<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 Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/Preliminary Proxy Statement / /Confidential, for Use of the Com-
mission Only (as permitted by Rule
14a-6(e)(2))
/ /Definitive Proxy Statement
/ /Definitive Additional Materials
/ /Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VAN KAMPEN MERRITT TAX FREE FUND
(Names of Co-Registrants as Specified in Their Charters)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Item 22(a)(2) of Schedule 14A.
<PAGE> 2
June 2, 1995
Dear Van Kampen Merritt Insured Tax Free Income Fund Shareholder:
As you may know, the merger of Van Kampen Merritt and American Capital was
completed in late December 1994. As part of our continuing effort to maximize
the merger's benefit to shareholders, we are proposing several items related to
your Fund, including board consolidation and a business reorganization. The
attached proxy statement seeks shareholder approval on these items.
Your vote is important and your participation in the affairs of your Fund
does make a difference.
The proposals have been approved by the Trustees of the Fund, who recommend
you vote "FOR APPROVAL" on these proposals. YOUR IMMEDIATE RESPONSE WILL HELP
SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. PLEASE SIGN AND RETURN YOUR FUND
PROXY FORM. We look forward to your participation, and we thank you for your
continued confidence in Van Kampen American Capital.
PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Sincerely,
Don G. Powell
Chief Executive Officer
<PAGE> 3
VAN KAMPEN MERRITT INSURED TAX FREE INCOME FUND
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 341-2911
NOTICE OF MEETING OF SHAREHOLDERS
TO BE HELD JULY 21, 1995
To the Shareholders of Van Kampen Merritt Insured Tax Free Income Fund:
Notice is hereby given to the holders of shares of beneficial interest,
without par value (collectively, the "Shares"), of Van Kampen Merritt Insured
Tax Free Income Fund (the "Fund"), a sub-trust of Van Kampen Merritt Tax Free
Fund, a Massachusetts business trust (the "Trust"), that a Meeting of the
Shareholders of the Fund (the "Meeting") will be held at the offices of Van
Kampen American Capital, Inc., One Parkview Plaza, Oakbrook Terrace, IL 60181,
on Friday, July 21, 1995, at 2:30 p.m., for the following purposes:
1. To approve or disapprove the Fund's reorganization and conversion
to a series of a Delaware business trust;
2. To elect fifteen trustees of the Trust to serve until their
respective successors are duly elected and qualified;
3. To approve or disapprove a new investment advisory agreement with
Van Kampen American Capital Investment Advisory Corp.;
4. To ratify or reject the selection of KPMG Peat Marwick LLP as
independent public accountants for the Fund's fiscal year ending December
31, 1995; and
5. To transact such other business as may properly come before the
Meeting.
Holders of record of the Shares of the Fund at the close of business on May
26, 1995 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
June 2, 1995
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL
REPORT TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO VAN
KAMPEN AMERICAN CAPITAL FUNDS BY CALLING (800) 341-2929 OR BY WRITING TO VAN
KAMPEN MERRITT INSURED TAX FREE INCOME FUND, ONE PARKVIEW PLAZA, OAKBROOK
TERRACE, ILLINOIS 60181.
SHAREHOLDERS OF THE FUND ARE INVITED TO ATTEND THE MEETING IN PERSON. IF
YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE INDICATE YOUR VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN SUCH
<PAGE> 4
CARD 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.
MANAGEMENT OF THE FUND RECOMMENDS THAT YOU CAST YOUR VOTE:
- FOR APPROVAL OF THE REORGANIZATION AND CONVERSION OF THE FUND TO A SERIES
OF A DELAWARE BUSINESS TRUST;
- IN FAVOR OF THE NOMINEES FOR THE BOARDS OF TRUSTEES LISTED IN THE PROXY
STATEMENT;
- FOR APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.; AND
- FOR THE RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FUND'S FISCAL YEAR ENDING DECEMBER
31, 1995.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY
NO MATTER HOW MANY SHARES YOU OWN.
<PAGE> 5
PROXY STATEMENT
VAN KAMPEN MERRITT INSURED TAX FREE INCOME FUND
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
TELEPHONE (800) 341-2911
MEETING OF SHAREHOLDERS
JULY 21, 1995
This Proxy Statement is furnished in connection with the solicitation by
the Board of Trustees (the "Board") of Van Kampen Merritt Tax Free Fund of
proxies to be voted at a Meeting of Shareholders of Van Kampen Merritt Insured
Tax Free Income Fund, and at any and all adjournments thereof (the "Meeting"),
to be held at Van Kampen American Capital, Inc., One Parkview Plaza, Oakbrook
Terrace, IL 60181, on Friday, July 21, 1995, at 2:30 p.m. The approximate
mailing date of this Proxy Statement and accompanying form of proxy is June 2,
1995.
Participating in the Meeting are holders of common shares of beneficial
interest, without par value (collectively, the "Shares"), of Van Kampen Merritt
Insured Tax Free Income Fund (the "Fund"), a series of Van Kampen Merritt Tax
Free Fund, a Massachusetts business trust (the "Trust").
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Abstentions do not constitute votes "for" or "against" a
matter and will be disregarded in determining the "votes cast" on an issue.
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) will be treated the same as
abstentions. 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. Unless instructions to the contrary are marked, Shares represented by
a proxy will be voted "FOR" each proposal as to which it is entitled to vote.
The Board has fixed the close of business on May 26, 1995, as the record
date (the "Record Date") for the determination of holders of Shares of the Fund
entitled to vote at the Meeting. Shareholders of the Fund on the Record Date
will be entitled to one vote with respect to each proposal submitted to the
shareholders for each Share of the Fund then held, with no Share having
cumulative voting rights.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL
REPORT TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO VAN
KAMPEN AMERICAN CAPITAL FUNDS. BY CALLING (800) 341-2929 OR BY WRITING TO VAN
KAMPEN MERRITT INSURED TAX FREE INCOME FUND, ONE PARKVIEW PLAZA, OAKBROOK
TERRACE, ILLINOIS 60181.
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At the close of business on May 26, 1995, the Fund had issued and
outstanding Class A Shares, Class B Shares, Class
C Shares and Class D Shares. As of May 26, 1995, to the knowledge of
management of the Fund, the following persons owned beneficially more than 5% of
any class of the Fund's outstanding Shares: [To be determined].
VOTING
Unless specified otherwise, all Shares of the Fund affected by a proposal
will vote together as a single class on such proposal. The voting requirement
for passage of a particular proposal depends on the nature of the particular
proposal. With respect to Proposal 1, it must be approved by the affirmative
vote of a majority of the Shares of the Fund present in person or by proxy at
the Meeting and entitled to vote on the proposal. With respect to Proposal 2,
the Shares of the Fund shall vote together as a single class together with the
Shares of all of the other sub-trusts of the Trust voting at a separate meeting
and an affirmative vote of a plurality of the Shares of the Trust is required to
elect the trustees. With respect to Proposal 3, a vote of the "majority of the
outstanding voting securities" is required which shall mean the lesser of (i)
67% or more of the voting securities of the Fund entitled to vote thereon
present in person or by proxy at the Meeting, if holders of more than 50% of the
outstanding voting securities entitled to vote thereon are present in person or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund entitled to vote thereon. With respect to Proposal 4, an affirmative
vote of a majority of the Shares of the Fund present in person or by proxy is
necessary to ratify the selection of the independent public accountants for the
Fund.
On the matters coming before the Meeting as to which a choice has been
specified by the shareholders by means of the ballot on the proxy, the Shares
will be voted accordingly. Management of the Fund recommends that you cast your
vote:
- FOR APPROVAL of the reorganization and conversion of the Fund to a series
of a Delaware business trust;
- IN FAVOR of the nominees for the Board of Trustees listed in this Proxy
Statement;
- FOR APPROVAL of a new investment advisory agreement between the Fund and
Van Kampen American Capital Investment Advisory Corp.; and
- FOR the ratification of the selection of KPMG Peat Marwick LLP as
independent public accountants for the Fund's fiscal year ending December
31, 1995.
Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the Fund a written notice of revocation, by delivering a
duly executed proxy bearing a later date, or by attending the Meeting and voting
in person.
The Fund knows of no business other than that mentioned in proposals one
through four of the Notice which 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 are not received, the persons named as
proxies may propose one or more adjournments of such Meeting 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
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<PAGE> 7
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.
BACKGROUND FOR PROPOSALS 1 AND 2
On December 20, 1994, The Van Kampen Merritt Companies Inc. acquired from
The Travelers Inc. all of the outstanding capital stock of American Capital
Management & Research, Inc., the parent company of Van Kampen Investment
Advisory Corp. At the time of the Acquisition American Capital Management &
Research, Inc., was the parent company of American Capital Asset Management,
Inc. At the time of the acquisition, The Van Kampen Merritt Companies Inc. was
the parent company of Van Kampen Merritt Investment Advisory Corp. Immediately
after the acquisition, each of the foregoing entities was renamed. The following
table sets forth the old name, the new name and the abbreviated name used in
this Proxy Statement to refer to each such entity:
<TABLE>
<CAPTION>
OLD NAME NEW NAME ABBREVIATED NAME
- ---------------------------- ---------------------------------- ----------------------------
<S> <C> <C>
The Van Kampen Merritt Van Kampen American Capital, Inc. Van Kampen American Capital
Companies, Inc.
American Capital Asset Van Kampen American Capital AC Adviser
Management, Inc. Asset Management, Inc.
Van Kampen Merritt Van Kampen American Capital VK Adviser
Investment Advisory Corp. Investment Advisory Corp.
</TABLE>
The VK Adviser and the AC Adviser currently are each wholly-owned
subsidiaries of Van Kampen American Capital. Including the Fund, the VK Adviser
serves as investment adviser for twenty open-end investment companies (the "VK
Funds"). Nineteen of the VK Funds are organized as Massachusetts business trusts
(or subtrusts thereof) and the Van Kampen Merritt Pennsylvania Tax Free Income
Fund (the "Pennsylvania Fund") is organized for tax purposes as a Pennsylvania
trust. The Boards of Trustees of the Fund and each of the other VK Funds
currently consists of the same seven members (the "VK Board").
The AC Adviser serves as the investment adviser for twenty-nine open-end
investment companies (the "AC Funds") as well as for other registered investment
companies. Ten of the AC Funds are organized as Massachusetts business trusts
(or series thereof), and nineteen of the AC Funds are organized as Maryland
corporations (or series thereof). The Boards of Directors/Trustees for each of
the AC Funds currently consists of the same eight members (the "AC Board").
On February 10, 1995, the VK Board and the AC Board held a joint meeting to
discuss with management ("Management") of the VK Adviser and the AC Adviser the
costs and potential benefits to shareholders of, among other things, (i)
permitting exchangeability of shares between the VK Funds and the AC Funds, (ii)
selecting a common transfer agent to facilitate exchangeability and enhance
shareholder services, (iii) merging certain of the VK Funds and the AC Funds in
order to achieve certain economies of scale and efficiencies, and (iv)
consolidating the VK Board and the AC Board into a combined board of directors
(collectively, the "Consolidation").
The VK Board and the AC Board created a joint committee (the "Joint
Committee") to consider the possible costs and benefits to shareholders
associated with the Consolidation. The Joint Committee met on
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February 20, 1995 to identify and discuss the possible costs and benefits of the
Consolidation to the shareholders. Following such meeting, the Joint Committee
requested certain additional information from Management with respect to those
possible costs and benefits identified by the Joint Committee.
The VK Board and the AC Board held a joint meeting on March 14, 1995 for
the purpose of, among other things, reviewing the findings of the Joint
Committee and reviewing the additional information requested from Management. At
the meeting, the VK Board and the AC Board each approved in principle certain
elements of the Consolidation, including the combination of the VK Board and the
AC Board, subject to the favorable resolution of certain outstanding
administrative matters with respect to the operation of a combined board and
subject to receiving certain additional information from Management. The VK
Board and the AC Board also considered reorganizing the VK Funds (excluding the
Pennsylvania Fund) and the AC Funds in one jurisdiction under substantially
similar charter documents, as part of the Consolidation.
The Joint Committee met again on March 27, 1995 and April 3, 1995 to
address the open administrative matters and to review the additional information
provided by Management. Following a discussion of such matters and a review of
the additional information provided by Management, the Joint Committee
recommended to the VK Board that it approve and propose to the shareholders of
the VK Funds: (i) combining the VK Board and the AC Board, (ii) reorganizing
each of the VK Funds (excluding the Pennsylvania Fund) into Delaware business
trusts (or series thereof) in order to facilitate governance of such funds under
uniform organizational documents following the Consolidation and in order to
take advantage of certain beneficial aspects of Delaware law with respect to
business trusts and (iii) the amendment and restatement of the Agreement and
Declaration of Trust of the Pennsylvania Fund to conform it to the extent
practicable with the new trust instrument of the Delaware business trusts while
maintaining the tax benefits of operating as a Pennsylvania trust. The Joint
Committee also made analogous recommendations to the AC Board.
The VK Board and the AC Board held a joint meeting on April 6-7, 1995 and
separate meetings on May 8-9, 1995 and May 11-12, 1995, respectively, at which
each of the VK Board and the AC Board unanimously approved proposals for
combining the VK Board and the AC Board and reorganizing each of the VK Funds
(excluding the Pennsylvania Fund) and each of the AC Funds as Delaware business
trusts (or series thereof). The VK Board also unanimously approved the proposal
to amend and restate the Agreement and Declaration of Trust for the Pennsylvania
Fund to conform it to the extent practicable with the new trust instrument of
the Delaware business trusts, while maintaining the tax benefits of operating as
a Pennsylvania Trust. Each of the VK Board and the AC Board also approved
submitting such proposals to the respective shareholders of the VK Funds and the
AC Funds for the requisite shareholder approvals. Proposal 1 of this Proxy
Statement seeks shareholder approval to reorganize the Fund into a series of
Delaware business trust. Proposal 2 of this Proxy Statement seeks shareholder
approval for the Trust to expand the number of its trustees from seven to
fifteen and to re-elect to the Board each of the incumbent trustees and to elect
each of the eight current members of the AC Board. The Board has determined that
reorganizing the Fund into a series of Delaware business trust and combining the
VK Board and the AC Board are essential elements of the Consolidation and
recommend that shareholders vote FOR Proposal 1 and IN FAVOR of each of the
nominees in Proposal 2.
This Proxy Statement has been prepared and mailed to the shareholders of
the Fund to obtain the necessary shareholder approvals for the Fund to complete
the Consolidation. A substantially similar proxy statement with respect to such
proposals has been prepared and mailed to the shareholders of each of the other
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<PAGE> 9
VK Funds and each of the AC Funds to obtain the necessary shareholder approvals
for such other VK Funds such AC Funds to complete the Consolidation as described
above. The proxy mailed to the other VK Funds and the AC Funds does not include
a proposal substantially similar to Proposal 3 of this Proxy Statement. Certain
additional proposals not related to the Consolidation are included in the proxy
statement sent to the other VK Funds and the AC Fund, which additional matters
differ between the Insured Fund, other VK Funds and the AC Funds and are not
included herein.
PROPOSAL 1: APPROVAL OF THE REORGANIZATION AND CONVERSION
OF THE FUND TO A SERIES OF A DELAWARE BUSINESS TRUST
The VK Board has unanimously approved an Agreement and Plan of
Reorganization and Liquidation (a "Plan of Reorganization") substantially in the
form attached hereto as Appendix A with respect to the Fund. The Plan of
Reorganization provides for the reorganization (the "Reorganization") of the
Fund into a series (the "Proposed Delaware Fund") of a Delaware business trust
(the "Proposed Delaware Trust"). Each of the other VK Funds and the AC Funds
also are seeking approval from their respective shareholders to reorganize as a
Delaware business trust (or series thereof).
REASONS FOR THE REORGANIZATION
The principal purpose of the Reorganization is to take advantage of certain
beneficial aspects of Delaware law with respect to business trusts and to
facilitate governance of the VK Funds and the AC Funds under uniform
organizational documents following the Consolidation.
Delaware law provides that the shareholders of a Delaware business trust
shall not be subject to liability for obligations of the trust. Under
Massachusetts law, the Fund's shareholders are potentially liable for
obligations of the Fund. Although the risk of such liability is remote, the VK
Board has determined that Delaware law affords greater protection against
potential shareholder liability. Similarly, Delaware law provides that, should
the Proposed Delaware Fund issue multiple series of shares, each series shall
not be liable for the debts of any other series, which liability is another
potential, although remote, risk in the case of a Massachusetts business trust.
The VK Board believes that the Delaware business trust form of organization
may enable the Proposed Delaware Fund to adopt new methods of operations and
employ new technologies that are expected to reduce costs of operation when, and
if, implemented. Delaware law, for example, explicitly authorizes electronic or
telephonic communications between a Delaware fund and its shareholders. The VK
Board hopes to take advantage of this provision to improve shareholder voting
procedures and reduce costs. Under Delaware law and the proposed trust
instrument of the Proposed Delaware Trust, the Proposed Delaware Fund may be
required to have fewer shareholder meetings, potentially further reducing costs,
although neither Massachusetts business trusts nor Delaware business trusts are
required to hold annual shareholder meetings. Of course, the investment
objective and the fundamental investment restrictions of both the Fund and
Proposed Delaware Fund will remain fundamental, and may be changed only by
shareholder vote. The VK Board and the AC Board also have determined that
substantially uniform organizational documents will facilitate their ability to
jointly govern the VK Funds, including the Fund, and the AC Funds in an
efficient and timely manner and will enhance the ability of the VK Funds and the
AC Funds to react in a consistent manner when faced with similar corporate
governance issues.
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For a more detailed comparison of the Fund's current Declaration of Trust
and the proposed Delaware trust instrument, see "Certain Comparative Information
About the Fund and the Proposed Delaware Fund" below.
PROCEDURES FOR REORGANIZATION
In order to accomplish the Reorganization, the Trust has organized the
Proposed Delaware Trust. The Proposed Delaware Trust was formed as a Delaware
business trust pursuant to an Agreement and Declaration of Trust (the "Delaware
Trust Instrument") which authorizes the issuance of shares in different series.
The Trust has caused its Proposed Delaware Trust to create a series (i.e., the
Proposed Delaware Fund) that corresponds to the Fund. The investment objectives
and policies of the Proposed Delaware Fund are the same as those of the Fund.
To facilitate the Reorganization, one share of each class of the Proposed
Delaware Fund has been issued to the Fund. If the Reorganization of the Fund is
approved by its shareholders, such approval shall authorize the Fund, as sole
shareholder of the Proposed Delaware Fund, to (i) elect as trustees of the
Proposed Delaware Trust the nominees elected as trustees of the Trust pursuant
to Proposal 2 hereof, (ii) approve an investment advisory agreement between the
Proposed Delaware Fund and the VK Adviser substantially identical to the
investment advisory agreement described in Proposal 3 hereof, assuming
shareholders approve such agreement at the Meeting, (iii) approve or disapprove
the selection of the independent public accountants described in Proposal 4
hereof, and (iv) approve a Rule 12b-1 plan and a service plan between the
Proposed Delaware Fund and Van Kampen American Capital Distributors, Inc. (the
"Distributor") substantially identical to the plans currently in effect between
the Fund and the Distributor.
On the closing date of the Reorganization, if approved by shareholders, the
Fund will transfer all of its assets and liabilities to the Proposed Delaware
Fund in exchange for shares of the Proposed Delaware Fund having an equal net
asset value. The Fund will then be liquidated and each shareholder of the Fund
will receive for his or her shares of the Fund an equal number of shares of the
Proposed Delaware Fund. A shareholder's investment in the Fund will remain
exactly the same after the Reorganization and the Proposed Delaware Fund will
operate in the same manner and with the same investment objectives, policies and
restrictions as the Fund had in the past.
If shareholders of the Fund do not approve the Reorganization, the Fund
will continue in business as a sub-trust of a Massachusetts business trust. The
consummation of the Reorganization of the Fund is not contingent upon the
consummation of the Reorganization of any of the other VK Funds or the AC Funds,
individually or as a group.
It will not be necessary for holders of certificates of the Fund to
exchange their certificates for new certificates of the Proposed Delaware Fund
following consummation of the Reorganization. Certificates for shares of the
Fund issued prior to the Reorganization shall represent outstanding shares of
the Proposed Delaware Fund after the Reorganization. New certificates will not
be issued by the Proposed Delaware Fund after the Reorganization to shareholders
of the Proposed Delaware Fund unless specifically requested in writing.
Shareholders of the Fund who have not been issued certificates and whose shares
are held in an open account will automatically have those shares designated
similarly as shares of the Proposed Delaware Fund.
Assuming approval by shareholders of the Fund, it is currently contemplated
that the Reorganization of the Fund will become effective at the later of August
1, 1995 or as soon as practicable following receipt of such
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<PAGE> 11
approval, taking into consideration all of the elements of the Consolidation. At
such time, the new advisory agreement, new Rule 12b-1 plan and new service plan
will become effective and will continue thereafter if approved as required by
the Investment Company Act of 1940, as amended ("1940 Act").
CERTAIN COMPARATIVE INFORMATION ABOUT THE FUND AND THE PROPOSED DELAWARE FUND
Summary of the Delaware Trust Instrument. The Proposed Delaware Trust has
been established pursuant to the Delaware Trust Instrument under the laws of the
State of Delaware. The investment objectives, policies and limitations of the
Proposed Delaware Fund after the reorganization will be the same as those of the
current Fund. Prior to the Reorganization, the Proposed Delaware Fund will not
have any material assets or liabilities. During the Reorganization, the Fund
will be the sole shareholder of the Proposed Delaware Fund immediately prior to
the distribution of the Proposed Delaware Fund shares to shareholders of the
Fund.
As a Delaware business trust, the Proposed Delaware Trust's operations will
be governed by the Delaware Trust Instrument, its Bylaws and applicable Delaware
law rather than by the Trust's Declaration of Trust, Bylaws and applicable
Massachusetts law. The operations of the Proposed Delaware Trust will continue
to be subject to the provisions of the 1940 Act, the rules and regulations of
the Securities and Exchange Commission (the "SEC") thereunder, and applicable
state securities law.
Trustees and Officers of the Delaware Trust. Subject to the provisions of
the Delaware Trust Instrument, the business of the Proposed Delaware Trust is
supervised by its trustees. The responsibilities, powers, and fiduciary duties
of the trustees of the Proposed Delaware Trust will be substantially the same as
those of the trustees of the Trust, except that Delaware trustees would have the
additional authority to remove a trustee from office without cause upon the
approval of two-thirds of the trustees in office prior to such removal. The
trustees of the Proposed Delaware Trust will be all of the trustees elected by
the Trust pursuant to Proposal 2.
Series of Massachusetts Trusts and Delaware Trusts. The Trust Delaware
Instrument of the Proposed Delaware Trust permits the trustees to create one or
more series of the Proposed Delaware Trust and, with respect to each series, to
issue an unlimited number of full or fractional shares of that series or of one
or more classes of shares of that series. The trustees of the Trust have
identical rights under the Massachusetts Declaration of Trust. Each share of a
series of the Proposed Delaware Trust, like each share of a series of the Trust,
represents an equal proportionate interest with each other share in that series,
none having priority or preference over another.
Delaware Trust Shareholder Liability and Massachusetts Trust Shareholder
Liability. One area of difference between a Delaware business trust and a
Massachusetts business trust is the potential liability of shareholders.
Generally, shareholders of the Proposed Delaware Trust will not be personally
liable for obligations of the Delaware trust under Delaware law. The Delaware
Business Trust Act (the "Delaware Act") provides that a shareholder of a
Delaware business trust shall be entitled to the same limitation of liability
extended to shareholders of private corporations for profit. However, no similar
statutory or other authority limiting shareholder liability of a business trust
applies in many other states, including Massachusetts. As a result, to the
extent that the Proposed Delaware Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Proposed Delaware Trust shareholders to liability.
To guard against this risk, the Delaware Trust Instrument (i) contains an
express disclaimer of shareholder liability for acts or obligations of the
Proposed Delaware
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Trust and requires that notice of such disclaimer be given in each agreement,
obligation, and instrument entered into as executed by the Proposed Delaware
Trust or its trustees and (ii) provides for indemnification out of the series or
fund property of any shareholder held personally liable for the obligations of
the Proposed Delaware Trust. Thus, the risk of a Proposed Delaware Trust
shareholder incurring financial loss beyond his or her investment because of
shareholder liability is limited to circumstances in which (1) a court refused
to apply Delaware law, (2) no contractual limitation of liability was in effect,
and (3) the series itself would be unable to meet its obligations. In light of
Delaware law, the nature of the Proposed Delaware Trust's business, and the
nature of its assets, the VK Board believes that the risk of personal liability
to a Proposed Delaware Trust shareholder is extremely remote.
Shareholders of a Massachusetts business trust may, in certain
circumstances, be held personally liable under Massachusetts law for the
obligations of such Massachusetts business trust. The Massachusetts Declaration
of Trust, like the Delaware Trust Instrument, contains an express disclaimer of
shareholder liability and requires that notice of such disclaimer be given in
each agreement entered into or executed by the Massachusetts Trust or the
trustees. The Trust's Declaration of Trust also provides for indemnification out
of Trust property. Thus, the VK Board believes the risk of shareholder liability
is also remote for shareholders of a Massachusetts business trust. Shareholders
of a Massachusetts business trust, however, do not benefit from a statutory
limitation of liability that is available to shareholders of a Delaware business
trust.
Liability of Trustees. The Delaware Trust Instrument provides that the
trustees shall not be liable to any person other than the Proposed Delaware
Trust or a shareholder thereof and that a trustee shall not be liable for any
act as a trustee; but nothing in the Delaware Trust Instrument protects a
trustee against any liability to the Proposed Delaware Trust or its shareholders
to which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office. The Delaware Trust Instrument provides that its
trustees shall not be liable for errors of judgment or mistakes of fact or law,
subject to substantially similar provisions concerning willful misfeasance, bad
faith, gross negligence, and reckless disregard as those described above.
Voting Rights of Massachusetts and Delaware Trust Shareholders. Neither
Massachusetts business trusts nor Delaware business trusts are required to hold
annual meetings. The Declaration of Trust of the Trust requires the affirmative
vote of two-thirds of the shares of the Trust to remove a trustee of such Trust.
The Delaware Trust Instrument of the Proposed Delaware Trust would require the
affirmative vote of a majority of the shares of the Proposed Delaware Trust to
remove a trustee. The Trust's Declaration of Trust provides that a meeting of
shareholders may be called by the holders of 51% or more of the outstanding
shares; however, if the meeting is called for the purpose of voting on the
question whether to remove a trustee, only the holders of 10% of the outstanding
shares of the Fund need request to hold a shareholders meeting. The Delaware
Trust Instrument provides, in substance, that a meeting of shareholders may be
called by the request of holders of 10% of the outstanding shares of the Fund.
The Proposed Delaware Trust, like the current Trust, will operate as an
open-end management investment company registered with the SEC under the 1940
Act. Shareholders of the Proposed Delaware Fund will, therefore, have the power
to vote at special meetings with respect to, among other things, changes in
fundamental investment policies and limitations of the Proposed Delaware Fund;
ratification of the selection by the trustees of the independent accountants for
the Proposed Delaware Fund; and such additional matters relating to the Proposed
Delaware Fund as may be required by law, or which the trustees consider
desirable. If, at any time, less than two-thirds of the trustees holding office
have been elected by shareholders,
8
<PAGE> 13
the trustees then in office will promptly call a meeting of shareholders of the
Proposed Delaware Trust for the purpose of electing a board of trustees. The
Trust intends to notify the SEC that the Proposed Delaware Trust will succeed to
the shares registered by the Trust under the Securities Act of 1933.
The Delaware Trust Instrument, like the Declaration of Trust of the Trust,
provides that shareholders shall have the power to vote only with respect to
(i) the election or removal of trustees as provided therein, (ii) the approval
or termination of investment advisory distribution or shareholder services
contracts, or, (iii) the termination or reorganization of the Proposed Delaware
Trust or any series of the Proposed Delaware Trust, (iv) with respect to any
amendment of the Delaware Trust Instrument, (v) to the same extent as the
stockholders of a Delaware business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Proposed Delaware Trust or
any series, and (vi) with respect to such additional matters relating to the
Trust as may be required by the 1940 Act, the Delaware Trust Instrument, the
Bylaws or any registration of the Proposed Delaware Trust with the SEC. The
Trust's Declaration of Trust and the Delaware Trust Instrument also permit the
trustees to amend the trust document, provided that the amendment does not
adversely affect shareholders or is approved by shareholders. The Delaware Trust
Instrument and the Trust's Declaration of Trust each provides that a majority of
the affected shares must approve a change that adversely affects the rights of
such shares. The Delaware Trust Instrument and the Trust's Declaration of Trust
requires a majority of shares to establish a quorum for a meeting.
TEMPORARY AMENDMENT TO INVESTMENT LIMITATIONS
During the period prior to the Reorganization, the Fund will own the only
outstanding share of the Proposed Delaware Fund. By acquiring a nominal share of
the Proposed Delaware Fund, the Fund can then vote to elect as trustees of the
Proposed Delaware Trust those nominees elected in Proposal 2 below, approve a
new investment advisory agreement substantially identical to the investment
advisory agreement submitted for shareholder approval in Proposal 3 hereof,
approve a substantially identical but new distribution plan and service plan and
ratify the selection of independent accountants in order to comply with
provisions of the 1940 Act requiring such shareholder approvals.
The Fund has investment restrictions which require shareholder approval
before they can be changed and which might otherwise preclude the Fund from
completing the Reorganizations including (for example) restrictions which
prohibit the Fund from purchasing any securities (other than tax-exempt
obligations issued or guaranteed by the United States Government or by its
agencies or instrumentalities), if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in securities of a
single issuer or, if, as a result, the Fund would hold more than 10% of the
outstanding voting securities of an issuer, or a prohibition against making
investments for the purpose of exercising control or participating in
management. By approving the Reorganization, the shareholders will be
authorizing a suspension of any and all of these restrictions only to the extent
necessary to permit the Reorganization to take place.
FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the transaction contemplated by the Plan of
Reorganization will be tax-free. Consummation of the Reorganization is subject
to receipt of an opinion of Skadden, Arps, Slate, Meagher & Flom, counsel to the
Fund that, under the Internal Revenue Code of 1986 (the "Code"), the
reorganization of the Fund into a series of the Proposed Delaware Trust pursuant
to the Plan will not give rise to the recognition
9
<PAGE> 14
of income, gain or loss for federal income tax purposes to the Fund, the Trust
or the shareholders of the Fund. A shareholder's adjusted basis for tax purposes
in shares of the Proposed Delaware Fund after the Reorganization will be the
same as his adjusted basis for tax purposes in the shares of the Fund
immediately before the Reorganization. Each shareholder should consult his own
tax adviser with respect to the state and local tax consequences of the proposed
transaction.
EXPENSES
The expenses related to the Reorganization of the Fund will be borne by the
Fund and the VK Adviser as set forth under "EXPENSES" below.
RECOMMENDATION OF TRUSTEES
The VK Board has unanimously approved the proposed Reorganization of the
Fund, has determined that participation in the Reorganization is in the best
interests of the Fund and that the interests of existing shareholders of the
Fund will not be diluted as a result of the Reorganization. The Board recommends
that shareholders of the Fund vote FOR Proposal 1.
REQUIRED VOTE
In accordance with the Declaration of Trust of the Fund, an affirmative
vote of a majority of the shares of the Fund present in person or by Proxy at
the Meeting and entitled to vote on the proposal is required to approve the
Reorganization and subsequent liquidation and dissolution of the Fund.
PROPOSAL 2: ELECTION OF TRUSTEES
At meetings held on April 6-7, 1995 and May 8-9, 1995, the VK Board
unanimously approved increasing the number of trustees for the Trust from seven
to fifteen and nominated each of the incumbent trustees for re-election and also
nominated Messrs. J. Miles Branagan, Dr. Richard E. Caruso, Dr. Roger Hilsman,
Don G. Powell, David Rees, Lawrence J. Sheehan, Dr. Fernando Sisto and William
S. Woodside to fill the new trustee positions. Each of the new nominees
currently serves on the AC Board. The AC Board also unanimously approved
increasing the members of the AC Board from eight to fourteen and nominated each
of the incumbent trustees for re-election and also nominated each of the
trustees of the VK Board, except for Mr. McDonnell, to fill such new positions.
Mr. McDonnell, an interested person of the Adviser and the AC Adviser, will not
join the AC Board so that the AC Board will remain in compliance with Section
15(f) of the 1940 Act.
The VK Board together with the AC Board evaluated the benefits to
shareholders resulting from the proposed combination of the VK Board and the AC
Board. The VK Board and the AC Board determined that a combined board could more
effectively seek to maximize the benefits of a unified fund complex including:
implementation of exchangeability of shares among the VK Funds and the AC Funds;
positioning the unified fund complex to maximize benefits for marketing; more
effectively supervise the implementation of improved shareholder service
programs across the unified fund complex; combining historical knowledge and
experience of the two fund complexes; more effectively evaluate potential
mergers of similar funds thereby achieving economies of scale for shareholders;
and the elimination of overlapping expenses and demands on Management's
attention from two separate boards.
10
<PAGE> 15
The VK Board also evaluated the costs to shareholders of the VK Funds
resulting from the combination of the VK Board and the AC Board. The principal
cost associated with the combination of the two boards would be the added
expense of compensating seven of the eight additional trustees who are not
affiliated persons of the VK Adviser. In order to alleviate such additional
expense, the trustees approved a reduction in the compensation per trustee paid
by the Fund and each other VK Fund. Because the number of trustees of the Fund
will increase from seven to fifteen, the aggregate compensation paid by the Fund
to the trustees will increase, except that the VK Adviser has agreed to
reimburse the Fund through December 31, 1996, for any increase in the aggregate
trustee's compensation over the aggregate compensation paid by the Fund in its
1994 fiscal year. It is anticipated that reductions in the number of trustees on
the combined board will reduce the aggregate compensation paid by the Fund to
the combined board to approximately the current amount. Because each trustee
will serve on the boards of more funds after the combination of the boards, each
trustee's aggregate compensation from all of the Funds will increase. A
comparison of each trustee's compensation for the 1994 calendar year (prior to
the consolidation of the boards) and his pro forma compensation following the
combination of the boards is presented below in the 1994 Compensation Table and
the Pro Forma Compensation Table and also is discussed in the text preceding
such tables.
THE TRUSTEES
Messrs. McDonnell, Miller, Nelson and Whalen were initially elected to the
board of trustees of the Fund in May 1987. Mr. Gaughan was first elected to the
board of trustees of the Fund in April, 1989. Mr. Robinson was first elected to
the board of trustees of the Fund in October, 1992. Mr. Kennedy was appointed by
the trustees to the board of trustees of the Fund in September, 1993, in order
to fill a vacancy created by the resignation of John Dailey and has not
previously been elected by the shareholders. Each of the other incumbent
trustees was last approved by shareholders of the Trust at a joint meeting of
shareholders held on January 14, 1993.
With respect to the Trust, fifteen trustees are to be elected at the
Meeting to serve until their successors are duly elected and qualified. The
election of each nominee to the board of the Trust requires the affirmative vote
of a plurality of all Shares of the Trust present in person or by proxy. The
shareholders of the Fund will vote together as a single class to elect the
trustees of the Trust, together with the shareholders of the other sub-trusts of
the Trust, who are voting at a separate meeting. It is the intention of the
persons named in the enclosed proxy to vote the Shares represented by them for
the election of the nominees listed below unless the proxy is marked otherwise.
The Trust Instrument of the Proposed Delaware Trust provides that the Board
shall consist of not more than twenty trustees. In the event a vacancy occurs on
the VK Board, the By-Laws of the Proposed Delaware Trust provide that the number
of trustees will be reduced over time from fifteen to eight. Thereafter, subject
to the provisions of the 1940 Act, the remaining trustees shall appoint a person
to fill the vacancy for the entire unexpired term. Following the Meeting, the
Fund does not contemplate holding regular meetings of shareholders to elect
trustees or otherwise. In the event a vacancy occurs on the Board, subject to
the provisions of the 1940 Act, the remaining trustees shall appoint a person to
fill the vacancy.
Following the Meeting, the Fund does not contemplate holding regular
meetings of shareholders to elect trustees or otherwise. When an investment
company does not hold regular annual meetings, it is the position of the staff
of the SEC and a policy of the Trust that holders of record of two-thirds of the
outstanding shares of such Trust may file a declaration in writing or may vote
at a special meeting for the purpose of removing a
11
<PAGE> 16
trustee. The VK Board will be required to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the record holders of not less
than 10% of the total outstanding shares of the Trust. In addition, the VK Board
will comply with the requirements of Section 16(c) of the 1940 Act with respect
to communications with shareholders.
Each nominee named below has agreed to serve as a trustee if elected;
however, should any nominee(s) become unable or unwilling to accept nomination
or election, the proxies will be voted for one or more substitute nominee(s)
designated by the present VK Board.
The following sets forth the names, ages, principal occupations and other
information respecting the trustee nominees.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------------------- -----------------------------------------------------------
<S> <C>
J. Miles Branagan................ Co-founder, Chairman, Chief Executive Officer and President
2300 205th Street of MDT Corporation, a company which develops manufactures,
Torrance, CA 90501 markets and services medical and scientific equipment. A
Age 62: director or trustee of each of the AC Funds.
Richard E. Caruso................ Chairman and Chief Executive Officer, Integra Life Sciences
Two Randor Station, Suite 314 Corporation, a firm specializing in biotechnology and life
King of Prussia Road sciences. Trustee of Susquehanna University. Trustee,
Radnor, PA 19087 Susquehanna University Trustee and First Vice President,
Age: 52 The Baum School of Art; Founder and Director of Uncommon
Individual Foundation, a youth development foundation.
Director of International Board of Business Performance
Group, London School of Economics. A director or trustee of
each of the AC Funds. Prior to [ ], Director of
First Sterling Bank, and prior to [ ], Executive
Vice President and a director of LFC Financial Corporation,
a provider of leasing financing.
Philip P. Gaughan................ Trustee of each of the VK Funds. Prior to February, 1989,
9615 Torresdale Avenue Managing Director and Manager of Municipal Bond Department,
Philadelphia, PA 19114 W. H. Newbold's Sons & Co.
Age: 66
Roger Hilsman.................... A director or trustee of each of the AC Funds. Prior to
251-1 Hamburg Cove [ ], Professor of Government and International
Lyme, CT 06371 Affairs Emeritus, Columbia University.
Age: 75
R. Craig Kennedy................. Advisor to the Dennis Trading Group Inc. Prior to 1993,
1341 E. 50th Street President and Chief Executive Officer, Director and member
Chicago, IL 60615 of the Investment Committee of the Joyce Foundation, a
Age: 43 private foundation. Trustee of each of the VK Funds.
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------------------- -----------------------------------------------------------
<S> <C>
Dennis J. McDonnell*............. President, Chief Operating Officer and a Director of the VK
One Parkview Plaza Adviser, the AC Adviser and Van Kampen American Capital
Oakbrook Terrace, IL 60181 Management, Inc. Director of VK/AC Holding, Inc. and Van
Age: 53 Kampen American Capital. Director of McCarthy, Crisanti &
Maffei, Inc. and Chairman and a Director of MCM Asia
Pacific Company, Ltd. President, Chief Executive Officer
and a Trustee of each of the VK Funds. He also is a trustee
of the Van Kampen Merritt Series Trust and closed-end
investment companies advised by the VK Adviser. Prior to
December, 1991, Senior Vice President of Van Kampen Merritt
Inc.
Donald C. Miller................. Chairman and Trustee of each of the VK Funds. Prior to
415 North Adams 1992, Director of Royal Group, Inc., a company in insurance
Hinsdale, IL 60515 related businesses.
Age: 75
Jack E. Nelson................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company. Trustee of each of the VK
Winter Park, FL 32789 Funds.
Age: 59
Don G. Powell*................... President, Chief Executive Officer and a Director of VKAC
2800 Post Oak Blvd. Holding, Inc. and Van Kampen American Capital and Chairman,
Houston, TX 77056 Chief Executive Officer and a Director of Van Kampen
Age: 55 American Capital Distributors, Inc., the VK Adviser, Van
Kampen American Capital Management, Inc. and VCJ Inc.;
Director, President and Chief Executive Officer of Van
Kampen American Capital Advisers, Inc., the AC Adviser and
Van Kampen American Capital Exchange Corp.; Director and
Executive Vice President of Advantage Capital Corporation,
ACCESS Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company; Director of McCarthy, Crisanti & Maffei, Inc.;
Director, Trustee or Managing General Partner of each of
the AC Funds and other open-end investment companies and
closed-end investment companies advised by the AC Adviser.
He is also Chairman and a Trustee of the Van Kampen Merritt
Series Trust and closed-end investment companies advised by
the VK Adviser.
David Rees....................... Contributing Columnist and prior to 1995 Senior Editor of
1601 Country Club Drive Los Angeles Business Journal. A director or trustee of each
Glendale, CA 91208 of the AC Funds. A director of Source Capital, Inc., a
Age: 71 closed-end investment company unaffiliated with Van Kampen
American Capital, a director and the second vice president
of International Institute of Los Angeles.
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------------------- -----------------------------------------------------------
<S> <C>
Jerome L. Robinson*.............. President of Robinson Technical Products Corporation, a
115 River Road processor and distributor of welding alloys, supplies and
Edgewater, NJ 07020 equipment. Director of Pacesetter Software, a software
Age: 72 programming company specializing in white collar
productivity. Director and majority shareholder Hilarius
Haarlem B.V., Haarlem, Holland, a manufacturer and
distributor of welding alloys. Trustee of each of the VK
Funds.
Lawrence J. Sheehan*............. Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the AC
Suite 700 Funds. A director or trustee of each of the AC Funds.
Los Angeles, CA 90067
Age: 62
Fernando Sisto................... George M. Bond Professor and, prior to [ ],
Stevens Institute of Technology Dean of Graduate School and Chairman, Department of
Castle Point Station Mechanical Engineering, Stevens Institute of Technology.
Hoboken, NJ 07030 Director of Dynalysis of Princeton, [a firm engaged in]
Age: 70 engineering research. Chairman of the Board and a director
or trustee of each of the AC Funds.
Wayne W. Whalen*................. Partner in the law firm of Skadden, Arps, Slate, Meagher &
333 West Wacker Drive Flom, counsel to the Fund. Trustee of each of the VK Funds.
Chicago, IL 60606 He also is a trustee of the Van Kampen Merritt Series Trust
Age: 55 and closed-end investment companies advised by the VK
Adviser.
William S. Woodside.............. Vice Chairman of the Board of Sky Chefs, Inc., a caterer of
712 Fifth Avenue airline food. Prior to [ ], Director of
40th Floor Primerica Corporation (currently known as Travelers). Prior
New York, NY 10019 to [ ], Director of James River Corporation, [a
Age: 73 producer of] paper products. Trustee, and prior to
[ ] President, of Whitney Museum of American
Art. Chairman of Institute for Educational Leadership,
Inc., Board of Visitors, Graduate School of The City
University of New York, Academy of Political Science.
[Member of?] Committee for Economic Development. Director
of Public Education Fund Network, Fund for New York City
Public Education. Trustee of Barnard College. Member of
Dean's Council, Harvard School of Public Health. [Member
of?] Mental Health Task Force, Carter Center. A director or
trustee of each of the AC Funds.
</TABLE>
- ---------------
* Such nominees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.
As of May 26, 1995, certain nominees owned, directly or beneficially, the
number of Class A Shares of the Fund as follows: [Insert Trustees who own
shares.] As of May 26, 1995, no nominee owned any Class B Shares or Class C
Shares of the Fund. Ownership constitutes less than 1% of the outstanding Shares
of the Fund.
14
<PAGE> 19
Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital Companies, Inc., and have entered into employment contracts
(for a term of five years) with Van Kampen American Capital.
During the Fund's fiscal year ended in 1994, the board of trustees of the
Trust held [four] meetings. All of the Trustees of the Fund, including former
trustee John C. Merritt who resigned from the VK Board on January 28, 1995,
attended at least 75% of the meetings of the board and all committee meetings
thereof of which such trustee was a member during such fiscal year. During the
Trust's 1994 fiscal year, the Trust had no standing committees with the
exception of an audit committee. Mr. Merritt, who had been a trustee and
chairman of each of the Fund, the VK Funds, Van Kampen Merritt Series Trust and
closed-end investment companies advised by the VK Adviser, also resigned as the
chairman of the board, chief executive officer and a director of the VK Adviser,
Van Kampen Merritt Management Inc., Van Kampen Merritt Inc., and chairman, chief
executive officer, president, chief operating officer and director of The Van
Kampen Merritt Companies, Inc. and VKM Holding, Inc. Mr. Merritts' resignation
from these Van Kampen Merritt-related entities was related to the Acquisition.
At or subsequent to the closing of the Acquisition, Mr. Merritt exercised
options and sold approximately 49,740 shares of the common stock of Van Kampen
American Capital at a purchase price of $200 per share. In addition, Mr. Merritt
has a severance agreement with Van Kampen American Capital entitling him to
approximately $550,000 payable during 1995. Mr. Merritt was also a Director of
McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company, Limited, a limited
partner of R.L. Renck & Co., Inc., and Vice Chairman of the Municipal Securities
Rulemaking Board.
As of the end of the Trust's 1994 fiscal year, the Trust's audit committee
consisted of Messrs. Kennedy, Gaughan, Miller and Nelson (collectively, the
"Disinterested Trustees"). The audit committee makes recommendations to the
board concerning the selection of the Fund's independent accountants, reviews
with such accountants the scope and results of the Fund's annual audit and
considers any comments that the accountants may have regarding the Fund's
financial statements or books of account. The Disinterested Trustees also are
responsible for the annual review of the Fund's investment advisory agreement
and any other matters requiring the approval of the Disinterested Trustees under
the 1940 Act. During the Fund's 1994 fiscal year, the audit committee of the
Fund held two meetings.
The Fund anticipates that, following the Meeting, the combined board will
have two standing committees: an Audit Committee and a Brokerage Review
Committee. The Audit Committee makes recommendations to the combined board
concerning the selection of independent public accountants, reviews with such
accountants the scope and results of the annual audit and considers any comments
which the accountants may have regarding the financial statements or books of
account. The Brokerage Review Committee monitors the respective advisers
brokerage practices. Each trustee not affiliated with the Fund will serve on one
of the committees, but no trustee shall serve on more than one committee and not
receive additional compensation for serving on a committee. [Additional
discussion to follow].
The Disinterested Trustees are required to select and nominate
Disinterested Trustees and are prepared to review nominations from shareholders
to fill any vacancies in trusteeships. Nominations from shareholders should be
in writing and addressed to the Disinterested Trustees at the Trust's office.
The Disinterested Trustees expect to be able to identify from their own
resources an ample number of qualified candidates.
The compensation of trustees who are affiliated persons (as defined in the
1940 Act) of the VK Adviser, the Distributor or Van Kampen American Capital is
paid by the respective entity. The Fund pays
15
<PAGE> 20
compensation to all other trustees. During the Trust's 1994 fiscal year, the
Trust paid trustees who were not affiliated persons of the VK Adviser, the
Distributor or Van Kampen American Capital, $2,500 per year, and $250 per
meeting of the Board, plus expenses. Members of the Audit Committee received
$250 for each meeting of such committee. The Fund anticipates that, after the
Meeting, the Trust will pay trustees who are not affiliated persons of the VK
Adviser, the Distributor, or Van Kampen American Capital $2,500 per year, and
$125 per regular quarterly meeting of the combined board, plus expenses. No
additional fees are proposed to be paid for special meetings, committee meetings
or to the chairman of the board. Under the Fund's retirement plan, trustees who
are not affiliated with the VK Adviser, the Distributor or Van Kampen American
Capital, have at least ten years of service and retire at or after attaining the
age of 60 are eligible to receive a retirement benefit equal to [$2,500] per
year for each of the ten years following such trustee's retirement. Under
certain conditions, reduced benefits are available for early retirement. Under
the Fund's deferred compensation plan, a trustee who is not affiliated with the
VK Adviser, the Distributor or Van Kampen American Capital can elect to defer
receipt of all or a portion of the trustee's fees earned by such trustee until
such trustee's retirement. The deferred compensation earns a rate of return
determined by reference to the Fund's return or the return of other VK Funds as
selected by the trustee. To the extent permitted by the 1940 Act, the Fund may
invest in securities of other VK Funds in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
The following table provides summary compensation information for each of
the incumbent trustees of the Fund:
1994 COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUAL TOTAL COMPENSATION
COMPENSATION AS PART ESTIMATED ANNUAL FROM THE FUND
FROM THE OF FUND BENEFITS UPON COMPLEX PAID TO
TRUSTEE FUND(2) EXPENSES(3) RETIREMENT(4) TRUSTEES(5)
- ----------------------------------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy................... $ 21,968 $ 0 2,500 $62,362
Philip P. Gaughan.................. 21,928 $ 0 2,500 $63,250
Donald C. Miller................... 23,768 $ 0 2,500 $62,178
Jack E. Nelson..................... 23,858 $ 0 2,500 $62,362
Jerome L. Robinson................. 23,801 $ 0 2,500 $58,475
Wayne W. Whalen.................... 17,553 $ 0 2,500 $49,875
</TABLE>
- ---------------
(1) Messrs. Merritt and McDonnell, members of the board of the Trust during
fiscal year 1994, were affiliated persons of the VK Adviser and did not
receive compensation or retirement benefits directly from the Fund.
(2) Beginning in September 1994, each trustee, except Messrs. Gaughan and
Whalen, began deferring his compensation paid by the Fund. The total amount
of deferred compensation (including interest) accrued with respect to each
trustee from the Fund, as of December 31, 1994 is as follows: Mr. Kennedy
$14,737; Mr. Miller $14,553; Mr. Nelson $14,737; and Mr. Robinson $13,725.
Compensation deferred by a trustee is invested in one or more VK Funds,
including the Fund, until it is distributed to the trustee.
(3) The Retirement Plan commenced as of August 1, 1994 for the Fund. As of the
end of the Fund's 1994 fiscal year, no amounts had been accrued for
retirement benefits because such amounts were either zero or considered to
be immaterial to the net assets of the Fund at such time. During the Fund's
1995 fiscal year,
16
<PAGE> 21
the Fund will accrue amounts for retirement benefits and include an amount,
if any, for the Fund's 1994 fiscal year.
4 This is the estimated annual benefits payable per year for the 10-year period
commencing in the year of such Trustee's retirement by the Fund assuming: the
trustee has 10 or more years of service on the board of the Fund, and retires
at or after attaining the age of 60. Trustees retiring prior to the age of 60
or with fewer than 10 years of service for the Fund may receive reduced
retirement benefits from the Fund.
5 Prior to the Consolidation, the Fund Complex consisted of the 20 VK Funds.
The amounts shown in this column are accumulated from the Aggregate
Compensation of such funds in the Fund Complex during the calendar year ended
December 31, 1994. The VK Adviser also serves as investment adviser for other
investment companies; however, with the exception of Messrs. McDonnell and
Whalen, the trustees of the Board are not trustees of such investment
companies. Combining the Fund Complex with the other investment companies
advised by the VK Adviser, Mr. Whalen received Total Compensation of $161,850
during the calendar year ended December 31, 1994.
The following table provides pro forma compensation information assuming
the election of each nominee to the VK Board and the AC Board:
PRO FORMA COMPENSATION TABLE1
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUAL ESTIMATED ANNUAL FROM THE FUND
FROM THE AS PART OF FUND BENEFITS UPON COMPLEX PAID
TRUSTEE FUND(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEES(5)
- ------------------------------------ ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
J. Miles Branagan................... [$84,000]
Dr. Richard E. Caruso............... [$84,000]
Philip P. Gaughan................... [$84,000]
Dr. Roger Hilsman................... [$84,000]
R. Craig Kennedy.................... [$84,000]
Donald C. Miller.................... [$84,000]
Jack E. Nelson...................... [$84,000]
David Rees.......................... [$84,000]
Jerome L. Robinson.................. [$84,000]
Lawrence J. Sheehan................. [$84,000]
Dr. Fernando Sisto.................. [$84,000]
Wayne W. Whalen..................... [$84,000]
William S. Woodside................. [$84,000]
</TABLE>
- ---------------
(1) Messrs. McDonnell and Powell, members of the boards of trustees, are
affiliated persons of the VK Adviser and the AC Adviser and will not receive
compensation or retirement benefits directly from the VK Funds or AC Funds.
(2) Each Trustee will defer his aggregate compensation paid by the funds, except
that Mr. Gaughan, Mr. Whalen and will defer $ ,
$ and , respectively.
(3) Estimated Pension or Retirement Benefits Accrual As Part of Fund Expenses
for the Fund during its next full fiscal year.
17
<PAGE> 22
(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such Trustee's retirement by the Fund
assuming: the Trustee has 10 or more years of service on the board of
trustees of the Fund, retires at or after attaining the age of 60.
Trustees retiring prior to the age of 60 or with fewer than 10 years of
service for the Fund may receive reduced retirement benefits from the Fund.
(5) Following the Consolidation, the combined Fund Complex will consist of 49
mutual funds advised by the VK Adviser or the AC Adviser with the same
members on such funds boards of trustees who are not affiliated with the VK
Adviser or the AC Adviser. The amounts shown in this column are accumulated
from the anticipated Aggregate Compensation of the funds in the combined
Fund Complex during such funds' next full calendar year after the date of
this Proxy. The VK Adviser and the AC Adviser also serve as investment
adviser for other investment companies; [however, with the exception of
Messrs. McDonnell and Whalen, the members of the combined board of
trustees are not trustees of such investment companies]. Combining the Fund
Complex with the other investment companies advised by the VK Adviser and
the AC Adviser, it is anticipated that Mr. Whalen will receive Total
Compensation of $ during such funds' next full calendar year after
the date of this Proxy.
SHAREHOLDER APPROVAL
The affirmative vote of a plurality of the Shares of the Trust present in
person or by proxy is required to elect the nominees to the Trust. THE BOARDS OF
TRUSTEES OF THE TRUST RECOMMEND A VOTE IN FAVOR OF EACH OF THE NOMINEES.
PROPOSAL 3: APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
FOR THE FUND
THE CURRENT INVESTMENT ADVISORY AGREEMENT
The VK Adviser has acted as investment adviser and manager for the Fund
since the commencement of the Fund's operations in 1985. The current investment
advisory agreement (the "Current Agreement") between the Fund and the VK Adviser
was last approved by a majority of the Trustees and by a majority of the
Disinterested Trustees, voting in person at a meeting called for that purpose on
May 8-9, 1995 to continue the Current Agreement for a period of one year. The
Current Agreement was last approved by the shareholders of the VK Fund at a
meeting held on January 14, 1993 relating to the acquisition of the VK Adviser's
corporate parent by CDV Acquisition Corporation from Xerox Financial Services,
Inc. A copy of the Current Agreement is attached hereto as Appendix B. The
Current Agreement may be terminated by either party, at any time, without
penalty, upon 60 days written notice, and will automatically terminate in the
event of its assignment.
The VK Adviser is a wholly-owned subsidiary of Van Kampen American Capital,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. 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.
18
<PAGE> 23
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 Van Kampen American Capital, Inc. own, in
the aggregate, not more than 6% of the common stock of VK/AC Holding, Inc. and
have the right to acquire, upon the exercise of options, approximately an
additional 10% of the common stock of VK/AC Holding, Inc. Presently, and after
giving effect to the exercise of such options, no officer or trustee of the Fund
owns or would own 5% or more of the common stock of VKM Holding, Inc.
The Current Agreement provides that the VK Adviser will supply investment
research and portfolio management, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through which the
Fund's portfolio transactions are executed. The VK Adviser also administers the
business affairs of the Fund, furnishes offices, necessary facilities and
equipment, provides administrative services, and permits its officers and
employees to serve without compensation as trustees and officers of the Fund if
duly elected to such positions.
The Current Agreement provides that the VK Adviser shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the Current Agreement relates, except a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of the VK Adviser in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under the Current
Agreement.
The VK Adviser's activities are subject to the review and supervision of
the VK Board to whom the VK Adviser renders regular periodic reports of the
Fund's investment activities.
For the services provided by the VK Adviser under the Current Agreement,
the Fund pays the VK Adviser a fee (accrued daily and paid monthly) based on a
percentage of the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY FEE AS A PERCENT
NET ASSETS OF AVERAGE DAILY
(MILLIONS) NET ASSETS
------------- ----------------
<S> <C>
First $100.................. 0.500%
Next $150.................. 0.450%
Next $250.................. 0.425%
Over $500.................. 0.400%
</TABLE>
For the fiscal year ended December 31, 1994, advisory fees paid to the VK
Adviser by the Fund were $5,028,401. For the fiscal year ended December 31,
1994, the Fund paid no brokerage commissions to any broker-dealer affiliated
with the Fund, the VK Adviser or the Fund's administrator.
Under the Current Agreement, the Fund pays all other expenses incurred in
the operation of the Fund including, but not limited to, direct charges relating
to the purchase and sale of its portfolio securities, interest charges, fees and
expenses of legal counsel and independent auditors, taxes and governmental fees,
cost of share certificates and any other expenses (including clerical expenses)
of issuance, sale or repurchase of the Fund's Common Shares, expenses in
connection with the Fund's Dividend Reinvestment Plan, membership fees in trade
associations, expenses of registering and qualifying Shares of the Fund for sale
under federal and state securities laws, expenses related to printing and
distribution, expenses of filing reports and other documents filed with
governmental agencies, expenses of annual and special meetings of trustees and
19
<PAGE> 24
shareholders, fees and disbursements of the transfer agents, custodians and
sub-custodians, expenses of disbursing dividends and distributions, fees and
out-of-pocket costs of the trustees, insurance premiums, indemnification and
other expenses not expressly provided for in the Current Agreement, and any
extraordinary expenses of a nonrecurring nature. The Fund also compensates the
VK Adviser, the Distributor and Van Kampen American Capital for certain
non-advisory services provided pursuant to agreements discussed below.
THE NEW INVESTMENT ADVISORY AGREEMENT
The VK Board approved a proposed new investment advisory agreement (the
"New Agreement") between the Fund and the VK Adviser on May 8-9, 1995, the form
of which is attached hereto as Appendix C. The form of the New Agreement is
substantially identical to the Current Agreement, except that the investment
advisory fee would be based on a percentage of the average daily net assets of
the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY FEE AS A PERCENT
NET ASSETS OF AVERAGE DAILY
(MILLIONS) NET ASSETS
- --------------------- ----------------
<S> <C>
First $500 million........................................................ 0.525%
Next $500 million......................................................... 0.500%
Next $500 million......................................................... 0.475%
Over $1,500 million....................................................... 0.450%
</TABLE>
If the investment advisory fee proposed under the New Agreement had been in
effect for the fiscal year ended December 31, 1994, advisory fees paid to the VK
Adviser by the Fund would have been $ , which is an increase of %
over the amount actually paid for such fiscal year. The table below sets forth
the expenses incurred by the Fund for its fiscal year ended December 31, 1994
and also sets forth pro forma expenses of the Fund assuming the New Agreement is
approved by shareholders:
<TABLE>
<CAPTION>
1994 EXPENSES PRO FORMA EXPENSES
----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)........................ 0.42% 0.42% 0.42%
12b-1 Fees (as a percentage of average
daily net assets)........................ 0.24% 1.00% 1.00%
Other expenses (as a percentage of average
daily net assets)........................ 0.22% 0.29% 0.28%
Total (as a percentage of average
daily net assets)........................ 0.88% 1.71% 1.70%
</TABLE>
20
<PAGE> 25
EXAMPLES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (i) an operating expense ratio of 0.88% for Class A Shares, 1.71% for
Class B Shares and 1.70% for Class C Shares, (ii) redemption at the end of each
time period. The Fund does not charge a fee for redemptions (other than any
applicable contingent deferred sales charge):
<TABLE>
<CAPTION>
1994 EXAMPLES PRO FORMA EXAMPLES
---------------------------------- ----------------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares................. $56 $74 $ 94 $ 151
Class B Shares................. 57 89 108 170
Class C Shares................. 27 54 92 201
</TABLE>
An investor would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of each period:
<TABLE>
<CAPTION>
1994 EXAMPLES PRO FORMA EXAMPLES
---------------------------------- ----------------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares................. $56 $74 $94 $ 151
Class B Shares................. 17 54 93 170
Class C Shares................. 17 54 92 201
</TABLE>
The "Examples" reflect expenses based on the "Annual Fund Operating
Expenses" table as shown above carried out to future years. Due to the
incremental "phase-in" of the Funds' 12b-1 plans and service plans, it is
anticipated 12b-1 and service fees applicable to the Fund will increase in
accordance with such plans to a maximum amount of 0.30% of the Fund's net
assets. Accordingly, it is unlikely that future expenses as projected will
remain consistent with those determined based on the table of the "Annual Fund
Operating Expenses." The ten year amount with respect to the Class B Shares of
the Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A Shares. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
Background. The VK Adviser submitted a proposal to the Board to increase
the advisory fee on March , 1995. The proposal set forth, among other things,
a proposed modification to the advisory fee structure, information concerning
the Adviser, some comparative information with respect to advisory fees paid by
other investment companies and VK information with respect to recent
developments and trends with respect to mutual funds investing in municipal
securities and insured municipal securities.
After considering the factors they deemed appropriate to their
deliberations, the Disinterested Trustees decided, pending further study and
analysis, to defer the proposal and to retain a nationally recognized analytical
services consultant to prepare a report evaluating the proposed fee increase
based on publicly available industry data as an aid to the VK Board in its
deliberations.
21
<PAGE> 26
On April 12, 1995, the Disinterested Trustees, together with their counsel,
delivered to the VK Adviser a response to its proposal, which response requested
additional information with respect to the proposed advisory fee increase.
The VK Board met on May 8-9, 1995 in order to consider, among other things,
the report of the analytical services consultant. Prior to the meeting, the VK
Adviser presented for the VK Board's consideration materials in response to the
Disinterested Trustees' request for additional information, including, among
other things, materials with respect to: conditions and trends relating to the
municipal securities market; fees and expenses, other than the advisory fee,
payable by the Fund to the VK Adviser and its affiliates, including distribution
expenses and expenses incurred under the non-advisory agreements discussed
below; the profitability of the VK Adviser's mutual fund operations with respect
to the Fund on a historical and pro forma basis; and the rationale underlying
the proposed advisory fee structure. Representatives of the VK Adviser were
present at the meeting to discuss the information provided to the trustees and
answer such questions as were raised. After the VK Board discussed the materials
provided by the VK Adviser in response to the Disinterested Trustee's request,
the Disinterested Trustees caucused, with counsel, to further consider the
proposed advisory fee increase. The report compared the Fund's current and
historical expenses, advisory fees, performance and other indicia to a set of
mutual funds selected by the analytical services consultant based on their
similarity to the Fund with respect to asset size and portfolio strategy. These
comparisons were made based on an analysis of the current advisory fee, other
expenses and performance levels of the Fund and on a pro forma basis to reflect
the VK Adviser's proposed fee structure. Representatives of the VK Adviser were
present at the meeting to discuss the report with the VK Board and answer such
questions as were raised.
Trustees' Approval of the New Agreement. Based on its evaluation of the
materials presented by the VK Adviser and the report of the independent
analytical services consultant and assisted by the advice of counsel, the
Independent Trustees approved the fee structure proposed by the VK Adviser in
the New Agreement. Thereafter, on May 8-9, 1995, the VK Board, including the
Disinterested Trustees, approved the terms of the New Agreement and the Trustees
approved submitting the New Agreement for the consideration of the shareholders
of the Fund.
In reaching their decision to approve the New Agreement, the VK Board
considered many factors including among others: the findings of the report from
the independent analytical services consultant that the Fund's current
management fee structure and total expense ratio were less than most comparable
funds; an analysis of the Fund's pro forma advisory fee, total expense ratio and
performance data; the increased complexity and sophistication of the securities
which comprise a significant portion of the Fund's investment portfolio; the
need of the VK Adviser to devote additional personnel and resources to managing
the Fund and to retain key personnel currently employed by the VK Adviser in
order to continue providing a comparable level of investment management services
and that the short and long term record of investment performance under the VK
Adviser were among the best in the industry.
Shareholder Approval of the New Agreement. To become effective, the New
Agreement must be approved by a majority of the outstanding voting securities of
the Fund. The vote of a majority of the outstanding voting securities means the
lesser of the vote of (i) 67% or more of the Shares entitled to vote thereon
present at the Meeting if the holders of more than 50% of such outstanding
Shares are present in person or represented by proxy; or (ii) more than 50% of
such outstanding Shares. If the New Agreement is approved, it will be effective
as of [July 30], 1995 and will continue until [July 30], 1997 and thereafter on
an annual basis if specifically approved by the board of trustees of the Fund or
the Shareholders and by the
22
<PAGE> 27
Disinterested Trustees in compliance with the requirements of the 1940 Act. If
the New Agreement is not approved at the Meeting, the Current Agreement will
remain in effect until April 30, 1996 and thereafter on an annual basis if
specifically approved by the trustees of the Trust or the shareholders and by
the Disinterested Trustees of the Trust in compliance with the requirements of
the 1940 Act.
The New Agreement was approved by the VK Board after consideration of all
factors which they determined to be relevant to their deliberations, including
those discussed above. The VK Board also determined to submit the New Agreement
for consideration by the shareholders. THE VK BOARD RECOMMENDS A VOTE FOR THE
NEW AGREEMENT.
NON-ADVISORY AGREEMENTS
The Fund has entered into certain other agreements with the VK Adviser, the
Distributor or Van Kampen American Capital, as the case may be, as follows:
Fund Accounting Agreement. The Fund has entered into an accounting services
agreement with the VK Adviser pursuant to which the VK Adviser provides
accounting services supplementary to those provided by the custodian of the
Fund's assets. The VK Adviser believes that such services enable the Fund to
more closely monitor and maintain its accounts and records. The Fund shares
equally, together with the other mutual funds advised and distributed by the VK
Adviser and the Distributor, respectively, in 25% of the cost of providing such
services, with the remaining 75% of such cost being paid by the Fund and such
other funds based proportionally based upon their respective net assets. Under
the Fund Accounting Agreement, the Fund paid the VK Adviser $5,028,401 for the
fiscal year ended December 31, 1994.
Support Services Agreement. Under a support services agreement with the
Distributor, the Fund receives support services for shareholders, including the
handling of all written and telephonic communications, except initial order
entry and other distribution related communications. Upon entering into such
agreement, the Fund realized a reduction in the fee which would have been paid
by the Fund to its transfer agent if the transfer agent had provided such
services. Payment by the Fund for such services is made on a cost basis for the
employment of the personnel and the equipment necessary to render the support
services. The Fund and the other mutual funds advised and distributed by the VK
Adviser and the Distributor, respectively share such costs proportionately among
themselves based upon their respective net asset values. Under the Support
Services Agreement, the Fund paid the Distributor $597,765 for the fiscal year
ended December 31, 1994.
Legal Services Agreement. The Fund has entered into a Legal Services
Agreement pursuant to which Van Kampen American Capital provides legal services,
including without limitation maintenance of the Fund's minute books and records,
preparation and oversight of the Fund's regulatory reports, and other
information provided to shareholders, as well as responding to day-to-day legal
issues on behalf of the Fund. Management believes that Van Kampen American
Capital can render such legal services on a more cost effective basis than other
providers of such services. Payment by the 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. The Fund, and the other mutual funds advised
and distributed by the VK Adviser and the Distributor, respectively share 50% of
such costs equally. 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 funds (i.e. closed-end or open-end), the relative
amount of time spent on each type of fund and then further allocated among funds
of that type
23
<PAGE> 28
based upon their respective net asset values. Under the Legal Services
Agreement, the Fund paid Van Kampen American Capital $25,100 for the fiscal year
ended December 31, 1994.
[Distribution Agreement, Distribution Plan and Service Plan.] The 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, and is obligated to
purchase only those Shares for which it has received purchase orders. Under the
Distribution Agreement, the Fund paid the Distributor $ for the fiscal
year ended December 31, 1994. The 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. The 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 spend 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 being implemented through an agreement with the
Distributor, sub-agreements between the Distributor and members of the NASD who
are acting as securities dealers, NASD members or eligible non-members who are
acting as brokers or agents and similar agreements between the Fund and
financial intermediaries who are acting as brokers (collectively, "Selling
Agreements") that may provide for their customers or clients certain services or
assistance. 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."
The Fund may spend an aggregate amount of up to 0.30% per year of the
average daily net assets attributable to the Class A Shares of the Fund pursuant
to the Distribution Plan and the Service Plan. From such amount, the Fund may
spend up to 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. The Fund pays the Distributor the lesser of the balance of the 0.30%
not paid to such financial intermediaries or the amount of the Distributor's
actual distribution related expenses. [In connection with the Consolidation, the
Distributor has agreed to reduce the maximum amount of the average daily net
assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and the Service Plan to 0.25% per year.]
The Fund may spend up to 0.75% per year of its average daily net assets
attributable to the Class B Shares pursuant to the Distribution Plan. In
addition, the 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.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class C Shares of the Fund pursuant to the Distribution
Plan. From such amount, the Fund, or the Distributor as agent for the Fund, pays
financial intermediaries in connection with the distribution of the Class C
Shares up to 0.75% of the Fund's average daily net assets attributable to Class
C Shares maintained in the Fund more than one year by such financial
intermediary's customers. In addition, the Fund may spend up to 0.25% per year
of the 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.
24
<PAGE> 29
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 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
Fund does 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 on 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.
OFFICERS OF THE FUND
The following table sets forth certain information concerning the principal
executive officers of each of the 20 open-end and closed-end investment
companies advised by the VK Adviser, including the Fund (other than information
concerning Messrs. McDonnell and Powell, which is set forth above), each of whom
holds the same office with each of the VK Funds.
The officers of the Fund serve for one year or until their respective
successors are chosen and qualified. The Fund's officers receive no compensation
from the Fund but are also officers of the VK Adviser, the Distributor or Van
Kampen American Capital (the Distributor's parent) and receive compensation in
such capacities. Unless otherwise specified, the address of each of the
following persons is One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- ------------------------- ---------------------------- -------------------------------------
<S> <C> <C>
Peter W. Hegel........... Vice President Senior Vice President and Portfolio
Age: 38 Manager of the Adviser. Vice
President of each of the VK Funds
and Closed End Funds.
</TABLE>
25
<PAGE> 30
<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- ------------------------- ---------------------------- -------------------------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President and Secretary Executive Vice President, General
Age: 41 Counsel and Secretary of Van Kampen
American Capital; Executive Vice
President and a Director of the
Adviser and the Distributor. [Other
offices]. Vice President and
Secretary of each of the VK Funds
and Closed End Funds. Director of
ICI Mutual Insurance Co., a
provider of insurance to members of
the Investment Company Institute.
Prior to March 1990, Secretary of
Van Kampen Merritt Inc., the
Adviser and McCarthy, Crisanti &
Maffei, Inc.
Edward C. Wood III....... Vice President, Treasurer First Vice President of the Adviser.
Age: 39 and Chief Financial and Vice President, Treasurer and Chief
Accounting Officer Financial and Accounting Officer of
each of the VK Funds and Closed End
Funds.
Nicholas Dalmaso......... Assistant Secretary Attorney, Van Kampen American
Age: 30 Capital. Prior to May 1992, attorney
for Cantwell & Cantwell, a Chicago
law firm.
Scott E. Martin.......... Assistant Secretary First Vice President, Deputy General
Age: 38 Counsel and Assistant Secretary of
Van Kampen American Capital. First
Vice President, Deputy General
Counsel and Secretary of the
Adviser and the Distributor. [Other
offices]. Assistant Secretary of
each of the VK Funds and Closed End
Funds.
Weston B. Wetherell...... Assistant Secretary Vice President, Associate General
Age: 38 Counsel and Assistant Secretary of
Van Kampen American Capital, the
Adviser and the Distributor and an
Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant
Secretary of each of the VK Funds
and Closed End Funds.
John L. Sullivan......... Controller Vice President of the Adviser.
Age: 39 Controller of each of the VK Funds
and Closed End Funds.
Stephen M. Hill.......... Assistant Treasurer Assistant Vice President of the
Age: 30 Adviser. Assistant Treasurer of each
of the VK Funds and Closed End
Funds.
</TABLE>
---------------
26
<PAGE> 31
With respect to the Fund, as of May , 1995, the trustees and officers as a
group (14 persons) owned less than 1% of the outstanding Shares of each of the
Fund. At such date the "interested persons" of the Fund as a group owned an
aggregate of less than 5% of the outstanding shares of Common Stock of [Describe
Stock Ownership].
SHAREHOLDER APPROVAL
The vote of a majority of the outstanding voting securities of the Fund is
required for approval of this Proposal 3. The affirmative vote of a majority of
the outstanding voting securities is defined in the 1940 Act as the lesser of
(i) 67% or more of the voting securities entitled to vote thereon present in
person or by proxy at a meeting, if holders of more than 50% of the outstanding
voting securities are present in person or represented by proxy at such meeting,
or (ii) more than 50% of the outstanding voting securities of a fund. The
holders of Class A Shares, Class B Shares and Class C Shares of the Fund will
vote together as a single class for this Proposal 3. THE BOARD OF TRUSTEES OF
THE FUND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL 3.
PROPOSAL 4: RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The VK Board, including a majority of the Disinterested Trustees, have
selected the firm of KPMG Peat Marwick LLP, independent certified public
accountants, to examine the financial statements for the current fiscal year of
the Fund. The Fund knows of no direct or indirect financial interest of such
firm in the Fund. Such appointment is subject to ratification or rejection by
the shareholders of the Fund. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of ratifying the selection of such
accountants. It is expected that KPMG Peat Marwick LLP will also act as
independent certified public accountants for VK/AC Holding, Inc., Van Kampen
American Capital, the VK Adviser and the Distributor.
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, voting as a single class, are entitled to vote on this
issue. An affirmative vote of a majority of the Shares of the Fund present in
person or by proxy and voting is required to ratify the selection of the
accountants for the Fund. THE VK BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF
KPMG PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR OF
THE FUND ENDING DECEMBER 31, 1995.
27
<PAGE> 32
EXPENSES
Van Kampen American Capital will initially bear the expense of preparing,
printing and mailing the enclosed form of proxy, the accompanying Notice, this
Proxy Statement and all other related costs in connection with the solicitation
of proxies with respect to the Consolidation, which shall include reimbursement
to banks, brokers and others for their reasonable expenses in forwarding proxy
solicitation material to the beneficial owners of the Shares of the Fund (the
"Proxy Expense"). During the five-year period ending on the fifth anniversary of
the consummation of the Consolidation, if the Fund realizes a benefit resulting
from the Consolidation, the Fund will reimburse Van Kampen American Capital in
an amount equal to the lesser of (i) the amount of such benefit or (ii) the
Fund's pro rata share of the Proxy Expense. In no event shall the unreimbursed
Proxy Expense born by Van Kampen American Capital accrue interest or bear any
other type of carrying charge. The Fund shall not reimburse Van Kampen American
Capital from any benefit received after the fifth anniversary of the
consummation of the Consolidation.
In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph or personal interview by
representatives of the Fund, the VK Adviser or Van Kampen American Capital, or
by dealers or their representatives or by Applied Mailing Systems, a
solicitation firm located in [ ].
SHAREHOLDER PROPOSALS
As a general matter, the Fund does not hold regular annual meetings of
shareholders. Any shareholder who wishes to submit proposals for consideration
at a meeting of the Fund should send such proposal to the Fund at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. To be considered for presentation at a
shareholders' meeting, rules promulgated by the SEC Commission require that,
among other things, a shareholder's proposal must be received at the offices of
the Fund a reasonable time before a solicitation is made. Timely submission of a
proposal does not necessarily mean that such proposal will be included.
28
<PAGE> 33
GENERAL
Management of the Fund does not intend to present and does not have reason
to believe that others will present any other items of business at the Meeting.
However, if other matters are properly presented to the Meeting for a vote, the
proxies will be voted upon such matters in accordance with the judgment of the
persons acting under the proxies.
A list of shareholders of the Fund entitled to be present and vote at the
Meeting will be available at the offices of the 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 will necessitate
adjournment and will subject the Fund to additional expense.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
RONALD A. NYBERG, Vice President and Secretary
June 2, 1995
29
<PAGE> 34
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of ,
1995 (the "Agreement") between Van Kampen Merritt a
Massachusetts business trust (the "Van Kampen Trust"), on behalf of its
sub-trust, Van Kampen Merritt (the "Van Kampen Fund"), and Van
Kampen Merritt , a Delaware business trust (the "New Trust"), on
behalf of its series, Van Kampen Merritt Fund (the "New
Fund").
WHEREAS the Van Kampen Fund is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS the Van Kampen Trust is authorized to issue an unlimited number of
shares of beneficial interest without par value;
WHEREAS the New Trust was organized pursuant to an Agreement and
Declaration of Trust dated May , 1995, and is presently authorized to
establish and designate separate series thereof which may issue shares of
beneficial interest, without par value, including shares of a series such as the
New Fund;
WHEREAS, for good and sufficient business reasons the parties desire to
change the place of organization of the Van Kampen Trust and Van Kampen Fund;
and
WHEREAS, the parties intend that this transaction (the "Reorganization")
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. Plan of Reorganization. The Van Kampen Fund shall, prior to the
Effective Time of the Reorganization, as defined below, transfer all of its
business and assets and assign all of its liabilities to the New Fund, and the
New Fund shall acquire all such business and assets and shall assume all such
liabilities of the Van Kampen Fund in exchange for delivery to the Van Kampen
Fund of a number of shares of the New Fund (both full and fractional) equivalent
to the number of shares of the Van Kampen Fund outstanding immediately prior to
the Effective Time of the Reorganization. All debts, liabilities, obligations
and duties of the Van Kampen Fund, to the extent that they exist at or after the
Effective Time of the Reorganization, shall after the Effective Time of the
Reorganization attach to the New Fund and may be enforced against the New Fund
to the same extent as if the same had been incurred by the New Fund.
2. Liquidation and Dissolution of the Van Kampen Fund. At the Effective
Time of the Reorganization, the Van Kampen Fund will liquidate and the shares of
the New Fund (both full and fractional) received by the Van Kampen Fund will be
distributed to the shareholders of the Van Kampen Fund in exchange for their
shares of the Van Kampen Fund, each shareholder to receive a number of shares of
the New Fund equal to the number of shares of the Van Kampen Fund held by such
person. Such liquidation and distribution will be accompanied by the
establishment of an open account on the share records of the New Fund in the
name of each shareholder of the Van Kampen Fund and representing the respective
pro rata number of shares of the New Fund due such shareholder. Certificates for
shares of the Van Kampen Fund issued prior to the Reorganization shall represent
outstanding shares of the New Fund after the Effective Time of the
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Reorganization. As soon as practicable after the Effective Time of the
Reorganization, the Van Kampen Trust shall file with the Trust Division of the
Secretary of State of the Commonwealth of Massachusetts (the "Division") a copy
of the resolutions of its Trustees to terminate the Van Kampen Trust, in such
form as shall be satisfactory to the Division, and which resolutions shall
include the exact date of the Van Kampen Trust's termination and shall take, in
accordance with Massachusetts law, all other steps as shall be necessary and
proper to effect a complete dissolution of the Van Kampen Trust and the Van
Kampen Fund.
3. Issued Share. Prior to the Effective Time of the Reorganization and
after the Van Kampen Fund has taken the actions authorized by shareholders of
the Van Kampen Fund pursuant to Section 4(f) hereof, the single share of the New
Fund heretofore held by the Van Kampen Fund shall be redeemed and canceled by
the New Fund.
4. Conditions Precedent. The obligations of the Van Kampen Fund, the New
Trust and the New Fund to effectuate the Plan of Reorganization and Liquidation
hereunder shall be subject to the satisfaction of each of the following
conditions:
(a) Such authority, including "no-action" letters and orders from the
Securities and Exchange Commission (the "Commission") and state securities
commissions as may be necessary to permit the parties to carry out the
transactions contemplated by this Agreement, shall have been received.
(b) One or more post-effective amendments to the Registration
Statement of the Van Kampen Trust on Form N-1A under the Securities Act of
1933 and the 1940 Act, containing (i) such amendments to such Registration
Statement as are determined by the Board of Trustees of the Van Kampen
Trust to be necessary and appropriate as a result of the Plan of
Reorganization and Liquidation and (ii) the adoption by the New Trust of
such Registration Statement as its own, on behalf of the New Fund, shall
have been filed with the Commission and such post-effective amendment or
amendments to the Registration Statement shall have become effective, and
no stop-order suspending the effectiveness of the Registration Statement
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened by the Commission (and not withdrawn or
terminated).
(c) Each party shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom that both the New Trust and New Fund are duly formed and
existing under the laws of the State of Delaware and that the shares of the
New Trust to be issued pursuant to the terms of this Agreement have been
duly authorized, and, when issued and delivered as provided in this
Agreement, will have been validly issued, fully paid and nonassessable.
(d) Each party shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom to the effect that the reorganization contemplated by this
Agreement qualifies as a "reorganization" under Section 368(a)(1) of the
Code, and each party shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom to the effect that each series established pursuant
to the Agreement and Declaration of Trust of the New Trust will be treated
as a separate association taxable as a corporation for federal income tax
purposes which potentially qualifies as a regulated investment company
under the Code to the extent that the New Fund complies with the
requirements of Section 851 of the Code.
(e) The shares of the New Fund shall have been duly qualified for
offering to the public in all states of the United States, the Commonwealth
of Puerto Rico and the District of Columbia (except where
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such qualifications are not required) so as to permit the transfers
contemplated by this Agreement to be consummated.
(f) A vote approving this Agreement and the reorganization
contemplated hereby shall have been adopted by at least a majority of the
outstanding shares of beneficial interest of the Van Kampen Fund entitled
to vote at an annual or special meeting and the shareholders of the Van
Kampen Fund shall have voted at such meeting to direct the Van Kampen Fund
to vote, and the Fund shall have voted, as the sole shareholder of the New
Fund to:
(1) elect the Nominees set forth in the Proxy Statement delivered
to the shareholders of the Van Kampen Fund as Trustees of the Trust;
(2) approve an Investment Advisory Agreement (the "Advisory
Agreement") between the New Fund and Van Kampen American Capital
Investment Advisory Corp.;
(3) approve a Plan of Distribution under Rule 12b-1 with respect to
each class of shares of the New Fund (the "Plans of Distribution"); and
(4) ratify the selection of KPMG Peat Marwick LLP as the New Fund's
independent auditors for the fiscal year ending .
(g) The Trustees of the New Trust shall have taken the following
actions at a meeting duly called for such purposes:
(1) approval of the Advisory Agreement;
(2) approval of an Underwriting Agreement between the New Fund and
Van Kampen American Capital Distributors, Inc.;
(3) approval of the Plans of Distribution;
(4) selection of KPMG Peat Marwick LLP as the New Fund's
independent auditors for the fiscal year ending ;
(5) authorization of the issuance by the New Trust, prior to the
Effective Time of the Reorganization, of one share of the New Fund to
the Van Kampen Fund in consideration for the payment of [$15.00] for the
purpose of enabling the Van Kampen Fund to vote on the matters referred
to in paragraph (f) in this Section 4;
(6) submission of the matters referred to in paragraph (f) of this
Section 4 to the Van Kampen Fund as the sole shareholder of the New
Fund; and
(7) authorization of the issuance by the New Trust of shares of the
New Fund at the Effective Time of the Reorganization in exchange for the
assets of the Fund pursuant to the terms and provisions of this
Agreement.
At any time prior to the Effective Time of the Reorganization, any of the
foregoing conditions may be waived by the Board of Trustees of the Van Kampen
Trust if, in the judgment of such Board, such waiver will not have a material
adverse effect on the benefits intended under this Agreement to the shareholders
of the Van Kampen Fund.
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5. Effective Time of the Reorganization. The exchange of the Van Kampen
Fund's business and assets for shares of the New Fund shall be effective as of
5:00 P.M., Delaware Time on , 1995 or at such other time and date as
fixed by the mutual consent of the parties (the "Effective Time of the
Reorganization").
6. Termination. The Trustees of the Van Kampen Trust and the Trustees of
the New Trust may terminate this Agreement and abandon the reorganization
contemplated hereby, notwithstanding approval thereof by the shareholders of the
Van Kampen Fund at any time prior to the Effective Time of the Reorganization,
if circumstances should develop that, in their judgment, make proceeding with
this Agreement inadvisable.
7. Limitation of Liability of the Trustees and Shareholders. Each of the
Van Kampen Trust and the New Trust acknowledge and agree that, pursuant to the
Agreement and Declaration of Trust of both the Van Kampen Trust and the New
Trust, shareholders, trustees, officers, employees or agents of the Trust shall
not personally be bound by or liable under this Agreement, nor shall resort be
had to their private property for the satisfaction of any obligation or claim
hereunder.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
---------------------------------
By:
---------------------------------
Its:
---------------------------------
---------------------------------
By:
---------------------------------
Its:
---------------------------------
---------------------------------
By:
---------------------------------
Its:
---------------------------------
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<PAGE> 38
APPENDIX B
FORM OF CURRENT INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of , by and
between VAN KAMPEN MERRITT TAX FREE FUND, a Massachusetts business trust (the
"Trust"), on behalf of its sub-trust, the VAN KAMPEN MERRITT INSURED TAX FREE
INCOME FUND (the "Fund") and VAN KAMPEN MERRITT 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.
2. (a) Fee. For the services and facilities described in Section 1, the
Fund will 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
of as set forth below:
0.500 of 1% for the first $500 Million
0.475 of 1% for the next $500 Million
0.450 of 1% for the next $2 Billion
0.425 thereafter
(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 exceed 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
B-1
<PAGE> 39
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 the close of the New York Stock Exchange 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 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 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 on 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,
B-2
<PAGE> 40
shareholders, agents or otherwise and that the directors, officers, shareholders
and agents of the Adviser may be interested 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 the second anniversary of the date hereof
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 at least annually in the manner required by the Investment
Company Act of 1940, as amended.
(b) Termination. This Agreement shall be submitted to the shareholders of
the Fund for approval at the first shareholders meeting and shall automatically
terminate if not approved by a majority of the shares of the Fund present and
voting at such meeting. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty 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
be 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 5.5 of the Declaration of Trust of the Trust, 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.
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<PAGE> 41
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 MERRITT INVESTMENT ADVISORY
CORP.
By:
---------------------------------
President
VAN KAMPEN MERRITT [ ], on
behalf of its sub-trust Van Kampen
Merritt [ ] Fund
By:
----------------------------------
President
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<PAGE> 42
APPENDIX C
FORM OF NEW INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of , by and
between VAN KAMPEN AMERICAN CAPITAL TAX FREE FUND, a Delaware business trust
(the "Trust"), on behalf of its series, the VAN KAMPEN AMERICAN CAPITAL INSURED
TAX FREE INCOME FUND (the "Fund") 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.
2. (a) Fee. For the services and facilities described in Section 1, the
Fund will 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 set forth below:
0.525 of 1% for the first $500 million
0.500 of 1% for the next $500 million
0.475 of 1% for the next $500 million
0.450 of 1% thereafter
(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 exceed 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
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<PAGE> 43
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 the close of the New York Stock Exchange 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 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 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 on 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 interested in the Fund as trustees, officers, shareholders,
agents or otherwise.
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<PAGE> 44
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 the second anniversary of the date hereof
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 at least annually in the manner required by the Investment
Company Act of 1940, as amended.
(b) Termination. This Agreement shall be submitted to the shareholders of
the Fund for approval at the first shareholders meeting and shall automatically
terminate if not approved by a majority of the shares of the Fund present and
voting at such meeting. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty 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
be 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 5.5 of the Declaration of Trust of the Trust, 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.
C-3
<PAGE> 45
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 AMERICAN CAPITAL INVESTMENT
ADVISORY CORP.
By:
----------------------------------
President
VAN KAMPEN AMERICAN CAPITAL TAX FREE
FUND, on behalf of its series Van
Kampen American Capital Insured Tax
Free Income Fund
By:
----------------------------------
President
C-4
<PAGE> 46
APPENDIX D
The investment objective of the Fund is to seek high current income. The
table below sets forth, for each investment company advised by the VK Adviser
[with a similar investment objective], such fund's net assets as of December 31,
1994 and the rate at which it compensates the VK Adviser for investment advisory
services. Funds for which the VK Adviser has waived or reduced its compensation
are marked by an "*".
<TABLE>
<CAPTION>
NET ASSETS
AS OF
DECEMBER 31,
FUNDS 1994 ADVISORY FEE SCHEDULE
--------------------------------------------------- ------------- ------------------------------------------------
<S> <C> <C> <C>
A. Insured Tax Free Income Fund $1,187,494,291 First $100 Million .500 of 1%
California Insured Tax Free Fund $ 155,323,062 Next $150 Million .450 of 1%
Next $250 Million .425 of 1%
Over $500 Million .400 of 1%
B. Tax Free High Income Fund $ 750,230,018 First $500 Million .500 of 1%
Municipal Income Fund $ 683,883,431 Over $500 Million .450 of 1%
Limited Term Municipal Income Fund $ 38,345,567
Florida Insured Tax Free Income Fund $ 20,375,201
C. New Jersey Tax Free Income Fund $ 10,374,185 First $500 Million .600 of 1%
New York Tax Free Income Fund $ 11,816,338 Over $500 Million .500 of 1%
Growth & Income Fund $ 83,025,763
Pennsylvania Tax Free Income Fund $ 253,627,524
D. High Yield Fund $ 290,747,895 First $500 Million .750 of 1%
Over $500 Million .650 of 1%
E. Short Term Global Income Fund $ 257,777,895 .55 of 1% of Average Daily Net Assets
F. Adjustable Rate U.S. Government Fund $ 30,909,390 First $500 Million .600%
Next $500 Million .550%
Next $2 Billion .500%
Next $2 Billion .475%
Next $2 Billion .450%
Next $2 Billion .425%
Thereafter .400%
G. Strategic Income Fund $ 72,864,155 First $500 Million .750 of 1%
Over $500 Million but Less
Than $1 Billion .700 of 1%
Over $1 Billion .650 of 1%
H. Utility Fund $ 133,558,947 First $500 Million .650 of 1%
Over $500 Million but Less
Than $1 Billion .600 of 1%
Over $1 Billion .550 of 1%
I. Balanced Fund $ 11,392,684 First $500 Million .700 of 1%
Over $500 Million .650 of 1%
J. Money Market Fund $ 32,611,331 First $250 Million .500 of 1%
Next $250 Million .475 of 1%
Next $250 Million .425 of 1%
Over $750 Million .275 of 1%
</TABLE>
D-1
<PAGE> 47
<TABLE>
<CAPTION>
NET ASSETS
AS OF
DECEMBER 31,
FUNDS 1994 ADVISORY FEE SCHEDULE
--------------------------------------------------- ------------- ------------------------------------------------
<S> <C> <C> <C>
K. U.S. Government Fund $3,388,147,431 First $500 Million .550 of 1%
Next $500 Million .525 of 1%
Next $2 Billion .500 of 1%
Next $2 Billion .475 of 1%
Next $2 Billion .450 of 1%
Next $2 Billion .425 of 1%
Thereafter .400 of 1%
L. Tax Free Money Fund* $ 34,699,898 First $500 Million .500 of 1%
Next $500 Million .475 of 1%
Next $500 Million .425 of 1%
Over $1.5 Billion .375 of 1%
M. Emerging Markets Income Fund $ 7,680,115 First $500 Million 1.00%
Next $500 Million .950%
Thereafter .900%
N. Investment Grade Municipal Trust $ 75,001,835 .60% Average Daily Managed Assets of the Fund
Trust for Insured Municipals $ 232,632,425
O. Municipal Income Trust $ 422,761,959 .60% Average Weekly Managed Assets of the Fund
California Municipal Trust $ 50,724,719 .65% Average Daily Managed Assets of the Fund
Trust for Investment Grade Municipals $ 666,109,053
Trust for Investment Grade California Municipals $ 110,766,654
Trust for Investment Grade New York Municipals $ 149,880,448
Trust for Investment Grade Pennsylvania Municipals $ 181,362,001
Trust for Investment Grade Florida Municipals $ 103,260,638
Trust for Investment Grade New Jersey Municipals $ 98,343,596
Municipal Opportunity Trust $ 369,598,387
Advantage Municipal Income Trust $ 455,248,392
Advantage Pennsylvania Municipal Income Trust $ 103,700,247
New Jersey Value Municipal Income Trust $ 55,022,867
Ohio Value Municipal Income Trust $ 35,843,288
Massachusetts Value Municipal Income Trust $ 57,243,992
Strategic Sector Municipal Trust $ 227,469,820
California Value Municipal Income Trust $ 135,203,312
Pennsylvania Value Municipal Income Trust $ 101,016,406
Value Municipal Income Trust $ 527,021,241
Florida Municipal Opportunity Trust $ 35,984,381
Municipal Opportunity Trust II $ 255,910,631
Advantage Municipal Income Trust II $ 455,248,392
P. Municipal Trust $ 825,303,513 .70% Average Daily Managed Assets of the Fund
California Quality Municipal Trust $ 213,117,943
New York Quality Municipal Trust $ 129,938,058
Pennsylvania Quality Municipal Trust $ 187,828,498
Florida Quality Municipal Trust $ 48,708,725
Ohio Quality Municipal Trust $ 97,774,889
Select Sector Municipal Trust $ 87,468,074
Q. Intermediate Term High Income Trust $ 135,890,291 .75% Average Weekly Managed Assets of the Fund
Limited Term High Income Trust $ 104,361,283
R. Prime Rate Income Trust $1,627,722,767 .95% Average Weekly Managed Assets of the Fund
</TABLE>
D-2
<PAGE> 48
VAN KAMPEN MERRITT
INSURED TAX FREE INCOME FUND
JOINT MEETING OF SHAREHOLDERS -- JULY 21, 1995
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of common shares of beneficial interest, without par
value, of VAN KAMPEN MERRITT INSURED TAX FREE INCOME FUND (the "Fund"), a
sub-trust of Van Kampen Merritt Tax Free Fund (the "Trust"), a Massachusetts
business trust, hereby appoints 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 Meeting of Shareholders to be held at the
offices of Van Kampen American Capital, Inc., One Parkview Plaza, Oakbrook
Terrace, IL 60181, on Friday, July 21, 1995 at 2:30 p.m., and at any and all
adjournments thereof (the "Meeting"), and thereat to vote all common shares of
the Fund 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 ABOVE AND IN THE
DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
The undersigned hereby acknowledges receipt of the accompanying Notice of
Meeting and Proxy Statement for the meeting to be held on July 21, 1995.
<TABLE>
<S> <C>
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
Please sign this proxy exactly as your name appears on the books of the Fund. Joint owners should each sign personally.
Trustees and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a
majority must sign. If a corporation, this signature should be that of an authorized officer who should state his or her
title.
HAS YOUR ADDRESS CHANGED?
-----------------------------------
-----------------------------------
-----------------------------------
</TABLE>
<PAGE> 49
<TABLE>
<C> <S>
- ------- PLEASE MARK VOTES
X AS IN THIS EXAMPLE
- -------
For Against Abstain
1.) As to the proposal to approve ---- ---- ----
the Fund's reorganization and
conversion to a series of a ---- ---- ----
Delaware business trust:
For
For Withhold All
All Except
2.) Authority to vote to elect ---- ---- ----
fifteen trustees of the Trust to
serve until their respective ---- ---- ----
successors are duly elected and
qualified:
INSTRUCTION: TO WITHHOLD
AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE(S) CHECK THE
"FOR ALL EXCEPT" BOX AND STRIKE
A LINE THROUGH THE NAME(S) OF
SUCH NOMINEE(S) FOR WHICH YOU
WITHHOLD AUTHORITY. YOUR SHARES
WILL BE VOTED FOR THE REMAINING
NOMINEE(S).
J. Miles Branagan Don G. Powell
Dr. Richard E. Caruso David Rees
Philip P. Gaughan Jerome L. Robinson
Dr. Roger Hilsman Lawrence J. Sheehan
R. Craig Kennedy Dr. Fernando Sisto
Dennis J. McDonnell Wayne W. Whalen
Donald C. Miller William S. Woodside
Jack E. Nelson
Mark box at right if comments or ----
address change have been noted
on the reverse side of this ----
card.
For Against Abstain
3.) As to the proposal to approve a ---- ---- ----
new investment advisory
agreement with Van Kampen ---- ---- ----
American Capital Investment
Advisory Corp:
For Against Abstain
4.) As to the proposal to ratify the ---- ---- ----
selection of KPMG Peat Marwick
LLP as independent public ---- ---- ----
accountants for the current
fiscal year of the Fund:
The undersigned hereby acknowledges receipt of the
accompanying Notice of Joint Meeting and Proxy Statement
for the Joint Meeting to be held on July 21, 1995.
-------------------
PLEASE BE SURE TO SIGN AND DATE Date
THIS PROXY.
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
SHAREHOLDER SIGN HERE CO-OWNER SIGN HERE
