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<PAGE> PAGE 2
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SIGNATURE TANYA LODEN
TITLE CONTROLLER
<TABLE> <S> <C>
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[DESCRIPTION] Independent Auditors' Report
<PAGE> 1
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report On Internal Accounting Control
-----------------------------------------------------------
The Board of Directors
Mosher, Inc.
In planning and performing our audit of the financial statements of Mosher,
Inc. for the year ended December 31, 1994, we considered its internal control
structure, including procedures for safeguarding securities, to determine our
auditing procedures for the purpose of expressing our opinion on the financial
statements and to comply with the requirements of Form N-SAR, not to provide
assurance on the internal control structure.
The management of Mosher, Inc. is responsible for establishing and maintaining
an internal control structure. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected benefits and
related costs of internal control structure policies and procedures. Two of
the objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against
loss from unauthorized use or disposition and that the transactions are
executed in accordance with management's authorization and recorded properly to
permit preparation of financial statements in conformity with generally
accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
December 31, 1994.
This report is intended solely for the use of management and the Securities and
Exchange Commission.
/s/ KPMG PEAT MARWICK LLP
------------------------------
KPMG PEAT MARWICK LLP
January 20, 1995
[DESCRIPTION] NSAR Item 77C
<PAGE> 1
N-SAR ITEM 77C
a) A Special Meeting of Shareholders was held on December 16, 1994.
b) Inapplicable
c) The following was voted on at the meeting:
1) Approval of a new investment advisory agreement between the Registrant
and American Capital Asset Management, Inc. to take effect upon the
closing of the proposed acquisition of American Capital Management &
Research, Inc. by The Van Kampen Merritt Companies, Inc.
For 1,349,637 Against 570
d) Inapplicable
[DESCRIPTION] Investment Advisory Agreement
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT made this 20th day of December, 1994 by and between MOSHER, INC.,
a Texas corporation, hereinafter referred to as the "CORPORATION," and
AMERICAN CAPITAL ASSET MANAGEMENT, INC., a Delaware corporation, hereinafter
referred to as the "ADVISER."
WITNESSETH:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: ADVISER shall act as investment adviser for the CORPORATION and shall,
in such capacity, supervise the investment and reinvestment of the cash,
securities and other properties comprising the assets of the CORPORATION,
subject at all times to the policies and control of the Board of Directors of
the CORPORATION. ADVISER shall give the CORPORATION the benefit of its best
judgment, efforts and facilities in rendering its services as investment
adviser.
SECOND: In carrying out its obligations under paragraph FIRST hereof, ADVISER
shall:
(1) obtain and evaluate pertinent information about significant developments
and economic, statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or the portfolio of the CORPORATION,
and whether concerning the individual companies whose securities are included
or with respect to securities which the ADVISER considers desirable for
inclusion in the CORPORATION's portfolio; and
(2) determine what industries and companies should, in its opinion, be
represented in the CORPORATION's portfolio and regularly report them to the
Board of Directors of the CORPORATION; and
(3) formulate and implement programs for the purchases and sales of the
securities of such companies as fall within the CORPORATION's objectives and
program (as the implementation of its objectives may be more specifically
detailed from time to time by the Board of Directors or its Financial Advisory
Committee) and regularly report thereon to the Board of Directors of the
CORPORATION; and
(4) take, on behalf of the CORPORATION, all actions which appear to the
ADVISER necessary to carry into effect such purchase and sale programs and
advisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio
<PAGE> 2
securities.
THIRD: In placing orders for the purchase and sale of portfolio securities on
behalf of the CORPORATION, ADVISER is authorized to utilize the facilities of
such brokers and dealers who render satisfactory services at customary fees or
commission rates which give due consideration to all pertinent factors,
including, without limitation, the size of the orders and the nature of the
securities involved. ADVISER is further authorized to allocate on a reasonable
basis the orders placed by it on behalf of the CORPORATION to such brokers and
dealers who also provide research or statistical material, and services to the
CORPORATION or ADVISER. ADVISER shall report on said allocations and directions
quarterly to the Board of Directors of the CORPORATION, indicating the brokers
to whom such allocations and directions have been made and the basis therefor.
FOURTH: Any investment program undertaken by the ADVISER pursuant to this
agreement, as well as any other activities undertaken by the ADVISER on behalf
of the CORPORATION pursuant thereto, shall at all times be subject to any
directives of the Board of Directors of the CORPORATION, the Financial Advisory
Committee of said Board, any other committee or committees of the CORPORATION
acting pursuant to authority of the Board, or any officer of the CORPORATION
acting pursuant to like authority.
FIFTH: In carrying out its obligations under this agreement, ADVISER shall at
all times conform to:
(1) all applicable provisions of the Investment Company Act of 1940 and any
rules and regulations adopted thereunder, as amended; and
(2) the provisions of the Articles of Incorporation of the CORPORATION, as
amended; and
(3) the provisions of the Bylaws of the CORPORATION, as amended; and
(4) the provisions of the Registration Statement of the CORPORATION under the
Investment Company Act of 1940, as amended; and
(5) any other applicable provision of state or federal law; and
(6) the provisions of the custody agreement adopted by the CORPORATION and, in
this regard, all securities purchased are to be delivered to the custodian
designated by the CORPORATION and shall be held in the name of the CORPORATION
or such nominee as may be designated by the custodian.
SIXTH: (1) ADVISER shall furnish, at its expense and without cost to the
CORPORATION, sufficient executive and clerical personnel to
2
<PAGE> 3
prepare, in accordance with the direction of the CORPORATION's Board of
Directors or officers, as the case may be, all Annual and Semiannual Reports,
notices and proxy solicitation material addressed to the shareholders of the
CORPORATION. The ADVISER will bear the cost of personnel whose normal duties
consist of (i) maintaining the corporate financial accounts and books and
records, and (ii) performing administrative and routine legal functions.
ADVISER will also bear the costs of preparing and distributing any dividends or
capital gains distributions declared by the Board of Directors of the
CORPORATION. ADVISER shall further maintain, at its expense and without cost to
the CORPORATION, an order desk in order to carry out its obligation under
subparagraph(4) of paragraph SECOND hereof to place orders for the purchase and
sale of portfolio securities for the CORPORATION.
(2) Nothing in subparagraph (1) hereof shall be construed to require ADVISER
to bear any of the costs of printing and mailing any of the items referred to
in the first sentence of the said subparagraph (1).
(3) All of the ordinary business expenses of the CORPORATION, including, but
without limitation, audit, legal and custodian fees, shall be borne by the
CORPORATION unless in this paragraph SIXTH specifically provided otherwise.
SEVENTH: The CORPORATION shall pay ADVISER in full compensation for services
rendered hereunder an annual fee equal to 0.45% of the average weekly net asset
value of the CORPORATION. Such fee shall be accrued weekly and paid monthly.
The valuation of the portfolio securities of the CORPORATION for the purposes
of determining such average net assets will be made on the basis of the most
recently quoted bid prices or at bid prices based on a Matrix system (which
considers such factors as yields of prices of municipal bonds of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions), furnished by dealers and an independent pricing
service. Prices not available for any of the portfolio securities are valued on
the basis of their fair value determined in good faith by a majority of the
Board of Directors of the CORPORATION, including a majority of the directors
not affiliated with the ADVISER.
EIGHTH: The CORPORATION shall at all times keep the ADVISER fully informed with
regard to the securities owned by it, its funds available or to become
available for investment, and generally as to the condition of its affairs. It
shall furnish the ADVISER with a copy of all financial statements certified by
its financial officer, and a signed copy of each report prepared by certified
public accountants with respect to it, and with such other information with
regard to its affairs as the ADVISER may from time to time reasonably request.
NINTH: This agreement shall have an initial term of two years from
3
<PAGE> 4
the date hereof, and shall continue in force from year to year thereafter
provided that such continuance is specifically approved at least annually
(a)(i) by the Board of Directors of the CORPORATION or (ii) by vote of a
majority of the outstanding voting securities (as defined by the Investment
Company Act of 1940, as amended) and (b) by specific approval by a majority of
the Directors who are not parties to this agreement or interested persons (as
defined by the Investment Company Act of 1940, as amended) of a party to the
agreement by votes cast in person at a meeting specifically called for such
purpose.
TENTH: (1) This agreement may be terminated at any time, without the payment of
any penalty, by vote of the Board of Directors of the CORPORATION or by vote of
the holders of a majority of the outstanding voting securities of the
CORPORATION, or by the ADVISER, on thirty (30) days' written notice to the
other party. The notice provided for herein may be waived by either party.
(2) In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligation or duties hereunder on the part of ADVISER, it
shall not be subject to liability to the CORPORATION or to any shareholder of
the CORPORATION 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, except that nothing under this
paragraph shall be deemed a waiver of any right of the CORPORATION or any
shareholder of the CORPORATION that may exist under the federal securities
laws.
ELEVENTH: This agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined
in Section 2(a)(4) of the Investment Company Act of 1940, as amended.
TWELFTH: Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid, to the other party as such other party may
designate for the receipt of such notices. Until further notice to the other
party, it is agreed that the address of the CORPORATION shall be Mosher, Inc.,
c/o Christopher T. Jones, 6115 Berkshire Lane, Dallas, Texas 75225, and that of
the ADVISER for this purpose shall be 2800 Post Oak Blvd., Houston, Texas
77056.
IN WITNESS WHEREOF, the parties hereto each have caused this Agreement to be
executed in duplicate on the day and year first above written.
4
<PAGE> 5
MOSHER, INC.
By: /s/ CHRISTOPHER T. JONES
_____________________________________
Name: Christopher T. Jones
____________________________________
Its: President
_____________________________________
AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ NORI L. GABERT
_____________________________________
Name: Nori L. Gabert
____________________________________
Its: Vice President
_____________________________________
5
