital Insured Tax Free Insured Fund
Income Fund
Van Kampen American Capital Tax Free High Tax Free High Income Fund
Income Fund
Van Kampen American Capital California Insured California Fund
Tax Free Fund
Van Kampen American Capital Municipal Income Municipal Income Fund
Fund
Van Kampen American Capital Intermediate Term Intermediate Term Municipal Fund
Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Florida Fund
Free Income Fund
Van Kampen American Capital New Jersey Tax Free New Jersey Fund
Income Fund
Van Kampen American Capital New York Tax Free New York Fund
Income Fund
Van Kampen American Capital Trust:
Van Kampen American Capital High Yield Fund High Yield Fund
Van Kampen American Capital Short-Term Global Short-Term Global Fund
Income Fund
Van Kampen American Capital Strategic Income Strategic Income Fund
Fund
Van Kampen American Capital Equity Trust:
Van Kampen American Capital Utility Fund Utility Fund
Van Kampen American Capital Balanced Fund Balanced Fund
Van Kampen American Capital Value Fund Value Fund
Van Kampen American Capital Great American Great American Companies Fund
Companies Fund
Van Kampen American Capital Growth Fund Growth Fund
Van Kampen American Capital Prospector Fund Prospector Fund
Van Kampen American Capital Aggressive Growth Aggressive Growth Fund
Fund
Van Kampen American Capital Pennsylvania Tax Pennsylvania Fund
Free Income Fund
Van Kampen American Capital Tax Free Money Fund Tax Free Money Fund
Van Kampen American Capital Foreign Securities Foreign Securities Fund
Fund
</TABLE>
A-2
<PAGE> 35
ANNEX B-1
FORM OF
INVESTMENT ADVISORY AGREEMENT
(MARKED TO SHOW CHANGES FROM THE CURRENT ADVISORY AGREEMENT)
AGREEMENT (herein so called) made this [DATE], by and between VAN KAMPEN
AMERICAN CAPITAL FUND, a Delaware business trust
(hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by
way of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing
of routine legal services except for services provided by outside counsel to
the FUND selected by the Trustees, and the supervision of the FUND's Treasurer
and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution
B1-1
<PAGE> 36
available and shall maintain records adequate to demonstrate compliance with
this requirement. Subject to prior authorization by the FUND's Trustees of
appropriate policies and procedures, the ADVISER may, to the extent authorized
by law, cause the FUND to pay a broker or dealer that provides brokerage and
research services to the ADVISER an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. In the event
of such authorization and to the extent authorized by law, the ADVISER shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the FUND which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the FUND's financial statements, preparation of such financial
statements and other FUND documents and reports of a financial nature required
by federal and state laws, and participation in the production of the FUND's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders; (v) fees of outside counsel to and of independent accountants
of the FUND selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the FUND and its shares
for distribution under state and federal securities laws; (x) expenses of
printing and mailing of registration statements, prospectuses, reports, notices
and proxy solicitation materials of the FUND; (xi) all other expenses incidental
to holding meetings of the FUND's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the FUND's membership in trade associations approved by the Trustees; and
(xv) such nonrecurring expenses as may arise, including those associated with
actions, suits or proceedings to which the FUND is a party and the legal
obligation which the FUND may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
B1-2
<PAGE> 37
between the FUND and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND may
be a shareholder, trustee, director, officer or employee of, or be otherwise
interested in, the ADVISER, and in any person controlled by or under common
control with the ADVISER, and the ADVISER, and any person controlled by or under
common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, neither the ADVISER nor any subadviser shall be subject to
liability to the FUND, or to any shareholder of the FUND, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
(3) COMPENSATION PAYABLE TO ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed at
the following annual rate:
[advisory fee schedule]
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct expenses
incurred by such person, in connection with obtaining such commissions, fees,
brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the FUND's portfolio transactions and shall advise the
Trustees of any other commissions, fees, brokerage or similar payments which may
be possible for the
B1-3
<PAGE> 38
ADVISER or any other direct or indirect majority owned subsidiary of VK/AC
Holding, Inc. to receive in connection with the FUND's portfolio transactions or
other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the FUND's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
Adviser's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND shall
include the investment advisory fee and other operating expenses paid by the
FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii) as a
result of litigation in connection with a suit involving a claim for recovery by
the FUND; (iv) as a result of litigation involving a defense against a liability
asserted against the FUND, provided that, if the ADVISER made the decision or
took the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the FUND to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to Van Kampen
American Capital Distributors, Inc., the distributor of the FUND's shares, in
connection with a distribution plan adopted by the FUND's Trustees pursuant to
Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any of
such records upon the FUND's request. The ADVISER further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the Act.
(5) DURATION OF AGREEMENT
This Agreement shall become effective of the date hereof, and shall remain in
full force until [May 30, 1997] unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter,
but only so long as such continuance is approved at least annually by the vote
of a majority of
B1-4
<PAGE> 39
the FUND's Trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Trustees or a
majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of a
majority of the FUND's outstanding voting securities, or by the ADVISER, on 60
days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Fund or the
Trustees of the FUND as Trustees and not individually and that the obligations
of this Agreement are not binding upon any of the Trustees, officers or
shareholders of the FUND individually but are binding only upon the assets and
property of the FUND. A Certificate of Trust in respect of the Fund is on file
with the Secretary of State of Delaware.
The parties hereto each have caused this Agreement to be signed in duplicate
on its behalf by its duly authorized officer on the above date.
VAN KAMPEN
AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
By:
------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
VAN KAMPEN
AMERICAN CAPITAL
FUND
By:
------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
B1-5
<PAGE> 40
ANNEX B-2
FORM OF
INVESTMENT ADVISORY AGREEMENT
(MARKED TO SHOW CHANGES FROM CURRENT ADVISORY AGREEMENT)
THIS INVESTMENT ADVISORY AGREEMENT dated as of [DATE], by and between VAN
KAMPEN AMERICAN CAPITAL [FUND NAME] (the "Fund")[, a series of Van Kampen
American Capital , Delaware business trust (the "Trust"),] and VAN
KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (the "Adviser"), a Delaware
corporation.
1. (a) RETENTION OF ADVISER BY FUND. The Fund hereby employs the Adviser to
act as the investment adviser for and to manage the investment and reinvestment
of the assets of the Fund in accordance with the Fund's investment objective and
policies and limitations, and to administer its affairs to the extent requested
by, and subject to the review and supervision of, the Board of Trustees of the
Fund for the period and upon the terms herein set forth. The investment of funds
shall be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.
(b) ADVISER'S ACCEPTANCE OF EMPLOYMENT. The Adviser accepts such employment
and agrees during such period to render such services, to supply investment
research and portfolio management (including without limitation the selection of
securities for the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in accordance with
the policies adopted by the Fund and its Board of Trustees), to administer the
business affairs of the Fund, to furnish offices and necessary facilities and
equipment to the Fund, to provide administrative services for the Fund, to
render periodic reports to the Board of Trustees of the Fund, and to permit any
of its officers or employees to serve without compensation as trustees or
officers of the Fund if elected to such positions.
(c) INDEPENDENT CONTRACTOR. The Adviser shall be deemed to be an independent
contractor under this Agreement and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund in any way
or otherwise be deemed as agent of the Fund.
(d) NON-EXCLUSIVE AGREEMENT. The services of the Adviser to the Fund under
this Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
B2-1
<PAGE> 41
2. (a) FEE. For the services and facilities described in Section 1, the Fund
will accrue daily and pay to the Adviser at the end of each calendar month an
investment management fee equal to a percentage of the average daily net assets
of the Fund as follows:
<TABLE>
<CAPTION>
FEE PERCENT OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
------------------------------------ --------------
<S> <C>
</TABLE>
(b) EXPENSE LIMITATION. The Adviser's compensation for any fiscal year of the
Fund shall be reduced by the amount, if any, by which the Fund's expense for
such fiscal year exceeds the most restrictive applicable expense jurisdiction in
which the Fund's shares are qualified for offer and sale, as such limitations
set forth in the most recent notice thereof furnished by the Adviser to the
Fund. For purposes of this paragraph there shall be excluded from computation of
the Fund's expenses any amount borne directly or indirectly by the Fund which is
permitted to be excluded from the computation of such limitation by such statute
or regulatory authority. If for any month expenses of the Fund properly included
in such calculation exceed 1/12 of the amount permitted annually by the most
restrictive applicable expense limitation, the payment to the Adviser for that
month shall be reduced, and, if necessary, the Adviser shall make a refund
payment to the Fund, so that the total net expense for the month will not exceed
1/12 of such amount. As of the end of the Fund's fiscal year, however, the
computations and payments shall be readjusted so that the aggregate compensation
payable to the Adviser for the year is equal to the fee set forth in subsection
(a) of this Section 2, diminished to the extent necessary so that the expenses
for the year do not exceed those permitted by the applicable expense limitation.
(c) DETERMINATION OF NET ASSET VALUE. The net asset value of the Fund shall be
calculated as of [ ] on each day the Exchange is open for
trading or such other time or times as the trustees may determine in accordance
with the provisions of applicable law and of the Declaration of Trust and
By-Laws of the Trust, and resolutions of the Board of Trustees of the Fund as
from time to time in force. For the purpose of the foregoing computations, on
each such day when net asset value is not calculated, the net asset value of a
share of beneficial interest of the Fund shall be deemed to be the net asset
value of such share as of the close of business of the last day on which such
calculation was made.
(d) PRORATION. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in effect
during such month and year, respectively.
3. EXPENSES. In addition to the fee of the Adviser, the Fund shall assume and
pay any expenses for services rendered by a custodian for the safekeeping of the
Fund's
B2-2
<PAGE> 42
securities or other property, for keeping its books of account, for any other
charges of the custodian and for calculating the net asset value of the Fund as
provided above. The Adviser shall not be required to pay, and the Fund shall
assume and pay, the charges and expenses of its operations, including
compensation of the trustees (other than those who are interested persons of the
Adviser and other than those who are interested persons of the distributor of
the Fund but not of the Adviser, if the distributor has agreed to pay such
compensation), charges and expenses of independent accountants, of legal counsel
and of any transfer or dividend disbursing agent, costs of acquiring and
disposing of portfolio securities, cost of listing shares of the New York Stock
Exchange or other exchange interest (if any) on obligations incurred by the
Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, costs of reports and notices to
shareholders, costs of registering shares of the Fund under the federal
securities laws, miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies on account of the registration of securities
issued by the Fund, filing of corporate documents or otherwise. The Fund shall
not pay or incur any obligation for any management or administrative expenses
for which the Fund intends to seek reimbursement from the Adviser without first
obtaining the written approval of the Adviser. The Adviser shall arrange, if
desired by the Fund, for officers or employees of the Adviser to serve, without
compensation from the Fund, as trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law.
4. INTERESTED PERSONS. Subject to applicable statutes and regulations, it is
understood that trustees, officers, shareholders and agents of the Fund are or
may be interested in the Adviser as directors, officers, shareholders, agents or
otherwise and that the directors, officers, shareholders and agents of the
Adviser may be interest in the Fund as trustees, officers, shareholders, agents
or otherwise.
5. LIABILITY. The Adviser shall not be liable for any error of judgment or of
law, or for any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the performance of
its obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
6. (a) TERM. This Agreement shall become effective on the date hereof and
shall remain in full force until [May 31, 1997] unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only as long as such continuance is specifically approved as
least annually in the manner required by the Investment Company Act of 1940, as
amended.
(b) TERMINATION. This Agreement shall automatically terminate in the event of
its assignment. This Agreement may be terminated at any time without the
B2-3
<PAGE> 43
payment of any penalty by the Fund or by the Adviser on sixty (60) days written
notice to the other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding shares of stock of
the Fund, accompanied by appropriate notice. This Agreement may be terminated at
any time without the payment of any penalty and without advance notice by the
Board of Trustees or by vote of a majority of the outstanding shares of the Fund
in the event that it shall have been established by a court of competent
jurisdiction that the Adviser or any officer or director of the Adviser has
taken any action which results in a breach of the covenants of the Adviser set
forth herein.
(c) PAYMENT UPON TERMINATION. Termination of this Agreement shall not affect
the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
thereby affected.
8. NOTICES. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
9. DISCLAIMER. The Adviser acknowledges and agrees that, as provided by
Section 8.1 of the Declaration of Trust of the Trust, (i) this Agreement has
been executed by officers of the Trust in their capacity as officers, and not
individually, and (ii) the shareholders, trustees, officers, employees and other
agents of the Trust and the Fund shall not personally be bound by or liable
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder and that any such resort may
only be had upon the assets and property of the Fund.
10. GOVERNING LAW. All questions concerning the validity, meaning and effect
of this Agreement shall be determined in accordance with the laws (without
giving effect to the conflict-of-law principles thereof) of the State of
Delaware applicable to contracts made and to be performed in that state.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed on the day and year first above written.
VAN KAMPEN VAN KAMPEN
AMERICAN CAPITAL AMERICAN CAPITAL
[FUND NAME] INVESTMENT ADVISORY CORP.
By: By:
---------------------------------- -----------------------------------
B2-4
<PAGE> 44
ANNEX C
The table below sets forth, for each investment company for which Advisory
Corp. and Asset Management acts as investment adviser, such investment company's
net assets as of August 27, 1996 or as otherwise noted and the rate at which it
compensates Advisory Corp. and Asset Management for investment advisory
services. Funds for which Advisory Corp. and Asset Management has waived or
reduced its compensation are marked by an "*". There can be no assurance that
the respective Adviser will continue such waiver or reduction.
I. ADVISORY AGREEMENTS BETWEEN ADVISORY CORP. AND THE VK FUNDS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 27, AUGUST 27, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
A. California Fund*........................................ 10,080,838 $ 174,096,079 First $100 Million .500%
Next $150 Million .450%
Next $250 Million .425%
Over $500 Million .400%
B. Insured Fund............................................ 71,984,403 $1,361,944,908 First $500 Million .525%
Next $500 Million .500%
Next $500 Million .475%
Over $1.5 Billion .450%
C. Tax Free High Income Fund............................... 57,475,209 $ 824,194,499 First $500 Million .500%
Municipal Income Fund*.................................. 65,780,780 $ 991,958,764 Over $500 Million .450%
Intermediate Term Municipal Fund*....................... 3,550,022 $ 35,784,219
Florida Fund*........................................... 2,290,115 $ 33,802,303
D. New Jersey Fund*........................................ 1,125,913 $ 16,477,087 First $500 Million .600%
New York Fund*.......................................... 1,182,199 $ 17,326,018 Over $500 Million .500%
Pennsylvania Fund....................................... 16,215,539 $ 279,364,009
E. High Yield Fund*........................................ 40,563,039 $ 386,971,391 First $500 Million .750%
Over $500 Million .650%
</TABLE>
C-1
<PAGE> 45
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 27, AUGUST 27, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
F. Short-Term Global Fund.................................. 16,354,412 $ 123,966,445 .550%
G. Strategic Income Fund................................... 8,508,113 $ 103,881,302 First $500 Million .750%
Growth Fund............................................. 23,085 $ 308,183 Next $500 Million .700%
Value Fund.............................................. 23,277 $ 265,722 Over $1 Billion .650%
Aggressive Growth Fund.................................. 9,765,059 $ 88,764,428
H. Utility Fund............................................ 9,954,445 $ 151,178,666 First $500 Million .650%
Next $500 Million .600%
Over $1 Billion .550%
I. Balanced Fund*.......................................... 1,035,036 $ 16,513,142 First $500 Million .700%
Over $500 Million .650%
J. U.S. Government Fund.................................... 216,227,953 $3,080,938,426 First $500 Million .550%
Next $500 Million .525%
Next $2 Billion .500%
Next $2 Billion .475%
Next $2 Billion .450%
Next $2 Billion .425%
Over $9 Billion .400%
K. Tax Free Money Fund*.................................... 34,646,584 $ 34,646,584 First $500 Million .500%
Next $500 Million .475%
Next $500 Million .425%
Over $1.5 Billion .375%
L. Great American Companies Fund........................... 20,000 $ 231,000 First $500 Million .700%
Prospector Fund......................................... 20,000 $ 230,390 Next $500 Million .650%
Over $1 Billion .600%
M. Foreign Securities Fund................................. 0 $ 0 N/A(2)
</TABLE>
C-2
<PAGE> 46
II. ADVISORY AGREEMENTS BETWEEN ADVISORY CORP. AND OTHER INVESTMENT COMPANIES
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 23, AUGUST 23, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
A. Van Kampen American Capital Investment Grade Municipal
Trust................................................. 4,839,000 $ 75,556,927 .600%
Van Kampen American Capital Trust for Insured
Municipals............................................ 9,642,840 $ 248,457,909
Van Kampen American Capital Municipal Income Trust...... $ 441,719,662
Van Kampen American Capital California Municipal 28,068,123
Trust................................................. 3,199,996 $ 53,419,066
B. Van Kampen American Capital Trust for Investment Grade
Municipals............................................ 27,013,149 $ 706,973,740 .650%
Van Kampen American Capital Trust for Investment Grade
California Municipals................................. 4,619,242 $ 120,374,706
Van Kampen American Capital Trust for Investment Grade
New York Municipals................................... 6,200,986 $ 161,170,377
Van Kampen American Capital Trust for Investment Grade
Pennsylvania Municipals............................... 7,420,970 $ 194,417,583
Van Kampen American Capital Trust for Investment Grade
Florida Municipals.................................... 4,137,306 $ 111,068,297
Van Kampen American Capital Trust for Investment Grade
New Jersey Municipals................................. 3,925,373 $ 105,951,151
Van Kampen American Capital Municipal Opportunity
Trust................................................. 15,352,890 $ 393,657,183
Van Kampen American Capital Advantage Municipal Income
Trust................................................. 19,106,785 $ 485,680,609
Van Kampen American Capital Advantage Pennsylvania
Municipal Income Trust................................ 4,361,902 $ 112,101,612
Van Kampen American Capital New Jersey Value Municipal
Income Trust.......................................... 2,499,940 $ 60,277,999
Van Kampen American Capital Ohio Value Municipal Income
Trust................................................. 1,681,438 $ 38,935,711
Van Kampen American Capital Massachusetts Value
Municipal Income Trust................................ 2,658,295 $ 63,022,577
Van Kampen American Capital New York Value Municipal
Income Trust.......................................... 4,291,172 $ 100,618,407
Van Kampen American Capital Strategic Sector Municipal
Trust................................................. 10,806,700 $ 240,468,898
</TABLE>
C-3
<PAGE> 47
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 23, AUGUST 23, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C>
Van Kampen American Capital California Value Municipal
Income Trust.......................................... 6,029,844 $ 149,320,100
Van Kampen American Capital Pennsylvania Value Municipal
Income Trust.......................................... 4,468,924 $ 110,363,557
Van Kampen American Capital Value Municipal Income
Trust................................................. 23,555,115 $ 561,015,488
Van Kampen American Capital Florida Municipal
Opportunity Trust..................................... 1,683,270 $ 39,394,145
Van Kampen American Capital Municipal Opportunity Trust
II.................................................... 11,731,272 $ 274,193,948
Van Kampen American Capital Advantage Municipal Income
Trust II.............................................. 8,168,211 $ 188,493,490
C. Van Kampen American Capital Municipal Trust............. $ 878,953,581 .700%
Van Kampen American Capital California Quality Municipal 36,270,470
Trust................................................. 9,623,295 $ 233,322,994
Van Kampen American Capital New York Quality Municipal
Trust................................................. 5,643,499 $ 137,064,020
Van Kampen American Capital Pennsylvania Quality
Municipal Trust....................................... 8,121,765 $ 200,398,506
Van Kampen American Capital Florida Quality Municipal
Trust................................................. 6,461,522 $ 157,180,891
Van Kampen American Capital Ohio Quality Municipal
Trust................................................. 4,207,788 $ 105,205,890
Van Kampen American Capital Select Sector Municipal
Trust................................................. 4,682,128 $ 93,398,270
D. Van Kampen American Capital Intermediate Term High
Income Trust.......................................... 13,710,760 $ 142,400,748 .750%
Van Kampen American Capital Limited Term High Income
Trust................................................. 8,109,001 $ 109,779,351
E. Van Kampen American Capital Prime Rate Income Trust..... 4,954,669,363 $4,954,669,363 First $4.0 Billion .950%
Next $3.5 Billion .900%
Next $2.5 Billion .875%
Over $10 Billion .850%
</TABLE>
C-4
<PAGE> 48
III. ADVISORY AGREEMENTS BETWEEN ASSET MANAGEMENT AND THE AC FUNDS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 27, AUGUST 27, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
A. Corporate Bond Fund..................................... 29,386,774 $ 198,017,530 First $150 Million .500%
Equity Income Fund...................................... 154,410,508 $1,007,128,943 Next $100 Million .450%
Growth and Income Fund.................................. 45,827,701 $ 693,567,377 Next $100 Million .400%
Reserve Fund............................................ 478,726,951 $ 478,726,952 Over $350 Million .350%
B. Government Target '97................................... 1,106,234 $ 15,974,026 .500%
C. Limited Maturity Government Fund........................ 5,877,774 $ 113,140,815 First $1 Billion .500%
Next $1 Billion .475%
Next $1 Billion .450%
Next $1 Billion .400%
Over $4 Billion .350%
D. Government Securities Fund.............................. 2,317,241 $2,504,412,119 First $1 Billion .540%
Next $1 Billion .515%
Next $1 Billion .490%
Next $1 Billion .440%
Next $1 Billion .390%
Next $1 Billion .340%
Next $1 Billion .290%
Over $7 Billion .240%
E. High Income Corporate Bond Fund......................... 87,327,224 $ 554,652,250 First $150 Million .625%
Next $150 Million .550%
Over $300 Million .500%
F. LIT Asset Allocation Portfolio.......................... 5,144,482 $ 61,785,230 First $500 Million .500%
LIT Domestic Income Portfolio........................... 2,617,926 $ 21,545,532 Next $500 Million .450%
LIT Enterprise Portfolio................................ 4,947,742 $ 78,619,619 Over $1 Billion .400%
LIT Government Portfolio................................ 6,849,378 $ 58,493,687
LIT Money Market Portfolio.............................. 20,973,419 $ 20,973,419
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 27, AUGUST 27, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
G. Comstock Fund........................................... 78,482,712 $1,208,595,182 First $1 Billion .500%
Enterprise Fund......................................... 99,223,909 $1,413,008,285 Next $1 Billion .450%
Pace Fund............................................... 215,668,246 $2,561,413,881 Next $1 Billion .400%
Over $3 Billion .350%
H. Harbor Fund............................................. 29,277,408 $ 449,646,639 First $350 Million .550%
Next $350 Million .500%
Next $350 Million .450%
Over $1.05 Billion .400%
I. U.S. Government Trust for Income........................ 27,094,338 $ 219,193,198 .600%
J. Emerging Growth Fund.................................... 68,127,007 $2,317,801,203 First $350 Million .575%
Next $350 Million .525%
Next $350 Million .475%
Over $1.05 Billion .425%
K. Small Capitalization Fund............................... 0 $ 0 N/A(2)
L. LIT Emerging Growth Portfolio........................... 396,047 $ 5,188,218 .700%
C-6
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
IV. ADVISORY AGREEMENTS BETWEEN ASSET MANAGEMENT AND OTHER INVESTMENT COMPANIES
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 27, AUGUST 27, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
A. Van Kampen American Capital Bond Fund................... 11,362,465(3) $ 226,485,169(4) First $150 Million .500%
Next $100 Million .450%
Next $100 Million .400%
Over $350 Million .350%
Van Kampen American Capital Convertible Securities
Fund.................................................. 3,241,824(3) $ 80,436,719(4)
B. Van Kampen American Capital Exchange Fund............... 305,671(3) $ 51,015,187 .500%
C. Van Kampen American Capital Global Government Securities
Fund.................................................. 1,136,101 $ 137,029,765 .750%
Smith Barney Series Fund Emerging Growth Portfolio...... $ 18,015,187
D. Van Kampen American Capital Global Managed Assets
Fund.................................................. 2,406,459 $ 25,630,376 1.00%
Van Kampen American Capital Global Equity Fund.......... 15,642,887 $ 213,726,965
Van Kampen American Capital Real Estate Securities
Fund.................................................. 2,857,146 $ 31,635,599
Van Kampen American Capital Life Investment Trust Global 300,755
Equity Portfolio...................................... $ 3,434,617
Van Kampen American Capital Life Investment Trust Real
Estate Securities Portfolio........................... 3,643,943 $ 44,310,343
E. Common Sense International Equity Fund.................. 969,606(3) $ 16,033,656
F. Van Kampen American Capital High Yield Municipal Fund... 76,453,276 $ 842,446,798 First $300 Million .600%
Van Kampen American Capital Texas Municipal Income
Fund.................................................. $ 16,647,748 Next $300 Million .550%
Over $600 Million .500%
G. Van Kampen American Capital Income Trust................ 15,290,019(3) $ 118,115,594(4) 0.650%
H. Mosher.................................................. 1,905,282(3) $ 36,756,889(4) 0.450%
I. Common Sense Government Fund............................ 30,789,872(3) $ 312,774,680 First $1 Billion .600%
Next $1 Billion .550%
Next $1 Billion .500%
Next $1 Billion .450%
Next $1 Billion .400%
Over $5 Billion .350%
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING NET ASSETS
AS OF AS OF
AUGUST 27, AUGUST 27, ADVISORY FEE
FUNDS 1996 1996 SCHEDULE
-------------------------------------------------------- ------------- -------------- -------------------------
<S> <C> <C> <C> <C>
J. Common Sense Growth Fund................................ 175,705,873(3) $2,954,530,354 First $1 Billion .650%
Common Sense Growth and Income Fund..................... 57,051,768(3) $ 996,604,013 Next $1 Billion .600%
Next $1 Billion .550%
Next $1 Billion .500%
Common Sense Emerging Growth Fund....................... 4,120,533(3) $ 74,736,294 Over $4 Billion .450%
K. Common Sense Money Market Fund.......................... 60,800,058(3) $ 60,449,905 First $2 Billion .500%
Next $2 Billion .475%
Over $4 Billion .450%
L. Common Sense Municipal Bond Fund........................ 8,797,436(3) $ 120,328,629 First $1 Billion .600%
Next $1 Billion .550%
Next $1 Billion .500%
Over $3 Billion .450%
</TABLE>
- - ---------------
(1) Advisory fee includes administrative services provided to the Trust.
(2) Fund does not charge an advisory fee; shares of the fund are held by other
funds advised by Advisory Corp. or Asset Management. Assets of the fund also
are reflected in the assets of such other funds.
(3) Information provided as of August 12, 1996.
(4) Information provided as of August 30, 1996.
C-8
<PAGE> 52
ANNEX D
The following table sets forth amounts paid by each Fund during its most
recently completed fiscal year pursuant to its investment advisory, fund
accounting, transfer agency, legal services and distribution agreements and
brokerage commissions to Morgan Stanley & Co.
<TABLE>
<CAPTION>
BROKERAGE
FUND TRANSFER LEGAL COMMISSIONS
ADVISORY ACCOUNTING AGENCY SERVICES DISTRIBUTION PAID TO MORGAN
FUND EXPENSES EXPENSES EXPENSES EXPENSES EXPENSES STANLEY & CO.
- - -------------------------------- ----------- ---------- ---------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Fund.......... $ 0 $ 385 $ 1,000 $ 1,000 $ 11,061 N/A
Balanced Fund................... 0 0 0 0 54,035 $ 3,029
California Fund................. 783,620 6,660 68,649 22,858 191,975 0
Comstock Fund................... 5,080,809 146,156 2,083,850 N/A 940,059 327,249
Corporate Bond Fund............. 907,960 71,183 483,848 N/A 245,785 0
Emerging Growth Fund............ 5,810,837 158,937 3,515,039 N/A 4,121,579 245,371
Enterprise Fund................. 5,293,215 131,706 2,315,395 N/A 1,916,437 258,169
Equity Income Fund.............. 2,603,866 108,597 1,360,426 N/A 2,264,941 98,850
Florida Fund.................... 0 0 0 0 100,441 0
Foreign Securities Fund......... 0 0 0 N/A 0 0
Global Equity Fund.............. 1,200,835 28,800 586,655 N/A 399,444 24,562
Global Government Fund.......... 1,568,102 28,800 399,072 N/A 148,018 0
Global Managed Assets Fund...... 27,072 29,687 131,969 N/A 49,245 1,620
Government Securities........... 14,930,811 361,240 4,988,910 N/A 1,134,428 0
Government Target '97........... 78,242 49,880 22,750 N/A 0 0
Great American Companies Fund... 0 0 0 0 0 0
Growth Fund..................... 0 0 0 0 0 0
Growth and Income Fund.......... 1,412,556 76,989 808,442 N/A 2,147,274 71,904
Harbor Fund..................... 2,494,437 91,039 776,543 N/A 259,825 48,228
High Income Corporate Bond
Fund.......................... 2,650,114 107,087 1,107,232 N/A 580,419 0
High Yield Fund................. 2,614,970 11,346 406,106 14,316 583,043 0
High Yield Municipal Fund....... 3,906,255 158,098 648,335 N/A 3,369,458 0
Insured Fund.................... 5,813,647 22,200 604,194 39,364 566,394 0
Intermediate Term Municipal
Fund.......................... 0 4,825 16,869 8,226 151,068 0
Limited Maturity Government
Fund.......................... 312,558 65,703 128,882 N/A 44,299 0
D-1
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
BROKERAGE
FUND TRANSFER LEGAL COMMISSIONS
ADVISORY ACCOUNTING AGENCY SERVICES DISTRIBUTION PAID TO MORGAN
FUND EXPENSES EXPENSES EXPENSES EXPENSES EXPENSES STANLEY & CO.
- - -------------------------------- ----------- ---------- ---------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
LIT Asset Allocation
Portfolio..................... 302,141 57,576 15,514 N/A N/A 11,264
LIT Domestic Income Portfolio... 130,064 49,819 15,514 N/A N/A 0
LIT Emerging Growth Portfolio... 4,798 3,222 0 N/A N/A 31
LIT Enterprise Portfolio........ 355,715 55,772 15,514 N/A N/A 23,350
LIT Global Equity Portfolio..... 10,983 7,200 0 N/A N/A 206
LIT Government Portfolio........ 333,447 57,526 15,514 N/A N/A 0
LIT Money Market Portfolio...... 121,552 48,109 15,514 N/A N/A 0
LIT Real Estate Securities
Portfolio..................... 18,136 3,153 0 N/A N/A 670
Municipal Income Fund........... 3,765,225 43,682 378,659 30,700 1,409,023 34,381
New Jersey Fund................. 0 0 0 0 50,777 0
New York Fund................... 0 0 0 0 64,653 0
Pace Fund....................... 10,261,661 284,101 6,091,417 N/A 1,964,375 1,211,142
Pennsylvania Fund............... 1,212,967 9,495 118,592 16,780 377,005 0
Prospector Fund................. 0 0 0 0 0 39
Real Estate Securities Fund..... 98,904 48,971 107,182 N/A 68,340 2,030
Reserve Fund.................... 1,896,937 100,666 1,266,690 N/A 0 0
Short-Term Global Fund.......... 882,054 9,854 269,440 14,341 736,701 0
Small Capitalization Fund....... 0 0 0 N/A 0 0
Strategic Income Fund........... 927,893 4,957 128,307 7,984 427,261 0
Tax Free High Income Fund....... 3,705,007 22,282 341,917 39,567 1,016,563 13,545
Tax Free Money Fund............. 0 1,830 45,962 8,224 24,767 0
Texas Fund...................... 61,589 67,413 12,513 N/A 18,330 0
Utility Fund.................... 1,009,003 12,320 217,097 9,237 685,435 73,691
U.S. Government Fund............ 17,475,740 83,885 1,714,650 98,180 3,973,235 0
U.S. Government Trust for
Income........................ 1,874,427 91,294 381,420 N/A 149,797 0
Value Fund...................... 0 0 0 0 0 24
D-2
</TABLE>
<PAGE> 54
--------------------------------------------------------------------
<PAGE> 55
ANNEX E
LIST OF 5% BENEFICIAL OWNERS
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
AGGRESSIVE GROWTH FUND Merrill Lynch Pierce Fenner & 63,709.000 12.90%
CLASS C Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
BALANCED FUND Parker Hunter Incorporated 20,940.767 30.50%
CLASS C Frank Esparraguera IRA
Parker/Hunter Custodian
9 Glenview Avenue
Oil City, PA 16301-2137
Parker Hunter Incorporated 18,533.713 27.00%
Dolores M. L. Esparraguera
Parker/Hunter Custodian
9 Glenview Avenue
Oil City, PA 16301-2137
Donaldson Lufkin Jenrette 3,763.809 5.48%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
CALIFORNIA FUND Albert Miller & 11,766.657 9.98%
CLASS C Dorothy Miller Tr.
Miller LIV Trust
DTD 9/10/91
19666 Valdez Dr.
Tarzana, CA 91356-4912
E-1
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
CALIFORNIA FUND NFSC FEBO #OBP-238511 9,377.926 7.95%
CLASS C Eugene L. & Joan Ostraude
Eugene C. & Joan A. Ostrande
FAM TR U/A 3/1/91
4440 Cerritos Avenue
Long Beach, CA 90807-2464
Dennis W. Zaiko 9,065.381 7.69%
G. Linda Ruiz-Zaiko Co. Tr.
U/A 6/10/93
Zaiko Family Trust
4 Ashford CT
Alamo, CA 94507-2406
Prudential Securities FBO 6,689.297 5.67%
Fred L. Stern &
Rose Stern Jt Ten
1236 Cave St. #3B
La Jolla, CA 92037-3631
Edward D. Jones and Co. F/A/O 6,169.209 5.23%
Juanita Kvilhaug Ttee.
U/A DTD 03/23/89 for the
EDJ# 531-02068-1-7
P.O. Box 2500
Maryland Heights, MO 63043-8500
Edward D. Jones and Co. F/A/ 6,117.647 5.19%
Dorothy C. Sousa Ttee.
U/A DTD 07/31/91 for
EDJ# 531-01998-1-4
P.O. Box 2500
Maryland Heights, MO 63043-8500
E-2
</TABLE>
<PAGE> 56
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
CALIFORNIA FUND NFSC FEBO #OBP-242519 5,984.753 5.08%
CLASS C Tyler Tanaka Tr.
U/A 8/2/91
The Tokuko Tanaka Trust
10265 Rue Chamberry
San Diego, CA 92131-2239
Emmett D. Bogart & 5,961.961 5.06%
Josie L. Bogart Co-Ttees.
Bogart Family Trust
U/A DTD May 11, 1989
9154 Bedel Court
San Diego, CA 92129-3347
Prudential Securities FBO 5,955.000 5.05%
Kyra P. Wayne Ttee.
Kyra P. Wayne Separate Pro
Tr. UA DTD 07/26/91
Fresno, CA 93720
COMSTOCK FUND Prudential Securities FBO 19,720.407 6.18%
CLASS C Foundation for Jewish Phila
Haskell Stovroff Annuity T
DTD 122994 Attn: P. Fleishchma
787 Delaware Ave.
Buffalo, NY 14209-2005
Prudential Securities FBO 18,781.340 5.89%
Foundation for Jewish Phila
James Stovroff Annuity Tr.
DTD 122994 Attn: P. Fleischma
787 Delaware Ave.
Buffalo, NY 14209-2005
E-3
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
CORPORATE BOND FUND Merrill Lynch Pierce Fenner & 313,404.000 35.30%
CLASS C Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
EMERGING GROWTH FUND Citibank, N.A. Trustee 2,775,407.325 6.67%
CLASS A Travelers, Inc. 401(K) Saving
Attn: Nancy Kronenberg
Fisd, 20th Floor
111 Wall Street
New York, NY 10043-1000
EMERGING GROWTH FUND Merrill Lynch Pierce Fenner & 236,151.000 9.77%
CLASS C Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E 3rd Fl.
Jacksonville, FL 32246-6484
ENTERPRISE FUND Bean & Co. 5,642,114.352 7.18%
CLASS A First Pennsylvania Bank NA
C/O Fund/Plan Serv. Inc.
P.O. Box 874-TAC
Conshohocken, PA 19428-0874
FLORIDA FUND Thomas J. Sheehan, III & 6,860.798 32.80%
CLASS C Carolyn L. Sheehan &
Thomas J. Sheehan
JT Ten
2136 New Bedford Drive
Sun City Ctr., FL 33573-6161
E-4
</TABLE>
<PAGE> 57
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
FLORIDA FUND Prudential Securities Inc. F 2,730.375 13.05%
CLASS C Erna Schnellman Ttee.
Erna Schnellman Trust
UA DTD 04/26/91
126 East Banyan Dr.
Fort Myers, FL 33908-3819
Lawrence J. & Joan A. Lyng Tr 1,990.710 9.52%
Lawrence J. Lyng Rev Tr
04/12/1995
1085 Samar Rd.
Cocoa Beach, FL 32931-3070
William H. Girard, III & 1,372.944 6.56%
Karen M. Girard JT Ten
3960 NW 25th Way
Boca Raton, FL 33434-4439
GOVERNMENT SECURITIES Merrill Lynch Pierce Fenner & 13,532,100.598 5.98%
FUND Smith Inc.
CLASS A Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E 3rd Fl.
Jacksonville, FL 32246-6484
GOVERNMENT SECURITIES Merrill Lynch Pierce 244,293.000 10.49%
FUND Fenner & Smith Inc.
CLASS C Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
E-5
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
GOVERNMENT TARGET '97 Amalgamated Bk. of NY Cust. 331,629.892 29.97%
TWU-NYC Pri Bus Lines Pen. Fd.
Amivest Corp. Discretionary
Investment Mgr.
P.O. Box 0370 Cooper Stat
New York, NY 10276
Amalgamated Bank of N.Y. Cust. 102,374.927 9.25%
Marble Industry Trust Fund
Amivest Discretionary Inv.
P.O. Box 0370 Cooper Stat
New York, NY 10276-0370
Amalgamated Bk. of NY Cust. 75,331.267 6.81%
Elevator Div. Ret. Benefit Pl.
Amivest Corp. Discretionary
Investment Mgr.
P.O. Box 0370
New York, NY 10276-0370
Amalgamated Bk. of N.Y. Cust. 74,478.649 6.73%
N.Y. City Hotel Trades Council
Hotel Assoc. Pen. Fd. Amivest
Corp. Discretionary Invest.
P.O. Box 0370
New York, NY 10276-0370
GREAT AMERICAN Van Kampen American Capital 7,000.000 100.00%
COMPANIES FUND Attn: Dominick Cogliandro
CLASS A One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
E-6
</TABLE>
<PAGE> 58
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
GREAT AMERICAN Van Kampen American Capital 6,500.000 100.00%
COMPANIES FUND Attn: Dominick Cogliandro
CLASS B One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
GREAT AMERICAN Van Kampen American Capital 6,500.000 100.00%
COMPANIES FUND Attn: Dominick Cogliandro
CLASS C One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
GROWTH AND INCOME FUND Merrill Lynch Pierce Fenner & 215,329.000 18.98%
CLASS C Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
GROWTH FUND Van Kampen American Capital 7,000.000 69.41%
CLASS A Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
Jeff D. New & 1,990.371 19.74%
Valerie New JT Ten
5719 Rocky Brook
Kingwood, TX 77345-1417
Van Kampen American Capital 1,017.111 10.09%
IRA A/C Glen O. Willis
140 April Waters Dr. N.
Montgomery, TX 77356-8823
E-7
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
GROWTH FUND Van Kampen American Capital 6,500.000 100.00%
CLASS B Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
GROWTH FUND Van Kampen American Capital 6,500.000 100.00%
CLASS C Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
HARBOR FUND Merrill Lynch Pierce Fenner & 289,954.000 5.78%
CLASS B Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
HARBOR FUND Merrill Lynch Pierce Fenner & 38,486.000 16.12%
CLASS C Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
James F. Johnson Jr. & 13,712.841 5.74%
Beverly G. Johnson JT Ten
1203 River Oaks Dr.
Kingston, TN 37763-2357
E-8
</TABLE>
<PAGE> 59
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ----------------------------- ---------------------- ----------
<S> <C> <C> <C>
HIGH INCOME CORPORATE Merrill Lynch Pierce Fenner & 189,776.000 6.88%
BOND FUND Smith Inc.
CLASS C Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
HIGH YIELD FUND PaineWebber for the Benefit 62,502.008 8.23%
CLASS C Richard Larry Owens Sr.
Revocable Trust DTD 09/12/95
Richard Larry Owens Sr. TTE
80 Trotters Walk
Covington, GA 30209
Merrill Lynch Pierce Fenner & 38,322.000 5.05%
Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
INSURED FUND Richard K. Bolen 29,018.723 11.24%
CLASS C 4000 Club House Drive
Champaign, IL 61821-9281
Angela Holuba 26,178.010 10.14%
2 Hackensack Ave.
Kearny, NJ 07032-4611
R.T. Kelley 17,562.726 6.80%
P.O. Box 237
Canadian, TX 79014-0237
E-9
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ----------------------------- --------------------- ----------
<S> <C> <C> <C>
INTERMEDIATE TERM Stanley J. & Robert J. Holuba 67,029.999 13.74%
MUNICIPAL FUND U/A 10/31/86 Article 6
CLASS C Stanley Joseph Holuba Trust
2 Hackensack Ave.
Kearny, NJ 07032-4611
Stanley Jacob Holuba 65,786.332 13.49%
Robert Joseph Holuba Co. Tr.
U/A 11/09/87 Art 9th
Stanley Joseph Holuba Trust
2 Hackensack Ave.
Kearny, NJ 07032-4611
R.J. Holuba & S.J. Holuba & 53,412.802 10.95%
A Holuba Co. Tr. U/A 10/31/86
Stanson Chemicals Trust
Ulwat Stanley Joseph Holuba
2 Hackensack Ave.
Kearny, NJ 07032-4611
Edward D. Jones & Co. F/A/O 50,754.179 10.40%
Earl K. Rush &
EDJ# 286-04210-1-1
P.O. Box 2500
Maryland Heights, MO
63043-8500
Stanley J. Holuba 49,309.665 10.11%
Robert J. Holuba Tr.
Angela Holuba Family Trust
DTD 12/05/88
2 Hackensack Ave.
Kearny, NJ 07032-4611
E-10
</TABLE>
<PAGE> 60
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
INTERMEDIATE TERM Edward D. Jones and Co. F/A/O 27,972.095 5.73%
MUNICIPAL FUND William J. Cole Ttee.
CLASS C U/A DTD 12/30/86
EDJ# 398-03812-1-8
P.O. Box 2500
Maryland Heights, MO
63043-8500
Edward D. Jones and Co. F/A/O 27,972.095 5.73%
William J. Cole Ttee.
U/A DTD 12/30/86
EDJ# 398-03811-1-9
P.O. Box 2500
Maryland Heights, MO
63043-8500
LIMITED MATURITY Amalgamated Bank of NY Cust. 210,180.240 6.08%
GOVERNMENT FUND NY Hotel Trades Council PE
CLASS A Amivest Discretion Inv. Mgr.
P.O. Box 0370
New York, NY 10276-0370
Amalgamated Bank of NY Cust. 181,876.155 5.26%
TWU-NYC Priv. Bus. Lines Pen. F
Amivest Corp. Discretionary
Investment Mgr.
P.O. Box 0370
New York, NY 10276-0370
LIMITED MATURITY Chicago Board of Education 202,997.000 9.79%
GOVERNMENT FUND City Treasurer's Office
CLASS B Room 204
121 N. LaSalle
Chicago, IL 60602-1204
E-11
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
LIMITED MATURITY Putnam Savings Bank 79,644.240 20.54%
GOVERNMENT FUND A Corporation
CLASS C P.O. Box 151
Putnam, CT 06260-0151
Prudential Securities FBO 42,497.000 10.96%
Blackwell North America IN
Attn: Chris Roe
6024 Jean Rd. Ste. B
Lake Oswego, OR 97035-5389
Van Kampen American Capital 24,243.780 6.25%
IRA R/O Lois L. Byrnes
1910 Crystal Springs Dr.
Kingwood, TX 77339-3339
LIT ASSET ALLOCATION Nationwide Life Insurance Co. 2,938,537.690 56.89%
PORTFOLIO Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 1,989,345.453 38.52%
Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
LIT DOMESTIC INCOME Nationwide Life Insurance Co. 1,520,946.330 57.71%
PORTFOLIO Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
E-12
</TABLE>
<PAGE> 61
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
LIT DOMESTIC INCOME American General Life Insurance Co. 653,968.952 24.82%
PORTFOLIO Separate Acct. D
Attn: James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
Nationwide Life Insurance Co. 330,428.472 12.54%
Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
LIT EMERGING GROWTH Nationwide Life Insurance Co. 233,724.768 57.67%
PORTFOLIO Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 121,524.530 29.99%
Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Van Kampen American Capital 50,010.000 12.34%
Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
LIT ENTERPRISE PORTFOLIO Nationwide Life Insurance Co. 2,158,564.311 43.36%
Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
E-13
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
LIT ENTERPRISE PORTFOLIO Nationwide Life Insurance Co. 1,779,590.015 35.75%
Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
American General Life Ins. Co. 719,087.924 14.44%
Separate Acct. D
Attn: James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
American General Life Ins. Co. 321,115.007 6.45%
Separate Acct. D
Variety Plus
Attn: James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
LIT GLOBAL EQUITY Nationwide Life Insurance Co. 74,882.226 25.20%
PORTFOLIO Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 22,304.491 7.50%
Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
LIT GOVERNMENT PORTFOLIO Nationwide Life Insurance Co. 5,897,294.623 85.78%
Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
E-14
</TABLE>
<PAGE> 62
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
LIT GOVERNMENT PORTFOLIO Nationwide Life Insurance Co. 849,042.796 12.35%
Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
LIT MONEY MARKET Nationwide Life Insurance Co. 8,751,035.520 42.57%
PORTFOLIO Nationwide VLI Separate Acct.
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 6,143,583.290 29.88%
Nationwide Variable Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
American General Life Ins. Co. 5,356,462.460 26.06%
Separate Account D
Attn: James A. Totten
P.O. Box 1591
Houston, TX 77251-1591
MUNICIPAL INCOME FUND Hill & Wilkinson Inc. 40,960.282 5.25%
CLASS C 11969 Plano Rd. Ste. 190
Dallas, TX 75243-5440
NEW JERSEY FUND Grace G. Tullio 29,904.303 6.02%
CLASS A P.O. Box 672
Ridgewood, NJ 07451-0672
NEW JERSEY FUND Louise I. Grill 11,528.652 24.59%
CLASS C C/O Alvin H. Frankel POA
601 Haddon Ave.
Collingswood, NJ 08108-3703
E-15
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
NEW JERSEY FUND Ilene B. Haym 6,829.810 14.57%
CLASS C 7021 Galleon Cove Cir.
Palm Beach Gardens, FL 3341
Wexford Clearing Services 6,826.746 14.56%
Dr. Gary Karakashian
C/O Vincent Karakashian
46 Seaview Ave.
Monmouth Beach, NJ 07750-12
PaineWebber for the Benefit of 5,319.887 11.35%
Sam Aldenderfer
3030 Edwin Avenue Apt. 3B
Fort Lee, NJ 07024-3413
Wheat First FBO A/C 7017-2643 3,834.809 8.18%
John H. Schroeder &
Carol A. Schroeder
JT Ten
20 Byron Dr.
Mount Laurel, NJ 08054-4700
Garden State Cutting 3,713.414 7.92%
Attn: Vincent Landi
217 Brook Ave.
Passaic, NJ 07055-3338
Advest Inc. 3,160.346 6.74%
309-03495-19
90 State House Square
Hartford, CT 06103-3702
NEW YORK FUND Wellington T. Mara 36,116.889 7.65%
CLASS A Giants Stadium
E. Rutherford, NJ 07073
E-16
</TABLE>
<PAGE> 63
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
NEW YORK FUND PaineWebber for the Benefit of 5,846.873 21.42%
CLASS C Betty Ballin
Special Account
17 Michael F. Street
Locust Valley, NY 11560-1223
PaineWebber for the Benefit of 3,146.000 11.53%
Edwin E. Koral
757 Edge of Woods
Water Mill, NY 11976-2430
Smith Barney Inc. 2,383.142 8.73%
00165335422
388 Greenwich Street
New York, NY 10013-2375
Prudential Securities FBO 2,224.673 8.15%
Linda A. Kahn
Kenneth Kahn JTWROS
80 Lancaster
Buffalo, NY 14222-1404
Rena Port 2,171.688 7.96%
Abraham Port JT WROS
67-30 170 St.
Flushing, NY 11365-3308
Prudential Securities FBO 2,118.000 7.76%
Mitchell Chernick
230 Locust Lane
Irvington, NY 10533-2315
Prudential Securities FBO 1,823.310 6.68%
David T. Herr &
Josiane R. Herr JT TEN
2176 Hobblebrush Lane
Lakeview, NY 14085-9603
E-17
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
NEW YORK FUND PaineWebber for the Benefit of 1,805.524 6.61%
CLASS C Ron J. Lambert
240 Central Park South
Apt. 2H
New York, NY 10019-1413
Smith Barney Inc. 1,375.000 5.04%
00168724640
388 Greenwich Street
New York, NY 10013-2375
PACE FUND Van Kampen American Capital 21,624.322 5.45%
CLASS C IRA R/O Phyllis Williams
11411 Carrollwood Dr.
Tampa, FL 33618-3705
Merrill Lynch Pierce Fenner & 21,205.000 5.35%
Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E 3rd Fl.
Jacksonville, FL 32246-6484
PENNSYLVANIA FUND Stifel Nicolaus & Co. Inc. 26,789.500 13.09%
CLASS C A/C 8806-5995
Wise Business Forms Inc.
500 North Broadway
St. Louis, MO 63102-2110
Donaldson Lufkin Jenrette 12,152.325 5.94%
Securities
Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
E-18
</TABLE>
<PAGE> 64
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
PROSPECTOR FUND Van Kampen American Capital 7,000.000 100.00%
CLASS A Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
PROSPECTOR FUND Van Kampen American Capital 6,500.000 100.00%
CLASS B Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
PROSPECTOR FUND Van Kampen American Capital 6,500.000 100.00%
CLASS C Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
RESERVE FUND Celebration Point Condo Assoc. 77,029.980 18.05%
CLASS A C/O Custom Property Mgmt.
10061 Sunset Strip
Sunrise, FL 33322-5303
George Sindelar 53,256.190 12.48%
3871 Ridge Road
Cleveland, OH 44144-1458
Van Kampen American Capital 43,404.490 10.17%
IRA A/C Sidney Savan
#6 Schultz Rd.
Oakland, MO 63122-6550
Carol N. Carvalho 33,228.120 7.78%
820 Jerusalem Ave.
Uniondale, NY 11553-2929
E-19
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
RESERVE FUND Painewebber for the Benefit 24,488.720 5.74%
CLASS A Painewebber CDN FBO
David W. Robertson
P.O. Box 3321
Weehawken, NJ 07087-8154
Van Kampen American Capital 22,781.180 5.34%
IRA R/O Veta L. Winters
5600 Little Timber Dr.
Racine, WI 53403-9722
Paul J. Santos & 21,674.270 5.08%
Audrey J. Krauss JT Ten
14101 Valley Vista Blvd.
Sherman Oaks, CA 91423-4656
RESERVE FUND Concorp Inc. 667,039.120 6.33%
CLASS C Prof. Sh. Pl.
R.L. Pennington Tr.
P.O. Box 425
Nitro, WV 25143-0425
SHORT-TERM GLOBAL FUND Xerox Financial Services 1,277,784.332 20.07%
CLASS A Life Insurance Company
1 Tower Ln. #3000
Villa Park, IL 60181-4544
SHORT-TERM GLOBAL FUND Principal Financial Cust. FBO 11,366.863 52.45%
CLASS C Mary A. Murphy
P.O. Box 508
Dallas, TX 75221-0508
Principal Financial 3,972.434 18.33%
IRA Cust. FBO
Mary Alice Murphy
P.O. Box 215132
Dallas, TX 75221-5132
E-20
</TABLE>
<PAGE> 65
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
SHORT-TERM GLOBAL FUND Raymond James & Assoc. Inc. 2,382.384 10.99%
CLASS C Hugh D. McPherson IRA
1217 Denton Rd.
Winter Park, FL 32792-2774
Matthew Chapman 1,422.683 6.57%
5771 Royal Ave.
Eugene, OR 97402-9335
Champaign Cty. Extension 1,134.441 5.23%
Education Foundation
Attn: Bruce Stikkers
1715 W. Springfield
Champaign, IL 61821-3011
Van Kampen American Capital 1,094.919 5.05%
403B-7 Leslie L. Conklin
Trinity Alliance Church
414 Willow Ave.
Absecon, NJ 08201-4626
STRATEGIC INCOME FUND Merrill Lynch Pierce Fenner 412,152.441 7.73%
CLASS B Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
STRATEGIC INCOME FUND Merrill Lynch Pierce Fenner & 17,956.000 6.80%
CLASS C Smith Inc.
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
E-21
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
STRATEGIC INCOME FUND Edward D. Jones and Co. F/A/O 16,890.797 6.39%
CLASS C Edward D. Jones & Co. Custod.
FBO Herman L. Dunning IRA
EDJ#271-90019-1-5
P.O. Box 2500
Maryland Hts., MO 63043-8500
PaineWebber for the Benefit of 15,202.703 5.75%
Abraham Elisha Ayson
4600 14th Avenue
Apt. #4C
Brooklyn, NY 11219-2606
TAX FREE HIGH INCOME Merrill Lynch Pierce Fenner & 72,211.000 7.16%
FUND Smith Inc.
CLASS C Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
BHC Securities, Inc. 66,481.833 6.59%
FAO 32192430
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street Suite 12
Philadelphia, PA 19103-7042
TAX FREE MONEY FUND Richard A. Kraemer 4,828,130.170 13.14%
730 Oak Ln.
Franklin Lks., NY 07417-2309
Jerome L. Robinson 7,132,554.67 19.41%
C/O Robinson Tech. Products
P.O. Box 350-115 River Rd.
Edgewater, NJ 07020-1007
E-22
</TABLE>
<PAGE> 66
LIST OF 5% BENEFICIAL OWNERS -- CONTINUED
(AS OF AUGUST 16, 1996)
<TABLE>
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
U.S. GOVERNMENT FUND Robert J. Holuba 82,251.530 7.79%
CLASS C Stanley J. Holuba Tr.
Angela Holuba Term Trust
FBO Angela Holuba DTD 7/28/8
2 Hackensack Ave.
Kearny, NJ 07032-4611
Bishop of the Roman Catholic 69,585.986 6.59%
Diocese of Charlotte, NC
C/O W.G. Weldon
P.O. Box 36776
Charlotte, NC 28236-6776
Martha J. Ruoff Estate 63,809.488 6.04%
Russell Ruoff Conservator
435 North Alfred
Los Angeles, CA 90048-2504
Merrill Lynch Pierce Fenner 56,670.000 5.37%
Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
U.S. GOVERNMENT TRUST Merrill Lynch Pierce Fenner & 288,968.123 5.03%
FOR INCOME Smith Inc.
CLASS A Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
U.S. GOVERNMENT TRUST Merrill Lynch Pierce Fenner & 1,503,407.000 7.85%
FOR INCOME Smith Inc.
CLASS B Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
E-23
<CAPTION>
FUND NAME AND NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF
CLASS OF SHARES BENEFICIAL OWNER OWNERSHIP CLASS
- - ------------------------ ------------------------------------------------------- ----------
<S> <C> <C> <C>
U.S. GOVERNMENT TRUST Merrill Lynch Pierce Fenner & 359,552.000 15.18%
FOR INCOME Smith Inc.
CLASS C Mutual Fund Operations
Attn: Book Entry
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
UTILITY FUND Smith Barney Inc. 32,232.000 10.17%
CLASS C 00167318495
388 Greenwich Street
New York, NY 10013-2375
VALUE FUND Van Kampen American Capital 7,000.000 68.11%
CLASS A Attn. Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
Bret W. Stanley & 3,277.154 31.89%
Judy R. Stanley JT Ten
5026 Lymbar Dr.
Houston, TX 77096-5326
VALUE FUND Van Kampen American Capital 6,500.000 100.00%
CLASS B Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
VALUE FUND Van Kampen American Capital 6,500.000 100.00%
CLASS C Attn: Dominick Cogliandro
One Chase Manhattan Plaza
37th Floor
New York, NY 10005-1401
E-24
</TABLE>
<PAGE> 67
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
<PAGE> 68
MASTER
<PAGE> 69
FORM OF PROXY
VAN KAMPEN AMERICAN CAPITAL [_________] FUND
JOINT SPECIAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of shares of VAN KAMPEN AMERICAN CAPITAL [_________]
FUND (the "Fund") , a Delaware business trust, hereby appoints Dennis J.
McDonnell, Ronald A. Nyberg and Edward C. Wood III, and each of them, with full
power of substitution and revocation, as proxies to represent the undersigned at
the Joint Special Meeting of Shareholders to be held at the offices of Van
Kampen American Capital, Inc., One Parkview Plaza, Oakbrook Terrace, Illinois
60181, on Friday, October 25, 1996 at 1:00 p.m., and any and all adjournments
thereof (the "Meeting"), and thereat to vote all shares which the undersigned
would be entitled to vote, with all powers the undersigned would possess if
personally present, in accordance with the following instructions.
If more than one of the proxies, or their substitutes, are present at the
Meeting or any adjournment thereof, they jointly (or, if only one is present and
voting then that one) shall have authority and may exercise all powers granted
hereby. This Proxy, when properly executed, will be voted in accordance with the
instructions marked hereon by the undersigned. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS DESCRIBED HEREIN AND IN THE
DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
Account No. No. of Shares Class of Shares Proxy No.
<TABLE>
<S><C>
1. To approve or disapprove a new investment advisory agreement; FOR AGAINST ABSTAIN
------ ------ ------
------ ------ ------
2. To approve or disapprove certain changes to its FOR AGAINST ABSTAIN
fundamental investment policies with respect to investments ------ ------ ------
in other investment companies;
------ ------ ------
3. INDEPENDENT PUBLIC ACCOUNTANTS FOR AGAINST ABSTAIN
(a) To ratify or reject the selection of KPMG Peat Marwick LLP as ------ ------ ------
independent public accountants for its current fiscal year [only
applicable to VK Funds]; ------ ------ ------
(b) To ratify or reject the selection of Price Waterhouse LLP as FOR AGAINST ABSTAIN
independent public accountants for its current fiscal year [only ------ ------ ------
applicable to AC Funds]; and
------ ------ ------
4. To transact such other business as may properly come before the Meeting.
</TABLE>
The undersigned hereby acknowledges receipt of the accompanying Notice of
Meeting and Proxy Statement for the Meeting to be held on October 25, 1996.
Please sign this Proxy exactly as your name or names appear on the books of
the Fund. When signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please give full title. If shares are
held jointly, each holder should sign.
<TABLE>
<S> <C>
- - ----------------------------------------------------- ----------------------------------- ,
Shareholder signature 1996
Date
- - ----------------------------------------------------- ----------------------------------- ,
Co-owner signature (if applicable) 1996
Date
</TABLE>