<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AUGUST 7, 1995
REGISTRATION NOS. 33-1705
811-4491
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 18 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 20 /X/
</TABLE>
VAN KAMPEN AMERICAN CAPITAL
LIMITED MATURITY GOVERNMENT FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2800 POST OAK BLVD., HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500
RONALD A. NYBERG, ESQ
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS, 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPY TO:
GEORGE BARTLETT, ESQ.
O'MELVENY & MYERS
400 SOUTH HOPE STREET,
LOS ANGELES, CA 90071
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
---------------------
It is proposed that this filing will become effective:
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Exhibit Index required by Rule 483(a) under the Securities Act of 1933
is located at page of the manually signed copy of this Registration Statement.
DECLARATION PURSUANT TO RULE 24F-2.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940 AND,
PURSUANT TO PARAGRAPH (B)(2), REGISTRANT DID NOT FILE A RULE 24F-2 NOTICE FOR
ITS LAST FISCAL YEAR BECAUSE IT DID NOT SELL ANY SECURITIES PURSUANT TO SUCH
DECLARATION DURING SUCH FISCAL YEAR.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C> <C>
PART A
------
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund; Investment Objective and
Policies; Investment Practices; Description
of Shares of the Fund
5. Management of the Fund..................... The Fund; Investment Practices; Investment
Advisory Services; Inside Back Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Redemption of Shares; Distributions from
the Fund; Tax Status; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services;
Distribution Plans
8. Redemption or Repurchase................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
------ -------------------------------------------
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Objective and Policies; Options,
Futures Contracts and Related Options;
Investment Restrictions
14. Management of the Registrant............... General Information; Trustees and Executive
Officers; Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... General Information; Trustees and Executive
Officers; Investment Advisory Agreement
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Transfer Agent; Portfolio Transactions
and Brokerage; Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Alternative Sales
Arrangements
20. Tax Status................................. Dividends, Distributions and Federal Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Financial Statements
PART C
------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3
--------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
LIMITED MATURITY GOVERNMENT FUND
--------------------------------------------------------------------------------
Van Kampen American Capital Limited Maturity Government Fund, formerly known
as American Capital Federal Mortgage Trust (the "Fund"), is a mutual fund whose
investment objective is to seek to provide investors with a high current return
and relative safety of capital. The Fund invests primarily in mortgage-related
securities issued or guaranteed by an agency or instrumentality of the U.S.
Government. In order to hedge against changes in interest rates, the Fund may
purchase or write options on such securities and engage in transactions
involving interest rate futures contracts and options on such contracts. There
is no assurance that the Fund will achieve its investment objective.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is (800)421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated August 7, 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission ("SEC") and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling (800)421-5666 or, for Telecommunications Device For
the Deaf, (800)772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED AUGUST 7, 1995.
<PAGE> 4
------------------------------------------------------------------------------
TABLE OF CONTENTS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary............................................... 3
Shareholder Transaction Expenses................................. 6
Annual Fund Operating Expense and Example........................ 7
Financial Highlights............................................. 9
The Fund......................................................... 11
Investment Objective and Policies................................ 11
Investment Practices............................................. 18
Investment Advisory Services..................................... 23
Alternative Sales Arrangements................................... 25
Purchase of Shares............................................... 28
Shareholder Services............................................. 38
Redemption of Shares............................................. 43
Distribution Plans............................................... 46
Distributions from the Fund...................................... 48
Tax Status....................................................... 49
Fund Performance................................................. 51
Description of Shares of the Fund................................ 53
Additional Information........................................... 54
</TABLE>
--------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
--------------------------------------------------------------------------------
2
<PAGE> 5
------------------------------------------------------------------------------
PROSPECTUS SUMMARY
------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Limited Maturity Government Fund (the
"Fund") is a diversified open-end management investment company organized as a
Delaware business trust.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The Fund seeks to provide a high current return and
relative safety of capital.
INVESTMENT POLICY. Invests primarily in mortgage-related securities issued or
guaranteed by an agency or instrumentality of the U.S. Government. In order to
hedge against changes in interest rates, the Fund may purchase or write options
on such securities and engage in transactions involving interest rate futures
contracts and options on such contracts. The Fund may also purchase or sell debt
securities on a forward commitment basis and enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars.
INVESTMENT RESULTS. The investment results of the Fund since its inception are
shown in the table of "Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers two classes of shares to the
general public, each with its own sales charge structure: Class A shares and
Class C shares. At this time, the Fund offers Class B shares only to current
Fund Class B shareholders who have elected or may elect the option to reinvest
dividends and/or capital gains distributions in shares of the Fund (other share
purchases by such shareholders must be of Class A or Class C shares), and Class
B shareholders of other Van Kampen American Capital funds exchanging their Class
B shares for Class B shares of the Fund. See "Purchase of Shares" and
"Shareholder Services." Each class of shares represents interest in the same
portfolio of investments of the Fund. The per share dividends on Class B and
Class C shares will be lower than the per share dividends on Class A shares. See
"Alternative Sales Arrangements." For information on redeeming shares see
"Redemption of Shares."
Class A Shares. These shares are offered at net asset value per share plus a
maximum initial sales charge of 3.25% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. The Fund pays an annual
service fee of up to 0.25% of its average daily net assets attributable to such
class of shares. See "Purchase of Shares -- Class A Shares" and "Distribution
Plans."
Class B Shares. The Fund has suspended sales to the public of Class B shares,
which are now available only to a limited group of investors. See "Purchase of
3
<PAGE> 6
Shares -- Class B Shares." These shares are offered to the persons described
above at net asset value per share and are subject to a maximum contingent
deferred sales charge of three percent of redemption proceeds during the first
and second year, declining each year thereafter to zero after the fourth year.
See "Redemption of Shares." The Fund pays a combined annual distribution fee and
service fee of up to one percent of its average daily net assets attributable to
such class of shares. See "Purchase of Shares -- Class B Shares" and
"Distribution Plans." Class B shares will convert automatically to Class A
shares six years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of one percent on redemptions made
within one year of purchase. See "Redemption of Shares." The Fund pays a
combined annual distribution fee and service fee of up to one percent of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution Plans." Class C shares will convert
automatically to Class A shares ten years after the end of the calendar month in
which the shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
DISTRIBUTIONS FROM THE FUND. Income dividends are declared each business day,
and paid monthly; any net short-term or long-term capital gains are distributed
at least annually. All dividends and distributions are automatically reinvested
in shares of the Fund at net asset value per share (without sales charge) unless
payment in cash is requested. A portion of the dividends and distributions paid
may constitute a return of capital for federal income tax purposes. See
"Distributions from the Fund" and "Tax Status."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser for the Fund.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor").
RISK FACTORS. Since the value of debt securities owned by the Fund will
fluctuate depending upon market factors and inversely with prevailing interest
rate levels, the net asset value of shares of the Fund will fluctuate. Debt
securities with longer maturities generally tend to produce higher yields and
are subject to greater market fluctuation as a result of changes in interest
rates than debt securities with shorter maturities. The Adviser seeks to
moderate market risk by maintaining a weighted average maturity of the portfolio
of ten years or less. In calculating the weighted average maturity of the
portfolio, the Adviser considers the expected average life, rather than the
nominal maturity, for principal amortizing securities such as mortgage
pass-though securities and the effect on portfolio average maturity caused
4
<PAGE> 7
by certain derivative securities. The Adviser also seeks to moderate market risk
by maintaining a portfolio duration within a range of six months to five years.
See "Investment Objective and Policies -- General." The Fund may invest in
stripped mortgage-related and mortgage-backed securities, which may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans. Those securities that are issued by private
originators may involve greater risk than securities issued directly by the U.S.
Government, its agencies or instrumentalities. See "Investment Objective and
Policies -- Zero Coupon and Other Stripped Securities." The Fund may also invest
in asset-backed securities, which may be unsecured, and therefore entail certain
risks not presented by mortgage-backed securities. See "Investment Objective and
Policies -- Asset-Backed Securities." The Fund may also purchase or sell debt
securities on a forward commitment basis, purchase or sell options and engage in
transactions involving interest rate futures contracts and options on such
contracts and may lend its portfolio securities. The Fund may enter into
interest rate swaps and may purchase or sell interest rate caps, floors and
collars. Each of such activities may subject the Fund to additional risks. See
"Investment Practices -- Forward Commitments, Lending of Securities, Options,
Futures Contracts and Related Options and Interest Rate Transactions." No
assurance can be given as to the actual maturity of a mortgage-related security
because the mortgage loans underlying the security may be prepaid by the
obligor. Depending on market conditions, the Fund may be able to reinvest
prepayments passed through to it only at a lower yielding investment rate. See
"Investment Objective and Policies -- Federal Mortgage-Related Securities."
Shares of the Fund are not insured or guaranteed by the U.S. Government, its
agencies or instrumentalities or by any other person or entity.
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in the Prospectus.
5
<PAGE> 8
------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- ----------------- -------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 3.25%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
the original purchase price or
redemption proceeds).......... None(2) Year 1--3.00% Year 1--1.00%
Year 2--3.00%
Year 3--2.00%
Year 4--1.00%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>
---------------
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a contingent deferred sales charge of 1% may be
imposed on certain redemptions made within one year of the purchase.
6
<PAGE> 9
------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- --------- ---------
<S> <C> <C> <C>
Management fees (as a percentage of
average daily net assets)............. .50% .50% .50%
12b-1 Fees (as a percentage of average
daily net assets)(3).................. .24% 1.00% (5) 1.00%(5)
Other Expenses (as a percentage of
average daily net assets)(4).......... .57% .58% .57%
Total fund operating expenses (as a
percentage of average daily net
assets)............................... 1.31% 2.08% 2.07%
</TABLE>
---------------
(3) Up to .25% for Class A shares and one percent for Class B and C shares. See
"Distribution Plans."
(4) See "Investment Advisory Services."
(5) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
7
<PAGE> 10
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (i) an
operating expense ratio of 1.31% for
Class A shares, 2.08% for Class B shares
and 2.07% for Class C shares, (ii) a 5%
annual return and (iii) redemption at
the end of each time period:
Class A............................... $ 45 $ 73 $102 $185
Class B............................... $ 51 $ 85 $112 $203*
Class C............................... $ 31 $ 65 $111 $240
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $ 45 $ 73 $102 $185
Class B............................... $ 21 $ 65 $112 $203*
Class C............................... $ 21 $ 65 $111 $240
</TABLE>
------------------------------------------------------------------------------
* Based on conversion to Class A shares after six years.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. 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 LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."
8
<PAGE> 11
W
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated)
The following information for each of the five most recent years has been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. This information should be read in conjunction with the related
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......................... $12.42 $12.63 $ 12.99 $12.85 $12.88 $12.39
--------- --------- --------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................. .62 .64 .93 1.15 1.32 1.29
Expenses...................................................... (.14) (.11) (.14) (.17) (.173) (.165)
Expense waiver................................................ .02 .01 .025 .025 -- --
--------- --------- --------- -------- -------- ---------
Net investment income......................................... .50 .54 .815 1.005 1.147 1.125
Net realized and unrealized gains or losses on securities..... (.4817) (.1485)(4) (.417) .206 (.004) .4955
--------- --------- --------- -------- -------- ---------
Total from investment operations.............................. .0183 .3915 .398 1.211 1.143 1.6205
--------- --------- --------- -------- -------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income.......................... (.5383) (.6015) (.758) (1.071) (1.173) (1.1305)
Distributions from net realized gain on securities............ -- -- -- -- -- --
--------- --------- --------- -------- -------- ---------
Total distributions........................................... (.5383) (.6015) (.758) (1.071) (1.173) (1.1305)
--------- --------- --------- -------- -------- ---------
Net asset value, end of period................................ $11.90 $12.42 $12.63 $12.99 $12.85 $12.88
========== ========== ========== ========= ========= ==========
TOTAL RETURN(3)............................................... .16% 3.15%(4) 3.15% 9.78% 9.50% 13.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).......................... $41.2 $64.3 $103.7 $95.8 $32.3 $37.3
Ratios to average net assets
Expenses..................................................... 1.15% 1.03% 0.91% 1.16% 1.38% 1.32%
Expenses, without waiver..................................... 1.31% 1.15% 1.12% 1.36% -- --
Net investment income........................................ 4.75% 5.49% 6.36% 7.96% 9.11% 8.97%
Net investment income, without waiver........................ 4.58% 5.37% 6.15% 7.66% -- --
Portfolio turnover rate....................................... 161% 102% 254% 293% 341% 314%
<CAPTION>
CLASS A
--------------------------------
EIGHT MAY 14,
MONTHS 1986 (1)
ENDED THROUGH
DECEMBER 31, APRIL 30,
1988 1987 1987
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......................... $12.82 $13.24 $13.99
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income............................................. 1.32 .78 .94
Expenses...................................................... (.16) (.10) (.15)
Expense waiver................................................ -- -- --
-------- -------- --------
Net investment income......................................... 1.16 .68 .79
Net realized and unrealized gains or losses on securities..... (.495) (.365) (.375)
-------- -------- --------
Total from investment operations.............................. .665 .315 .415
-------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income.......................... (1.095) (.70) (.76)
Distributions from net realized gain on securities............ -- (.035) (.405)
-------- -------- --------
Total distributions........................................... (1.095) (.735) (1.165)
-------- -------- --------
Net asset value, end of period................................ $12.39 $ 12.82 $13.24
========= ========= =========
TOTAL RETURN(3)............................................... 5.14% 2.49% 1.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).......................... $48.3 $66.2 $88.8
Ratios to average net assets
Expenses..................................................... 1.22% 1.15%(2) 1.02%(2)
Expenses, without waiver..................................... -- -- --
Net investment income........................................ 9.00% 7.96%(2) 5.28%(2)
Net investment income, without waiver........................ -- -- --
Portfolio turnover rate....................................... 506% 38% 254%
</TABLE>
(Table continued on following page)
9
<PAGE> 12
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------- -----------------------
NOVEMBER 5, MAY 10,
YEAR ENDED 1991 (1) YEAR 1993 (1)
DECEMBER 31 THROUGH ENDED THROUGH
------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992 1991 (5) 1994 1993 (5)
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $12.43 $12.64 $12.99 $12.99 $12.41 $12.60
--------- --------- -------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................ .62 .67 .935 .12 .67 .44
Expenses......................................... (.22) (.20) (.24) (.03) (.24) (.14)
Expense waiver................................... .02 .01 .03 .02 .02 .02
--------- --------- -------- --------- --------- ---------
Net investment income............................ .42 .48 .725 .11 .45 .32
Net realized and unrealized gains or losses on
securities..................................... (.4977) (.1845)(4) (.413) .036 (.5177) (.1914)(4)
--------- --------- -------- --------- --------- ---------
Total from investment operations................. (.0777) .2955 .312 .146 (.0677) .1286
--------- --------- -------- --------- --------- ---------
DIVIDENDS FROM NET INVESTMENT INCOME............. (.4423) (.5055) (.662) (.146) (.4423) (.3186)
--------- --------- -------- --------- --------- ---------
Net asset value, end of period................... $11.91 $12.43 $12.64 $12.99 $11.90 $12.41
========= ========= ======== ========= ========= =========
TOTAL RETURN(3).................................. (.62%) 2.37%(4) 2.46% 1.13% (.55%) 1.03%(4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $18.4 $26.9 $38.4 $9.4 $5.8 $7.1
Ratios to average net assets
Expenses....................................... 1.91% 1.79% 1.60% 0.59%(2) 1.90% 1.47%(2)
Expenses, without waiver....................... 2.08% 1.91% 1.81% 1.84%(2) 2.07% 1.64%(2)
Net investment income.......................... 3.99% 4.70% 5.44% 5.73%(2) 3.98% 3.79%(2)
Net investment income, without waiver.......... 3.82% 4.58% 5.23% 4.48%(2) 3.81% 3.62%(2)
Portfolio turnover rate.......................... 161% 102% 254% 293% 161% 102%
</TABLE>
------------
(1) Commencement of the offering of sales.
(2) Annualized.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(4) During 1993, certain securities held by the Fund were mispriced. The Adviser
reimbursed the Fund to eliminate any loss to shareholders. Without the
reimbursement, the total return would have been lower by approximately 6.25
percentage points.
(5) Based on average month-end shares outstanding.
10
<PAGE> 13
------------------------------------------------------------------------------
THE FUND
------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company. This type
of company is commonly known as a mutual fund. A mutual fund provides, for those
who have similar investment goals, a practical and convenient way to invest in a
diversified portfolio of securities by combining their resources in an effort to
achieve such goals.
Fourteen Trustees have the responsibility for overseeing the affairs of the
Fund. The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.
------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
------------------------------------------------------------------------------
GENERAL. The investment objective of the Fund is to seek to provide high
current return and relative safety of capital. The Fund invests primarily in
mortgage-related securities issued or guaranteed by an agency or instrumentality
of the U.S. Government. See "Federal Mortgage-Related Securities" below. Under
normal circumstances, at least 65% of the total assets of the Fund are invested
in such securities. The Fund may invest up to 35% of its assets in
mortgage-related securities which are not so guaranteed, mortgage-backed
securities, asset-backed securities, and U.S. Government securities. In order to
hedge against changes in interest rates, the Fund may purchase or write options
on debt securities, and engage in transactions involving interest rate futures
contracts and options on such contracts. See "Investment Practices -- Options,
Futures Contracts and Related Options" and the Statement of Additional
Information for discussion of options, futures contracts and related options.
The Fund may also purchase or sell debt securities on a forward commitment basis
and enter into interest rate swaps and may purchase or sell interest rate caps,
floors and collars. See "Investment Practices -- Forward Commitments and
Interest Rate Transactions." There can be no assurance that the Fund's
investment objective will be achieved. The Fund is not designed for investors
seeking capital appreciation. Shares of the Fund are not insured or guaranteed
by the U.S. Government, its agencies or instrumentalities or by any other person
or entity.
For temporary defensive purposes, the entire portfolio of the Fund may be
invested in obligations of the U.S. Government, its agencies and
instrumentalities and repurchase agreements secured by such obligations. For a
description of repurchase agreements, see "Investment Practices -- Repurchase
Agreements."
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Since the value of debt securities owned by the Fund will fluctuate depending
upon market factors and inversely with prevailing interest rate levels, the net
asset value of shares of the Fund will fluctuate. Debt securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities. The potential for such fluctuation may be reduced
however to the extent that the Fund invests in adjustable rate mortgage
securities. See "Adjustable Rate Mortgage Securities." The Adviser seeks to
moderate market risk by maintaining a weighted average maturity of the portfolio
of ten years or less. In calculating the weighted average maturity of the
portfolio, the Adviser considers the expected average life, rather than the
nominal maturity, for principal amortizing securities such as mortgage
pass-through securities and the effect on portfolio average maturity caused by
certain derivative securities. The Adviser also seeks to moderate market risk by
maintaining a portfolio duration within a range of six months to five years.
Duration is a measure of the expected life of a debt security that was developed
as a more precise alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final maturity
and call features into one measure.
Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration is a measure of the expected
life of a debt security on a present value basis expressed in years. It measures
the length of the time interval between the present and the time when the
interest and principal payments are scheduled (or in the case of a callable
bond, expected to be received), weighing them by the present value of the cash
to be received at each future point in time. For any debt security with interest
payments occurring prior to the payment of principal, duration is always less
than maturity, and for zero coupon issues duration and term to maturity are
equal. In general, the lower the coupon rate of interest or the longer the
maturity, or the lower the yield-to-maturity of a debt security, the longer its
duration; conversely, the higher the coupon rate of interest the shorter the
maturity or the higher the yield to maturity of a debt security, the shorter its
duration.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon resets. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more
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<PAGE> 15
critical in determining the securities' interest rate exposure. In these and
other similar situations, the Adviser will use more sophisticated analytical
techniques that incorporate the economic life of a security into the
determination of its interest rate exposure. At December 31, 1994, the average
maturity of the securities owned by the Fund was approximately 2.49 years and
the duration of the portfolio was approximately 2.13 years.
The Fund generally purchases debt securities at a premium over the principal
or face value in order to obtain higher current income. The amount of any
premium declines during the term of the security to zero at maturity. Such
decline generally is reflected in the market price of the security and thus in
the Fund's net asset value. Any such decline is realized for accounting purposes
as a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.
FEDERAL MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and
loan institutions, and other lenders are often assembled into pools, which are
issued or guaranteed by an agency or instrumentality of the U.S. Government,
though not necessarily by the U.S. Government itself. Interest in such pools are
what this Prospectus calls "federal mortgage-related securities."
Federal mortgage-related securities include, but are not limited to,
obligations issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"). GNMA is a wholly owned corporate
instrumentality of the United States whose securities and guarantees are backed
by the full faith and credit of the United States. FNMA, a federally chartered
and privately-owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the United States. The securities and guarantees of FNMA
and FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States. Although the Secretary of the Treasury of the United
States has discretionary authority to lend FNMA up to $2.25 billion outstanding
at any time, neither the United States nor any agency thereof is obligated to
finance FNMA's or FHLMC's operations or to assist FNMA or FHLMC in any other
manner.
Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the security holders (such as the
Fund), like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as 20 or 30 years, the borrowers can, and typically do, pay them off
sooner. Thus, the security holders frequently receive prepayments of principal,
in addition to the principal which is part of the regular monthly payment. A
borrower is more likely to prepay a mortgage which bears a relatively high rate
of interest. This means that in
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<PAGE> 16
times of declining interest rates, some of the Fund's higher yielding securities
might be converted to cash, and the Fund will be forced to accept lower interest
rates when that cash is used to purchase additional securities. The increased
likelihood of prepayment when interest rates decline also limits market price
appreciation of mortgage-related securities. If the Fund buys mortgage-related
securities at a premium, mortgage foreclosures or mortgage prepayments may
result in a loss to the Fund of up to the amount of the premium paid since only
timely payment of principal and interest is guaranteed.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMS") are federal mortgage-related securities collateralized by mortgages
with adjustable, rather than fixed, interest rates. The ARMS in which the Fund
invests are issued primarily by GNMA, FNMA and FHLMC, and are actively traded in
the secondary market. The underlying mortgages which collateralize ARMS issued
by GNMA are fully guaranteed by the Federal Housing Administration or the
Veterans Administration. The underlying mortgages which collateralize ARMS
issued by FHLMC or FNMA are typically conventional residential mortgages
conforming to standard underwriting size and maturity constraints.
For certain types of ARMS in which the Fund may invest, the rate of
amortization of principal and interest payments changes in accordance with
movements in a predetermined interest rate index. The interest rates paid on
ARMS are generally readjusted at intervals of one year or less to an increment
over this predetermined interest rate index. The amount of interest due is
calculated by adding a specified additional amount (margin) to the index,
subject to limitations (caps and floors) on the maximum and minimum interest
charged to the mortgagor during the life of the mortgage or to the maximum and
minimum changes to that interest rate during a given period.
ARMS allow the Fund to participate in increases in interest rates through
periodic adjustments in the coupons of the underlying mortgages, resulting in
higher current yields and lower price fluctuations. The Fund, however, will not
benefit from increases in interest rates if they rise to the point where they
cause the current coupon to exceed the maximum allowable cap rates for a
particular mortgage. The resetting of the interest rates should cause the net
asset value of the Fund to fluctuate less dramatically than it would with
investments in long-term fixed-rate debt securities. However, during periods of
rising interest rates, changes in the coupon rate lag behind changes in the
market rate resulting in possibly a slightly lower net asset value until the
coupon resets to market rates. In addition, while there is less risk of decline
in the market value of ARMS during periods when interest rates rise, there may
be less potential for capital appreciation than other investments of similar
maturities due to the likelihood of increased prepayments.
The Fund currently seeks to maintain a more consistent and less volatile net
asset value than funds investing primarily in longer duration fixed rate
mortgage securi-
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<PAGE> 17
ties by investing a significant portion of its assets in ARMS and in shorter
duration fixed rate mortgage-related securities. See "Investment Objective and
Policies -- General" above.
OTHER MORTGAGE-RELATED AND MORTGAGE-BACKED SECURITIES. The Fund may also
invest in securities issued by certain private, nongovernment corporations, such
as financial institutions, if the securities are fully collateralized at the
time of issuance by securities or certificates issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Two principal types of
mortgage-backed securities are collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Fund intends to invest in
privately-issued CMOs and REMICs only if they are rated at the time of purchase
in the two highest grades by a nationally-recognized rating agency.
The Fund may also invest in private mortgage pass-through securities ("Private
Pass-Throughs") which are structured similarly to the GNMA, FNMA, and FHLMC
mortgage-related securities described above and are issued by originators of and
investors in mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Private Pass-Throughs are usually backed by a pool of
conventional fixed rate or adjustable rate mortgage loans. The Fund intends to
invest in such debt securities only if they are rated at the time of purchase in
the two highest grades by a nationally-recognized rating agency.
The Fund may also invest in mortgage-backed securities. A mortgage-backed
security is a general obligation of the issuer, which is additionally secured by
mortgage collateral. Such securities have a known maturity date and a pre-
determined cash flow. This category may include debt securities issued by a
public
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<PAGE> 18
utility secured by mortgages on properties owned by the public utility. The Fund
intends to invest in such debt securities only if at the time of purchase they
are rated in the two highest grades by a nationally-recognized rating agency.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include U.S. Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance and consist of U.S. Treasury bills (maturities of one year or less),
U.S. Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years).
ZERO COUPON AND OTHER STRIPPED SECURITIES. The Fund may also invest in the
interest only or principal only components of debt securities described above.
This includes "zero coupon" Treasury securities and stripped securities.
The Fund may invest in "zero coupon" Treasury securities which are U.S.
Treasury bills, notes, and bonds which have been stripped of their unmatured
interest coupons and receipts or certificates representing interests in such
stripped debt obligations. A zero coupon security pays no interest in cash to
its holder during its life although interest is accrued for federal income tax
purposes. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value (sometimes referred
to as a "deep discount" price). Investing in "zero coupon" Treasury securities
may help to preserve capital during periods of declining interest rates. For
example, if interest rates decline, GNMA Certificates owned by the Fund which
were purchased at greater than par are more likely to be prepaid, which would
cause a loss of principal. In anticipation of this, the Fund might purchase zero
coupon Treasury securities, the value of which would be expected to increase
when interest rates decline.
Currently the principal U.S. Treasury security issued without coupons is the
Treasury bill. The Treasury has also recently made wire transferable zero coupon
Treasury securities available. However, in the last few years a number of banks
and brokerage firms have separated ("stripped") the principal portions
("corpus") from the coupon portions of the U.S. Treasury bonds and notes and
sold them separately in the form of receipts or certificates representing
undivided interests in these instruments (which instruments are generally held
by a bank in a custodial or trust account).
Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in
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<PAGE> 19
a rate of return to maturity. Current federal tax law requires that a holder
(such as the Fund) of a zero coupon security accrue a portion of the discount at
which the security was purchased as income each year even though the Fund
received no interest payment in cash on the security during the year. For
additional discussion of the tax treatment of zero coupon Treasury securities,
see "Tax Status."
Stripped mortgage-related and mortgage-backed securities (hereinafter referred
to as "Stripped Mortgage Securities") are derivative multiclass mortgage
securities. Stripped Mortgage Securities may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing.
Stripped Mortgage Securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of Stripped Mortgage Securities will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa.
Holders of PO securities are not entitled to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and are subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Current federal tax law
requires that a holder (such as the Fund) of such securities accrue a portion of
the discount at which the security was purchased as income each year even though
the holder receives no interest payment in cash on the certificate during the
year. Such securities may involve greater risk than securities issued directly
by the U.S. Government, its agencies or instrumentalities.
Although the market for government-issued IO and PO securities backed by
fixed-rate mortgages is increasingly liquid, certain of such securities may not
be readily marketable and will be considered illiquid for purposes of the Fund's
limitation on investments in illiquid securities. The Trustees of the Fund will
establish guidelines and standards for determining whether a particular
government-issued IO or PO backed by fixed-rate mortgages is liquid. Generally,
such a security may be deemed liquid if it can be disposed of promptly in the
ordinary
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course of business at a value reasonably close to that used in the calculation
of the net asset value per share. Stripped Mortgage Securities, other than
government-issued IO and PO securities backed by fixed-rate mortgages, are
presently considered by the staff of the SEC to be illiquid securities and thus
subject to the Fund's limitation on investment in illiquid securities.
ASSET-BACKED SECURITIES. Asset-backed securities are similar to mortgage-
backed securities. However, the underlying assets include assets such as
automobile and credit card receivables. The assets are securitized either in a
pass-through structure (similar to a mortgage pass-through structure) or in a
pay-through structure (similar to the CMO structure). The Fund may invest in
these and other types of asset-backed securities that may be developed in the
future. Although the collateral supporting asset-backed securities generally is
of a shorter maturity than mortgage loans and historically has been less likely
to experience substantial prepayments, no assurance can be given as to the
actual maturity of an asset-backed security because prepayments of principal may
be made at any time.
Asset-backed securities entail certain risks not presented by mortgage-backed
securities. Asset-backed securities do not have the benefit of the same type of
security interest in the related collateral. Credit card receivables are
generally unsecured and a number of state and federal consumer credit laws give
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the outstanding balance. In the case of automobile receivables, there
is a risk that the holders may not have either a proper or first security
interest in all of the obligations backing such receivables due to the large
number of vehicles involved in a typical issuance, and technical requirements
under state laws. Therefore, recoveries on repossessed collateral may not always
be available to support payments on the securities. For a further discussion of
the risks of investing in asset-backed securities, see the Statement of
Additional Information.
The Fund will invest in asset-backed securities only if they are rated at the
time of purchase in the two highest grades by a nationally-recognized rating
agency. The Fund does not presently propose to invest more than ten percent of
its assets in asset-backed securities.
------------------------------------------------------------------------------
INVESTMENT PRACTICES
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REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (e.g., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. Repurchase agreements involve
certain risks in the event of a default by the other party. The Fund will not
invest in repurchase
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agreements maturing in more than seven days if any such investment, together
with any other illiquid securities held by the Fund, exceeds ten percent of the
value of its net assets. In the event of the bankruptcy of the seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto, (b) possible lack of access to income on the underlying security
during this period, and (c) expenses of enforcing its rights. See the Statement
of Additional Information.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.
FORWARD COMMITMENTS. The Fund may purchase or sell mortgage-related securities
and U.S. Government securities on a "when-issued" or "delayed delivery" basis
("Forward Commitments"). These transactions occur when securities are purchased
or sold by the Fund with payment and delivery taking place in the future,
frequently a month or more after such transaction. The price is fixed on the
date of the commitment, and the seller continues to accrue interest on the
securities covered by the Forward Commitment until delivery and payment takes
place. At the time of settlement, the market value of the securities may be more
or less than the purchase or sale price.
The Fund may either settle a Forward Commitment by taking delivery of the
securities or resell or repurchase a Forward Commitment on or before the
settlement date, in which event the Fund may reinvest the proceeds in another
Forward Commitment. The Fund's use of Forward Commitments may increase its
overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction; should the other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure. Forward Commitments are not traded on
an exchange and thus may be less liquid than exchange traded contracts.
The Fund maintains a segregated account (which is marked to market daily) of
cash, U.S. Government securities or the security covered by the Forward Commit-
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ment with the Fund's custodian in an aggregate amount equal to the amount of its
commitment as long as the obligation to purchase or sell continues.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to broker-
dealers and other financial institutions in an amount up to ten percent of the
net assets, provided that such loans are callable at any time by the Fund, and
are at all times secured by cash collateral that is at least equal to the market
value, determined daily, of the loaned securities. During the period of the
loan, the Fund receives the income on both the loaned securities and the
collateral and thereby increases its yield after payment of lending fees.
Lending portfolio securities involves risks of delay in recovery of the loaned
securities or in some cases loss of rights in the collateral should the borrower
fail financially. Accordingly, loans of portfolio securities will only be made
to borrowers considered by the Adviser to be creditworthy.
PORTFOLIO TURNOVER. The Fund generally experiences a high rate of portfolio
turnover, which may vary from year to year. A 100% turnover rate would occur,
for example, if all the securities held by the Fund were replaced in a period of
one year. Higher portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which are borne directly by the Fund.
The higher portfolio turnover may also increase the recognition of short-term,
rather than long-term, capital gains. The rate of portfolio turnover is not a
limiting factor when the Adviser deems it desirable to purchase or sell
securities or to engage in transactions in options, futures contracts and
related options.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies of the
Fund permit the Fund to invest in or write options, futures contracts and
related options.
The Fund presently expects to utilize options, futures contracts and options
thereon in several different ways, depending upon the status of the Fund's
portfolio and the Adviser's expectations concerning the securities markets. See
the Statement of Additional Information for discussion of options, futures
contracts and related options.
POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to the
Fund, if the Adviser is not successful in employing such instruments in managing
the Fund's investments, the Fund's performance will be worse than if the Fund
did not make such investments. In addition, the Fund pays commissions and other
costs in connection with such investments, which may increase the Fund's
expenses and reduce its return. The Fund may write or purchase options in
privately negotiated transactions ("OTC Options") as well as listed options. OTC
Options can be closed out only by
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<PAGE> 23
agreement with the other party to the transaction. Any OTC Options purchased by
the Fund will be considered an illiquid security. Any OTC Option written by the
Fund will be with a qualified dealer pursuant to an agreement under which the
Fund may repurchase the option at a formula price. Such options will be
considered illiquid to the extent that the formula price exceeds the intrinsic
value of the option. The Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed five
percent of the fair market value of the Fund's assets. In order to prevent
leverage in connection with the purchase of futures contracts by the Fund, an
amount of cash, cash equivalents or liquid high grade debt securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the Custodian.
The Fund may not invest more than ten percent of its net assets in illiquid
securities and repurchase agreements which have a maturity of longer than seven
days. See "Investment Restrictions" below.
INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars. The Fund expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may also enter into
these transactions to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund does not intend to use
these transactions as speculative investments and will not enter into interest
rate swaps or sell interest rate caps or floors where it does not own or have
the right to acquire the underlying securities or other instruments providing
the income stream the Fund may be obligated to pay. Interest rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest, i.e., an exchange of floating rate payments for
fixed-rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor. An interest rate collar combines the elements of purchasing a cap and
selling a floor. The collar protects against an interest rate rise above the
maximum amount but foregoes the benefit of an interest rate decline below the
minimum amount. Interest rate swaps, caps, floors and collars will be treated as
illiquid securities and will, therefore, be subject to the Fund's investment
restriction limiting investment in illiquid securities. See the Statement of
Additional Information for further discussion on such interest rate
transactions.
The net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a daily
basis and an amount of cash or high-quality liquid debt securities having an
aggregate net
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<PAGE> 24
asset value at least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. If the Fund enters into an interest
rate swap on other than a net basis, the Fund would maintain a segregated
account in the full amount accrued on a daily basis of the Fund's obligations
with respect to the swap.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund. The debt securities in which the Fund invests are traded in the
over-the-counter market. Such securities are generally traded on a net basis
with dealers acting as principal for their own accounts without a stated
commission, although the prices of the securities usually include a profit to
the dealers. It is the policy of the Fund to seek to obtain the best net result
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities, the firm's risk in positioning the
securities involved, and the provision of supplemental investment research by
the firm. While the Fund seeks reasonably competitive dealer spreads, the Fund
will not necessarily be paying the lowest spread available. Brokerage
commissions are paid on transactions in listed options, futures contracts and
options thereon. The Adviser is authorized to place portfolio transactions with
broker-dealers participating in the distribution of shares of the Fund and other
Van Kampen American Capital mutual funds if it reasonably believes that the
quality of the execution and any commissions are comparable to that available
from other qualified firms. The Adviser is authorized to pay higher commissions
to brokerage firms that provide it with investment and research information than
to firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. The
information received may be used by the Adviser in managing the assets of other
advisory accounts as well as in the management of the assets of the Fund.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
majority (as defined in the 1940 Act) vote of the Fund's shareholders. These
restrictions provide, among other things, that the Fund may not:
1. With respect to 75% of its assets, invest more than five percent of its
assets in the securities of any one issuer (except obligations of the U.S.
Government, its agencies or instrumentalities) or purchase more than ten
percent of the outstanding voting securities of any one issuer.
2. Borrow in excess of five percent of the market or other fair value of its
total assets, or pledge its assets to an extent greater than five percent
of the market or other fair value of its total assets. Any such borrowings
shall be from banks and shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. Deposits in escrow in connection with
the writing of covered or fully collateralized call or secured put options,
or in connection
22
<PAGE> 25
with the purchase or sale of futures contracts and related options, are not
deemed to be a pledge or other encumbrance.
3. Purchase an illiquid security if, as a result of such purchase, more than
ten percent of the Fund's net assets would be invested in such securities.
Illiquid securities are securities subject to legal or contractual
restrictions on resale, which include repurchase agreements maturing in
more than seven days and any over-the-counter options or other restricted
securities purchased by the Fund.
4. Write, purchase or sell puts, calls or combinations thereof, except that
the Fund may (a) write covered or fully collateralized call options, write
secured put options, and enter into closing or offsetting purchase
transactions with respect to such options, (b) purchase and sell options to
the extent that the premiums paid for all such options owned at any time do
not exceed ten percent of its total assets and (c) engage in transactions
in interest rate futures contracts and related options provided that such
transactions are entered into for bona fide hedging purposes (or that the
underlying commodity value of the Fund's long positions do not exceed the
sum of certain identified liquid investments as specified in CFTC
regulations), provided further that the aggregate initial margin and
premiums do not exceed five percent of the fair market value of the Fund's
total assets, and provided further that the Fund may not purchase futures
contracts or related options if more than 30% of the Fund's total assets
would be so invested.
------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and
nearly $50 billion under management or supervision. Van Kampen American
Capital's more than 40 open-end and 38 closed-end funds and more than 2,700 unit
investment trust are professionally distributed by leading financial advisers
nationwide.
Van Kampen American Capital Distributors, Inc., the Distributor of the Fund
and the sponsor of the Funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. Van Kampen American Capital 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
23
<PAGE> 26
Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates L.P.").
The general partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles
Ames, William A Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than seven percent
of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon
the exercise of options, approximately an additional 11% 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 five percent or
more of the common stock of VK/AC Holding, Inc.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed on average daily net assets of the Fund at an annual rate of 0.50% of
the first $1 billion of net assets; 0.475% of the next $1 billion of net assets;
0.45% of the next $1 billion of net assets; 0.40% of the next $1 billion of net
assets; and 0.35% of net assets in excess of $4 billion. Under the Advisory
Agreement the Fund also reimburses the Adviser for the costs of the Fund's
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. Operating expenses paid by the Fund
include shareholder service agency fees, distribution fees, service fees,
custodial fees, legal and accounting fees, the cost of reports and proxies to
shareholders, Trustees' fees, and all other business expenses not specifically
assumed by the Adviser. Advisory (management) fee, and total operating expense
ratios are shown under the caption "Annual Fund Operating Expenses and Example"
herein.
From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors/trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.
24
<PAGE> 27
PORTFOLIO MANAGEMENT. Ted Mundy is primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Mundy is Vice President of
the Fund and has been primarily responsible for managing the Fund's investment
portfolio since June 30, 1994. From September, 1990 to June, 1994, Mr. Mundy was
a portfolio manager with AMR Investment Services, Inc. Prior to that he was a
trader with Howard, Weil, Labouisse and Friedrichs.
------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 3.25% at the time of purchase. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."
CLASS B SHARES. The Fund has suspended sales of Class B shares to the general
public. Class B shares are now available only in connection with the
reinvestment of dividends and/or distributions by existing Class B shareholders
of the Fund and exchanges into the Fund by Class B shareholders of other
American Capital funds. See "Purchase of Shares." Class B shares are sold at net
asset value and are subject to a deferred sales charge if they are redeemed
within four years of purchase. Class B shares are subject to an ongoing service
fee at an annual rate of up to 0.25% of the Fund's aggregate average daily net
assets attributable to the Class B shares and an ongoing distribution fee at an
annual rate of up to 0.75% of the Fund's aggregate average daily net assets
attributable to the Class B shares. Class B shares enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment is
made. The ongoing distribution fee paid by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares. See "Purchase of Shares -- Class B Shares." Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month in which the shareholder's order to purchase was accepted. See "Conversion
Feature" herein for discussion on applicability of the conversion feature to
Class B shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase, Class C shares
are
25
<PAGE> 28
subject to an ongoing service fee at an annual rate of up to 0.25% of the Fund's
aggregate average daily net assets attributable to the Class C shares and an
ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will automatically convert to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the calendar month in which the shares were purchased and will no longer be
subject to the distribution fee. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The purpose of the conversion feature is to relieve the
holders of Class B shares and Class C shares that have been outstanding for a
period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares or Class C
shares as the case may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares and Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares and Class C shares would occur, and shares might continue to be subject
to the distribution fee for an indefinite period which may extend beyond the
period ending six years or ten years, respectively, after the end of the
calendar month in which the shareholder's order to purchase was accepted.
26
<PAGE> 29
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
C shares prior to conversion would be less than the initial sales charge on
Class A shares purchased at the same time, and to what extent such differential
would be offset by the higher dividends per share on Class A shares. To assist
investors in making this determination, the table under the caption "Annual Fund
Operating Expenses and Example" sets forth examples of the charges applicable to
each class of shares. In this regard, Class A shares may be more beneficial to
the investor who qualifies for reduced initial sales charges or purchases shares
at net asset value, as described herein under "Purchase of Shares -- Class A
Shares." For these reasons, the Distributor will reject any order of $1 million
or more for Class C shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase Class C shares and have
all their funds invested initially, although remaining subject to ongoing
distribution fees and, for a four-year or one-year period, respectively, being
subject to a contingent deferred sales charge. Ongoing distribution fees on
Class C shares will be offset to the extent of the additional funds originally
invested and any return realized on these funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A, rather than Class C
shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class C shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon and/or desire a short
contingent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class C shares, from
the proceeds of the ongoing distribution fee and any contingent deferred sales
charge incurred upon redemption within one year of purchase. Sales personnel of
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling
27
<PAGE> 30
such shares may receive differing compensation for selling such shares.
INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE CONTINGENT
DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH RESPECT TO THE CLASS C
SHARES ARE THE SAME AS THOSE OF THE INITIAL SALES CHARGE WITH RESPECT TO CLASS A
SHARES. See "Distribution Plans."
GENERAL. Dividends paid by the Fund with respect to Class A, Class B and
Class C shares will be calculated in the same manner at the same time on the
same day, except that the distribution fees and any incremental transfer agency
costs relating to Class B or Class C shares will be borne by the respective
class. See "Distributions from the Fund." Shares of the Fund may be exchanged,
subject to certain limitations, for shares of the same class of other mutual
funds advised by the Adviser. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the Investment Company Act
of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.
------------------------------------------------------------------------------
PURCHASE OF SHARES
------------------------------------------------------------------------------
GENERAL
The Fund offers two classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold with an initial sales charge and Class C
shares are sold without an initial sales charge and are subject to a contingent
deferred sales charge upon certain redemptions. See "Alternative Sales
Arrangements" for a discussion of factors to consider in selecting which class
of shares to purchase. Contact the Investor Services Department at (800)
421-5666 for further information and appropriate forms. At this time, the Fund
offers Class B shares only to current Fund Class B shareholders who have elected
or may elect the option to reinvest dividends and/or capital gains distributions
in shares of the Fund (other share purchases by such shareholders must be of
Class A or Class C shares), and Class B shareholders of other Van Kampen
American Capital funds exchanging their Class B shares for shares of the Fund.
See "Shareholder Services."
Initial investments must be at least $500 and subsequent investments must be
at least $25. Both minimums may be waived by the Distributor for plans involving
28
<PAGE> 31
periodic investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Shares may be purchased on any business day through authorized dealers. Shares
may also be purchased by completing the application accompanying this Prospectus
and forwarding the application, through the designated dealer, to the
shareholder service agent, ACCESS Investor Services, Inc., a wholly owned
subsidiary of Van Kampen American Capital ("ACCESS"). When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A or Class C
shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge which will vary depending on the
method of purchasing shares chosen by the investor, as shown in the tables
herein. Net asset value per share is determined once daily as of the close of
trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m.,
New York time) each day the Exchange is open. Net asset value per share for each
class is determined by dividing the value of the Fund's securities, cash and
other assets (including accrued interest) attributable to such class, less all
liabilities (including accrued expenses) attributable to such class by the total
number of shares of the class outstanding. U.S. Government and agency
obligations are valued at the last reported bid price. Listed options are valued
at the last reported sale price on the Exchange on which such option is traded,
or, if no sales are reported, at the mean between the last reported bid and
asked prices. Options for which market quotations are not readily available are
valued at a fair value under a method approved by the Trustees. Short-term
investments are valued in the manner described in the Notes to Financial
Statements in the Statement of Additional Information.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value (plus applicable Class A sales charges) after an
order is received by a dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. Orders
received by dealers after the close of the Exchange are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
orders received by them to the Distributor so they will be
29
<PAGE> 32
received prior to such time. Orders of less than $500 are mailed by the dealer
and processed at the offering price next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid which relate to a specific class, and (iii) Class B and
Class C shares are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service options available.
See "Distribution Plans" and "Shareholder Services -- Exchange Privilege." The
net income attributable to Class B and Class C shares and the dividends payable
on Class B and Class C shares will be reduced by the amount of the distribution
fee and incremental expenses associated with such distribution fee. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund with subsidiaries of The Travelers Inc.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediaries at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying brokers, dealers or financial intermediaries
for certain services or activities which are primarily intended to result in
sales of shares of the Fund. Fees may include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Such fees paid
for such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. The Distributor may provide additional compensation
30
<PAGE> 33
to Edward D. Jones & Co. or an affiliate thereof based on a combination of its
sales of shares and increases in assets under management. All of the foregoing
payments are made by the Distributor out of its own assets. These programs will
not change the price an investor will pay for shares or the amount that a Fund
will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
TO DEALERS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)
------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000........................ 3.36% 3.25% 3.00%
$25,000 but less than $249,999........... 2.83% 2.75% 2.50%
$250,000 but less than $499,999.......... 1.78% 1.75% 1.50%
$500,000 to $999,999..................... 1.52% 1.50% 1.25%
$1,000,000 or more....................... * * *
------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of one percent in the event of certain redemptions
within one year of the purchase. The contingent deferred sales charge incurred
upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
one percent on sales to $2 million, plus 0.80% on the next million, plus 0.20%
on the next $2 million and 0.08% on the excess over $5 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. Dealers which are
reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the Securities Act of 1933.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described herein. Such financial
institutions, other industry professionals and dealers are hereinafter referred
to as "Service Organizations." Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Distributor would consider what action, if any,
would be appropriate. The Distributor does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund. State securities laws regarding registration of
31
<PAGE> 34
banks and other financial institutions may differ from the interpretations of
federal law expressed herein, and banks and other financial institutions may be
required to register as dealers pursuant to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and minor children and any corporation, partnership, or sole
proprietorship which is 100% owned, either alone or in combination, by any of
the foregoing; a trustee or other fiduciary purchasing for a single fiduciary
account; or a "company" as defined is section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Money Market Fund ("VK Money Market"), Van Kampen American Capital Tax Free
Money Fund ("VK Tax Free"), Van Kampen American Capital Reserve Fund ("Reserve")
and The Govett Funds, Inc.
Volume Discounts. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the Fund
alone, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
Cumulative Purchase Discount. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Letter of Intent. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the Funds over a 13-month period based on the total amount of intended
purchases plus the value of all shares of the Participating Funds previously
purchased and still owned. An investor may elect to compute the 13-month period
starting up to 90
32
<PAGE> 35
days before the date of execution of a Letter of Intent. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the period,
the investor must pay the difference between the charges applicable to the
purchases made and the charges previously paid. The initial purchase must be for
an amount equal to at least five percent of the minimum total purchase amount of
the level selected. If trades not initially made under a Letter of Intent
subsequently qualify for a lower sales charge through the 90-day back-dating
provisions, an adjustment will be made at the expiration of the Letter of Intent
to give effect to the lower charge. Such adjustment in sales charge will be used
to purchase additional shares for the shareholder at the applicable discount
category. Additional information is contained in the application accompanying
this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling or purchases by persons affiliated with the Fund or
the Distributor. The Fund reserves the right to modify or terminate these
arrangements at any time.
Unit Trust Reinvestment Programs. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A shares
of the Fund, other Participating Funds, VK Money Market, VK Tax Free or Reserve
with no minimum initial or subsequent investment requirement, and with a lower
sales charge if the administrator of an investor's unit investment trust program
meets certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all investments made from unit trust
distributions will be one percent of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their securities broker or dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS's processing system.
33
<PAGE> 36
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Investment Advisory Corp. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or in any combination of
shares of the Fund and shares of other Participating Funds as described
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts,"
during the 13-month period commencing with the first investment pursuant
hereto equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made an amount up to 0.50% of
the amount invested, over a twelve-month period following such
transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to one percent for such purchases.
(6) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
34
<PAGE> 37
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in
Participating Funds, VK Money Market, VK Tax Free, or Reserve. For such
investments the Fund imposes a contingent deferred sales charge of one
percent in the event of redemptions within one year of the purchase other
than redemptions required to make payments to participants under the terms
of the plan. The contingent deferred sales charge incurred upon certain
redemptions is paid to the Distributor in reimbursement for distribution-
related expenses. A commission will be paid to dealers who initiate and
are responsible for such purchases as follows: one percent on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer or financial institution
may charge a transaction fee for placing an order to purchase shares pursuant to
this provision or for placing a redemption order with respect to such shares.
Service Organizations will be paid a service fee as described herein under
"Distribution Plans" on purchases made as described in (3) through (8) above.
The Fund may terminate, or amend the terms of, offering shares of the Fund at
net asset value to such groups at any time.
CLASS B SHARES
At this time, Class B shares are offered only in connection with the
reinvestment of dividends and/or distributions by current Class B shareholders
of the Fund or exchanges into the Fund by Class B shareholders of other Van
Kampen American Capital funds.
Class B shares are offered to the limited group of investors described above
at the next determined net asset value. Class B shares which are redeemed within
four years of purchase are subject to a contingent deferred sales charge at the
rates set
35
<PAGE> 38
forth in the following table charged as a percentage of the dollar amount
subject thereto. The charge is assessed on an amount equal to the lesser of the
then current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchases
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
--------------------------------------------------------------------------
<S> <C>
First................................................. 3%
Second................................................ 3%
Third................................................. 2%
Fourth................................................ 1%
Fifth................................................. None
</TABLE>
------------------------------------------------------------------------------
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge, second, of shares held for over four years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the four-year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of three percent (the applicable rate in the second year after purchase).
A commission or transaction fee of three percent of the purchase amount will
be paid to broker-dealers and other Service Organizations at the time of
purchase.
36
<PAGE> 39
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of one percent. The charge is assessed on an
amount equal to the lower of the then current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gains
distributions.
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares in the shareholder's Fund account that are not subject to
a contingent deferred sales charge and second of shares held for more than one
year or shares acquired pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of one percent of the purchase amount will be
paid to broker-dealers and other Service Organizations at the time of purchase.
Broker-dealers and other Service Organizations will also be paid ongoing
commissions and transaction fees of up to 0.25% of the average daily net assets
of the Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation, to Service Organizations
that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account, and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." The contingent deferred sales
charge is also waived on redemptions of Class C shares and as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See the Statement of Additional Information
for further discussion of waiver provisions.
37
<PAGE> 40
------------------------------------------------------------------------------
SHAREHOLDER SERVICES
------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Except as described herein, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in certain of the
Participating Funds or Reserve, may receive statements quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized investment dealers or
by mailing a check directly to ACCESS.
SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate no more than two percent of the net asset value of the
issued shares, and bill the party to whom the certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. Unless the shareholder instructs otherwise, the reinvestment
plan is automatic. This instruction may be made by telephone by calling (800)
421-5666 ((800) 772-8989 for the hearing impaired) or in writing to ACCESS. The
investor may, on the initial application or prior to any declaration, instruct
that dividends be paid in cash and capital gains distributions be reinvested at
net asset value, or that both dividends and capital gains distributions be paid
in cash. The Fund has suspended sales of Class B shares to the public; however
current Fund Class B shareholders who have elected the option to reinvest
dividends and/or capital gains
38
<PAGE> 41
distributions in shares of the Fund may continue to do so. Current Fund Class B
shareholders who have elected the option to be paid dividends and/or capital
gains distributions in cash may elect to reinvest such dividends and
distributions in Class B shares of the Fund.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized investment dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP, and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, VK Money Market,
VK Tax Free or Reserve.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the
39
<PAGE> 42
selected fund at its net asset value as of the payable date of the distribution
only if shares of such selected fund have been registered for sale in the
investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund, other
than Van Kampen American Capital Government Target Fund ("Government Target"),
may be exchanged for shares of the same class of any other fund without sales
charge, provided that shares of the Fund and certain other Van Kampen American
Capital fixed-income funds may not be exchanged within 30 days of acquisition
without Adviser approval. Shares of Government Target may be exchanged for Class
A shares of the Fund without sales charge. Class A shares of VK Money Market, VK
Tax Free or Reserve that were not acquired in exchange for Class B or Class C
shares of a Participating Fund may be exchanged for Class A shares of the Fund
upon payment of the excess, if any, of the sales charge rate applicable to the
shares being acquired over the sales charge rate previously paid. Shares of VK
Money Market, VK Tax Free or Reserve acquired through an exchange of Class B or
Class C shares may be exchanged only for the same class of shares of a
Participating Fund without incurring a contingent deferred sales charge. Shares
of any Participating Fund, VK Money Market, VK Tax Free or Reserve may be
exchanged for shares of any other Participating Fund if shares of that
Participating Fund are available for sale; however, during periods of suspension
of sales, shares of a Participating Fund may be available for sale only to
existing shareholders of a Participating Fund.
Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other Van
Kampen American Capital fund that offers such class of shares ("new shares") in
an amount equal to the aggregate net asset value of the original shares, without
the payment of any contingent deferred sales charge otherwise due upon
redemption of the original shares. For purposes of computing the contingent
deferred sales charge payable upon a disposition of the new shares, the holding
period for the original shares is added to the holding period of the new shares.
Class B or Class C shareholders would remain subject to the contingent deferred
sales charge imposed by the original fund upon their redemption from the Van
Kampen American Capital complex of funds. The contingent deferred sales charge
is based on the holding period requirements of the original fund.
The Fund has suspended sales of Class B shares, however Class B shareholders
of other Van Kampen American Capital funds may exchange their Class B shares of
such other funds for Class B shares of the Fund.
Shares of the Fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the
40
<PAGE> 43
exchanged shares, but is carried over and included in the tax basis of the
shares acquired. See the Statement of Additional Information.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value per share next calculated after the request is received
in good order with adjustment for any additional sales charge. See "Purchase of
Shares" and "Redemption of Shares." If the exchanging shareholder does not have
an account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification) and dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
file a specific written request. The Fund reserves the right to reject any order
to acquire its shares through exchange. In addition, the Fund may restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an
41
<PAGE> 44
investor purchasing shares for a retirement plan established on a form made
available by the Fund. See "Shareholder Services -- Retirement Plans."
Class B and Class C shareholders who establish a withdrawal plan may redeem up
to 12% annually of the shareholder's initial account balance without incurring a
contingent deferred sales charge. Initial account balance means the amount of
the shareholder's investment in the Fund at the time the election to participate
in the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" and the Statement of Additional Information.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the shareholder upon
redemption of shares.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the AUTHORIZATION FOR REDEMPTION BY CHECK
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to the Class A shareholder. These
checks may be made payable by the Class A shareholder to the order of any person
in any amount of $100 or more.
When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the shareholder's Class A account by ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of Class A shares. Any
gain or loss realized on the sale of Class A shares is a taxable event. See
"Redemption of Shares."
Checks will not be honored for redemption of Class A shares held less than 15
calendar days, unless such Class A shares have been paid for by bank wire. Any
Class A shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not
42
<PAGE> 45
liquidate the entire account by means of a check. The check writing privilege
may be terminated or suspended at any time by the Fund or State Street Bank.
Retirement Plans and accounts that are subject to backup withholding are not
eligible for the privilege. A "stop payment" system is not available on these
checks. See the Statement of Additional Information for further information
regarding the establishment of the privilege.
------------------------------------------------------------------------------
REDEMPTION OF SHARES
------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from dealers must be at least $500 unless transmitted via the
FUNDSERV network. The redemption price for such shares is the net asset value
next calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B and
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more and for certain qualified 401(k) retirement plans. The
contingent deferred sales charge incurred upon redemption is paid to the
Distributor in reimbursement for the distribution-related expenses. See
"Purchase of Shares." A custodian of a retirement plan account may charge fees
based on the custodian's fee schedule.
The request for redemption must be signed by persons in whose names the shares
are registered. Signatures must conform exactly to the account registration. If
the proceeds of the redemption would exceed $50,000, or if the proceeds are not
to be paid to the record owner at the record address, or if the record address
has changed within the previous 30 days, signature(s) must be guaranteed by one
of the following: a bank or trust company; a broker-dealer; a credit union; a
national securities exchange, registered securities association or clearing
agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it does so if a special request is made to
ACCESS. In the case of shareholders holding certificates, the certificates for
the shares being
43
<PAGE> 46
redeemed must accompany the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. IRA
redemption requests should be sent to the IRA custodian to be forwarded to the
shareholder service agent. Where Van Kampen American Capital Trust Company
serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution forms
must be obtained from and be forwarded to Van Kampen American Capital Trust
Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for
information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payments may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any taxable gain or loss will be recognized by the
shareholder upon redemption of shares.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record for the account or to
the bank account of record as described below. To establish such privilege, a
shareholder must complete the appropriate section of the application form
accompanying this Prospectus or call the Fund at (800) 421-5666 to request that
a copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares, contact the telephone transaction line at (800)
421-5684. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures requiring certain personal identification information prior to
acting upon telephone
44
<PAGE> 47
instructions, tape recording telephone communications, and providing written
confirmation of instructions communicated by telephone. If reasonable procedures
are employed, neither VKAC nor the Fund will be liable for following
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. To establish such privilege, a shareholder must
complete the appropriate section of the application form accompanying this
Prospectus or call the Fund at (800) 421-5666. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B and Class C shares.
45
<PAGE> 48
In cases of disability, the contingent deferred sales charges on Class B and
Class C shares will be waived where the disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the initial determination of disability.
This waiver of the contingent deferred sales charge on Class B and Class C
shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of
Additional Information. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.
------------------------------------------------------------------------------
DISTRIBUTION PLANS
------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit the annual distribution charges that a mutual fund may impose on a class
of shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan the Fund pays a service fee
to the Distributor at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Under the Class B
Plan and the Class C Plan, the Fund pays a service fee to the Distributor at an
annual rate of up to 0.25% and a distribution fee at an annual rate of up to
0.75% of the Fund's aggregate average daily net assets attributable to the Class
B or Class C shares to
46
<PAGE> 49
reimburse the Distributor for service fees paid by it to Service Organizations
and for its distribution costs.
The Distributor uses the Class A, Class B and Class C service fees to
compensate Service Organizations for personal services and/or maintenance of
shareholder accounts. Under the Class B Plan, the Distributor receives
additional payments from the Fund in the form of a distribution fee at the
annual rate of up to 0.75% of the net assets of the Class B shares as
reimbursement for (i) upfront commissions and transaction fees of up to three
percent of the purchase price for Class B shares purchased by the clients of
broker/dealers and other Service Organizations and (ii) other distribution
expenses as described in the Statement of Additional Information. Under the
Class C Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class C shares as reimbursement for (i) upfront commissions and
transaction fees of up to 0.75% of the purchase price of Class C shares
purchased by the clients of broker-dealers and other Service Organizations and
ongoing commissions and transaction fees of up to 0.25% of the average daily net
assets of the Fund's Class C shares and (ii) other distribution expenses as
described in the Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
The distribution fee attributable to Class B or Class C shares is designed to
permit an investor to purchase such shares without the assessment of a front-end
sales load and at the same time permit the Distributor to compensate Service
Organizations with respect to such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and distribution fee
are the same as those of the initial sales charge with respect to the Class A
shares of the Fund in that in both cases such charges provide for the financing
of the distribution of the Fund's shares.
47
<PAGE> 50
Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class C Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class C
Plan, the balance of $100,000 would be subject to recovery in future fiscal
years from such sources. For the plan year ended June 30, 1994, the unreimbursed
expenses incurred by the Distributor and carried forward were approximately $1.3
million or 5.7% of average daily net assets of the class under the Class B Plan
and $155,000 or 1.7% of average daily net assets of the class under the Class C
Plan.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. Income dividends are paid each business day, and
distributed monthly. The daily dividend is a fixed amount determined at least
monthly which is expected not to exceed the net income of the Fund for the month
divided by the number of business days in the month. Shares (other than shares
acquired through an exchange) become entitled to dividends on the day ACCESS
receives payment for the shares, and remain entitled to dividends through the
day such shares are processed for payment on redemption. With respect to shares
acquired through an exchange, such shares become entitled to dividends on the
day after ACCESS receives payment for the shares, and remain entitled to
dividends through the day such shares are processed for payment on redemption.
Therefore, if a dealer delays forwarding to ACCESS payment for shares which an
investor has made to the dealer, this will in effect cost the investor money
because it will delay the date upon which he becomes entitled to dividends.
Unless the shareholder instructs otherwise, dividends and capital gains
distributions are automatically applied to purchase additional shares of the
Fund at the next determined net asset value. See "Shareholder
Services -- Reinvestment Plan."
48
<PAGE> 51
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
higher incremental transfer agency fees applicable to such classes of shares.
Any taxable net realized short-term or long-term capital gains will be
distributed to shareholders at least annually. Since the capital loss carry
forward and unrealized depreciation of securities totaled about $2.96 per share
at December 31, 1994, no capital gain distributions are presently anticipated.
In computing interest income the Fund does not amortize premiums paid on the
purchase of debt securities. Thus in the case of mortgage-related and other U.S.
Government securities purchased at a premium, interest income is greater than it
would be if the premiums were amortized.
Dividends and distributions paid by the Fund have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution of record shortly after the purchase of
shares by an investor represents, in substance, a return of capital to the
investor even though subject to income taxes as discussed below.
------------------------------------------------------------------------------
TAX STATUS
------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Code. By qualifying as a regulated investment
company, the Fund is not subject to federal income taxes to the extent it
distributes its net investment income and net realized capital gains.
Shareholders not subject to tax on their income will not, however, be required
to pay tax on amounts distributed to them. However, shareholders normally are
subject to federal income tax, and any applicable state or local income taxes,
on the dividends and distributions received from the Fund.
There are differences between federal income tax regulations and the generally
accepted accounting principles adopted by the Fund. For example, year-end
marking to market on certain options and futures contracts generally are
recognized for tax purposes but not for accounting purposes and certain
adjustments are made for tax purposes for repayments on mortgage-related
securities. Since dividends and distributions may, from time to time, be paid by
the Fund based on earnings recognized for accounting purposes, a portion of such
dividends and distributions may constitute a return of capital for federal
income tax purposes. If the amount of distributions paid by the Fund for any
fiscal year exceeds its investment company taxable income plus net realized
capital gains for the year, the excess is treated as a return of capital. Each
distribution paid for that year would be treated, in the same proportion, in
part as a distribution of taxable income and in part as a return of capital.
Shareholders are not subject to a current federal income tax on the part
49
<PAGE> 52
which is treated as a return of capital, but their basis in Fund shares would be
reduced by that amount. This reduction of basis would operate to increase
capital gain (or decrease capital loss) upon subsequent sale or redemption of
shares.
Current federal tax law requires that a holder, such as the Fund, of a
stripped security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest payment
in cash on the security during the year. As an investment company, the Fund must
pay out substantially all of its net investment income each year. Accordingly,
the Fund may be required to pay out as an income distribution each year an
amount which is greater than the total amount of cash interest the Fund actually
received. Such distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Adviser will select
which securities to sell. The Fund may realize a gain or loss from such sales.
In the event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution, if any, than they
would in the absence of such transactions.
Shareholders are notified annually of the federal tax status of dividends and
any capital gains distributions. Long-term capital gains distributions
constitute long-term capital gains for federal income tax purposes.
To avoid being subject to a 31% federal backup withholding on dividends,
distributions and redemption payments, shareholders must furnish the Fund with a
certification of their correct taxpayer identification number.
Gains or losses on the Fund's transactions in listed options on securities,
futures and options on futures generally are treated as 60% long-term and 40%
short-term, and positions held by the Fund at the end of its fiscal year
generally are required to be marked to market, with the result that unrealized
gains and losses are treated as realized. Gains and losses realized by the Fund
from writing over-the-counter options constitute short-term capital gains or
losses, unless the option is exercised, in which case the character of the gain
or loss is determined by the holding period of the underlying security. The Code
contains certain "straddle" rules which require deferral of losses incurred in
certain transactions involving hedged positions to the extent the Fund has
unrealized gains in offsetting positions and generally terminate the holding
period of the subject position. Additional information is set forth in the
Statement of Additional Information.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Fund and its investors who are U.S. residents and
U.S. corporations. Investors should consult their tax advisers for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or
50
<PAGE> 53
citizenship tax consequences of receipt of dividends and distributions from the
Fund.
------------------------------------------------------------------------------
FUND PERFORMANCE
------------------------------------------------------------------------------
From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one year, five years and for the life of the Fund. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 3.25%); that all income dividends or
capital gains distributions during the period are reinvested in Fund shares at
net asset value; and that any applicable contingent deferred sales charge has
been paid. The Fund's total return will vary depending on market conditions, the
securities comprising the Fund's portfolio, the Fund's operating expenses and
unrealized net capital gains or losses during the period. Since Class A shares
of the Fund were offered at a maximum sales charge at four percent prior to May
10, 1993, and 2.25% from such date to April 28, 1995, actual Fund total return
would fluctuate during those periods, being somewhat less when higher sales
charges were in effect. Total return is based on historical earnings and asset
value fluctuations and is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and distributions paid by the Fund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from
51
<PAGE> 54
net income reported by the Fund in accordance with generally accepted accounting
principles and from net income computed for federal income tax reporting
purposes. Thus the yield computed for a period may be greater or less than the
Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
To increase the yield of the Fund, the Adviser, may from time to time, limit
its management fee. A yield quotation which reflects an expense reimbursement or
subsidization by the Adviser will be higher than a yield quotation without such
expense reimbursement or subsidization. The Adviser may stop limiting its
management fees at any time without prior notice.
Yield and total return are calculated separately for Class A, Class B and
Class C shares. Class A total return figures include the maximum sales charge of
3.25% and Class B and Class C total return figures include any applicable
contingent deferred sales charge. Because of the differences in sales charges
and distribution fees, the total returns for each of the classes will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. Distribution rate is, therefore, not intended to be a complete measure
of the Fund's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Fund. Distribution rates will be
computed separately for each class of the Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds, with the Consumer Price Index, the Dow Jones
Industrial Average
52
<PAGE> 55
Index, Standard & Poor's, NASDAQ, other appropriate indices of investment
securities, or with investment or savings vehicles. The performance information
may also include evaluations of the Fund published by nationally recognized
ranking services and by financial publications that are nationally recognized,
such as Business Week, Forbes, Fortune, Institutional Investor, Investor's
Business Daily, Kiplinger's Personal Finance Magazine, Money, Mutual Fund
Forecaster, Stanger's Investment Adviser, U.S. News and World Report, USA Today
and The Wall Street Journal. Such comparative performance information will be
stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce Fund
performance. The Fund will include performance data for Class A, Class B and
Class C shares of the Fund in any advertisement or information including
performance data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Fund's Annual Report contains additional performance information. A copy
of the Annual Report may be obtained without charge by calling or writing the
Fund at the telephone number and address printed on the cover of this
Prospectus.
------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
------------------------------------------------------------------------------
The Fund was originally organized on September 9, 1985, under the laws of the
Commonwealth of Massachusetts as a business entity commonly known as a
"Massachusetts business trust" and reorganized on July 31, 1995, under the laws
of the State of Delaware as a business entity commonly known as a "Delaware
business trust." It is authorized to issue an unlimited number of Class A, Class
B and Class C shares of beneficial interest of $0.01 par value. Other classes of
shares may be established from time to time in accordance with provisions of the
Fund's Declaration of Trust. Shares issued by the Fund are fully paid,
non-assessable and have no preemptive or conversion rights.
The Fund currently offers three classes, designated Class A Shares, Class B
Shares and Class C Shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."
53
<PAGE> 56
The Fund is permitted to issue an unlimited number of classes. Each class of
share is equal as to earnings, assets and voting privileges, except as noted
above, and each class bears the expenses related to the distribution of its
shares. There are no conversion, preemptive or other subscription rights, except
with respect to the conversion of Class B Shares and Class C Shares into Class A
Shares as described above. In the event of liquidation, each of the shares of
the Fund is entitled to its portion of all of the Fund's net assets after all
debt and expenses of the Fund have been paid. Since Class B Shares and Class C
Shares pay higher distribution expenses, the liquidation proceeds to Class B
Shareholders and Class C Shareholders are likely to be lower than to other
shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
------------------------------------------------------------------------------
ADDITIONAL INFORMATION
------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
An investment in the Fund may not be appropriate for all investors.
The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.
An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.
54
<PAGE> 57
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL
LIMITED MATURITY GOVERNMENT FUND
AUGUST 7, 1995
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated August 7,
1995. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION................................................................... 2
INVESTMENT OBJECTIVE AND POLICIES..................................................... 3
INVESTMENT RESTRICTIONS............................................................... 13
TRUSTEES AND EXECUTIVE OFFICERS....................................................... 14
INVESTMENT ADVISORY AGREEMENT......................................................... 18
DISTRIBUTOR........................................................................... 19
DISTRIBUTION PLANS.................................................................... 20
TRANSFER AGENT........................................................................ 21
PORTFOLIO TURNOVER.................................................................... 22
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 22
DETERMINATION OF NET ASSET VALUE...................................................... 23
PURCHASE AND REDEMPTION OF SHARES..................................................... 23
EXCHANGE PRIVILEGE.................................................................... 27
CHECK WRITING PRIVILEGE............................................................... 28
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES............................................ 28
FUND PERFORMANCE...................................................................... 31
OTHER INFORMATION..................................................................... 32
FINANCIAL STATEMENTS.................................................................. 32
</TABLE>
<PAGE> 58
GENERAL INFORMATION
Van Kampen American Capital Limited Maturity Government Fund (the "Fund")
was originally organized as a trust under the laws of Massachusetts on September
9, 1985 and reorganized as a trust under the laws of Delaware July 31, 1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which 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. Gogel, Leon J. Hendrix Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than seven percent of the common stock of
VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Advantage Capital Corporation, a retail broker-dealer affiliate of the
Distributor, is a wholly owned subsidiary of VK/AC Holding, Inc.
VKAC offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight, July 1995. VKAC's roots in money
management extend back to 1926. Today, VKAC manages or supervises more than $50
billion in mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to VKAC in more than 2 million investor accounts. VKAC
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
As of July 10, 1995, no person was known to hold of record or beneficially
five percent or more of the outstanding Class A, Class B or Class C shares of
the Fund except the following:
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS CLASS OF AMOUNT OF RECORD OF
OF HOLDER SHARES OWNERSHIP OWNERSHIP
---------------- -------- ---------------- ------------
<S> <C> <C> <C>
Smith Barney Inc. Class C 44,392 10.85%
11th Floor
388 Greenwich Street
New York, NY 10013-2375
First Union Brokerage Class B 154,829 12.91%
Services, Inc.
5th Floor
301 S. College St.
Charlotte, NC 28202-6000
National Financial Services, Inc. Class B 102,286 8.21%
200 Liberty One World Financial Center Class C 32,515 7.94%
New York, NY 10281-1003
(1)Bear Stearns & Co. Inc. Class C 119,484 29.19%
One Metrotech Center North
Brooklyn, NY 11201-3872
Donaldson Lufkin Class B 64,865 5.41%
1 Pershing Plaza, 5th Floor
Jersey City, NJ 07399-0001
</TABLE>
2
<PAGE> 59
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS CLASS OF AMOUNT OF RECORD OF
OF HOLDER SHARES OWNERSHIP OWNERSHIP
---------------- -------- ---------------- ------------
<S> <C> <C> <C>
Van Kampen American Capital Trust Company Class A 586,452 17.20%
2800 Post Oak Blvd.
Houston, TX 77056 Class B 144,545 12.05%
(2)Amalgamated Bank of NY Cust.
NY Hotel Trades Council Pension Fund
Amivest Discretionary Investment Manager Class A 196,078 5.75%
P.O. Box 0370
New York, NY 10276-0370
(3)Prudential Securities Fund
Blackwell North America, Inc. Class C 51,222 12.51%
6024 Jean Rd, Ste B
Lake Oswego, OR 97035-5396
</TABLE>
---------------
(1) Represents the aggregate of a number of accounts held of record by Bear
Stearns & Co. Inc. Certain individual accounts also represent the beneficial
ownership of over five percent of the outstanding shares of the class.
(2) Such shares could also be deemed to be beneficially owned by the NY Hotel
Trades Counsel Pension Fund and its investment adviser, Amivest Corporation,
a Delaware corporation, 767 5th Avenue, 50th Floor, New York, New York
10153.
(3) Such shares could also be deemed to be beneficially owned by Blackwell North
America, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters discussed.
One type of mortgage-related securities in which the Fund invests are those
which are issued or guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. One such type
of mortgage-related security is a Government National Mortgage Association
("GNMA") Certificate. GNMA Certificates are backed as to principal and interest
by the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments of FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Fund may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is backed
by FHLMC as to payment of principal and interest but, like a FNMA security, it
is not backed by the full faith and credit of the U.S. Government.
The Fund will seek to obtain return from the following sources:
- interest paid on the Fund's portfolio securities;
- premiums received from expired call and put options;
- net profits from closing transactions; and
- net gains from the sale of portfolio securities on the exercise of
options or otherwise.
The Fund is not designed for investors seeking capital appreciation.
Moreover, varying economic and market conditions may affect the value of and
yields on mortgage-related securities and opportunities for gains from an option
writing program. Accordingly, there is no assurance that the Fund's investment
objective will be achieved.
3
<PAGE> 60
GNMA Certificates
Government National Mortgage Association. The Government National Mortgage
Association is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.
Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Fund purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.
GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Fund will be
reinvested in additional GNMA Certificates or in other permissible investments.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal of and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers
Home Administration or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the United States. GNMA
is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities (the type of mortgages backing the vast majority of GNMA
Certificates) is approximately twelve years. For this reason, it is customary
for pricing purposes to consider GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06 of one percent of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an annual servicing fee of
0.44 of one percent for assembling the mortgage pool and for passing through
monthly payments of interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than at
par.
2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.
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In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a twelve-year life. Compared on this
basis, GNMA Certificates have historically yielded roughly one-quarter of one
percent more than high grade corporate bonds and one-half of one percent more
than U.S. Government and U.S. Government agency bonds. As the life of individual
pools may vary widely, however, the actual yield earned on any issue of GNMA
Certificates may differ significantly from the yield estimated on the assumption
of a twelve-year life.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FNMA Securities
The Federal National Mortgage Association ("FNMA") was established in 1938
to create a secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all principal and interest payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the United States.
FHLMC Securities
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970 to
promote development of a nationwide secondary market in conventional residential
mortgages. The FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal. GMCs also
represent a pro rata interest in a pool of mortgages. However, these instruments
pay interest semi-annually and return principal once a year in guaranteed
minimum payments. The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith and credit of the
United States.
Collateralized Mortgage Obligations
Collateralized mortgage obligations are debt obligations issued generally
by finance subsidiaries or trusts which are secured by mortgage-backed
certificates, including GNMA Certificates, FHLMC Certificates and FNMA
Certificates, together with certain funds and other collateral. Scheduled
distributions on the mortgage-backed certificates pledged to secure the
collateralized mortgage obligations, together with certain funds and other
collateral and reinvestment income thereon at an assumed reinvestment rate, will
be sufficient to make timely payments of interest on the obligations and to
retire the obligations not later than their stated maturity. Since the rate of
payment of principal of any collateralized mortgage obligation will depend on
the rate of payment (including prepayments) of the principal of the mortgage
loans underlying the mortgage-backed certificates; the actual maturity of the
obligation could occur significantly earlier than its stated maturity.
Collateralized mortgage obligations may be subject to redemption under certain
circumstances. The rate of interest borne by collateralized mortgage obligations
may be either fixed or floating. In addition, certain collateralized mortgage
obligations do not bear interest and are sold at a substantial discount (e.g., a
price less than the principal amount). Purchases of collateralized mortgage
obligations at a substantial discount involves a risk that the anticipated yield
on the purchase may not be realized if the underlying mortgage loans prepay at a
slower than anticipated rate, since the yield depends significantly on the rate
of prepayment of the underlying mortgages. Conversely, purchases of
collateralized mortgage obligations at a premium involve additional risk of loss
of principal in the event of unanticipated prepayments of the mortgage loans
underlying the mortgage-
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backed certificates since the premium may not have been fully amortized at the
time the obligation is repaid. The market value of collateralized mortgage
obligations purchased at a substantial premium or discount is extremely volatile
and the effects of prepayments on the underlying mortgage loans may increase
such volatility.
Although payment of the principal of and interest on the mortgage-backed
certificates pledged to secure collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of their issuers and are not insured or guaranteed
by GNMA, FHLMC, FNMA or any other governmental agency or instrumentality, or by
any other person or entity. The issuers of collateralized mortgage obligations
typically have no significant assets other than those pledged as collateral for
the obligations.
ASSET-BACKED SECURITIES
The Fund may invest a portion of its assets in asset-backed securities
rated at the time of purchase in the two highest grades by a
nationally-recognized rating agency. The rate of principal payment generally
depends on the rate of principal payments received on the underlying assets.
Such rate of payments may be affected by economic and various other factors.
Therefore, the yield may be difficult to predict and actual yield to maturity
may be more or less than the anticipated yield to maturity. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or affiliated entities, and the
amount of credit support provided to the securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, such securities may
contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payment of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Fund will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in such issue.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to broker-dealers and other financial institutions provided
that such loans are callable at any time by the Fund, and are at all times
secured by cash collateral that is at least equal to the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the interest on the loaned securities, while at
the same time earning interest on the collateral which will be invested in
short-term obligations. The Fund pays lending fees and custodial fees in
connection with loans of its securities. There is no assurance as to the extent
to which securities loans can be effected.
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A loan may be terminated by the borrower on one business day's notice, or
by the Fund at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the consideration which can be
earned from such loans is believed to justify the attendant risks. The Fund
would not lend any portfolio securities to brokers affiliated with the Adviser.
On termination of the loan, the borrower is required to return the securities to
the Fund; any gain or loss in the market price during the loan would inure to
the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, whole or in part
as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (e.g., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940 as amended (the "1940 Act"). The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities marked to market daily at not less than the repurchase
price. The underlying securities (securities of the U.S. Government, or its
agencies and instrumentalities), may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. See "Investment
Practices -- Repurchase Agreements" in the Prospectus for further information.
FORWARD COMMITMENTS
Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase continues. Since the
market value of both the securities subject to the Forward Commitment and the
securities held in the segregated account may fluctuate, the use of Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.
A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities subject to the Forward Commitment. A Forward
Commitment sale is for cross-hedging purposes if it is not covered but is
designed to provide a hedge against or decline in value of a security which the
Fund owns or has the right to acquire. In either circumstance, the Fund
maintains in a segregated account (which is marked to market daily) either the
security covered by the Forward Commitment or cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to sell continues. By entering into
a Forward Commitment sale transaction, the Fund forgoes or reduces the potential
for both gain and loss in the security which is being hedged by the Forward
Commitment sale.
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INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis and will usually enter into
interest rate swaps on a net basis, e.g., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or high-quality liquid debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian. If
the Fund enters into an interest rate swap on other than a net basis, the Fund
would maintain a segregated account in the full amount accrued on a daily basis
of the Fund's obligations with respect to the swap. Interest rate transactions
do not constitute senior securities under the 1940 Act when the Fund segregates
assets to cover the obligations under the transactions. The Fund will enter into
interest rate swap, cap or floor transactions only with counterparties approved
by the Trustees. The Adviser will monitor the creditworthiness of counterparties
to its interest rate swap, cap, floor and collar transactions on an ongoing
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction. To the extent the Fund sells (e.g., writes) caps, floors and
collars, it will maintain in a segregated account cash or high-quality liquid
debt securities having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of the Fund's net obligations with respect to
the caps, floors or collars. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Adviser is incorrect in its forecasts of the market values, interest rates and
other applicable factors, the investment performance of the Fund would diminish
compared with what it would have been if these investment techniques were not
used. The use of interest rate swaps, caps, collars and floors may also have the
effect of shifting the recognition of income between current and future periods.
These transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
CALL AND PUT OPTIONS
Call and put options on various U.S. Treasury notes and U.S. Treasury bonds
are listed and traded on Exchanges, and are written in over-the-counter
transactions. Call and put options on mortgage-related securities are currently
written or purchased only in over-the-counter transactions.
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option writing program and interest income
yields on portfolio securities vary as economic and market conditions change.
Actively writing options on portfolio securities is likely to result in a
substantially higher portfolio turnover rate than that of most other investment
companies. Higher portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which are borne directly by the Fund.
Writing Options. The purchaser of a call option pays a premium to the
writer (e.g., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund writes call
options either on a covered basis, or for cross-hedging purposes. A call option
is covered if the Fund owns or has the right to acquire the underlying
securities subject to the call option at all times during the option period.
Thus the Fund may write options on forward commitments or on mortgage-related or
other U.S. Government securities. An option is for cross-hedging purposes if it
is not covered, but is designed to
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provide a hedge against a security which the Fund owns or has the right to
acquire. In such circumstances, the Fund collateralized the option by
maintaining in a segregated account with the Fund's Custodian, cash or U.S.
Government securities in an amount not less than the market value of the
underlying security, marked to market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the writer (e.g., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write put options only
on a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its Custodian cash, cash
equivalents or high grade debt securities in an amount of not less than the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously written by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer of an option only if a liquid secondary
market exists for options of that series, but there is no assurance that such a
market will exist, particularly in the case of over-the-counter options, since
they can be closed out only with the other party to the transaction.
Alternatively, the Fund could purchase an offsetting option, which would not
close out its position as a writer, but would provide an asset of equal value to
its obligation under the option written. If the Fund is not able to enter into a
closing purchase transaction or to purchase an offsetting option with respect to
an option it has written, it will be required to maintain the securities subject
to the call or the collateral securing the option until a closing purchase
transaction can be entered into (or the option is exercised or expires), even
though it might not be advantageous to do so.
The exercise price of call options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market value of the
underlying securities or futures contracts at the time the options are written.
The converse applies to put options.
Risks of Writing Options. By writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (e.g., hedge) against
anticipated increases in the prices of securities it wishes to acquire. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Conversely, put options could be purchased to protect (e.g., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of the Fund's assets generally. The Fund will not purchase call or put
options on securities if as a result, more than ten percent of its net assets
would be invested in premiums on such options.
The Fund may purchase either listed or over-the-counter options.
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INTEREST RATE FUTURES CONTRACTS
The Fund could engage in transactions involving futures contracts and
related options in accordance with the rules and interpretations of the
Commodity Futures Trading Commission ("CFTC") under which the Fund would be
exempt from registration as a "commodity pool."
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds, U.S. Treasury notes, U.S. Treasury bills and GNMA Certificates)
at a specified future time and at a specified price. Interest rate futures
contracts also include cash settlement contracts based upon a specified interest
rate such as the London interbank offering rate for dollar deposits, or LIBOR.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund will be required to deposit with its Custodian in
an account in the brokers' name an amount of cash, cash equivalents or liquid
high-grade debt securities equal to not more than five percent of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, will be made on a daily basis as the price of the underlying
security fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as marking to market.
For example, when the Fund has purchased a futures contract and the price
of the underlying security has risen, that position will have increased in
value, and the Fund will receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the value of the underlying security has declined, the
position would be less valuable, and the Fund would be required to make a
variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract would serve
as a temporary substitute for the purchase of individual securities, which may
be purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security, the sale of futures contracts would
substantially reduce the risk to the Fund of a market decline and, by so doing,
provide an alternative to the liquidation of securities positions in the Fund.
Ordinarily commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of mortgage-related and U.S. Government
securities.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in listed options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased and/or
incur a loss of all or part of its margin deposits with the broker. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.
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There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities underlying the futures
contract due to certain market distortions. First, all participants in the
futures market are subject to margin depository and maintenance requirements.
Rather than meet additional margin depository requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the futures market and the securities underlying the
futures contract. Second, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions. Due to the possibility of
price distortion in the futures markets and because of the imperfect correlation
between movements in futures contracts and movements in the securities
underlying them, a correct forecast of general market trends by the Adviser may
still not result in a successful hedging transaction judged over a very short
time frame.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and related options for which the aggregate initial margin and
premiums exceed five percent of the fair market value of the Fund's assets. In
order to minimize leverage in connection with the purchase of futures contracts
by the Fund, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian.
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OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as it could sell, a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of the underlying security, when the use of an
option on a future would result in a loss to the Fund when the use of a future
would not.
ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of limits.
An Exchange may order the liquidation of positions found to be in violation of
these limits and it may impose other sanctions or restrictions. These position
limits may restrict the number of listed options which the Fund may write.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses on the
futures contract.
Certain additional risks relate to the fact that the Fund will purchase and
sell options on mortgage-related securities. Since the remaining principal
balance of mortgage-related securities declines each month as a result of
mortgage payments, if the Fund has written a call and is holding such securities
as "cover" to satisfy its delivery obligation in the event of exercise, it may
find that the securities it holds no longer have a sufficient remaining
principal balance for this purpose. Should this occur, the Fund would purchase
additional mortgage-related securities from the same pool (if obtainable) or
replacements in the cash market in order to maintain its cover. A
mortgage-related security held by the Fund to cover an option position in any
but the nearest expiration month may cease to represent cover for the option in
the event of a decrease in the coupon
12
<PAGE> 69
rate at which new pools are originated. If this should occur, the option would
no longer be covered, and the Fund would either enter into a closing purchase
transaction or replace the mortgage-related security with one which represents
cover. In either case, the Fund may realize an unanticipated loss and incur
additional transaction costs.
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following restrictions may not be
changed without the approval of the holders of a majority of its outstanding
shares. Such majority is defined as the lesser of (i) 67% or more of the voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy;
or (ii) more than 50% of the Fund's outstanding voting securities. The
percentage limitations need only be met at the time the investment is made or
other relevant action taken. In addition to the fundamental investment
limitations set forth in the Fund's Prospectus, the Fund shall not:
1. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition.
2. Make any investment in real estate, commodities or commodities
contracts, except that the Fund will invest in mortgage-related and
mortgage-backed securities and engage in transactions in futures
contracts and related options, as described in the Prospectus and
elsewhere in this Statement of Additional Information.
3. Make any investment which would cause more than 25% of the market or
other fair value of its total assets to be invested in the securities of
issuers all of which conduct their principal business activities in the
same industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
4. Make loans of money or securities, except (a) by investment in
repurchase agreements in accordance with applicable requirements set
forth in the Fund's Prospectus or (b) by lending its portfolio
securities in amounts not to exceed ten percent of the Fund's total
assets, provided that such loans are secured by cash collateral that is
at least equal to the market value. See "Repurchase Agreements" and
"Lending of Securities" herein and "Investment Practices" in the
Prospectus.
5. Make short sales of securities, unless at the time of the sale the Fund
owns an equal amount of such securities. Notwithstanding the foregoing,
the Fund may make short sales by entering into forward commitments for
hedging or cross-hedging purpose and engage in transactions in options,
futures contracts and related options.
6. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. Transactions in forward commitments, options,
interest rate futures contracts and options on such contracts, including
deposits or payments of initial or maintenance margin in connection with
any such transaction, are not considered to be purchases of securities
on margin within the meaning of this limitation.
7. Invest in securities of any company if, to the knowledge of the Fund,
any of its officers or trustees, or any officer or director of the
Adviser, owns more than one-half of one percent of the outstanding
securities of such company, and such officers, trustees, and directors
who individually own more than such amount together own more than five
percent of the outstanding securities of such issuer.
8. Invest in interests in oil, gas, or other mineral exploration or
development programs.
9. Underwrite securities of other companies, except insofar as the Fund
might be deemed to be an underwriter for purposes of the Securities Act
of 1933 in the resale of any securities owned by the Fund.
13
<PAGE> 70
10. With respect to 75% of its assets, invest more than five percent of its
assets in the securities of any one issuer (except obligations of the
U.S. Government, its agencies or instrumentalities) or purchase more
than ten percent of the outstanding voting securities of any one
issuer.
11. Borrow in excess of five percent of the market or other fair value of
its total assets, or pledge its assets to an extent greater than five
percent of the market or other fair value of its total assets. Any such
borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. Deposits in
escrow in connection with the writing of covered or fully
collateralized call or secured put options, or in connection with the
purchase or sale of futures contracts and related options, are not
deemed to be a pledge or other encumbrance.
12. Purchase an illiquid security if, as a result of such purchase, more
than ten percent of the Fund's net assets would be invested in such
securities. Illiquid securities are securities subject to legal or
contractual restrictions on resale, which include repurchase agreements
maturing in more than seven days and any over-the-counter options or
other restricted securities purchased by the Fund.
13. Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may (a) write covered or fully collateralized call
options, write secured put options, and enter into closing or
offsetting purchase transactions with respect to such options, (b)
purchase and sell options to the extent that the premiums paid for all
such options owned at the time do not exceed ten percent of its total
assets and (c) engage in transactions in interest rate futures
contracts and related options provided that such transactions are
entered into for bona fide hedging purposes (or that the underlying
commodity value of the Fund's long positions do not exceed the sum of
certain identified liquid investments as specified in CFTC
regulations), provided further that the aggregate initial margin and
premiums do not exceed five percent of the fair market value of the
Fund's total assets, and provided further that the Fund may not
purchase futures contracts or related options if more than 30% of the
Fund's total assets would be so invested.
TRUSTEES AND EXECUTIVE OFFICERS
The Fund's Trustees and executive officers and their principal occupations
for the past five years are listed below.
TRUSTEES
<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
Strafford Hall, Suite 200 President of MDT Corporation, a company which develops,
1009 Slater Road manufactures, markets and services medical and scientific
Harrisville, NC 27560 equipment. A Trustee of each of the Van Kampen American
Age: 63 Capital Funds.
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Randor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing. A
Trustee of each of the Van Kampen American Capital Funds.
</TABLE>
14
<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. A Trustee
of each of the Van Kampen American Capital Funds.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Van Kampen American
Capital Funds advised by Van Kampen American Capital
Investment Advisory Corp.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, and the Adviser. Director and Executive Vice
President of ACCESS, Van Kampen American Capital Services
and Van Kampen American Capital Trust Company. Director,
Trustee or Managing General Partner of each of the Van
Kampen American Capital Funds and other open-end
investment companies and closed-end investment companies
advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 71 Van Kampen American Capital. A Director and the Second
Vice President of International Institute of Los Angeles.
A trustee of each of the Van Kampen American Capital
Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. A Trustee of each
of the Van Kampen American Capital Funds.
</TABLE>
15
<PAGE> 72
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
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
Suite 700 Fund Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 63 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A trustee of each of the Van Kampen American Capital
Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 71 Capital Funds and Chairman of the Van Kampen American
Capital Funds advised by the Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital Funds. A Trustee of each of the Van
Age: 55 Kampen American Capital Funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee 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 Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>
---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940). Mr. Powell is an interested person of
the Adviser and the Fund by reason of its position with the Adviser. Mr.
Sheehan and Mr. Whalen are interested persons of the Adviser and the Fund by
reason of their firms having acted as legal counsel to the Adviser or an
affiliate thereof.
16
<PAGE> 73
The Fund's officers other than Messrs. McDonnell and Nyberg are located at
2800 Post Oak Blvd., Houston, TX 77056. Messrs. McDonnell and Nyberg are located
at One Parkview Plaza, Oakbrook Terrace, IL 60181.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS DURING
NAME AND AGE OFFICES WITH FUND PAST 5 YEARS
------------ ----------------- ----------------------------
<S> <C> <C>
Nori L. Gabert....... Vice President and Vice President, Associate General Counsel and
Age: 41 Secretary Corporate Secretary of the Adviser.
Tanya M. Loden....... Vice President and Vice President and Controller of most of the
Age: 35 Controller investment companies advised by the Adviser,
formerly Tax Manager/Assistant Controller.
Dennis J.
McDonnell.......... President, Chief Operating Officer and a Director
Age: 53 of the Adviser and Director of VK/AC Holding, Inc.
and Van Kampen American Capital.
Curtis W. Morell..... Vice President and Vice President and Treasurer of most of the
Age: 49 Treasurer investment companies advised by the Adviser.
Ted Mundy............ Vice President Portfolio Manager of the Adviser, formerly,
Age: 35 Portfolio Manager, AMR Investment Services, Inc.
and Trader, Howard, Weil, Labouisse and
Friedrichs.
Ronald A. Nyberg..... Vice President Executive Vice President, General Counsel and
Age: 42 Secretary of Van Kampen American Capital.
Executive Vice President and a Director of the
Distributor. Executive Vice President of the
Adviser. Director of ICI Mutual Insurance Co., a
provider of insurance to members of the Investment
Company Institute.
Robert C. Peck, Jr... Vice President Senior Vice President and Director of the Adviser.
Age: 48
Alan T. Sachtleben... Vice President Executive Vice President and Director of the
Age: 53 Adviser; Executive Vice President of VK/AC
Holding, Inc. and Van Kampen American Capital.
J. David Wise........ Vice President and Vice President, Associate General Counsel and
Age: 51 Assistant Secretary Assistant Corporate Secretary of the Adviser.
Paul R. Wolkenberg... Vice President Senior Vice President of the Adviser. President,
Age: 50 Chief Operating Officer and Director of Van Kampen
American Capital Services, Inc. Executive Vice
President, Chief Operating Officer and Director of
Van Kampen American Capital Trust Company.
Executive Vice President and Director of ACCESS.
</TABLE>
The Trustees and officers of the Fund as a group own less than one percent
of the outstanding shares of the Fund. Only Messrs. Branagan, Caruso, Hilsman,
Powell, Rees, Sheehan, Sisto, and Woodside served as Trustees of the Fund during
its last fiscal year. During the last fiscal year, the Trustees who were not
affiliated with the Adviser or its parent received as a group $9,556 in
trustees' fees from the Fund in addition to certain out-of-pocket expenses. Such
Trustees also received compensation for serving as trustees or directors of
other investment companies advised by the Adviser. For legal services rendered
during the fiscal year, the Fund paid legal fees of $7,034 to the law firm of
O'Melveny & Myers, of which Mr. Sheehan is Of Counsel. The firm also serves as
legal counsel to the American Capital Funds.
17
<PAGE> 74
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as directors or trustees is
set forth below. The compensation shown for the Fund and the total compensation
shown for the Fund and other related mutual funds are for the year ended
December 31, 1994, is set forth below. Mr. Powell is not compensated for his
service as Trustee because of his affiliation with the Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED AND FUND COMMENT
FROM AS PART OF FUND COMPLEX PAID TO
NAME OF PERSON REGISTRANT EXPENSES DIRECTORS(1)(5)
-------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
J. Miles Branagan.............................. $1,410 -0- $ 64,000
Dr. Richard E. Caruso(3)....................... 1,410(2) -0- 64,000
Dr. Roger Hilsman.............................. 1,460 -0- 66,000
David Rees(3).................................. 1,410 -0- 64,000
Lawrence J. Sheehan............................ 1,480 -0- 67,000
Dr. Fernando Sisto(3).......................... 1,820(2) -0- 82,000
William S. Woodside(4)......................... 340 -0- 18,000
</TABLE>
---------------
(1) Represents 29 investment company portfolios in the fund complex.
(2) Amount reflects deferred compensation of $1,370 for Dr. Caruso and $960 for
Dr. Sisto.
(3) Messrs. Caruso, Rees and Sisto have deferred compensation in the past. The
cumulative deferred compensation paid by the Fund is as follows: Dr. Caruso,
$4,312; Mr. Rees, $5,378; and Dr. Sisto, $4,236.
(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Adviser. As a result, with respect to the second and fourth columns, $860
and $36,000, respectively, was paid by the Adviser directly.
(5) Includes the following amounts for which the various funds were reimbursed
by the Adviser -- Branagan, $2,000; Caruso, $2,000; Hilsman, $1,000; Rees,
$2,000; Sheehan, $2,000; Sisto, $2,000; Woodside, $1,000 (Mr. Woodside was
paid $36,000 directly by the Adviser as discussed in footnote 4 above).
Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $682 and a
meeting fee of $19 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate
any additional expense that might be caused by the new compensation arrangement,
the trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for serving as a
trustee of such funds). In addition, the Adviser has agreed to reimburse the
Fund through December 31, 1996 for any increase in the aggregate trustees'
compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment programs.
The Adviser also furnishes the services of the Fund's President and such
other executive and clerical personnel as are necessary to prepare the various
reports and statements and conduct the Fund's day-to-day operations. The Fund,
however, bears the cost of its accounting services, which include maintaining
its
18
<PAGE> 75
financial books and records and calculating its net asset value. The costs of
such accounting services include the salaries and overhead expenses of the
Fund's Treasurer and the personnel operating under his direction. Charges are
allocated among the investment companies advised or subadvised by the Adviser. A
portion of these amounts were paid to the Adviser or its parent in reimbursement
of personnel, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services provided by the Adviser are at
cost. The Fund also pays shareholder service agency fees, distribution fees,
service fees, custodian fees, legal and auditing fees, the costs of reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Agreement also provides that the Adviser shall not be liable
to the Fund for any actions or omissions if it acted without bad faith,
negligence or reckless disregard of its obligations.
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a fee
payable monthly, computed at the following annual rates: (a) 0.50% of the first
$1 billion of average daily net assets; (b) 0.475% of the next $1 billion of
average daily net assets; (c) 0.45% of the next $1 billion of average daily net
assets; (d) 0.40% of the next $1 billion of average daily net assets; and (e)
0.35% of the average daily net assets in excess of $4 billion.
The Fund's average net assets are determined by taking the average of all
determinations of the net assets during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser will be reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of VK/AC
Holding, Inc. in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of VK/AC Holding, Inc., in
connection with obtaining such commissions, fees, brokerage or similar payments.
The Adviser agrees to use its best efforts to recapture tender solicitation fees
and exchange offer fees for the Fund's benefit and to advise the Trustees of the
Fund of any other commissions, fees, brokerage or similar payments which may be
possible for the Adviser or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with the Fund's
portfolio transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed 1.5% of the first $30
million of the Fund's average net assets, plus one percent of any excess over
$30 million, the Adviser's monthly compensation will be reduced by the amount of
such excess and that, if the amount of such excess exceeds the Adviser's monthly
compensation, the Adviser will pay the Fund an amount sufficient to make up the
deficiency, subject to readjustment during the Fund's fiscal year. Ordinary
business expenses do not include (1) interest and taxes, (2) brokerage
commissions, (3) certain litigation and indemnification expenses as described in
the Advisory Agreement, and (4) payments made by the Fund pursuant to the
distribution plans (described herein). The Advisory Agreement also limits the
extent to which the Adviser shall be liable to the Fund for acts or omissions.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Trustees, or (ii) by vote of a majority
of the Fund's outstanding voting securities; and (b) by the vote of a majority
of the Trustees who are not parties to the agreement or interested persons of
any such party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement provides that it shall terminate automatically if assigned
and that it may be terminated without penalty by either party on 60 days'
notice.
During the fiscal years ended December 31, 1992, 1993 and 1994 the Adviser
received $424,048, $463,588 and $280,713 respectively, in advisory fees from the
Fund. For such periods the Fund paid $66,713, $91,249 and $75,309 respectively,
for accounting services.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
has the exclusive right to distribute shares of the Fund through dealers. The
Distributor's obligation is an agency or "best efforts" arrangement under which
the Distributor is required to take and pay for only such shares of the Fund as
may be sold to the public. The Distributor is not obligated to sell any stated
number of shares. The Distributor bears the cost of printing (but
19
<PAGE> 76
not typesetting) prospectuses used in connection with this offering and certain
other costs, including the cost of sales literature and advertising. The
Underwriting Agreement is renewable from year to year if approved (a) by the
Trustees or by a vote of a majority of the Fund's outstanding voting securities,
and (b) by the affirmative vote of a majority of the Trustees who are not
parties to the Underwriting Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Underwriting
Agreement provides that it will terminate if assigned, and that it may be
terminated without penalty by either party on 60 days' written notice. Total
underwriting commissions on the sale of shares of the Fund for the last three
fiscal periods are shown in the chart below. Advantage Capital Corporation is an
affiliated dealer of the Distributor.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
RECEIVED BY
TOTAL UNDERWRITING AMOUNT RETAINED ADVANTAGE CAPITAL
CAPITAL COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------------------------------ ------------------ --------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1992 $ 557,607 $18,203 $ 76,019
Fiscal Year Ended December 31, 1993 $ 132,779 $16,515 $ 27,511
Fiscal Year Ended December 31, 1994 $ 55,691 $ 2,321 $ 6,301
</TABLE>
DISTRIBUTION PLANS
The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan," "Class B Plan" or "Class C
Plan," respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan
and the Class C Plan are sometimes referred to herein collectively as "Plans"
and individually as a "Plan").
The Trustees have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to three percent of the purchase price of Class B
shares purchased by the clients of broker-dealers and other Service
Organizations, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, (5) advertising and promotion expenses, including conducting and
organizing sales seminars, marketing support salaries and bonuses, and
travel-related expenses and (6) interest expense at the three month LIBOR rate
plus 1 1/2% compounded quarterly on the unreimbursed distribution expenses. With
respect to the Class C Plan, authorized payments by the Fund also include
payments at an annual rate of up to 0.75% of the net assets of the Class C
shares to reimburse the Distributor for (1) upfront commissions and transaction
fees of up to 0.75% of the purchase price of Class C shares purchased by the
clients of broker-dealers and other Service Organizations and ongoing
commissions and transaction fees paid to broker-dealers and other Service
Organizations in an amount up to 0.25% of the average daily net assets of the
Fund's Class C shares, (2) out-of-pocket expenses of printing and distributing
prospectuses and annual and semi-annual shareholder reports to other than
existing shareholders, (3) out-of-pocket and overhead expenses for preparing,
printing and distributing advertising material and sales literature, (4)
expenses for promotional incentives to broker-dealers and financial and industry
professionals, (5) advertising and promotion expenses, including conducting and
organizing sales seminars, marketing support salaries
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<PAGE> 77
and bonuses, and travel-related expenses and (6) interest expense at the three
month LIBOR rate plus 1 1/2% compounded quarterly on the unreimbursed
distribution expenses. Such reimbursements are subject to the maximum sales
charge limits specified by the NASD for asset-based charges.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements were approved by the Trustees, including a majority of the
Trustees who are not affiliated persons (as defined in the 1940 Act) of the Fund
and who have no direct or indirect financial interest in the operation of any of
the Plans or in any agreements related to each Plan ("Independent Trustees"). In
approving each Plan in accordance with the requirements of Rule 12b-1, the
Trustees determined that there is a reasonable likelihood that each Plan will
benefit the Fund and its shareholders.
Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
Fund. Any change in any of the Plans that would materially increase the
distribution or service expenses borne by the Fund requires shareholder
approval, voting separately by class; otherwise, it may be amended by a majority
of the Trustees, including a majority of the Independent Trustees, by vote cast
in person at a meeting called for the purpose of voting upon such amendment. So
long as the Plans are in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
For the fiscal year ended December 31, 1994, the Fund's aggregate expenses
under the Class A Plan were $132,613 or 0.24% of the Class A shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for
payments to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the fiscal year ended December 31, 1994, the
Fund's aggregate expenses under the Class B Plan were $222,471 or 1.00% of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $166,853 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of sales
of Class B shares of the Fund and $55,618 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan. For the
fiscal year ended December 31, 1994, the Fund's aggregate expenses under the
Class C Plan were $76,165 or 1.00% of the Class C shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$57,124 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class C shares of the Fund and
$19,041 for fees paid to Service Organizations for servicing Class C
shareholders and administering the Class C Plan.
TRANSFER AGENT
During the fiscal year ended December 31, 1994, ACCESS, shareholder service
agent and dividend disbursing agent for the Fund, received fees aggregating
$150,547 for these services. These services are provided at cost plus a profit.
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PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate for prior
years is shown under "Financial Highlights" in the Prospectus. The annual
turnover rate is expected to exceed 100%, which is higher than that of many
other investment companies. A 100% turnover rate would occur if all the Fund's
portfolio securities were replaced during one year.
The Fund's portfolio turnover rate increased significantly from 1993 to
1994 because of increased trading activity resulting from a sharp increase in
short-term interest rates. This heightened volatility created additional trading
opportunities to manage treasury curve exposure. Additionally, late in the year,
dislocations among sectors (prices of adjustable rate mortgages were especially
favorable) presented opportunities which led to increased turnover.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, as well as for the placement of its portfolio business and the negotiation
of any commissions, if any, paid on such transactions. It is the policy of the
Adviser to seek the best security price available with respect to each
transaction. In over-the-counter transactions, orders are placed directly with a
principal market maker unless the Adviser believes that a better price and
execution can be obtained by using a broker. Except to the extent that the Fund
may pay higher brokerage commissions for brokerage and research services, as
described below, on a portion of its transactions executed on securities
exchanges, the Adviser seeks the best security price at the most favorable
commission rate. In selecting broker-dealers and in negotiating commissions, the
Adviser considers the firm's reliability, the quality of its execution services
on a continuing basis and its financial condition. When more than one firm is
believed to meet these criteria, preference may be given to firms which also
provide research services to the Fund or the Adviser. Consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. and
subject to seeking best execution and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Fund as a factor in
the selection of firms to execute portfolio transactions for the Fund.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services, a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).
Pursuant to provisions of the Advisory Agreement, the Trustees have
authorized the Adviser to cause the Fund to incur brokerage commissions in an
amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser intends that such higher commissions will
not be paid by the Fund unless (a) the Adviser determines in good faith that the
amount is reasonable in relation to the services in terms of the particular
transaction or in terms of the Adviser's overall responsibilities with respect
to the accounts as to which it exercises investment discretion, (b) such payment
is made in compliance with the provisions of Section 28(e) and other applicable
state and federal laws, and (c) in the opinion of the Adviser, the total
commissions paid by the Fund are reasonable in relation to the expected benefits
to the Fund over the long term. The investment advisory fee paid by the Fund
under the Advisory Agreement is not reduced as a result of the Adviser's receipt
of research services.
The Adviser places portfolio transactions for other advisory accounts,
including other mutual funds. Research services furnished by firms through which
the Fund effects its securities transactions may be used by
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<PAGE> 79
the Adviser in servicing all of their accounts; not all of such services may be
used by the Adviser in connection with the Fund. In the opinion of the Adviser,
the benefits from research services to each of the accounts, including the Fund,
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services may vary. In the opinion of the Adviser,
however, such costs to the Fund will not be disproportionate to the benefits
received by the Fund on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Adviser are the respective investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.
The Adviser's brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Trustees who are not affiliated
persons.
Brokerage commissions paid by the Fund on portfolio transactions for the
fiscal years ended December 31, 1992, 1993 and 1994 totalled $54,143, $12,080
and $-0-, respectively. No commissions were paid for research services during
the last fiscal year and no commissions were paid to affiliated brokers during
the last three years.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each
business day on which the Exchange is open. The Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The types of mortgage-related and asset-backed securities in which the Fund
invests, as well as U.S. Government securities, are traded in the
over-the-counter market and are valued at the last available bid price. Such
valuations are based on quotations of one or more dealers that make markets in
the securities as obtained from such dealers or from a pricing service. Listed
options and options on futures contracts are valued at the last reported sale
price as of the close of the exchange or, if no sales are reported, at the mean
between the last reported bid and asked prices. Securities with a remaining
maturity of 60 days or less are valued on an amortized costs basis, which
approximates market value.
Securities (as well as over-the-counter options) and any other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Trustees. Such
valuations and procedures are reviewed periodically by the Trustees.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the Securities and Exchange Commission ("SEC").
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."
PURCHASE OF SHARES
Class A shares and Class C shares of the Fund are sold in a continuous
offering and may be purchased on any business day through authorized dealers,
including Advantage Capital Corporation.
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<PAGE> 80
At this time, the Fund offers Class B shares only to current Fund Class B
shareholders who have elected or may elect the option to reinvest dividends
and/or capital gains distributions in shares of the Fund (other share purchases
by such shareholders must be of Class A or Class C shares), and Class B
shareholders of other American Capital funds exchanging their Class B shares for
Class B shares of the Fund.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues three classes of shares: Class A shares are subject to an
initial sales charge; Class B and Class C shares are sold at net asset value and
are subject to a contingent deferred sales charge. The three classes of shares
each represent interests in the same portfolio of investments of the Fund, have
the same rights and are identical in all respects, except that Class B and Class
C shares bear the expenses of the deferred sales arrangements, distribution
fees, and any expenses (including higher transfer agency costs) resulting from
such sales arrangements, and have exclusive voting rights with respect to the
Rule 12b-1 distribution plan pursuant to which the distribution fee is paid. As
set forth above, Class B shares are not currently being offered for sale to the
general public.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.
INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to ACCESS, P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of $500 or more, in the form of a check
payable to the Fund, must accompany the application. This minimum may be waived
by the Distributor for plans involving continuing investments. Subsequent
investments of $25 or more may be mailed directly to ACCESS. All such
investments are made at the public offering price of Fund shares next computed
following receipt of payment by ACCESS. Confirmations of the opening of an
account and of all subsequent transactions in the account are forwarded by
ACCESS to the investor's dealer of record, unless another dealer is designated.
In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charge reflected in the sales charge table as shown in
the Prospectus under "Purchase of Shares -- Sales Charge Table" apply to
purchases of Class A shares of the Fund where the aggregate investment is
$25,000 or more. For purposes of determining eligibility for volume discounts,
spouses and their minor children are treated as a single purchaser, as is a
director or other fiduciary purchasing for a single fiduciary account. An
aggregate investment includes all shares of the Fund and all shares of certain
other participating Van Kampen American Capital mutual funds described in the
Prospectus (the "Participating Funds"), which have been previously purchased and
are still owned, plus the shares being purchased. The current offering price is
used to determine the value of all such shares. If, for example, an investor has
previously purchased and still holds shares of the Fund and shares of other
Participating Funds having a current offering price of $40,000, and that person
purchases $65,000 of additional Class A shares of the Fund, the charge
applicable to the $65,000 purchase would be 2.75% of the offering price. The
same reduction is applicable to purchases under a Letter of Intent as described
in the next paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN
ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE
BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE GIVEN IN WRITING WHEN
SUCH AN ORDER IS PLACED BY MAIL. The reduced sales charge may not be applied if
such notification is not furnished at the time of the order. The reduced sales
charge will also not be applied should a review of the records of the
Distributor or ACCESS fail to confirm the investor's representations concerning
his holdings.
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<PAGE> 81
LETTER OF INTENT
Purchases of Class A shares of the funds described above under "Cumulative
Purchase Discount" made pursuant to the Letter of Intent and the value of all
shares of such Participating Funds previously purchased and still owned are also
included in determining the applicable quantity discount. A Letter of Intent
permits an investor to establish a total investment goal to be achieved by any
number of investments over a 13-month period. Each investment made during the
period receives the reduced sales charge applicable to the amount represented by
the goal as if it were a single investment. Escrowed shares totaling five
percent of the dollar amount of the Letter of Intent are held by ACCESS in the
name of the shareholder. A Letter of Intent may be back-dated up to 90 days in
order that any investments made during this 90-day period, valued at the
investor's cost, can become subject to the Letter of Intent. The Letter of
Intent does not obligate the investor to purchase the indicated amount. In the
event the Letter of Intent goal is not achieved within the 13-month period, the
investor is required to pay the difference between sales charges otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such difference.
If the goal is exceeded in an amount which qualifies for a lower sales charge, a
price adjustment is made by refunding to the investor in shares of the Fund, the
amount of excess sales charges, if any, paid during the 13-month period.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), the front-end sales charge will be waived and a contingent deferred
sales charge ("CDSC--Class A") of one percent is imposed in the event of certain
redemptions within one year of the purchase. If a CDSC--Class A is imposed upon
redemption, the amount of the CDSC--Class A will be equal to the lesser of one
percent of the net asset value of the shares at the time of purchase, or one
percent of the net asset value of the shares at the time of redemption.
The CDSC--Class A will only be imposed if a Qualified Purchaser redeems an
amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. The CDSC--Class
A will be waived in connection with redemptions by certain Qualified Purchasers
(e.g., in retirement plans qualified under Section 401(a) of the Code and
deferred compensation plans under Section 457 of the Code) required to obtain
funds to pay distributions to beneficiaries pursuant to the terms of the plans.
Such payments include, but are not limited to, death, disability, retirement, or
separation from service. No CDSC--Class A will be imposed on exchanges between
funds. For purposes of the CDSC--Class A, when shares of one fund are exchanged
for shares of another fund, the purchase date for the shares of the fund
exchanged into will be assumed to be the date on which shares were purchased in
the fund from which the exchange was made. If the exchanged shares themselves
are acquired through an exchange, the purchase date is assumed to carry over
from the date of the original election to purchase shares subject to a
CDSC--Class A rather than a front-end load sales charge. In determining whether
a CDSC--Class A is payable, it is assumed that shares held the longest are the
first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent will apply to the net
asset value privilege. Also, in order to establish an amount of $1,000,000 or
more, a Qualified Purchaser may aggregate shares of Van Kampen American Capital
Reserve Fund, Van Kampen American Capital Money Market Fund and Van Kampen
American Capital Tax Free Money Fund with shares of other participating funds
described as "Participating Funds" in the Prospectus.
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B and Class C shares will be subject to a contingent deferred sales
charge.
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<PAGE> 82
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC--CLASS B
AND C")
The CDSC--Class B and C may be waived on redemptions of Class B and Class C
shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC--Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Code, which in pertinent part defines a person as
disabled if such person "is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration." While the Fund does not specifically adopt the balance of the Code's
definition which pertains to furnishing the Secretary of Treasury with such
proof as he or she may require, the Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC--Class B and C.
In cases of death or disability, the CDSC--Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC--Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC--Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge may be waived upon the tax-free rollover or transfer of assets
to another Retirement Plan invested in one or more of Van Kampen American
Capital Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC--Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also may be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge will be waived on any minimum distribution required to be
distributed in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC--Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan (the
"Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC--Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC--Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
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<PAGE> 83
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Any involuntary redemption may only occur if
the shareholder account is less than the amount specified in the Prospectus due
to shareholder redemptions. The Fund will waive the CDSC--Class B and C upon
such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC--Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C shares of the Fund, provided that the reinvestment is effected
within 120 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the
CDSC--Class C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC--Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Fund to fairly determine the value of its net assets; or (d)
the Securities and Exchange Commission, by order, so permits.
The Fund may amend the signature guarantee procedures set forth in the
Prospectus under "Redemption of Shares" if a viable signature guarantee program
is established.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is
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<PAGE> 84
deemed to have been sold with a sales charge rate equal to the rate previously
paid on the security on which the dividend or distribution was paid. If a
shareholder exchanges less than all of his securities, the security upon which
the highest sales charge rate was previously paid is deemed exchanged first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form and return both documents to ACCESS before checks will be
issued. All signatures on the authorization card must be guaranteed if any of
the signatures are persons not referenced in the account registration or if more
than 30 days have elapsed since the shareholder service agent established the
account on its records. Moreover, if the shareholder is a corporation,
partnership, trust, fiduciary, executor or administrator, the appropriate
documents appointing authorized signers (corporate resolutions, partnerships or
trust agreements) must accompany the authorization card. The documents must be
certified in original form, and the certificates must be dated within 60 days of
their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends each business day on Class A shares, Class B
shares and Class C shares and distributes monthly substantially all of its net
investment income to shareholders of Class A shares, Class B shares and Class C
shares. The daily dividends are a fixed amount determined for each class at
least monthly. The per share dividends on Class B and Class C shares will be
lower than the per share dividends on Class A shares as a result of the
distribution fees and higher transfer agency fees applicable to the Class B and
Class C shares. The total of the Class A, Class B and Class C dividends is
expected not to exceed the net income of the Fund for the month divided by the
number of business days in the month. Net investment income for dividend
purposes consists of interest earned less expenses of the Fund accrued for that
dividend period. Dividends and distributions are automatically reinvested in
shares of the Fund at the next determined net asset value without sales charge,
except that any shareholder may elect in writing to receive any such dividends
or distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as discussed below whether they are reinvested in shares of the
Fund or received in cash.
As described below under "Tax Treatment of Option and Futures
Transactions," 60% of any gain or loss realized by the Fund from transactions in
listed options, futures, and options on futures generally constitutes long-term
capital gains or losses and the balance constitutes short-term capital gains or
losses. The Fund may designate up to the entire amount of any net long-term
capital gains realized during the Fund's fiscal year as being paid in the last
quarterly distribution of gains during such fiscal year or in the first
quarterly distribution of gains after the close of such fiscal year.
28
<PAGE> 85
Dividends and distributions declared to shareholders of record after
September 30 of any year and paid before February 1 of the following year, are
considered taxable income to shareholders on the record date even though paid in
the next year.
TAX STATUS OF THE FUND
Through payment of all or substantially all of its taxable net investment
income and net realized capital gains to shareholders and by meeting certain
diversification of assets and other requirements of the Code, the Fund expects
to qualify as a regulated investment company under Sections 851-855 of the Code.
This enables the Fund to be relieved from payment of income taxes on that
portion of its taxable net investment income and net realized capital gains
distributed to shareholders.
If for any taxable year the Fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income,
including any net realized capital gains, would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders).
Dividends paid by the Fund from its net investment income, and
distributions of the Fund's net realized short-term capital gains, are taxable
to shareholders as ordinary income. Any distributions designated as being made
from the Fund's net realized long-term capital gains are taxable to shareholders
as long-term capital gains, regardless of the length of the period that a
shareholder has held his shares. Not later than 60 days after the end of each
fiscal year, the Fund will send to its shareholders a written notice required by
the Code designating the amount of any distributions made during such year which
are long-term capital gains distributions. Such notice may be included in the
annual report to shareholders. A dividend or capital gains distribution received
after the purchase of the Fund's shares reduces the net asset value of the
shares by the amount of the dividend or distribution and will be subject to
income taxes. A loss on the sale of shares held for less than six months
attributable to a long-term capital gains distribution is treated as a long-term
capital loss for federal income tax purposes.
If for any fiscal year of the Fund, the amount of distributions paid or
deemed paid for such year exceeds its net investment income plus net realized
capital gains for such year, the amount of such excess is expected to be treated
as a return of capital to all those shareholders who held shares of the Fund
during the year. In such case, each distribution paid or deemed paid for that
year would be treated, in the same proportion, in part as a distribution of
taxable income and in part as a return of capital. Shareholders would incur no
current federal income tax on the portion of such distributions which are
treated as a return of capital, but each shareholder's basis in the Fund's
shares would be reduced by that amount. This reduction of basis would operate to
increase the shareholder's capital gain, or decrease its capital loss, upon
redemption of Fund shares.
One of the requirements for qualification as a regulated investment company
is that less than 30% of the Fund's gross income be derived from gains from the
sale or other disposition of securities held for less than three months.
Accordingly, the Fund may be restricted in the writing of options on securities
which have been held less than three months, in the writing of options which
expire in less than three months, in effecting closing purchase transactions
with respect to options which have been written less than three months prior to
such transactions and in effecting closing transactions in futures contracts
which have been open for less than three months. Another requirement for
qualification is that at least 90% of the Fund's gross income in each fiscal
year be derived from dividends, interest and gains from the sale or other
disposition of securities.
The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders at least 98% of its ordinary taxable income for
the twelve-months ended December 31, plus 98% of its capital gain net income for
the twelve-months ended October 31 of such year. The Fund intends to distribute
sufficient amounts to avoid liability for the excise tax.
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized on
the basis of the subsequent shares.
29
<PAGE> 86
Since none of the Fund's net investment income arises from dividends on
common or preferred stock, none of its distributions are eligible for the 70%
dividends received deduction for corporations.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
law. Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
BACK-UP WITHHOLDING
The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income, or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% "back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.
TAX TREATMENT OF OPTION AND FUTURES TRANSACTIONS
The Code includes special rules applicable to listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other terminations of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts, when held by the Fund at the end of a
fiscal year, generally are required to be treated as sold at market value on the
last day of such fiscal year for federal income tax purposes
("marked-to-market"). Over-the-counter options are not classified as Section
1256 contracts and are not subject to the mark-to-market rule or to 60/40 gain
or loss treatment. Any gains or losses recognized by the Fund from transactions
in over-the-counter options generally constitute short-term capital gains or
losses. If over-the-counter call options written, or over-the-counter put
options purchased, by the Fund are exercised, the gain or loss realized on the
sale of the underlying securities may be either short-term or long-term,
depending on the holding period of the securities. In determining the amount of
gain or loss, the sales proceeds are reduced by the premium paid for
over-the-counter puts or increased by the premium received for over-the-counter
calls.
A substantial portion of the Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle in which at
least one, but not all, of the positions are Section 1256 contracts is a "mixed
straddle" under the Code if certain identification requirements are met.
The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is
30
<PAGE> 87
acquired within a prescribed period and, (iii) "short sale" rules which may
terminate the holding period of securities owned by the Fund when offsetting
positions are established and which may convert certain losses from short-term
to long-term.
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.
FUND PERFORMANCE
The Fund's average annual total return, computed in the manner described in
the Prospectus, for Class A shares of the Fund for the one-year, five-year, and
eight-and-one-half year (period since initial public offering of Fund) periods
ended December 31, 1994 was -2.12%, 4.59% and 5.36%, respectively. The average
annual total return, computed in the manner described in the Prospectus, for
Class B shares of the Fund for the one-year, and three-years-and-one month (the
initial offering of Class B shares) period ended December 31, 1994 was -3.50%
and 1.40%, respectively. The average annual total return, computed in the manner
described in the Prospectus, for Class C shares of the Fund for the one-year,
and seventeen-=month (the initial offering of Class C shares) period ended
December 31, 1994, was -1.50% and 0.29%, respectively. These results are based
on historical earnings and asset value fluctuations and are not intended to
indicate future performance. Such information should be considered in light of
the Fund's investment objective and policies as well as the risks incurred in
the Fund's investment practices.
The annualized current yield, both subsidized and non-subsidized, for Class
A, Class B and Class C shares of the Fund for the 30 day period ending December
31, 1994 is listed below.
<TABLE>
<CAPTION>
NON-SUBSIDIZED
--------------
<S> <C>
Class A 4.75%
Class B 4.04%
Class C 4.04%
</TABLE>
The yield for any class of shares of the Fund is not fixed and will
fluctuate in response to prevailing interest rates and the market value of
portfolio securities, and as a function of the type of securities owned by the
Fund, portfolio maturity and the Fund's expenses.
Yield and total return are computed separately for Class A, Class B and
Class C shares.
From time to time VKAC will announce the results of their monthly polls of
U.S. investor intentions -- the Van Kampen American Capital Index of Investor
Intentions and the Van Kampen American Capital Mutual Fund Index -- which polls
measure how Americans plan to use their money.
From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors, and may refer to the
Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by Van Kampen American Capital in 1994.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Funds.
31
<PAGE> 88
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual Report to Shareholders including the related report of Independent
Accountants on such financial statements are included in the Statement of
Additional Information.
The following information is not included in the Annual Report. This
example assumes a purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth in the Prospectus at
a price based upon the net asset value of Class A shares of the Fund.
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Net Asset Value per Class A Share $11.90
Class A Per Share Sales Charge -- 3.25% of offering price
(2.30% of net asset value per share) $ .27
------------
Class A Per Share Offering Price to the Public $12.17
</TABLE>
32
<PAGE> 89
INVESTMENT PORTFOLIO
December 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Agency and Government Obligations 97.5%
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES 33.3%
Federal Home Loan Mortgage Corp.
$ 247,899 5.38% Pool, 11/1/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,225
*3,754,317 5.47% Pool, 7/1/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,702,095
3,884,792 6.11% Pool, 6/1/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,873,876
1,316,779 6.13% Pool, 8/1/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318,425
275,279 6.14% Pool, 5/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,441
348,447 6.28% Pool, 3/1/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,071
310,407 7.50% Pool, 9/1/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,399
194,402 8.35% Pool, 2/1/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,183
Federal National Mortgage Association
933,709 5.83% Pool, 2/1/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910,366
449,130 5.84% Pool, 10/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,516
2,021,664 5.86% Pool, 12/1/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980,604
3,500,000 6.25% Pool, 1/1/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,456,250
934,491 6.47% Pool, 8/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941,500
3,825,693 6.64% Pool, 9/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,838,853
----------------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES
(Cost $22,343,917) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,831,804
----------------
COLLATERALIZED MORTGAGE OBLIGATIONS 46.5%
Federal Home Loan Mortgage Corp.
2,531,962 5.00%, 5/15/99 (PAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,486,082
3,911,926 5.88%, 4/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,892,366
2,897,537 6.18%, 2/15/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,897,537
5,000,000 6.50%, 6/15/97 (PAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,932,050
Federal National Mortgage Association
3,237,300 4.75%, 1/25/05 (PAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,160,414
*3,136,000 5.50%, 3/25/03 (PAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,909,612
940,233 6.05%, 2/25/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,532
848,015 6.08%, 3/25/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 839,798
7,684,628 6.33%, 6/25/18 to 2/25/21 . . . . . . . . . . . . . . . . . . . . . . . . . 7,665,878
737,092 6.75%, 8/25/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712,215
----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $30,824,257) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,431,484
----------------
FIXED-RATE MORTGAGE-BACKED SECURITIES 6.8%
Federal National Mortgage Association
*909,615 9.50% Pools, 7/1/11 to 8/1/21 . . . . . . . . . . . . . . . . . . . . . . . 934,630
*780,884 10.00% Pool, 5/1/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819,194
Government National Mortgage Association
220,366 8.50% Pools, 12/15/16 to 1/15/17 . . . . . . . . . . . . . . . . . . . . . . 216,441
514,313 9.50% Pools, 3/15/16 to 1/15/19 . . . . . . . . . . . . . . . . . . . . . . 530,710
956,921 10.00% Pools, 4/15/16 to 4/15/19 . . . . . . . . . . . . . . . . . . . . . . 1,005,963
494,314 10.50% Pools, 5/15/13 to 2/15/18 . . . . . . . . . . . . . . . . . . . . . . 527,833
381,751 11.00% Pool, 11/15/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,363
----------------
TOTAL FIXED-RATE MORTGAGE-BACKED SECURITIES
(Cost $4,370,127) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,448,134
----------------
</TABLE>
F-1
<PAGE> 90
INVESTMENT PORTFOLIO, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES TREASURY OBLIGATIONS 10.9%
United States Treasury Notes
$ 3,500,000 7.50%, 12/31/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,487,435
3,500,000 8.875%, 2/15/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,621,415
---------------
TOTAL UNITED STATES TREASURY OBLIGATIONS
(Cost $7,131,578) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,108,850
---------------
TOTAL UNITED STATES AGENCY AND GOVERNMENT OBLIGATIONS
(Cost $64,669,879) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,820,272
---------------
ASSET BACKED SECURITIES 11.2%
4,000,000 ITT, 5.58%, 2/15/01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,998,760
3,447,388 Premier Auto, 4.95%, 2/2/99 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,323,489
---------------
TOTAL ASSET BACKED SECURITIES (Cost $7,378,872) . . . . . . . . . . . . . . . . 7,322,249
---------------
REPURCHASE AGREEMENT 2.3%
1,495,000 Salomon Brothers, Inc., dated 12/30/94, 5.75%, due 1/3/95
(Collateralized by U.S. Government obligations in a pooled cash
account) repurchase proceeds $1,495,955 (Cost $1,495,000) . . . . . . . . . 1,495,000
---------------
TOTAL INVESTMENTS (Cost $73,543,751) 111.0% . . . . . . . . . . . . . . . . . . 72,637,521
Other assets and liabilities, net (11.0%) . . . . . . . . . . . . . . . . . . . (7,204,502)
---------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,433,019
===============
</TABLE>
* SECURITIES WITH A MARKET VALUE OF APPROXIMATELY $7.4 MILLION WERE
PLACED AS COLLATERAL FOR FORWARD COMMITMENTS (SEE NOTE 1B).
PAC -- Planned Amortization Class
SEE NOTES TO FINANCIAL STATEMENTS
F-2
<PAGE> 91
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $73,543,751) . . . . . . . . . . . . . . . . . . . . . . $ 72,637,521
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,698
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,370
Receivable for Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,978
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,647
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,100,214
------------
LIABILITIES
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,026,257
Payable for Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,460
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,981
Due to Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,424
Due to Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,515
Due to shareholder service agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,830
Unrealized depreciation of forward purchase commitment . . . . . . . . . . . . . . . . . . 12,510
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 58,218
------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,667,195
------------
NET ASSETS, equivalent to $11.90 per share for Class A shares,
$11.91 per share for Class B shares and $11.90 per share
for Class C shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,433,019
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 3,465,620 Class A,
1,541,528 Class B and 491,408 Class C shares outstanding . . . . . . . . . . . . . . . . $ 54,986
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,620,185
Accumulated net realized loss on securities . . . . . . . . . . . . . . . . . . . . . . . (16,372,918)
Net unrealized depreciation of securities
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (906,230)
Forward purchase commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,510)
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,506
------------
NET ASSETS at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,433,019
============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 92
STATEMENTS OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,960,588
-----------
EXPENSES
Management fees (net of waiver of $140,000 -- see Note 2) . . . . . . . . . . . . . . . . . 280,713
Service fees -- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,613
Distribution and service fees -- Class B . . . . . . . . . . . . . . . . . . . . . . . . . 222,471
Distribution and service fees -- Class C . . . . . . . . . . . . . . . . . . . . . . . . . 76,165
Shareholder services agent's fees and expenses . . . . . . . . . . . . . . . . . . . . . . 191,813
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,736
Accounting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,309
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,115
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,522
Trustees' fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,185
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,084
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,565
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,523
-----------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191,814
-----------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,768,774
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized loss on securities
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,162,092)
Forward commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349,453)
Net unrealized appreciation (depreciation) during the year
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,409,115)
Forward commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,871
-----------
Net realized and unrealized loss on securities . . . . . . . . . . . . . . . . . . . . . (3,916,789)
-----------
Decrease in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ (148,015)
===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 93
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
NET ASSETS, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . $ 98,293,251 $ 142,091,079
--------------- ---------------
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,768,774 6,362,397
Net realized loss on securities (net of
reimbursement -- see Note 2). . . . . . . . . . . . . . . . . . . . . . . (2,511,545) (1,880,081)
Net unrealized depreciation of securities
during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,405,244) (868,537)
---------------- ----------------
Increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148,015) 3,613,779
--------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,394,001) (4,123,348)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (806,734) (1,347,132)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (276,067) (91,349)
--------------- ---------------
(3,476,802) (5,561,829)
--------------- ---------------
NET EQUALIZATION DEBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . (169,962) (620,002)
--------------- ---------------
FUND SHARES TRANSACTIONS
Proceeds from shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,201,023 32,894,798
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,104,254 5,703,339
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,694,179 7,970,180
--------------- ---------------
28,999,456 46,568,317
--------------- ---------------
Proceeds from shares issued for dividends reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576,391 2,898,790
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547,208 863,542
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,460 46,435
--------------- ---------------
2,246,059 3,808,767
--------------- ---------------
Cost of shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,385,868) (73,362,626)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,217,467) (17,349,831)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,707,633) (894,403)
--------------- ---------------
(60,310,968) (91,606,860)
--------------- ---------------
Decrease in net assets resulting from Fund
shares transactions . . . . . . . . . . . . . . . . . . . . . . . . . . (29,065,453) (41,229,776)
--------------- ---------------
DECREASE IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,860,232) (43,797,828)
--------------- ---------------
NET ASSETS, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,433,019 $ 98,293,251
=============== ===============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies
American Capital Federal Mortgage Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. Investment Valuations
U.S. Agency and Government obligations and related forward commitments
are valued at the last reported bid price. Listed options are valued
at the last reported sale price on the exchange on which such option
is traded, or, if no sales are reported, at the mean between the last
reported bid and asked prices. Securities for which market quotations
are not readily available are valued at a fair value under a method
approved by the Board of Trustees.
Short-term investments with a maturity of 60 days or less when
purchased are valued at amortized cost, which approximates market
value. Short-term investments with a maturity of more than 60 days
when purchased are valued based on market quotations, until the
remaining days to maturity become less than 61 days. From such time,
until maturity, such investments are valued at amortized cost.
B. Forward Commitments
The fund trades certain securities under the terms of forward
commitments, whereby the settlement for payment and delivery occurs at
a specified future date. Forward commitments are privately negotiated
transactions between the Fund and dealers. Transactions in forward
commitments are utilized in strategies to manage the market risk of
the Fund's investments. Investing in such instruments increases the
impact on net asset value of changes in the market price of
investments. Forward commitments have a risk of loss due to
nonperformance of counterparties. There is also a risk that the
market movement of such instruments may not be in the direction
forecasted. Upon executing a forward commitment and during the period
of obligation, the Fund maintains collateral of cash or securities in
a segregated account with its custodian in an amount sufficient to
relieve the obligation. If the intent of the Fund is to accept
delivery of a security traded under a forward purchase commitment, the
commitment is recorded as a ling-term purchase. For forward purchase
commitments and for forward sale commitments, which security
settlement is not intended by the Fund, changes in the value of the
commitment are recognized by marking the commitment to market on a
daily basis. During the period of the commitment, the Fund may either
resell or repurchase the forward commitment and enter into a new
forward commitment, the effect of which is to extend the settlement
date. In addition, the Fund may occasionally close such forward
commitments prior to delivery. Gains or losses are realized upon the
ultimate closing or cash settlement of forward commitments. Note 3 -
Investment activity contains additional information.
C. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Fund
acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The
Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other
investment companies advised or subadvised by the Van Kampen American
Capital Asset Management, Inc. (the "Adviser"), the daily aggregate of
which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Fund will make
payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not
less than the repurchase proceeds due the Fund.
D. Federal Income Taxes
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the
Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and
taxable net realized capital gains to its shareholders. It is
anticipated that no distributions of capital gains will be made until
tax basis capital loss carryforwards expire or are offset by net
realized capital gains.
E. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of
identified cost. Interest income is accrued daily.
F-6
<PAGE> 95
F. Dividends and Distributions
The Fund declares dividends on each business day. Dividends and
distributions are recorded on the record dates. The Fund distributes
tax basis earnings in accordance with the minimum distribution
requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such dividends or
distributions may exceed financial statement earnings.
G. Equalization
At December 31, 1994, the Fund discontinued the accounting practice of
equalization, which it had used since its inception. Equalization is
a practice whereby a portion of the proceeds from sales and costs of
redemptions of Fund shares, equivalent on a per-share basis to the
amount of the undistributed net investment income, is charged or
credited to undistributed net investment income.
The balance of equalization included in undistributed net investment
income at the date of change, which was $311,791, was reclassified to
capital surplus. Such reclassification had no effect on net assets,
results of operations, or net asset value per share of the Fund.
H. Debt Discount and Premium
For financial reporting purposes, debt discounts and premiums are
accounted for on the same basis as is followed for federal income tax
reporting. Accordingly, original issue discounts on debt securities
purchased are amortized over the life of the security. Premiums on
debt securities are not amortized. Market discounts are recognized at
the time of sale as realized gains for book purposes and ordinary
income for tax purposes.
Note 2 - Management Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate of
.50% of the first $1 billion, .475% of the next $1 billion, .45% of the next $1
billion, .40% of the next $1 billion and .35% of the amount in excess of $4
billion. From time to time, the Adviser may elect to waive a portion of its
management fee. The waiver is voluntary and may be discontinued at any time
without prior notice.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or subadvised by the Adviser.
For the year ended December 31, 1994, these charges included $6,936 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The services provided by the
Adviser are at cost.
Van Kampen American Capital Shareholder Services, Inc., an affiliate of the
Adviser, serves as the Fund's shareholder service agent. These services are
provided at cost plus a profit. For the year ended December 31, 1994, the fees
for such services aggregated $150,547.
The Fund was advised that Van Kampen American Capital Distributor, Inc. (the
"Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $2,321 and $6,301, respectively, as their
portion of the commissions charged on sales of Fund shares during the year.
Under the Distribution Plans, each class of shares pays up to .25% per annum of
its average net assets to the Distributor for expenses and service fees
incurred. Class B shares and Class C shares pay an additional fee of up to
.75% per annum of their average net assets to reimburse the Distributor for its
distribution expenses. Actual distribution expenses incurred by the
Distributor for Class B shares and Class C shares may exceed the amounts
reimbursed to the Distributor by the Fund. At December 31, 1994, the
unreimbursed expenses incurred by the Distributor under the Class B and Class C
plans aggregated approximately $1.1 million and $130,000, respectively, and may
be carried forward and reimbursed through either the collection of the
contingent deferred sales charges from share redemptions or, subject to the
annual renewal of the plans, future Fund reimbursements of distribution fees.
F-7
<PAGE> 96
Legal fees of $7,034 were for services rendered by O'Melveny & Myers, counsel
for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of
the Fund.
Certain officers and trustees of the Fund are officers and trustees or
directors of the Adviser, the Distributor, the Retail Dealer and the
shareholder service agent.
During 1993, certain securities held by the Fund were mispriced. The Adviser
reimbursed the Fund approximately $6.9 million to eliminate any loss to
shareholders incurred during the year of mispricing of such securities. The
reimbursement has been recorded as a reduction of the realized loss recognized
on the sale of the related securities. Without the reimbursement, the Adviser
estimates that the total return for the year ended December 31, 1993 would have
been lower by approximately 6.25 percentage points.
Note 3 -- Investment Activity
During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and forward commitments, were $129,178,297 and
$151,188,189, respectively.
The identified cost of investments owned at December 31, 1994 was the same for
federal income tax and financial reporting purposes. Net unrealized
depreciation of investments aggregated $906,230, gross unrealized appreciation
of investments aggregated $108,819 and gross unrealized depreciation of
investments aggregated $1,015,049.
The net realized capital loss carryforward of approximately $15.4 million for
federal income tax purposes at December 31, 1994 may be utilized to offset
future capital gains until expiration in 1995 through 2002, of which
approximately 21% will expire in 1995. Additionally, approximately $900,000 in
realized losses are being deferred for tax purposes to the 1995 fiscal year.
At December 31, 1994, the Fund held the following forward purchase commitment
settling January 1995.
<TABLE>
<CAPTION>
VALUE AT
PRINCIPAL DECEMBER 31, UNREALIZED
AMOUNT SECURITY 1994 DEPRECIATION
---------- ----------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
$4,000,000 Federal National Mortgage Association,
8.00% Pools . . . . . . . . . . . . . . . . . . . . $ 3,831,240 $ 12,510
=========== ============
</TABLE>
Note 4 -- Trustee Compensation
Trustees who are not affiliated with the Adviser are compensated by the Fund at
the annual rate of $810 plus a fee of $20 per day for Board and Committee
meetings attended. The Chairman receives additional fees from the Fund at an
annual rate of $310. During the year, such fees aggregated $9,556.
The trustees may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. At December 31, 1994, the liability for the Plan aggregated
$16,118. Each trustee covered under the Plan elects to be credited with an
earning component on amounts deferred equal to the income earned by the Fund on
its short-term investments or equal to the total return of the Fund.
Note 5 -- Capital
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred
basis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or looses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets or paid shares of each class. Class B shares
and Class C shares automatically convert to Class A shares six years and ten
years after purchase, respectively, subject to certain conditions. The Fund
has suspended sales of Class B shares to the public, and these shares are now
available only to a limited group of investors.
F-8
<PAGE> 97
The Fund has an unlimited number of shares of $.01 par value beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1994 1993
--------- ---------
<S> <C> <C>
Shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,589,204 2,652,339
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,243 454,922
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469,667 636,387
---------- ----------
2,399,114 3,743,648
---------- ----------
Shares issued for dividends reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,048 230,580
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,121 68,673
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,116 3,723
---------- ----------
185,285 302,976
---------- ----------
Shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,431,958) (5,915,573)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,010,900) (1,391,506)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . (556,549) (71,936)
---------- ----------
(4,999,407) (7,379,015)
---------- ----------
Decrease in shares outstanding . . . . . . . . . . . . . . . . . . (2,415,008) (3,332,391)
========== ==========
</TABLE>
F-9
<PAGE> 98
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of year ........... $ 12.42 $ 12.63 $ 12.99 $ 12.85 $ 12.88
---------- ---------- -------- --------- ---------
INCOME FROM OPERATIONS
Investment income ............................ .62 .64 .93 1.15 1.32
Expenses ..................................... (.14) (.11) (.14) (.17) (.173)
Expense waiver(2) ............................ .02 .01 .025 .025 --
---------- ---------- -------- --------- ---------
Net investment income ........................ .50 .54 .815 1.005 1.147
Net realized and unrealized gains or
losses on securities ....................... (.4817) (.1485)(1) (.417) .206 (.004)
---------- ---------- -------- --------- ---------
Total from investment operations ............. .0183 .3915 .398 1.211 1.143
---------- ---------- -------- --------- ---------
DIVIDENDS FROM NET INVESTMENT INCOME ......... (.5383) (.6015) (.758) (1.071) (1.173)
---------- ---------- -------- --------- ---------
Net asset value, end of year ................. $ 11.90 $ 12.42 $ 12.63 $ 12.99 $ 12.85
========== ========== ======== ========= =========
TOTAL RETURN(3) .............................. .16% 3.15%(1) 3.15% 9.78% 9.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) ........... $ 41.2 $ 64.3 $103.7 $ 95.8 $ 32.3
Average net assets (millions) ................ $ 54.3 $ 85.7 $112.7 $ 47.5 $ 33.4
Ratios to average net assets(2)
Expenses ............................... 1.15% 1.03% 0.91% 1.16% 1.38%
Expenses, without waiver ............... 1.31% 1.15% 1.12% 1.36% --
Net investment income .................. 4.75% 5.49% 6.36% 7.96% 9.11%
Net investment income,
without waiver ....................... 4.58% 5.37% 6.15% 7.66% --
Portfolio turnover rate ...................... 161% 102% 254% 293% 341%
</TABLE>
(1) NET OF REIMBURSEMENT-- SEE NOTE 2.
(2) SEE NOTE 2.
(3) TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES CHARGES.
SEE NOTES TO FINANCIAL STATEMENTS.
F-10
<PAGE> 99
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of beneficial interest outstanding throughout
each of the periods indicated.
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------- --------------------------
NOVEMBER 5 MAY 10,
1991(2) YEAR 1993(2)
YEAR ENDED DECEMBER 31 THROUGH ENDED THROUGH
------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992 1991(3) 1994 1993(3)
--------- ---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period ........ $ 12.43 $ 12.64 $ 12.99 $ 12.99 $ 12.41 $ 12.60
--------- ---------- -------- --------- ---------- ----------
INCOME FROM OPERATIONS
Investment income ........................... .62 .67 .935 .12 .67 .44
Expenses .................................... (.22) (.20) (.24) (.03) (.24) (.14)
Expense waiver(6) ........................... .02 .01 .03 .02 .02 .02
--------- ---------- -------- --------- ---------- ----------
Net investment income ....................... .42 .48 .725 .11 .45 .32
Net realized and unrealized gains or
losses on securities ...................... (.4977) (.1845)(1) (.413) .036 (.5177) (.1914)(1)
--------- ---------- -------- --------- ---------- ----------
Total from investment operations ............ (.0777) .2955 .312 .146 (.0677) .1286
--------- ---------- -------- --------- ---------- ----------
DIVIDENDS FROM NET INVESTMENT
INCOME .................................... (.4423) (.5055) (.662) (.146) (.4423) (.3186)
--------- ---------- -------- --------- ---------- ----------
Net asset value, end of period .............. $ 11.91 $ 12.43 $ 12.64 $ 12.99 $ 11.90 $ 12.41
========= ========== ======== ========= ========== ==========
TOTAL RETURN(4) ............................. (.62%) 2.37% (1) 2.46% 1.13% (.55%) 1.03%(1)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) ........ $18.4 $26.9 $38.4 $9.4 $5.8 $7.1
Average net assets (millions) ............... $22.2 $33.3 $32.3 $4.1 $7.6 $4.0
Ratios to average net assets(6)
Expenses .............................. 1.91% 1.79% 1.60% .59%(5) 1.90% 1.47%(5)
Expenses, without waiver .............. 2.08% 1.91% 1.81% 1.84%(5) 2.07% 1.64%(5)
Net investment income ................. 3.99% 4.70% 5.44% 5.73%(5) 3.98% 3.79%(5)
Net investment income,
without waiver ...................... 3.82% 4.58% 5.23% 4.48%(5) 3.81% 3.62%(5)
Portfolio turnover rate ..................... 161% 102% 254% 293% 161% 102%
</TABLE>
(1) NET OF REIMBURSEMENT -- SEE NOTE 2.
(2) COMMENCEMENT OF OFFERING OF SALES
(3) BASED ON AVERAGE MONTH-END SHARES OUTSTANDING
(4) TOTAL RETURN FOR PERIODS OF LESS THAN ONE FULL YEAR ARE NOT
ANNUALIZED. TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES
CHARGES.
(5) ANNUALIZED
(6) SEE NOTE 2.
SEE NOTES TO FINANCIAL STATEMENTS.
F-11
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of American Capital Federal Mortgage
Trust at December 31, 1994, and the results of its operations, the changes in
its net assets and the selected per share data and ratios for each of the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
February 16, 1995
F-12
<PAGE> 101
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
<TABLE>
<CAPTION>
INCLUDED
IN
PART B
--------
<S> <C>
Investment Portfolio
December 31, 1994 *
Statement of Assets and Liabilities
December 31, 1994 *
Statement of Operations
Year Ended December 31, 1994 *
Statement of Changes in Net Assets
Year Ended December 31, 1993 *
Year Ended December 31, 1994 *
Notes to Financial Statements *
Financial Highlights *
Report of Independent Accountants *
</TABLE>
---------------
The Statement of Sources of Net Assets and Schedules II and III are omitted
because the required information is included in the financial statements filed
herewith, or because the conditions requiring their filing do not exist.
(b) Exhibits
<TABLE>
<S> <C>
1.1 -- First Amended and Restated Agreement and Declaration of Trust.
1.2 -- Certificate of Designation.
2 -- Amended and Restated Bylaws.
3 -- Inapplicable.
4.1 -- Specimen Class A Share Certificate.
4.2 -- Specimen Class B Share Certificate.
4.3 -- Specimen Class C Share Certificate.
5 -- Investment Advisory Agreement.
6.1 -- Underwriting Agreement.
6.2 -- Form of Selling Group Agreement incorporated herein by reference
(Exhibit 6.2 to Form N-1A of Registrant's Registration No. 33-1705,
Post-Effective Amendment No. 11, filed February 25, 1992).
6.3 -- Form of Selling Agreement for banks and bank affiliated
broker/dealers incorporated herein by reference (Exhibit 6.3 to Form
N-1A of Registrant's Registration No. 1705, Post-Effective Amendment
No. 11, filed February 25, 1992).
7 -- Inapplicable.
8.1 -- Custodian Contract incorporated herein by reference (Exhibit 8 to
Form N-1A of American Capital Global Managed Assets Fund, Inc.,
Registration No. 33-74024, Post-Effective Amendment No. 2, filed on
May 6, 1994).
8.2 -- Transfer Agency and Service Agreement.
9 -- Data Access Services Agreement dated December 2, 1993 incorporated
herein by reference (Exhibit 9.2 to Form N-1A of American Capital
Utilities Income Fund, Inc., Registration No. 33-68452,
Post-Effective Amendment No. 1, filed on May 19, 1994).
</TABLE>
C-1
<PAGE> 102
<TABLE>
<S> <C>
10 -- Inapplicable.
11 -- Consent of Independent Accountants.
12 -- Inapplicable.
13 -- Investment Letter incorporated herein by reference (Exhibit 13 to
Form N-1A of Registrant, Registration No. 33-1705, Pre-Effective
Amendment No. 2, filed on May 9, 1986).
14.1 -- Individual Retirement Account Brochure with Application incorporated
herein by reference (Exhibit 14.2 to Form N-1A of American Capital
Reserve Fund, Inc., Registration No. 2-50870, Post-Effective
Amendment No. 31, filed on September 24, 1993).
14.2 -- 403(b)(7) Custodial Account incorporated herein by reference (Exhibit
14.2 to Form N-1A of American Capital Reserve Fund, Inc.,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed on
September 24, 1992).
14.3 -- ORP 403(b)(7) Custodial Account incorporated herein by reference
(Exhibit 14.3 to Form N-1A of American Capital Reserve Fund, Inc.,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed on
September 24, 1992).
14.4 -- Retirement Plans for the Small Business -- Forms Package and Plan
Documents incorporated herein by reference (Exhibit 14.9 to Form N-1A
of American Capital Emerging Growth Fund, Inc., Registration No.
2-33214, Post-Effective Amendment No. 44, filed on December 21,
1990).
14.5 -- Prototype Profit Sharing/Money Purchase Plan and Trust incorporated
herein by reference (Exhibit 14.5 to Form N-1A of American Capital
Growth and Income Fund, Inc., Registration No. 2-21657,
Post-Effective Amendment No. 61, filed on March 26, 1991).
14.6 -- Prototype 401(k) Plan and Trust incorporated herein by reference
(Exhibit 14.6 to Form N-1A of American Capital Growth and Income
Fund, Inc., Registration No. 2-21657, Post-Effective Amendment No.
61, filed on March 26, 1991).
14.7 -- Salary Reduction Simplified Employee Pension Plan incorporated herein
by reference (Exhibit 14.7 to Form N-1A of American Capital World
Portfolio Series, Inc., Registration No. 33-37879, Post-Effective
Amendment No. 9, filed September 24, 1993).
15.1 -- Plan of Distribution for Class A shares.
15.2 -- Plan of Distribution for Class B shares.
15.3 -- Plan of Distribution for Class C shares.
15.4 -- Form of Servicing Agreement.
15.5 -- Form of Servicing Agreement for banks and bank affiliated
broker/dealers.
16 -- Computation Measure for Performance Information.
17.1 -- List of Certain Investment Companies in response to Item 29(a).
17.2 -- List of Officers and Directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
18 -- Multiple Class Plan. (Exhibit 18 to Form N-1A of Registrant,
Registration No. 33-1705, Post-Effective Amendment No. 17, filed on
July 13, 1995).
19 -- Powers-of-Attorney for J. Miles Branagan, Richard E. Caruso, Roger
Hilsman, Don G. Powell, David Rees, Lawrence J. Sheehan, Fernando
Sisto and William S. Woodside. (Exhibit 19 to Form N-1A of
Registrant, Registration No. 33-1705, Post-Effective No. 17, filed on
July 13, 1995).
19.1 -- Power-of-Attorney for Philip P. Gaughan, Roger Hilsman, R. Craig
Kennedy, Donald C. Miller, Jack E. Nelson, Jerome L. Robinson and
Wayne W. Whalen.
27 -- Financial Data Schedule.
</TABLE>
C-2
<PAGE> 103
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF: MAY 31, 1995
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
----------------------------------------------- ------------------------
<S> <C>
Shares of Beneficial Interest, $0.01 par value 3,185 (Class A)
885 (Class B)
300 (Class C)
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's First Amended
and Restated Agreement and Declaration of Trust.
Article 8; Section 8.4 of the Amended and Restated Agreement and
Declaration of Trust provides that each officer and trustee of the Registrant
shall be indemnified by the Registrant against all liabilities incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which the officer or trustee may be or
may have been involved by reason of being or having been an officer or trustee,
except that such indemnity shall not protect any such person against a liability
to the Registrant or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, the decision by the Registrant to indemnify such
person must be based upon the reasonable determination of independent counsel or
non-party independent trustees, after review of the facts, that such officer or
trustee is not guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee 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.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-3
<PAGE> 104
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Executive Officers" in the Statement of Additional Information for information
regarding the business of the Adviser. For information as to the business,
profession, vocation and employment of a substantial nature of directors and
officers of the Adviser, reference is made to the Adviser's current Form ADV
(File No. 801-1669) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17.1 incorporated by
reference herein.
(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17.2. Except as disclosed under the
heading, "Trustees and Executive Officers" in Part B of this Registration
Statement, none of such persons has any position or office with Registrant.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Unless otherwise stated below, the books or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are in the physical possession of:
Fund Treasurer
Mutual Fund Accounting
2800 Post Oak Boulevard
Houston, Texas 77056
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
---- ----------------------------
<S> <C> <C>
31a-1 (b)(2)(iii) Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Boulevard
Houston, Texas 77056
(b)(2)(iv) ACCESS Investor Services, Inc.
7501 Tiffany Springs Parkway
Kansas City, Missouri 64153
(b)(4)-(6) Van Kampen American Capital Asset Management, Inc.
(b)(9)-(11) Van Kampen American Capital Asset Management, Inc.
</TABLE>
ITEM 31. MANAGEMENT SERVICES.
There are no management related services contracts not discussed in Part A
or Part B.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-4
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Houston, and State of Texas, on the 4th day of
August, 1995.
VAN KAMPEN AMERICAN CAPITAL
LIMITED MATURITY GOVERNMENT FUND
By /s/ *DON G. POWELL
---------------------------------------------
(Don G. Powell, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on August 4, 1995:
Principal Executive Officer:
<TABLE>
<S> <C>
/s/ *DON G. POWELL President and Trustee
------------------------------------------
(Don G. Powell)
Principal Financial Officer and Accounting
Officer:
/s/ CURTIS W. MORELL Vice President and Treasurer
------------------------------------------
(Curtis W. Morell)
Trustees:
/s/ *J. MILES BRANAGAN Trustee
------------------------------------------
(J. Miles Branagan)
/s/ *RICHARD E. CARUSO Trustee
------------------------------------------
(Richard E. Caruso)
/s/ *PHILIP P. GAUGHAN Trustee
------------------------------------------
(Philip P. Gaughan)
/s/ *ROGER HILSMAN Trustee
------------------------------------------
(Roger Hilsman)
/s/ *R. CRAIG KENNEDY Trustee
------------------------------------------
(R. Craig Kennedy)
/s/ *DONALD C. MILLER Trustee
------------------------------------------
(Donald C. Miller)
/s/ *JACK E. NELSON Trustee
------------------------------------------
(Jack E. Nelson)
/s/ *DAVID REES Trustee
------------------------------------------
(David Rees)
/s/ *JEROME L. ROBINSON Trustee
------------------------------------------
(Jerome L. Robinson)
/s/ *LAWRENCE J. SHEEHAN Trustee
------------------------------------------
(Lawrence J. Sheehan)
/s/ *FERNANDO SISTO Trustee
------------------------------------------
(Fernando Sisto)
/s/ *WAYNE W. WHALEN Trustee
------------------------------------------
(Wayne W. Whalen)
/s/ *WILLIAM S. WOODSIDE Trustee
------------------------------------------
(William S. Woodside)
</TABLE>
s/ NORI L. GABERT
-----------------------------------
Nori L. Gabert
Attorney-in-Fact
* Signed pursuant to a Power-of-Attorney.
<PAGE> 106
INDEX TO EXHIBITS TO FORM N-1A
REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1 -- First Amended and Restated Agreement and Declaration.
1.2 -- Certificate of Designation.
2 -- Amended and Restated Bylaws.
4.1 -- Specimen Class A Share Certificate.
4.2 -- Specimen Class B Share Certificate.
4.3 -- Specimen Class C Share Certificate.
5 -- Investment Advisory Agreement.
6.1 -- Underwriting Agreement.
8.2 -- Transfer Agency and Service Agreement.
11 -- Consent of Independent Accountants.
15.1 -- Plan of Distribution for Class A shares.
15.2 -- Plan of Distribution for Class B shares.
15.3 -- Plan of Distribution for Class C shares.
15.4 -- Servicing Agreement.
15.5 -- Servicing Agreement for banks and bank affiliated broker/dealers.
16 -- Computation Measure for Performance Information.
17.1 -- List of Certain Investment Companies in response to Item 29(a).
17.2 -- List of Officers and Directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
19.1 -- Powers-of-Attorney for Philip P. Gaughan, Roger Hilsman, R. Craig
Kennedy, Donald C. Miller, Jack E. Nelson, Jerome L. Robinson and
Wayne W. Whalen.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
OF
VAN KAMPEN AMERICAN CAPITAL
LIMITED MATURITY GOVERNMENT FUND
Dated: June 21, 1995
<PAGE> 2
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
Index
RECITALS ........................................................... 1
ARTICLE I THE TRUST ................................................. 2
SECTION 1.1 Name ...................................................... 2
SECTION 1.2. Location .................................................. 2
SECTION 1.3. Nature of Trust ........................................... 2
SECTION 1.4. Definitions ............................................... 2
SECTION 1.5. Real Property to be Converted into Personal Property ...... 5
ARTICLE 2 PURPOSE OF THE TRUST ...................................... 5
ARTICLE 3 POWERS OF THE TRUSTEES .................................... 6
SECTION 3.1. Powers in General ......................................... 6
(a) Investments ....................................................... 6
(b) Disposition of Assets ............................................. 7
(c) Ownership Powers .................................................. 7
(d) Form of Holding ................................................... 7
(e) Reorganization, etc. .............................................. 7
(f) Voting Trusts, etc. ............................................... 7
(g) Contracts, etc. ................................................... 7
(h) Guarantees, etc. .................................................. 7
(i) Partnerships, etc. ................................................ 8
(j) Insurance ......................................................... 8
(k) Pensions, etc. .................................................... 8
(I) Power of Collection and Litigation ................................ 8
(m) Issuance and Repurchase of Shares ................................. 8
(n) Offices ........................................................... 8
(o) Expenses .......................................................... 9
(p) Agents, etc. ...................................................... 9
(q) Accounts .......................................................... 9
(r) Valuation ......................................................... 9
(s) Indemnification ................................................... 9
(t) General ........................................................... 9
SECTION 3.2. Borrowings; Financings; Issuance of Securities ............ 9
i
<PAGE> 3
SECTION 3.3. Deposits ................................................... 9
SECTION 3.4. Allocations ................................................ 10
SECTION 3.5. Further Powers; Limitations ................................ 10
ARTICLE 4 TRUSTEES AND OFFICERS ...................................... 10
SECTION 4.1. Number, Designation, Election, Term, etc. .................. 10
(a) Initial Trustee .................................................... 10
(b) Number ............................................................. 10
(c) Election and Term .................................................. 11
(d) Resignation and Retirement ......................................... 11
(e) Removal ............................................................ 11
(f) Vacancies .......................................................... 11
(g) Acceptance of Trusts ............................................... 12
(h) Effect of Death, Resignation, etc. ................................. 12
(i) Conveyance ......................................................... 12
(j) No Accounting ...................................................... 12
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc. ....... 12
SECTION 4.3. Committees; Delegation ..................................... 13
SECTION 4.4. Officers ................................................... 13
SECTION 4.5. Compensation of Trustees and Officers ...................... 13
SECTION 4.6. Ownership of Shares and Securities of the Trust ............ 13
SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage
in Business; Authority of Trustees to Permit Others to Do
Likewise ................................................... 13
SECTION 4.8. Reliance on Experts ........................................ 14
SECTION 4.9. Surety Bonds ............................................... 14
SECTION 4.10. Apparent Authority of Trustees and Officers ................ 14
SECTION 4.11. Other Relationships Not Prohibited ......................... 14
SECTION 4.12. Payment of Trust Expenses .................................. 15
SECTION 4.13. 0wnership of the Trust Property ............................ 15
ii
<PAGE> 4
SECTION 4.14. By-Laws .................................................... 15
ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES .................. 15
SECTION 5.1. Appointment; Action by Less than All Trustees .............. 15
SECTION 5.2. Certain Contracts .......................................... 16
(a) Advisory ........................................................... 16
(b) Administration ..................................................... 16
(c) Underwriting ....................................................... 16
(d) Custodian .......................................................... 17
(e) Transfer and Dividend Disbursing Agent ............................. 17
(f) Shareholder Servicing .............................................. 17
(g) Accounting ......................................................... 17
Section 5.3. Distribution Arrangements .................................. 17
Section 5.4. Service Arrangements ....................................... 17
ARTICLE 6 SERIES AND SHARES .......................................... 18
SECTION 6.1. Description of Series and Shares ........................... 18
(a) General ............................................................ 18
(b) Establishment, etc. of Series; Authorization of Shares ............. 18
(c) Character of Separate Series and Shares Thereof .................... 18
(d) Consideration for Shares ........................................... 19
(e) Assets Belonging to Series ......................................... 19
(f) Liabilities of Series .............................................. 19
(g) Dividends .......................................................... 19
(h) Liquidation ........................................................ 20
(i) Voting ............................................................. 20
(j) Redemption by Shareholder .......................................... 20
(k) Redemption at the Option of the Trust .............................. 21
(I) Net Asset Value .................................................... 21
(m) Transfer ........................................................... 22
(n) Equality ........................................................... 22
(o) Rights of Fractional Shares ........................................ 22
(p) Conversion Rights .................................................. 22
SECTION 6.2. Ownership of Shares .......................................... 23
SECTION 6.3. Investments in the Trust ..................................... 23
SECTION 6.4. No Pre-emptive Rights ........................................ 23
iii
<PAGE> 5
SECTION 6.5. Status of Shares ........................................... 23
ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS ................... 23
SECTION 7.1. Voting Powers .............................................. 23
SECTION 7.2. Number of Votes and Manner of Voting; Proxies .............. 24
SECTION 7.3. Meetings ................................................... 24
SECTION 7.4. Record Dates ............................................... 25
SECTION 7.5. Quorum and Required Vote ................................... 25
SECTION 7.6. Action by Written Consent .................................. 25
SECTION 7.7. Inspection of Records ...................................... 25
SECTION 7.8. Additional Provisions ...................................... 25
ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION ................... 26
SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice.. 26
SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond
or Surety ................................................. 26
SECTION 8.3. Indemnification of Shareholders ............................ 27
SECTION 8.4. Indemnification of Trustees, Officers, etc. ................ 27
SECTION 8.5. Compromise Payment ......................................... 28
SECTION 8.6. Indemnification Not Exclusive, etc. ........................ 28
SECTION 8.7. Liability of Third Persons Dealing with Trustees ........... 28
ARTICLE 9 DURATION; REORGANIZATION; INCORPORATION; AMENDMENTS ........ 28
SECTION 9.1. Duration of Trust .......................................... 28
SECTION 9.2. Termination of Trust ....................................... 28
SECTION 9.3. Reorganization ............................................. 29
SECTION 9.4. Incorporation ............................................. 29
iv
<PAGE> 6
SECTION 9.5. Amendments; etc. ............................................. 30
SECTION 9.6. Filing of Copies of Declaration and Amendments ............... 30
ARTICLE 10 MISCELLANEOUS ................................................ 30
SECTION 10.1. Notices ...................................................... 30
SECTION 10.2. Governing Law ................................................ 30
SECTION 10.3. Counterparts ................................................ 30
SECTION 10.4. Reliance by Third Parties .................................... 31
SECTION 10.5. References; Headings ......................................... 31
SECTION 10.6. Provisions in Conflict With Law or Regulation ................ 31
SECTION 10.7. Use of the Name "Van Kampen American Capital" ................ 31
Signature ................................................................. 32
Acknowledgments ........................................................... 33
v
<PAGE> 7
AGREEMENT AND DECLARATION OF TRUST
OF
VAN KAMPEN AMERICAN CAPITAL
LIMITED DURATION GOVERNMENT FUND
As amended and restated as of June 21, 1995
This CONSENT TO AMENDMENT AND RESTATMENT, made as of this 21st day of
June, 1995, by the Trustees whose signatures are set forth below:
W I T N E S S E T H T H A T:
WHEREAS, the AGREEMENT AND DECLARATION OF TRUST of Van Kampen American
Capital Limited Maturity Government Fund, a trust organized as a business
trust under Delaware law (the "Trust"), was signed and delivered on May 10,
1995, by Van Kampen American Capital, Inc. as Settlor (the "Settlor"), and
Ronald A. Nyberg as trustee (the "Initial Trustee"), under the original name
"Van Kampen American Capital Limited Maturity Government Trust" in the city of
Oakbrook Terrace, Illinois; and
WHEREAS, a Certificate of Trust relating to the Trust was thereafter
filed in the offices of the Secretary of State of the State of Delaware; and
WHEREAS, Article IX, Sections 9.5 and 9.6 of the Declaration provide
certain procedures for the amendment and restatement thereof; and
WHEREAS, the Trustees have determined that it is desirable and in the
best interests of the Trust and the Shareholders that the Declaration be
amended and restated as herein provided.
NOW, THEREFORE, the undersigned, being at least a Majority of the
Trustees, do hereby consent, pursuant to Section 9.5 of the Declaration, to the
first amendment and restatement of the Agreement and Declaration of Trust, and
hereby declare, for the benefit of all Persons who shall hereafter become
holders of Shares of the Trust (or of any Series thereof), that the Trustees
will hold the sum delivered to the Initial Trustee upon his execution of the
Declaration, and all other and further cash, securities and other property of
every type and description which they may in any way acquire in their capacity
as such Trustees, together with the income therefrom and the proceeds thereof,
IN TRUST NEVERTHELESS, to manage and dispose of the same for the benefit of the
holders from time to time of the Shares being issued and to be issued hereunder
and in the manner and subject to the provisions hereof, to wit:
1
<PAGE> 8
ARTICLE I
THE TRUST
SECTION 1.1 Name. The name of the Trust shall be
"Van Kampen American Capital Limited Maturity Government Fund"
and so far as may be practicable, the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under that name,
which name (and the word "Trust" wherever used in this Agreement and
Declaration of Trust, except where the context otherwise requires) shall refer
to the Trustees in their capacity as Trustees, and not individually or
personally, and shall not refer to the officers, agents or employees of the
Trust or of such Trustees, or to the holders of the Shares of the Trust or any
Series. If the Trustees determine that the use of such name is not practicable,
legal or convenient at any time or in any jurisdiction, or if the Trust is
required to discontinue the use of such name pursuant to Section 10.7 hereof,
then subject to that Section, the Trustees may use such other designation, or
they may adopt such other name for the Trust as they deem proper, and the Trust
may hold property and conduct its activities under such designation or name.
SECTION 1.2. Location. The Trust shall maintain a registered office in
the State of Delaware and may have such other offices or places of business as
the Trustees may from time to time determine to be necessary or expedient.
SECTION 1.3. Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The State of Delaware, of the type
defined in Title 12, Chapter 38, Section 3801 of the Delaware Code as a
business trust. The Trust is not intended to be, shall not be deemed to be, and
shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder.
SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:
"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.
"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.
"Affiliated Person" shall have the meaning assigned to it in the 1940
Act.
"By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time.
"Certificate of Designation" shall have the meaning designated in
Section 6.1 hereof.
"Certificate of Termination" shall have the meaning designated in
Section 6.1 hereof.
"Class" or "Classes" shall mean, with respect to the Trust (of any
Series thereof), any unissued Shares of the Trust (or such Series) in respect
of which the Trustees shall from time to time fix and determine any special
provisions relating to sales charges, any rights of redemption and the price,
terms and manner of redemption, special and relative rights as to dividends and
other distributions and on
2
<PAGE> 9
liquidation, sinking or purchase fund provisions, conversion rights,
and conditions under which the Shareholders of such Class shall have separate
voting rights or no voting rights.
"Commission" shall have the same meaning as in the 1940 Act.
"Contracting Party" shall have the meaning designated in the preamble
to Section 5.2 hereof.
"Conversion Date" shall mean with respect to Shares of any Class that
are convertible automatically into Shares of any other Class of the Trust (or
Series thereof) the date fixed by the Trustees for such conversion.
"Covered Person" shall have the meaning designated in Section 8.4
hereof.
"Custodian" shall have the meaning designated in Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time
to time in effect. This Agreement and Declaration of Trust is the "governing
instrument" of the Trust within the meaning of the laws of the State of
Delaware with respect to Delaware Business Trusts. References in this
Agreement and Declaration of Trust to "hereof", "herein" and "hereunder" shall
be deemed to refer to the Declaration of Trust generally, and shall not be
limited to the particular text, Article or Section in which such words appear.
"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.
"Distributor" shall have the meaning designated in Section 5.2(c)
hereof.
"Dividend Disbursing Agent" shall have the meaning designated in
Section 5.2(e) hereof.
"General Items" shall have the meaning defined in Section 6.2(a)
hereof.
"Initial Trustee" shall have the meaning defined in the preamble
hereto.
"Investment Advisor" shall have the meaning defined in Section 5.2(a)
hereof.
"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be only one
(1) Trustee in office, such term shall mean such Trustee.
"Majority Shareholder Vote," as used with respect to (a) the election
of any Trustee at a meeting of Shareholders, shall mean the vote for the
election of such Trustee of a plurality of all outstanding Shares of the Trust,
without regard to Series, represented in person or by proxy and entitled to
vote thereon, provided that a quorum (as determined in accordance with the
By-Laws) is present, (b) any other action required or permitted to be taken by
Shareholders, shall mean the vote for such action of the holders of that
majority of all outstanding Shares (or, where a separate vote of Shares of any
particular Series is to be taken, the affirmative vote of that majority of the
outstanding Shares of that Series) of the Trust which consists of: (i) a
majority of all Shares (or of Shares of the particular Series) represented in
person or by proxy and entitled to vote on such action at the meeting of
Shareholders at which such action is to be taken, provided that a quorum (as
determined in accordance with the By-Laws) is present; or (ii) if such action
is to be taken by written consent of Shareholders, a majority of all Shares (or
of Shares of the particular Series) issued and outstanding and entitled to vote
on such action; provided that (iii) as used
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with respect to any action requiring the affirmative vote of "a
majority of the outstanding voting securities," as the quoted phrase is defined
in the 1940 Act, of the Trust or of any Series, "Majority Shareholder Vote"
means the vote for such action at a meeting of Shareholders of the smallest
majority of all outstanding Shares of the Trust (or of Shares of the particular
Series) entitled to vote on such action which satisfies such 1940 Act voting
requirement.
"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to the Trust.
"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, land trusts, business trusts or
other organizations established under the laws of any jurisdiction, whether or
not considered to be legal entities, and governments and agencies and political
subdivisions thereof.
"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.
"Prospectus," as used with respect to the Trust (or the Shares of a
particular Series), shall mean the prospectus relating to the Trust (or such
Series) which constitutes part of the currently effective Registration
Statement of the Trust under the Securities Act of 1933, as such prospectus may
be amended or supplemented from time to time.
"Securities" shall have the same meaning ascribed to that term in the
Securities Act of 1993.
"Series" shall mean one or more of the series of Shares authorized by
the Trustees to represent the beneficial interest in one or more separate
components of the assets of the Trust which are now or hereafter established
and designated under or in accordance with the provisions of Article 6 hereof.
"Settlor" shall have the meaning defined in the preamble hereto.
"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding Shares
of any Series, and shall include a pledgee into whose name any such Shares are
transferred in pledge.
"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.
"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Series of the Trust (as the context may require)
shall be divided from time to time, and includes fractions of Shares as well as
whole Shares. All references herein to "Shares" which are not accompanied by a
reference to any particular Series or Class shall be deemed to apply to
outstanding Shares without regard to Series or Class.
"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a style of
voting in which each holder of one or more Shares shall be entitled to one vote
on the matter in question for each Share standing in his name on the records of
the Trust, irrespective of Series or Class of a Series, and all outstanding
Shares of all Series vote as a single class.
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"Statement of Additional Information," as used with respect to the
Trust (or any Series), shall mean the statement of additional information
relating to the Trust (or such Series) which constitutes part of the currently
effective Registration Statement of the Trust under the Securities Act of 1933,
as such statement of additional information may be amended or supplemented from
time to time.
"Transfer Agent" shall have the meaning defined in Section 5.2(e)
hereof.
"Trust" shall mean the trust named in Section 1.1 hereof.
"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or
the Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the
Trustees, without regard to the Series to which such property is allocated.
"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in question
have been duly elected or appointed as Trustees of the Trust in accordance with
the provisions hereof and who have qualified and are then in office. At any
time at which there shall be only one (I) Trustee in office, such term shall
mean such single Trustee.
SECTION 1.5. Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such conversion as long
as they in their uncontrolled discretion shall think fit, and for the purpose
of determining the nature of the interest of the Shareholders therein, all such
real property shall at all times be considered as personal property.
ARTICLE 2
PURPOSE OF THE TRUST
The purpose of the Trust shall be to (a) manage, conduct, operate and
carry on the business of an investment company; (b) subscribe for, invest in,
reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise deal in or dispose of any and all
sorts of property, tangible or intangible, including but not limited to
Securities of any type whatsoever, whether equity or nonequity, of any issuer,
evidences of indebtedness of any person and any other rights, interest,
instruments or property of any sort to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investment
of every kind and description, including without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect
of any of said investments. The Trustees shall not be limited by any law
limiting the investments which may be made by fiduciaries.
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ARTICLE 3
POWERS OF THE TRUSTEES
SECTION 3.1. Powers in General. The Trustees shall have, without other
or further authorization, full, entire, exclusive and absolute power, control
and authority over, and management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such powers
of delegation as may be permitted by this Declaration, subject only to such
limitations as may be expressly imposed by this Declaration of Trust or by
applicable law. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. Without limiting the foregoing; they may select, and from
time to time change, the fiscal year of the Trust; they may adopt and use a
seal for the Trust, provided that unless otherwise required by the Trustees, it
shall not be necessary to place the seal upon, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust; they may from time to time in accordance with the
provisions of Section 6.1 hereof establish one or more Series to which they may
allocate such of the Trust Property, subject to such liabilities, as they shall
deem appropriate, each such Series to be operated by the Trustees as a separate
and distinct investment medium and with separately defined investment
objectives and policies and distinct investment purposes, all as established by
the Trustees, or from time to time changed by them; they may as they consider
appropriate elect and remove officers and appoint and terminate agents and
consultants and hire and terminate employees, any one or more of the foregoing
of whom may be a Trustee; they may appoint from their own number, and
terminate, any one or more committees consisting of one or more Trustees,
including without implied limitation an Executive Committee, which may, when
the Trustees are not in session and subject to the 1940 Act, exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
in accordance with Section 5.2 they may employ one or more Investment Advisers,
Administrators and Custodians and may authorize any such service provider to
employ one or more other or service providers and to deposit all or any part of
such assets in a system or systems for the central handling of Securities,
retain Transfer, Dividend Disbursing, Accounting or Shareholder Servicing
Agents or any of the foregoing, provide for the distribution of Shares by the
Trust through one or more Distributors, Principal Underwriters or otherwise,
set record dates or times for the determination of Shareholders entitled to
participate in, benefit from or act with respect to various matters; and in
general they may delegate to any officer of the Trust, to any Committee of the
Trustees and to any employee, Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent, Dividend Disbursing Agent, or any other agent or
consultant of the Trust, such authority, powers, functions and duties as they
consider desirable or appropriate for the conduct of the business and affairs
of the Trust, including without implied limitation the power and authority to
act in the name of the Trust and of the Trustees, to sign documents and to act
as attorney-in-fact for the Trustees. Without limiting the foregoing and to the
extent not inconsistent with the 1940 Act or other applicable law, the Trustees
shall have power and authority:
(a) Investments. To subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to Securities of any type whatsoever,
whether equity or nonequity, of any issuer, evidences of indebtedness of any
person and any other rights, interest, instruments or property of any sort, to
exercise any and all rights, powers and privileges of ownership or
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interest in respect of any and all such investments of every kind and
description, including without limitation the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of said rights, powers and privileges in respect of any of said
investments, in every case without being limited by any law limiting the
investments which may be made by fiduciaries;
(b) Disposition of Assets. Upon such terms and conditions as they deem
best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer or otherwise dispose of,
and to trade in, any and all of the Trust Property, free and clear of all
trusts, for cash or on terms, with or without advertisement, and on such terms
as to payment, security or otherwise, all as they shall deem necessary or
expedient;
(c) Ownership Powers. To vote or give assent, or exercise any and all
other rights, powers and privileges of ownership with respect to, and to
perform any and all duties and obligations as owners of, any Securities or
other property forming part of the Trust Property, the same as any individual
might do; to exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of Securities, and to receive powers of
attorney from, and to execute and deliver proxies or powers of attorney to,
such Person or Persons as the Trustees shall deem proper, receiving from or
granting to such Person or Persons such power and discretion with relation to
Securities or other property of the Trust, all as the Trustees shall deem
proper;
(d) Form of Holding. To hold any Security or other property in a form
not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust, or of the Series to which
such Securities or property belong, or in the name of a Custodian, subcustodian
or other nominee or nominees, or otherwise, upon such terms, in such manner or
with such powers, as the Trustees may determine, and with or without indicating
any trust or the interest of the Trustees therein;
(e) Reorganizations etc. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer, any
Security of which is or was held in the Trust or any Series; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any Security forming
part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders of any Securities in
acting through a committee, depository, voting trustee or otherwise, and in
that connection to deposit any Security with, or transfer any Security to, any
such committee, depository or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depository or trustee as the Trustees shall deem proper;
(g) Contracts. etc. To enter into, make and perform all such
obligations, contracts, agreements and undertakings of every kind and
description, with any Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business of the Trust, for such
terms as they shall see fit, whether or not extending beyond the term of office
of the Trustees, or beyond the possible expiration of the Trust; to amend,
extend, release or cancel any such obligations, contracts, agreements or
understandings; and to execute, acknowledge, deliver and record all written
instruments which they may deem necessary or expedient in the exercise of their
powers;
(h) Guarantees. etc. To endorse or guarantee the payment of any notes
or other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
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and to mortgage and pledge the Trust Property or any part thereof to secure any
of or all such obligations;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or association;
(j) Insurance. To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, Investment Advisers, managers,
Administrators, Distributors, Principal Underwriters, or other independent
contractors, or any thereof (or any Person connected therewith), of the Trust,
individually, against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such Person
in any such capacity, whether or not the Trust would have the power to
indemnify such Person against such liability;
(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit sharing, share bonus, share purchase, savings, thrift, deferred
compensation and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust;
(I) Power of Collection and Litigation. To collect, sue for and receive
all sums of money coming due to the Trust, to employ counsel, and to commence,
engage in, prosecute, intervene in, join, defend, compound, compromise, adjust
or abandon, in the name of the Trust, any and all actions, suits, proceedings,
disputes, claims, controversies, demands or other litigation or legal
proceedings relating to the Trust, the business of the Trust, the Trust
Property, or the Trustees, officers, employees, agents and other independent
contractors of the Trust, in their capacity as such, at law or in equity, or
before any other bodies or tribunals, and to compromise, arbitrate or otherwise
adjust any dispute to which the Trust may be a party, whether or not any suit
is commenced or any claim shall have been made or asserted. Except to the
extent required for a Delaware Business Trust, the Shareholders shall have no
power to vote as to whether or not a court action, legal proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders.
(m) Issuance and Repurchase of Shares. To authorize, issue, sell,
repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to Article 6
hereof, to apply to any such repurchase, redemption, retirement, cancellation
or acquisition of Shares of any Series, any of the assets belonging to the
Series to which such Shares relate, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law;
provided that any Shares belonging to the Trust shall not be voted, directly or
indirectly;
(n) Offices. To have one or more offices, and to carry on all or any of
the operations and business of the Trust, in any of the States, Districts or
Territories of the United States, and in any and all foreign countries, subject
to the laws of such State, District, Territory or country;
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(o) Expenses. To incur and pay any and all such expenses and charges as
they may deem advisable (including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of money for which they may
be held liable by way of damages, penalty, fine or otherwise;
(p) Agents, etc. To retain and employ any and all such servants,
agents, employees, attorneys, brokers, Investment Advisers, accountants,
architects, engineers, builders, escrow agents, depositories, consultants,
ancillary trustees, custodians, agents for collection, insurers, banks and
officers, as they think best for the business of the Trust or any Series, to
supervise and direct the acts of any of the same, and to fix and pay their
compensation and define their duties;
(q) Accounts. To determine, and from time to time change, the method or
form in which the accounts of the Trust or any Series shall be kept;
(r) Valuation. Subject to the requirements of the 1940 Act, to
determine from time to time the value of all or any part of the Trust Property
and of any services, Securities, property or other consideration to be
furnished to or acquired by the Trust, and from time to time to revalue all or
any part of the Trust Property in accordance with such appraisals or other
information as is, in the Trustees' sole judgment, necessary and satisfactory;
(s) Indemnification. In addition to the mandatory indemnification
provided for in Article 8 hereof and to the extent permitted by law, to
indemnify or enter into agreements with respect to indemnification with any
Person with whom this Trust has dealings, including, without limitation, any
independent contractor, to such extent as the Trustees shall determine; and
(t) General. Subject to the fundamental policies in effect from time to
time with respect to the Trust, to do all such other acts and things and to
conduct, operate, carry on and engage in such other lawful businesses or
business activities as they shall in their sole and absolute discretion
consider to be incidental to the business of the Trust or any Series as an
investment company, and to exercise all powers which they shall in their
discretion consider necessary, useful or appropriate to carry on the business
of the Trust or any Series, to promote any of the purposes for which the Trust
is formed, whether or not such things are specifically mentioned herein, in
order to protect or promote the interests of the Trust or any Series, or
otherwise to carry out the provisions of this Declaration.
SECTION 3.2. Borrowings; Financings: Issuance of Securities. The
Trustees have power, subject to the fundamental policies in effect from time to
time with respect to the Trust, to borrow or in any other manner raise such sum
or sums of money, and to incur such other indebtedness for goods or services,
or for or in connection with the purchase or other acquisition of property, as
they shall deem advisable for the purposes of the Trust, in any manner and on
any terms, and to evidence the same by negotiable or nonnegotiable Securities
which may mature at any time or times, even beyond the possible date of
termination of the Trust; to issue Securities of any type for such cash,
property, services or other considerations, and at such time or times and upon
such terms, as they may deem advisable; and to reacquire any such Securities.
Any such Securities of the Trust may, at the discretion of the Trustees, be
made convertible into Shares of any Series, or may evidence the right to
purchase, subscribe for or otherwise acquire Shares of any Series, at such
times and on such terms as the Trustees may prescribe.
SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits
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are to be subject to withdrawal in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any loss which may
occur by reason of the failure of the bank, trust company or other banking
institution with which any such moneys or Securities have been deposited,
except as provided in Section 8.2 hereof.
SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a discount,
as income or capital, or to apportion the same between income and capital, to
apportion the sale price of any asset between income and capital, and to
determine in what manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as income
or as capital or such expense or disbursement would be charged to income or to
capital; to treat any dividend or other distribution on any investment as
income or capital, or to apportion the same between income and capital; to
provide or fail to provide reserves, including reserves for depreciation,
amortization or obsolescence in respect of any Trust Property in such amounts
and by such methods as they shall determine; to allocate less than all of the
consideration paid for Shares of any Series to surplus with respect to the
Series to which such Shares relate and to allocate the balance thereof to
paid-in capital of that Series, and to reallocate such amounts from time to
time; all as the Trustees may reasonably deem proper.
SECTION 3.5. Further Powers: Limitations. The Trustees shall have power
to do all such other matters and things, and to execute all such instruments,
as they deem necessary, proper or desirable in order to carry out, promote or
advance the interests of the Trust, although such matters or things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration of Trust, the presumption shall
be in favor of a grant of power to the Trustees. The Trustees shall not be
required to obtain any court order to deal with the Trust Property. The
Trustees may limit their right to exercise any of their powers through express
restrictive provisions in the instruments evidencing or providing the terms for
any Securities of the Trust or in other contractual instruments adopted on
behalf of the Trust.
ARTICLE 4
TRUSTEES AND OFFICERS
SECTION 4.1. Number. Designation, Election. Term, etc.
(a) Initial Trustee. Upon his execution of this Agreement and
Declaration of Trust dated May 10, 1995 or a counterpart hereof or some other
writing in which he accepted such Trusteeship and agreed to the provisions
hereof, the individual whose signature is affixed thereto as Initial Trustee
became the Initial Trustee thereof.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than fourteen (14)) or
decrease the number of Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority
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(or a supermajority if required by the By-Laws) of the Trustees). No
decrease in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term, but the number of
Trustees may be decreased in conjunction with the removal of a Trustee pursuant
to subsection (e) of this Section 4.1.
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of Shareholders immediately
prior to the initial issuance of shares of the Trust in a public offering and
the term of office of any Trustees in office before such election shall
terminate at the time of such election. Subject to Section 16(a) of the 1940
Act and to the preceding sentence of this subsection (c) and to any
requirements specified in the By-Laws, the Trustees shall have the power to set
and alter the terms of office of the Trustees, and at any time to lengthen or
shorten their own terms or make their terms of unlimited duration, to elect
their own successors and, pursuant to subsection (f) of this Section 4.1, to
appoint Trustees to fill vacancies; provided that Trustees shall be elected by
a Majority Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940 Act or,
if not so required, that such action is advisable; and further provided that,
after the initial election of Trustees by the Shareholders, the term of office
of any incumbent Trustee shall continue until the termination of this Trust or
his earlier death, resignation, retirement, bankruptcy, adjudicated
incompetency or other incapacity or removal, or if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this subsection (c).
(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by a written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.
(e) Removal. Any Trustee may be removed: (i) with cause at any time by
written instrument, signed by at least two thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding a majority of
the Shares of the Trust then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than a majority of the Shares of the Trust then
outstanding. Notwithstanding any other provisions set forth in this Declaration
of Trust, this Section 4.1(e) may not be amended (either directly or indirectly
through a reorganization) without the approval of (i) 80% of the Trustees then
in office or (ii) by vote of Shareholders holding a majority of the Shares of
the Trust then outstanding.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including an increase in the number of Trustees, may (but need not
unless required by the 1940 Act) be filled by a Majority (or a supermajority if
required by the By-Laws) of the Trustees, subject to the provisions of Section
16(a) of the 1940 Act, through the appointment in writing of such other
individual as such remaining Trustees in their discretion shall determine;
provided that if there shall be no Trustees in office, such vacancy or
vacancies shall be filled by Majority Shareholders Vote. Any such appointment
or election shall be effective upon such individual's written acceptance of his
appointment as a Trustee and his agreement to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in the
number of Trustees to be effective at a later date shall become effective only
at or after the effective date of said retirement, resignation or increase in
the number of Trustees.
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(g) Acceptance of Trusts. Whenever any conditions to the appointment or
election of any individual as a Trustee hereunder who was not, immediately
prior to such appointment or election, acting as a Trustee shall have been
satisfied, such individual shall become a Trustee and the Trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance. Such new Trustee shall accept such appointment or
election in writing and agree in such writing to be bound by the provisions
hereof, but the execution of such writing shall not be requisite to the
effectiveness of the appointment or election of a new Trustee.
(h) Effect of Death. Resignation, etc. No vacancy, whether resulting
from the death, resignation, retirement, bankruptcy, adjudicated incompetency,
incapacity, or removal of any Trustee, an increase in the number of Trustees or
otherwise, shall operate to annul or terminate the Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant
to the terms of this Declaration of Trust. Until such vacancy is filled as
provided in this Section 4.1, the Trustees in office (if any), regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration. Upon
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require in
order to effect the purpose of this Paragraph.
(i) Convevance. In the event of the resignation or removal of a
Trustee or his otherwise ceasing to be a Trustee, such former Trustee or his
legal representative shall, upon request of the continuing Trustees, execute
and deliver such documents as may be required for the purpose of consummating
or evidencing the conveyance to the Trust or the remaining Trustees of any
Trust Property held in such former Trustee's name, but the execution and
delivery of such documents shall not be requisite to the vesting of title to
the Trust Property in the remaining Trustees, as provided in subsection (g) of
this Section 4.1 and in Section 4.13 hereof.
(j) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no Person
ceasing to be a Trustee (nor the estate of any such Person) shall be required
to make an accounting to the Shareholders or remaining Trustees upon such
cessation.
SECTION 4.2. Trustees' Meetings: Participation by Telephone. etc.
Annual and special meetings may be held from time to time, in each case, upon
the call of such officers as may be thereunto authorized by the By-Laws or vote
of the Trustees, or by any three (3) Trustees, or pursuant to a vote of the
Trustees adopted at a duly constituted meeting of the Trustees, and upon such
notice as shall be provided in the By-Laws. Any such meeting may be held within
or without the state of Delaware. The Trustees may act with or without a
meeting, and a written consent to any matter, signed by all of the Trustees,
shall be equivalent to action duly taken at a meeting of the Trustees, duly
called and held. Except as otherwise provided by the 1940 Act or other
applicable law, or by this Declaration of Trust or the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees (a quorum, consisting of at least a Majority of the
Trustees, being present), within or without Delaware. If authorized by the
By-Laws, all or any one or more Trustees may participate in a meeting of the
Trustees or any Committee thereof by means of conference telephone or similar
means of communication by means of which all Persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
means of communication shall constitute presence in person at such meeting. The
minutes of any meeting thus held shall be prepared in the same manner as a
meeting at which all participants were present in person.
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SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to one or more other Committees, or to any
single Trustee, the doing of such things and the execution of such deeds or
other instruments, either in the name of the Trust or the names of the Trustees
or as their attorney or attorneys in fact, or otherwise as the Trustees may
from time to time deem expedient, and any agreement, deed, mortgage, lease or
other instrument or writing executed by the Trustee or Trustees or other Person
to whom such delegation was made shall be valid and binding upon the Trustees
and upon the Trust.
SECTION 4.4. Officers. The Trustees shall annually elect such officers
or agents, who shall have such powers, duties and responsibilities as the
Trustees may deem to be advisable, and as they shall specify by resolution or
in the By-Laws. Except as may be provided in the By-Laws, any officer elected
by the Trustees may be removed at any time with or without cause. Any two (2)
or more offices may be held by the same individual.
SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall
fix the compensation of all officers and Trustees. Without limiting the
generality of any of the provisions hereof, the Trustees shall be entitled to
receive reasonable compensation for their general services as such, and to fix
the amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal, accounting,
or other professional services, as they in good faith may deem reasonable. No
Trustee or officer resigning (except where a right to receive compensation for
a definite future period shall be expressly provided in a written agreement
with the Trust, duly approved by the Trustees) and no Trustee or officer
removed shall have any right to any compensation as such Trustee or officer for
any period following his resignation or removal, or any right to damages on
account of his removal, whether his compensation be by the month, or the year
or otherwise.
SECTION 4.6. Ownership of Shares and Securities of the Trust. Any
Trustee, and any officer, employee or agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of any Series and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of such Shares or
Securities to the same extent and in the same manner as if such Person were not
such a Trustee, officer, employee or agent of the Trust; subject, in the case
of Trustees and officers, to the same limitations as directors or officers (as
the case may be) of a Delaware business corporation; and the Trust may issue
and sell or cause to be issued and sold and may purchase any such Shares or
other Securities from any such Person or any such organization, subject only to
the general limitations, restrictions or other provisions applicable to the
sale or purchase of Shares of such Series or other Securities of the Trust
generally.
SECTION 4.7. Right of Trustees and Officers to Own Property or to
Engage in Business; Authority of Trustees to Permit Others to Do Likewise. The
Trustees, in their capacity as Trustees, and (unless otherwise specifically
directed by vote of the Trustees) the officers of the Trust in their capacity
as such, shall not be required to devote their entire time to the business and
affairs of the Trust. Except as otherwise specifically provided by vote of the
Trustees, or by agreement in any particular case, any Trustee or officer of the
Trust may acquire, own, hold and dispose of, for his own individual account,
any property, and acquire, own, hold, carry on and dispose of, for his own
individual account, any business entity or business activity, whether similar
or dissimilar to any property or business entity or business activity invested
in or carried on by the Trust, and without first offering the same as an
investment opportunity to the Trust, and may exercise all rights in respect
thereof as if he were not a Trustee or officer of the Trust. The Trustees shall
also have power, generally or in specific cases, to permit
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employees or agents of the Trust to have the same rights (or lesser
rights) to acquire, hold, own and dispose of property and businesses, to carry
on businesses, and to accept investment opportunities without offering them to
the Trust, as the Trustees have by virtue of this Section 4.7.
SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, engineers, brokers, appraisers, auctioneers, accountants,
investment bankers, securities analysts or other Persons (any of which may be a
firm in which one or more of the Trustees or officers is or are members or
otherwise interested) whose profession gives authority to a statement made by
them on the subject in question, and who are reasonably deemed by the Trustees
or officers in question to be competent, and the advice or opinion of such
Persons shall be full and complete personal protection to all of the Trustees
and officers in respect of any action taken or suffered by them in good faith
and in reliance on or in accordance with such advice or opinion. In discharging
their duties, Trustees and officers, when acting in good faith, may rely upon
financial statements of the Trust represented to them to be correct by any
officer of the Trust having charge of its books of account, or stated in a
written report by an independent certified public accountant fairly to present
the financial position of the Trust. The Trustees and officers may rely, and
shall be personally protected in acting, upon any instrument or other document
believed by them to be genuine.
SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of
the Trust shall, as such, be obligated to give any bond or surety or other
security for the performance of any of his duties, unless required by
applicable law or regulation, or unless the Trustees shall otherwise determine
in any particular case.
SECTION 4.10. Apparent Authority of Trustees and Officers. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or of such officer.
SECTION 4.11. Other Relationships Not Prohibited. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party (as defined in Section 5.2 hereof), or of or
for any parent or affiliate of any Contracting Party, or that the
Contracting Party or any parent or affiliate thereof is a Shareholder
or has an interest in the Trust or any Series, or that
(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or to the holders of Shares of any Series; provided
that, in the case of any relationship or interest referred to in the preceding
clause (i) on the part of any Trustee or officer of the Trust, either (x) the
material facts as to such relationship or interest have been disclosed to or
are known by the Trustees not having any such relationship or interest and the
contract involved is approved in good faith by a majority
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of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all
of the Trustees), (y) the material facts as to such relationship or interest
and as to the contract have been disclosed to or are known by the Shareholders
entitled to vote thereon and the contract involved is specifically approved in
good faith by vote of the Shareholders, or (z) the specific contract involved
is fair to the Trust as of the time it is authorized, approved or ratified by
the Trustees or by the Shareholders.
SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to
pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, and according to any
allocation to a particular Series and Class made by them pursuant to Section
6.1(f) hereof, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the business and affairs of the Trust or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, Investment Adviser, Administrator, Distributor,
Principal Underwriter, auditor, counsel, Custodian, Transfer Agent, Dividend
Disbursing Agent, Accounting Agent, Shareholder Servicing Agent, and such other
agents, consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur.
SECTION 4.13. Ownership of the Trust Property. Legal title to all the
Trust Property shall be vested in the Trustees as joint tenants, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or of any particular Series, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided that the
interest of the Trust and of the respective Series therein is appropriately
protected. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee.
Upon the termination of the term of office of a Trustee as provided in Section
4.1(c), (d) or (e) hereof, such Trustee shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to Section 4.1(i) hereof.
SECTION 4.14. By-Laws. The Trustees may adopt and from time to time
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE 5
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1. Appointment; Action by Less than All Trustees. The
Trustees shall be responsible for the general operating policy of the Trust and
for the general supervision of the business of the Trust conducted by officers,
agents, employees or advisers of the Trust or by independent contractors, but
the Trustees shall not be required personally to conduct all the business of
the Trust and, consistent with their ultimate responsibility as stated herein,
the Trustees may appoint, employ or contract with one or more officers,
employees and agents to conduct, manage and/or supervise the operations of the
Trust, and may grant or delegate such authority to such officers, employees
and/or agents as the Trustees may, in their sole discretion, deem to be
necessary or desirable, without regard to whether such authority is normally
granted or delegated by trustees. With respect to those matters of the
operation and business of
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the Trust which they shall elect to conduct themselves, except as
otherwise provided by this Declaration or the By-Laws, if any, the Trustees may
authorize any single Trustee or defined group of Trustees, or any committee
consisting of a number of Trustees less than the whole number of Trustees then
in office without specification of the particular Trustees required to be
included therein, to act for and to bind the Trust, to the same extent as the
whole number of Trustees could do, either with respect to one or more
particular matters or classes of matters, or generally.
SECTION 5.2. Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time in their discretion and
without limiting the generality of their powers and authority otherwise set
forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnerships, limited partnerships or other
types of organizations, or individuals ("Contracting Party"), to provide for
the performance and assumption of some or all of the following services, duties
and responsibilities to, for or on behalf of the Trust and/or any Series,
and/or the Trustees, and to provide for the performance and assumption of such
other services, duties and responsibilities in addition to those set forth
below, as the Trustees may deem appropriate:
(a) Advisory. An investment advisory or management agreement whereby
the agent shall undertake to furnish the Trust (or any Series thereof) such
management, investment advisory or supervisory, statistical and research
facilities and services, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable, all upon such terms and
conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
or any applicable provisions of the By-Laws (any such agent being herein
referred to as an "Investment Adviser"). To the extent required by the 1940
Act, any such advisory or management agreement and any amendment thereto shall
be subject to approval by a Majority Shareholder Vote at a meeting of the
Shareholders of the Trust (or applicable Series). Notwithstanding any
provisions of this Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
securities of the Trust on behalf of the Trustees or may authorize any officer
or employee of the Trust or any Trustee to effect such purchases, sales, loans
or exchanges pursuant to recommendations of the Investment Adviser (and all
without further action by the Trustees). Any such purchases, sales, loans and
exchanges shall be deemed to have been authorized by all of the Trustees. The
Trustees may, in their sole discretion, call a meeting of Shareholders in order
to submit to a vote of Shareholders of the Trust (or applicable Series) at such
meeting the approval of continuance of any such investment advisory or
management agreement.
(b) Administration. An agreement whereby the agent, subject to the
general supervision of the Trustees and in conformity with any policies of the
Trustees with respect to the operations of the Trust and each Series thereof,
will supervise all or any part of the operations of the Trust (or any Series
thereof), and will provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust (or any Series thereof)
(any such agent being herein referred to as an "Administrator").
(c) Underwriting. An agreement providing for the sale of Shares of the
Trust (or any Series thereof) to net the Trust not less than the net asset
value per Share (as described in Section 6.1(l) hereof) and pursuant to which
the Trust may appoint the other party to such agreement as its principal
underwriter or sales agent for the distribution of such Shares. The agreement
shall contain such terms and
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conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
and any applicable provisions of the By-Laws (any such agent being herein
referred to as a "Distributor" or a "Principal Underwriter," as the case may
be).
(d) Custodian. The appointment of an agent meeting the requirements for
a custodian for the assets of Investment Companies contained in the 1940 Act
as custodian of the Securities and cash of the Trust (or any Series thereof)
and of the accounting records in connection therewith (any such agent being
herein referred to as a "Custodian").
(e) Transfer and Dividend Disbursing Agent. An agreement with an agent
to maintain records of the ownership of outstanding Shares, the issuance and
redemption and the transfer thereof (any such agent being herein referred to
as a "Transfer Agent"), and to disburse any dividends declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends
(any such agent being herein referred to as a "Dividend Disbursing Agent").
(f) Shareholder Servicing. An agreement with an agent to provide
service with respect to the relationship of the Trust and its Shareholders,
records with respect to Shareholders and their Shares, and similar matters
(any such agent being herein referred to as a "Shareholder Servicing Agent").
(g) Accounting. An agreement with an agent to handle all or any part of
the accounting responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise (any such agent being herein referred
to as an "Accounting Agent").
In addition, the Trustees may from time to time cause the Trust (or any
Series thereof) to enter into agreements with respect to such other services
and upon such other terms and conditions as they may deem necessary,
appropriate or desirable. The same Person may be the Contracting Party for
some or all of the services, duties and responsibilities to, for and of the
Trust and/or the Trustees, and the contracts with respect thereto may contain
such terms interpretive of or in addition to the delineation of the services,
duties and responsibilities provided for, including provisions that are not
inconsistent with the 1940 Act relating to the standard of duty of and the
rights to indemnification of the Contracting Party and others, as the Trustees
may determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into subcontractual arrangements relative to
any of the matters referred to in subsections (a) through (g) of this Section
5.2.
Section 5.3. Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more plans of distribution pursuant to Rule 12b-1 of the 1940
Act which plan(s) will provide for the payment of specified marketing,
distribution and shareholder relations expenses of the Trust and any or all
Series and their agents and the agents of such agents.
Section 5.4. Service Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more service plans which plans will provide for the payment of
ongoing services to holders of the shares of such Trust (or any Series thereof)
and in connection with the maintenance of such shareholders' accounts.
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ARTICLE 6
SERIES AND SHARES
SECTION 6.1. Description of Series and Shares.
(a) General. The beneficial interest in the Trust shall be divided into
Shares (either full or fractional) with $.01 par value per Share, of which an
unlimited number may be issued. The Trustees shall have the authority from time
to time to establish and designate one or more separate, distinct and
independent Series of Shares (each of which Series shall represent interests
only in the asset attributed by the Trustees to such Series), and to authorize
separate Classes of Shares of the Trust (or any such Series), as they deem
necessary or desirable. All Shares shall be of one class, provided that the
Trustees shall have the power to classify or reclassify any unissued Shares of
any Series into any number of additional Classes of such Series.
(b) Establishment. etc. of Series; Authorization of Shares. The
establishment and designation of any Series and the authorization of the Shares
thereof shall be effective upon the execution by a Majority of the Trustees (or
by an officer of the Trust pursuant to the vote of a Majority of the Trustees)
of an instrument setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series and the manner in
which the same may be amended (a "Certificate of Designation"), and may provide
that the number of Shares of such Series which may be issued is unlimited, or
may limit the number issuable. At any time that there are no Shares outstanding
of any particular Series previously established and designated, the Trustees
may by an instrument executed by a Majority of the Trustees (or by an officer
of the Trust pursuant to the vote of a Majority of the Trustees) terminate such
Series and the establishment and designation thereof and the authorization of
its Shares (a "Certificate of Termination"). Each Certificate of Designation,
Certificate of Termination and any instrument amending a Certificate of
Designation shall have the status of an amendment to this Declaration of Trust.
(c) Character of Separate Series and Shares Thereof. Each Series
established hereunder shall represent beneficial interests in a separate
component of the assets of the Trust. Holders of Shares of a Series shall be
considered Shareholders of such Series, but such Shareholders shall also be
considered Shareholders of the Trust for purposes of receiving reports and
notices and, except as otherwise provided herein or in the Certificate of
Designation of a particular Series, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct Series, and to
fix and determine the relative rights and preferences as between the shares of
the respective Series, and as between the Classes of the Trust (or any Series
thereof), as to rights of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Series or the several
Classes of any Series of Shares shall have separate voting rights or no voting
rights. Except as otherwise provided as to a particular Series herein, or in
the Certificate of Designation therefor, the Trustees shall have all the rights
and powers, and be subject to all the duties and obligations, with respect to
each such Series and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
Separate and distinct records shall be maintained for each Series of Shares and
the assets and liabilities attributable thereto.
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(d) Consideration for Shares. The Trustees may issue Shares of the
Trust (or any Series thereof) for such consideration (which may include
property subject to, or acquired in connection with the assumption of,
liabilities) and on such terms as they may determine (or for no consideration
if pursuant to a Share dividend or split-up), all without action or approval of
the Shareholders. All Shares when so issued on the terms determined by the
Trustees shall be fully paid and nonassessable (but may be subject to mandatory
contribution back to the Trust (or applicable Series) as provided in Section
6.1(l) hereof. The Trustees may classify or reclassify any unissued Shares, or
any Shares of the Trust (or any Series thereof) previously issued and
reacquired by the Trust, into Shares of the Trust or one or more other Series
that may be established and designated from time to time.
(e) Assets Belonging to Series. Any portion of the Trust Property
allocated to a particular Series, and all consideration received by the Trust
for the issue or sale of Shares of such Series, together with all assets in
which such consideration is invested or reinvested, all interest, dividends,
income, earnings, profits and gains therefrom, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series and shall irrevocably belong to
that Series for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of such Series shall not have, and
shall be conclusively deemed to have waived, any claims to the assets of any
Series of which they are not Shareholders. Such consideration, assets,
interest, dividends, income, earnings, profits, gains and proceeds, together
with any General Items allocated to that Series as provided in the following
sentence, are herein referred to collectively as assets "belonging to" that
Series. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series (collectively, "General Items"), the
Trustees shall allocate such General Items to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable; and any
General Items so allocated to a particular Series shall belong to and be part
of the assets belonging to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
(f) Liabilities of Series. The assets belonging to each particular
Series shall be charged with the liabilities in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as pertaining to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
indebtedness, expenses, costs, charges and reserves allocated and so charged to
a particular Series are herein referred to as "liabilities of" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series
for all purposes. Any creditor of any Series may look only to the assets
belonging to that Series to satisfy such creditor's debt.
(g) Dividends. Dividends and distributions on Shares of a particular
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the
Shareholders of that Series, from such of the income, accrued or realized, and
capital gains,
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realized or unrealized, and out of the assets belonging to that Series,
as the Trustees may determine, after providing for actual and accrued
liabilities of that Series. All dividends and distributions on Shares of a
particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of such Shares held by such holders at the
date and time of record established for the payment of such dividends or
distributions, except that the dividends and distributions of investment income
and capital gains with respect to each Class of Shares of a particular Series
shall be in such amount as may be declared from time to time by the Trustees,
and such dividends and distributions may vary as between such Classes to
reflect differing allocations of the expenses of the Series between the
Shareholders of such several Classes and any resultant differences between the
net asset value of such several Classes to such extent and for such purposes as
the Trustees may deem appropriate and further except that, in connection with
any dividend or distribution program or procedure, the Trustees may determine
that no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the time
or times established by the Trustees under such program or procedure, or that
dividends or distributions shall be payable on Shares which have been tendered
by the holder thereof for redemption or repurchase, but the redemption or
repurchase proceeds of which have not yet been paid to such Shareholder. Such
dividends and distributions may be made in cash, property or Shares of any
Class of that Series or a combination thereof as determined by the Trustees, or
pursuant to any program that the Trustees may have in effect at the time for
the election by each Shareholder of the mode of the making of such dividend or
distribution to that Shareholder. Any such dividend or distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with subsection (l) of this Section 6.1.
(h) Liquidation. In the event of the liquidation or dissolution of the
Trust (or any particular Series), the Shareholders of the Trust (or that
Series) shall be entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to the Trust (or that Series) over the
liabilities of such Series. The assets so distributable to the Shareholders of
the Trust (or that Series) shall be distributed among such Shareholders in
proportion to the number of Shares of the Trust (or that Series) held by them
and recorded on the books of the Trust. The liquidation of the Trust (or any
particular Series) may be authorized by vote of a Majority of the Trustees,
subject to the affirmative vote of "a majority of the outstanding voting
securities" of that Series, as the quoted phrase is defined in the 1940 Act,
determined in accordance with clause (iii) of the definition of "Majority
Shareholder Vote" in Section 1.4 hereof.
(i) Voting. The Shareholders shall have the voting rights set forth in
or determined under Article 7 hereof.
(j) Redemption by Shareholder. Each holder of Shares of the Trust (or a
particular Series thereof) shall have the right at such times as may be
permitted by the Trust, but no less frequently than required by the 1940 Act,
to require the Trust (or such Series) to redeem all or any part of his Shares of
the Trust (or such Series) at a redemption price equal to the net asset value
per Share of the Trust (or Series) next determined in accordance with
subsection (l) of this Section 6.1 after the Shares are properly tendered for
redemption; provided, that the Trustees may from time to time, in their
discretion, determine and impose a fee for such redemption and that the
proceeds of the redemption of Shares (including a fractional Share) of any
Class of the Trust (or any Series thereof) shall be reduced by the amount of
any applicable contingent deferred sales charge or other sales charge, if any,
payable on such redemption to the distributor of Shares of such Class pursuant
to the terms of
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the initial issuance of the Shares of such Class (to the extent
consistent with the 1940 Act or regulations or exemptions thereunder) and the
Trust shall promptly pay to such distributor the amount of such deferred sales
charge. Payment of the redemption price shall be in cash; provided, however,
that if the Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable, the
Trust may make payment wholly or partly in Securities or other assets belonging
to such Series at the value of such Securities or assets used in such
determination of net asset value. Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
holders of Shares of the Trust (or any Series thereof) to require the Trust to
redeem Shares of the Trust (or such Series) during any period or at any time
when and to the extent permissible under the 1940 Act.
(k) Redemption at the Option of the Trust. The Trustees shall have the
power to redeem Shares of the Trust (or any Series thereof) at a redemption
price determined in accordance with Section 6.1(j), if at any time (i) the
total investment in such account does not have a value of at least such minimum
amount as may be specified in the Prospectus for the Trust (or such Series)
from time to time (ii) the number of Shares held in such account is equal to or
in excess of a specified percentage of Shares of the Trust or any Series as set
forth from time to time in the applicable Prospectus. In the event the Trustees
determine to exercise their power to redeem Shares provided in this Section
6.1(k), the Shareholder shall be notified that the value of his account is less
than the applicable minimum amount and shall be allowed 30 days to make an
appropriate investment before redemption is processed.
(I) Net Asset Value. The net asset value per Share of the Trust (or any
Series or Class) at any time shall be the quotient obtained by dividing the
value of the net assets of the Trust (or such Series or Class) at such time
(being the current value of the assets belonging to the Trust (or such Series
or Class), less its then existing liabilities) by the total number of Shares of
the Trust (or such Series or Class) then outstanding, all determined in
accordance with the methods and procedures, including without limitation those
with respect to rounding, established by the Trustees from time to time in
accordance with the requirements of the 1940 Act. The net asset value of the
several Classes of the Trust (or a particular Series) shall be separately
computed, and may vary from one another. The Trustees shall establish
procedures for the allocation of investment income or capital gains and
expenses and liabilities of a particular Series between the several Classes of
the Trust (or such Series). The Trustees may determine to maintain the net
asset value per Share of the Trust or any Series or Class at a designated
constant dollar amount and in connection therewith may adopt procedures not
inconsistent with the 1940 Act for the continuing declaration of income
attributable to the Trust or such Series or Class as dividends payable in
additional Shares of the Trust or such Series or Class at the designated
constant dollar amount and for the handling of any losses attributable to the
Trust or such Series or Class. Such procedures may provide that in the event of
any loss each Shareholder shall be deemed to have contributed to the shares of
beneficial interest account of the Trust or such Series or Class his pro rata
portion of the total number of Shares required to be canceled in order to
permit the net asset value per Share of the Trust or such Series or Class to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have expressly agreed,
by his investment in the Trust (or any Series thereof) with respect to which
the Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.
(m) Transfer. All Shares of the Trust and each Series shall be
transferable, but transfers of Shares of the Trust or a particular Series will
be recorded on the Share transfer records of the Trust
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applicable to the Trust or such Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares of the
Trust or such Series and at such other times as may be permitted by the
Trustees.
(n) Equality. All Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities of that Series), and each Share of any particular Series shall
be equal to each other Share thereof; but the provisions of this sentence shall
not restrict any distinctions between the several Classes of a Series
permissible under this Section 6.1 or under Section 7. 1 hereof nor any
distinctions permissible under subsection (g) of this Section 6.1 that may
exist with respect to dividends and distributions on Shares of the same Series.
The Trustees may from time to time divide or combine the Shares of any class of
particular Series into a greater or lesser number of Shares of that class of a
Series without thereby changing the proportionate beneficial interest in the
assets belonging to that Series or in any way affecting the rights of the
holders of Shares of any other Series.
(o) Rights of Fractional Shares. Any fractional Share of the Trust (or
any Series thereof) shall carry proportionately all the rights and obligations
of a whole Share of the Trust (or such Series), including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or of the Series to which
they pertain.
(p) Conversion Rights. (i) Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that holders
of Shares of any Series shall have the right to convert said Shares into Shares
of one or more other Series, that holders of any Class of the Trust or a Series
of Shares shall have the right to convert said Shares of such Class into Shares
of one or more other Classes of the Trust or such Series, and that Shares of
any Class of the Trust or a Series shall be automatically converted into Shares
of another Class of the Trust or such Series, in each case in accordance with
such requirements and procedures as the Trustees may establish.
(ii) The number of Shares of into which a convertible Share shall
convert shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share for purposes of sales
and redemptions of the converting Share on the Conversion Date by the net asset
value per Share for purposes of sales and redemptions of the Class of Shares
into which it is converting on the Conversion Date.
(iii) On the Conversion Date, the Share converting into another
share will cease to accrue dividends and will no longer be deemed
outstanding and the rights of the holders thereof (except the right to receive
the number of target Shares into which the converting Shares have been
converted and declared but unpaid dividends to the Conversion Date) will cease.
Certificates representing Shares resulting from the conversion need not be
issued until certificates representing Shares converted, if issued, have been
received by the Trust or its agent duly endorsed for transfer.
(vi) The Trust will appropriately reflect the conversion of Shares
of one Class of the Trust (or a Series thereof) into Shares of another
Class of the Trust (or such Series) on the first periodic statements of account
sent to Shareholders of record affected which provide account information with
respect to a reporting period which includes the date such conversion occurred.
SECTION 6.2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a Transfer Agent or similar agent for
the Trust, which books shall be maintained
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separately for the Shares of each Series that has been authorized.
Certificates evidencing the ownership of Shares need not be issued except as
the Trustees may otherwise determine from time to time, and the Trustees shall
have power to call outstanding Share certificates and to replace them with book
entries. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the use of facsimile signatures, the transfer
of Shares and similar matters. The record books of the Trust as kept by the
Trust or any Transfer Agent or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders and as to the number of Shares of the
Trust and, if designated, each Series thereof held from time to time by each
such Shareholder.
The holders of Shares of the Trust and, if designated, each Series
thereof shall upon demand disclose to the Trustees in writing such information
with respect to their direct and indirect ownership of Shares of the Trust or,
if designated, such Series as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other authority.
SECTION 6.3. Investments in the Trust. The Trustees may accept
investments in any Series of the Trust from such Persons and on such terms and
for such consideration, not inconsistent with the provisions of the 1940 Act,
as they from time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or other Person
to accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares, whether or not conforming
to such authorized terms.
SECTION 6.4. No Preemptive Rights. No Shareholder, by virtue of holding
Shares of the Trust or, if designated, any Series thereof, shall have any
preemptive or other right to subscribe to any additional Shares of the Trust or
such Series, or to any shares of any other Series, or any other Securities
issued by the Trust.
SECTION 6.5. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. Shares shall be deemed to
be personal property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Series, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Declaration of Trust.
ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Sections 4.1(c)
and (e) hereof, (ii) with respect to the approval or termination in accordance
with the 1940 Act of any contract with a Contracting Party as provided in
Section 5.2 hereof as to which Shareholder approval is required by the 1940
Act, (iii) with respect to any termination or reorganization of the Trust or
any Series to the extent and as provided in Sections 9.2, 9.3 and 9.4 hereof,
(iv) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Section 9.5 hereof, (v) to the same extent as the
stockholders of a Delaware business
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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 Trust or any Series, or the Shareholders of any of them
(provided. however, that a Shareholder of a particular Series shall not in any
event be entitled to maintain a derivative or class action on behalf of any
other Series or the Shareholders thereof), and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any State, or as the Trustees may
consider necessary or desirable. If and to the extent that the Trustees shall
determine that such action is required by law or by this Declaration, they
shall cause each matter required or permitted to be voted upon at a meeting or
by written consent of Shareholders to be submitted to a separate vote of the
outstanding Shares of each Series entitled to vote thereon; provided, that (i)
when expressly required by the 1940 Act or by other law, actions of
Shareholders shall be taken by Single Class Voting of all outstanding Shares
whose holders are entitled to vote thereon; and (ii) when the Trustees
determine that any matter to be submitted to a vote of Shareholders affects
only the rights or interests of Shareholders of one or more but not all Series
or of one or more but not all Classes of the Trust or a single Series
(including without limitation any distribution plan pursuant to Rule 12b-1 of
the 1940 Act applicable to such Class), then only the Shareholders of the
Series or Classes so affected shall be entitled to vote thereon. Any matter
required to be submitted to shareholders and affecting one or more Series shall
require separate approval by the required vote of Shareholders of the Trust or
each affected Series; provided, however, that to the extent required by the
1940 Act, there shall be no separate Series votes on the election or removal of
Trustees, the selection of auditors for the Trust and its Series or approval of
any agreement or contract entered into by the Trust or any Series. Shareholders
of a particular Series shall not be entitled to vote on any matter that affects
only one or more other Series.
SECTION 7.2. Number of Votes and Manner of Voting: Proxies. On each
matter submitted to a vote of the Shareholders, each holder of Shares of the
Trust or, if applicable, any Series shall be entitled to a number of votes
equal to the number of Shares of the Trust or such Series standing in his name
on the books of the Trust. There shall be no cumulative voting in the election
or removal of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two (2) or more Persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided, or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven (7) days before such
meeting, postage prepaid, stating the time, place and purpose of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records
of the Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than ten
percent (10%) of the Shares then outstanding. If the Trustees shall fail to
call or give notice of any meeting of Shareholders for a period of thirty (30)
days after written application by Shareholders holding at least ten percent
(10%) of the Shares then outstanding requesting that a
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meeting be called for any other purpose requiring action by the
Shareholders as provided herein or in the By-Laws, then Shareholders holding at
least ten percent (10%) of the Shares then outstanding may call and give notice
of such meeting, and thereupon the meeting shall be held in the manner provided
for herein in case of call thereof by the Trustees. Any meetings may be held
within or without The State of Delaware. Shareholders may only act with
respect to matters set forth in the notice to Shareholders.
SECTION 7.4. Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding thirty (30) days (except at
or in connection with the termination of the Trust), as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
and time not more than ninety (90) days prior to the date of any meeting of
Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
SECTION 7.5. Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A Majority Shareholder Vote at a meeting of which a quorum is
present shall decide any question, except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law or by this
Declaration of Trust or the By-Laws, or when the Trustees shall in their
discretion require a larger vote or the vote of a majority or larger fraction
of the Shares of one or more particular Series.
SECTION 7.6. Action By Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof or of the Shares of any particular
Series as shall be required by the 1940 Act or by any express provision of this
Declaration of Trust or the By-Laws or as shall be permitted by the Trustees)
consent to the action in writing and if the writings in which such consent is
given are filed with the records of the meetings of Shareholders, to the same
extent and for the same period as proxies given in connection with a
Shareholders' meeting. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
SECTION 7.7. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Delaware business corporation under the Delaware business
corporation law.
SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
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ARTICLE 8
LIMITATION OF LIABILITY: INDEMNIFICATION
SECTION 8.1. Trustees. Shareholders. etc. Not Personally Liable;
Notice. The Trustees, officers, employees and agents of the Trust, in incurring
any debts, liabilities or obligations, or in limiting or omitting any other
actions for or in connection with the Trust, are or shall be deemed to be
acting as Trustees, officers, employees or agents of the Trust and not in their
own capacities. No Shareholder shall be subject to any personal liability
whatsoever in tort, contract or otherwise to any other Person or Persons in
connection with the assets or the affairs of the Trust or of any Series, and
subject to Section 8.4 hereof, no Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever in tort, contract,
or otherwise, to any other Person or Persons in connection with the assets or
affairs of the Trust or of any Series, save only that arising from his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office or the discharge of his functions.
The Trust (or if the matter relates only to a particular Series, that Series)
shall be solely liable for any and all debts, claims, demands, judgments,
decrees, liabilities or obligations of any and every kind, against or with
respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed
that resort shall be had solely to the Trust Property of the Trust or the
Series Assets of such Series, as the case may be, for the payment or
performance thereof.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that a Certificate of
Trust in respect of the Trust is on file with the Secretary of the state of
Delaware and shall recite to the effect that the same was executed or made by
or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer, and not individually, and that the obligations of such instrument are
not binding upon any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust, or the particular Series in
question, as the case may be, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the Series Assets of any Series to the
obligations of any other Series.
SECTION 8.2. Trustees' Good Faith Action; Expert Advice: No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 8.4 hereof, a
Trustee shall be liable for his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (i) the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing
of any officer, agent, employee, consultant, Investment Adviser, Administrator,
Distributor or Principal Underwriter, Custodian or Transfer Agent, Dividend
Disbursing Agent, Shareholder Servicing Agent or Accounting Agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant, and (with respect to the subject matter of the contract
involved) any officer, partner or
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responsible employee of a Contracting Party appointed by the Trustees
pursuant to Section 5.2 hereof. The Trustees as such shall not be required to
give any bond or surety or any other security for the performance of their
duties.
SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being
or having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request
by the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified
against all loss and expense arising from such liability.
SECTION 8.4. Indemnification of Trustees. Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 8.4, the
Trust shall indemnify (from the assets of one or more Series to which the
conduct in question relates) each of its Trustees, officers, employees and
agents (including Persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise (hereinafter, together with
such Person's heirs, executors, administrators or personal representative,
referred to as a "Covered Person")) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel
fees, incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it has been
determined that such Covered Person (i) did not act in good faith in the
reasonable belief that such Covered Person's action was in or not opposed to
the best interests of the Trust; (ii) had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (iii) for a criminal proceeding, had
reasonable cause to believe that his conduct was unlawful (the conduct
described in (i), (ii) and (iii) being referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the Covered Person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum
of Trustees who are neither "interested persons" of the Trust as defined in
Section 2(a)(19) of the 1940 Act nor parties to the proceeding (the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments,
in compromise or as fines or penalties), may be paid from time to time by one
or more Series to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided that the Covered
Person shall have undertaken to repay the amounts so paid to such Series if it
is ultimately determined that indemnification of such expenses is not
authorized under this Article 8 and (i) the Covered Person shall
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have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the Disinterested Trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial type inquiry), that there
is reason to believe that the Covered Person ultimately will be found entitled
to indemnification.
SECTION 8.5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4
hereof, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent
legal counsel pursuant to clause (ii) shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
either of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office.
SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article 8, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article 8 shall affect
any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person.
SECTION 8.7. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
ARTICLE 9
DURATION: REORGANIZATION: INCORPORATION; AMENDMENTS
SECTION 9.1. Duration of Trust. Unless terminated as provided herein,
the Trust shall have perpetual existence.
SECTION 9.2. Termination of Trust. The Trust may be terminated at any
time by a Majority of the Trustees, subject to the favorable vote of the
holders of not less than a majority of the Shares outstanding and entitled to
vote of each Series of the Trust, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than a majority of
such Shares, or by such greater or different vote of Shareholders of any Series
as may be established by the Certificate of Designation by which such Series
was authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be
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determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with
the provisions of Section 6.1(h) hereof. After termination of the Trust or any
Series and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination. Upon
termination of the Trust, the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease. Upon termination of any Series, the
Trustees shall thereupon be discharged from all further liabilities and duties
with respect to such Series, and the rights and interests of all Shareholders
of such Series shall thereupon cease.
SECTION 9.3. Reorganization. The Trustees may sell, convey and transfer
all or substantially all of the assets of the Trust, or the assets belonging to
any one or more Series, to another trust, partnership, association, corporation
or other entity organized under the laws of any state of the United States, or
may transfer such assets to another Series of the Trust, in exchange for cash,
Shares or other Securities (including, in the case of a transfer to another
Series of the Trust, Shares of such other Series), or to the extent permitted
by law then in effect may merge or consolidate the Trust or any Series with any
other Trust or any corporation, partnership, or association organized under the
laws of any state of the United States, all upon such terms and conditions and
for such consideration when and as authorized by vote or written consent of a
Majority of the Trustees and approved by the affirmative vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Series whose assets are affected by such transaction, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, and/or by such other vote of any Series as
may be established by the Certificate of Designation with respect to such
Series. Following such transfer, the Trustees shall distribute the cash, Shares
or other Securities or other consideration received in such transaction (giving
due effect to the assets belonging to and indebtedness of, and any other
differences among, the various Series of which the assets have so been
transferred) among the Shareholders of the Series of which the assets have been
so transferred; and if all of the assets of the Trust have been so transferred,
the Trust shall be terminated. Nothing in this Section 9.3 shall be construed
as requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or
other organizations, and to sell, convey or transfer less than substantially
all of the Trust Property or the assets belonging to any Series to such
organizations or entities.
SECTION 9.4. Incorporation. Upon approval by Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization, in
exchange for the shares or securities thereof, or otherwise, and to lend money
to, subscribe for the shares of securities of, and enter into any contracts
with any such corporation, trust, partnership, association or organization in
which the Trust holds or is about to acquire shares or any other interests. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporation, trusts,
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<PAGE> 36
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
SECTION 9.5. Amendments; etc. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any Shareholder
or Trustee or the prohibition of assessment upon the Shareholders (otherwise
than as permitted under Section 6.1(l)) without the express consent of each
Shareholder or Trustee involved. Subject to the foregoing, the provisions of
this Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument in
writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.I
hereof of Shareholders holding a majority of all the Shares outstanding and
entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Series, by the
vote of the holders of a majority of all the Shares entitled to vote of each
Series so affected. Notwithstanding any other provisions set forth in this
Declaration of Trust, a provision in this Declaration of Trust requiring
shareholder approval of any action may be amended only with like shareholder
approval.
SECTION 9.6. Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration and of each amendment hereto (including
each Certificate of Designation and Certificate of Termination) shall be kept
at the office of the Trust where it may be inspected by any Shareholder. A
restated Declaration, integrating into a single instrument all of the
provisions of this Declaration which are then in effect and operative, may be
executed from time to time by a Majority of the Trustees and shall, upon
execution, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration and the various
amendments thereto. A Certificate of Trust shall be filed in the office of the
Secretary of State of the State of Delaware.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.
SECTION 10.2. Governing Law. This Declaration of Trust is, with
reference to the laws thereof, and the rights of all parties and the
construction and effect of every provision hereof shall be, subject to and
construed according to the laws of said The State of Delaware.
SECTION 10.3. Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an
30
<PAGE> 37
original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust is a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form
of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust, (e)
the form of any By-Law adopted, or the identity of any officers elected, by the
Trustees, (f) the existence or nonexistence of any fact or facts which in any
manner relate to the affairs of the Trust, or (g) the name of the Trust or the
establishment of a Series shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees, or any of them, and
the successors of such Person.
SECTION 10.5. References; Headings. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part of this Declaration or control
or affect the meaning, construction or effect hereof.
SECTION 10.6. Provisions in Conflict With Law or Regulation. (a)
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Declaration; provided, however, that such determination shall not affect
any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION 10.7. Use of the Name "Van Kampen American Capital". Van Kampen
American Capital, Inc. ("Van Kampen American Capital") has consented to the use
by the Trust and by each Series and each Series thereof to the identifying
words "Van Kampen" or "Van Kampen Merritt" or any combination thereof in the
name of the Trust and of each Series and Series thereof. Such consent is
conditioned upon the Trust's employment of Van Kampen American Capital, its
successors or a subsidiary or affiliate thereof as investment adviser to the
Trust and to each Series and each Series thereof. As between Van Kampen
American Capital and the Trust, Van Kampen American Capital shall control the
use of such name insofar as such name contains the identifying words "Van
Kampen" or "Van Kampen Merritt". Van Kampen American Capital may from time to
time use the identifying words "American Capital," "Van Kampen" or "Van Kampen
Merritt" in other connections and for other purposes, including without
limitation in the names of other investment companies, corporations or
businesses that it may manage, advise, sponsor or own or in which it may have a
financial interest. Van Kampen American Capital may require the Trust or any
Series or Series thereof to cease using the identifying words "Van Kampen" or
"Van Kampen Merritt" in the name of the Trust or any Series or any Series
thereof if the Trust or any Series or Series thereof ceases to employ Van
Kampen American Capital, its successors or a subsidiary or affiliate thereof as
investment adviser.
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<PAGE> 38
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees of the Trust, have set their hands and seal, for themselves and their
assigns, unto this First Amended and Restated Agreement and Declaration of
Trust of Van Kampen American Capital Limited Maturity Government Fund, as
of the day and year first above written.
/s/ J. MILES BRANAGAN /s/ RICHARD E. CARUSO
___________________________________ ___________________________________
J. Miles Branagan
/s/ ROGER HILSMAN /s/ DON G. POWELL
___________________________________ ___________________________________
Roger Hilsman Don G. Powell
/s/ DAVID REES /s/ LAWRENCE J. SHEEHAN
___________________________________ ___________________________________
David Rees Lawrence J. Sheehan
/s/ FERNANDO SISTO /s/ WILLIAM S. WOODSIDE
___________________________________ ___________________________________
Fernando Sisto William S. Woodside
32
<PAGE> 39
A C K N O W L E D G M E N T
STATE OF ) TEXAS
) ss
COUNTY OF ) HARRIS
June 21, 1995
______________________
(Date)
Then personally appeared the above named [ ] and acknowledged the
foregoing instrument to be his free act and deed.
Before me,
/s/ PAMELA McLEMORE
_______________________________
(Notary Public)
9-3-97
My commission expires:___________
33
<PAGE> 1
VAN KAMPEN AMERICAN CAPITAL LIMITED DURATION GOVERNMENT FUND
Certificate of Designation
of
Van Kampen American Capital Limited Maturity Government Fund
The undersigned, being the Secretary of Van Kampen American Capital Limited
Maturity Government Fund, a Delaware business trust (the "Trust"), pursuant to
the authority conferred upon the Trustees of the Trust by Section 6.1 of the
Trust's First Amended and Related Agreement and Declaration of Trust
("Declaration"), and by the affirmative vote of a Majority of the Trustees does
hereby establish and designate the following classes of Shares of the Trust
with following the rights, preferences and characteristics:
1. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
2. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
3. Conversion. Each Class B and Class C Share of the Trust shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Trust at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Trust's Prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Trust may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust, or with respect to any Class of Shares set forth in the
Declaration shall apply to
1
<PAGE> 2
Shares of the Trust unless otherwise specified in this Certificate of
Designation, in which case this Certificate of Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled
to vote or, if such amendment affects the Shares of one or more but not all of
the Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
June 21, 1995
/s/ NORI L. GABERT
-------------------------------
Nori L. Gabert,
Secretary
2
<PAGE> 1
EXHIBIT 2
VAN KAMPEN AMERICAN CAPITAL
LIMITED MATURITY GOVERNMENT FUND
AMENDED AND RESTATED BYLAWS
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
Bylaws
Index
<TABLE>
<S> <C> <C>
ARTICLE 1 SHAREHOLDERS AND SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Presiding Officer; Secretary . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Authority of Chairman of Meeting to Interpret Declaration and Bylaws . . 1
Section 1.4. Voting; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.5. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 Records at Shareholder Meetings . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. Shareholders Action in Writing . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 TRUSTEES AND TRUSTEES' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1. Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2. Regular Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3. Special Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5. Quorum; Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.6. Participation by Telephone . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7. Location of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.8. Actions by Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.9. Rulings of Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.10. Trustees' Action in Writing . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.11. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.12. Tenure of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 3 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1. Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2. Time and Terms of Election . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3. Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.6. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.7. Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . 5
Section 3.8. Controller and Assistant Controllers . . . . . . . . . . . . . . . . . . 6
Section 3.9. Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . 6
Section 3.10. Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.11. Execution of Deeds, etc. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.12. Power to Vote Securities . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1. Power of Trustees to Designate Committees . . . . . . . . . . . . . . . 7
Section 4.2. Rules for Conduct of Committee Affairs . . . . . . . . . . . . . . . . 7
Section 4.3. Trustees May Alter, Abolish, etc., Committees . . . . . . . . . . . . . 7
Section 4.4. Minutes; Review by Trustees . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6 SHARES .......................................... . . . . . . . . . . . . . . . . . 7
Section 6.1. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.2. Uncertificated Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.3. Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.4. Lost, Stolen, etc., Certificates . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 7 STOCK TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.1. Transfer Agents, Registrars, etc. . . . . . . . . . . . . . . . . . . . 8
Section 7.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.3. Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.1. Bylaws Subject to Amendment . . . . . . . . . . . . . . . . . . . . . 9
Section 8.2. Notice of Proposal to Amend Bylaws Required . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 5
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
BYLAWS
These are the Bylaws of Van Kampen American Capital Limited Maturity
Government Fund, a trust with transferable shares established under the laws of
The State of Delaware (the "Trust"), pursuant to an Agreement and Declaration
of Trust of the Trust (the "Declaration") made the 10th day of May, 1995, and a
Certificate of Trust filed in the office of the Secretary of State pursuant to
Section 3810 of The Delaware Business Trust Act, Title 12, Chapter 38 of the
Delaware Code. These Bylaws have been adopted by the Trustees pursuant to the
authority granted by Section 4.14 of the Declaration.
All words and terms capitalized in these Bylaws, unless
otherwise defined herein, shall have the same meanings as they have in the
Declaration.
ARTICLE 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1. Meetings. A meeting of the Shareholders of the Trust
shall be held whenever called by the Chairman, the President or a majority of
the Trustees and whenever election of a Trustee or Trustees by Shareholders is
required by the provisions of the 1940 Act. Meetings of Shareholders shall
also be called by the Trustees when requested in writing by Shareholders
holding at least ten percent (10%) of the Shares then outstanding for the
purpose of voting upon removal of any Trustee, or if the Trustees shall fail to
call or give notice of any such meeting of Shareholders for a period of thirty
(30) days after such application, then Shareholders holding at least ten
percent (10%) of the Shares then outstanding may call and give notice of such
meeting. Notice of Shareholders' meetings shall be given as provided in the
Declaration.
SECTION 1.2. Presiding Officer; Secretary. The President shall
preside at each Shareholders' meeting as chairman of the meeting, or in the
absence of the President, the Trustees present at the meeting shall elect one
of their number as chairman of the meeting. Unless otherwise provided for by
the Trustees, the Secretary of the Trust shall be the secretary of all meetings
of Shareholders and shall record the minutes thereof.
SECTION 1.3. Authority of Chairman of Meeting to Interpret
Declaration and Bylaws. At any Shareholders' meeting the chairman of the
meeting shall be empowered to determine the construction or interpretation
of the Declaration or these Bylaws, or any part thereof or hereof, and their
ruling shall be final.
SECTION 1.4. Voting; Quorum. At each meeting of Shareholders, except
as otherwise provided by the Declaration, every holder of record of Shares
entitled to vote shall be entitled to a number of votes equal to the number of
Shares standing in his name on the Share register of the Trust on the record
date of the meeting. Shareholders may vote by proxy and the form of any such
proxy may be prescribed from time to time by the Trustees. A quorum shall
exist if the holders of a majority of the outstanding Shares of the Trust
entitled to vote are present in person or by proxy, but any lesser
1
<PAGE> 6
number shall be sufficient for adjournments. At all meetings of the
Shareholders, votes shall be taken by ballot for all matters which may be
binding upon the Trustees pursuant to Section 7.1 of the Declaration. On other
matters, votes of Shareholders need not be taken by ballot unless otherwise
provided for by the Declaration or by vote of the Trustees, or as required by
the 1940 Act, but the chairman of the meeting may in his discretion authorize
any matter to be voted upon by ballot.
SECTION 1.5. Inspectors. At any meeting of Shareholders, the chairman
of the meeting may appoint one or more Inspectors of Election or Balloting to
supervise the voting at such meeting or any adjournment thereof. If Inspectors
are not so appointed, the chairman of the meeting may, and on the request of
any Shareholder present or represented and entitled to vote shall, appoint one
or more Inspectors for such purpose. Each Inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of Inspector of Election or Balloting, as the case may be, at such
meeting with strict impartiality and according to the best of his
ability. If appointed, Inspectors shall take charge of the polls and, when the
vote is completed, shall make a certificate of the result of the vote taken and
of such other facts as may be required by law.
SECTION 1.6. Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last
previous Meeting of Shareholders of the Trust and a list of the Shareholders of
the Trust, certified to be true and correct by the Secretary or other proper
agent of the Trust, as of the record date of the meeting or the date of closing
of transfer books, as the case may be. Such list of Shareholders shall contain
the name of each Shareholder. Shareholders shall have such other rights and
procedures of inspection of the books and records of the Trust as are granted
to shareholders of a Delaware corporation.
SECTION 1.7. Shareholders' Action in Writing. Nothing in this Article
1 shall limit the power of the Shareholders to take any action by means of
written instruments without a meeting, as permitted by Section 7.6 of the
Declaration.
ARTICLE 2
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1. Number of Trustees. The number of Trustees shall be
eight (8) until such time as additional trustees are elected by the
Shareholders pursuant to Section 4.1(e) hereof and the meeting of shareholders
called for July 21, 1995 of the Trust's predecessor. Thereafter, the number of
Trustees shall be fourteen (14), provided that such number shall be
automatically reduced upon the death, resignation or retirement of any Trustee
until the number of Trustees is eight (8). The number of Trustees shall
thereafter be such number, authorized by the Declaration, as from time to time
shall be fixed by a vote of the Trustees in accordance with Section 2.8 hereof.
SECTION 2.2. Regular Meetings of Trustees. Regular meetings of the
Trustees may be held without call or notice at such places and at such times as
the Trustees may from time to time determine; provided, that notice of such
determination, and of the time and place of the first regular meeting
thereafter, shall be given to each absent Trustee in accordance with Section
2.4 hereof.
SECTION 2.3. Special Meetings of Trustees. Special meetings of the
Trustees may be held at any time and at any place when called by the President
or the Treasurer or by three (3) or more
2
<PAGE> 7
Trustees, or if there shall be less than three (3) Trustees, by any Trustee;
provided, that notice of the time and place thereof is given to each Trustee
in accordance with Section 2.4 hereof by the Secretary or an Assistant
Secretary or by the officer or the Trustees calling the meeting.
SECTION 2.4. Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if given in writing to each
Trustee, and if sent by mail at least five (5) days, by a nationally recognized
overnight delivery service at least two (2) days or by facsimile at least
twenty-four (24) hours, before the meeting, addressed to his usual or last
known business or residence address, or if delivered to him in person at least
twenty-four (24) hours before the meeting. Notice of a special meeting need
not be given to any Trustee who was present at an earlier meeting, not more
than thirty-one (31) days prior to the subsequent meeting, at which the
subsequent meeting was called. Unless statute, these bylaws or a resolution of
the Trustees might otherwise dictate, notice need not state the business to be
transacted at or the purpose of any meeting of the Board of Trustees. Notice
of a meeting may be waived by any Trustee by written waiver of notice, executed
by him or her before or after the meeting, and such waiver shall be filed with
the records of the meeting. Attendance by a Trustee at a meeting shall
constitute a waiver of notice, except where a Trustee attends a meeting for the
purpose of protesting prior thereto or at its commencement the lack of notice.
No notice need be given of action proposed to be taken by unanimous written
consent.
SECTION 2.5. Quorum: Presiding Trustee. At any meeting of the
Trustees, a Majority of the Trustees shall constitute a quorum. Any meeting may
be adjourned from time to time by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice. Unless the Trustees shall otherwise elect,
generally or in a particular case, the Chairman shall be the presiding Trustee
at each meeting of the Trustees or in the absence of the Chairman, the
President shall preside over the meeting. In the absence of both the Chairman
and the President, the Trustees present at the meeting shall elect one of their
number as presiding Trustee of the meeting.
SECTION 2.6. Participation by Telephone. One or more of the Trustees
may participate in a meeting thereof or of any Committee of the Trustees by
means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 2.7. Location of Meetings. Trustees' meetings may be held at
any place, within or without the State of Delaware.
SECTION 2.8. Actions by Trustees. Unless statute, the declaration
or these bylaws requires a greater proportion, action of a majority of the
Trustees present at a meeting at which a quorum is present is action of the
Board of Trustees. Notwithstanding the preceding sentence, a vote of not less
than two-thirds (2/3) of the Trustees then in office shall be required to
(directly or indirectly through a reorganization or an amendment to the
Declaration) (i) amend Section 2.1, 2.12 or 2.13 of these By-Laws, (ii)
nominate or elect a new Trustee, (iii) adopt a retirement plan other than a
deferred compensation plan or (iv) amend this supermajority provision of the
By-Laws. Voting at Trustees' meetings may be conducted orally, by show of
hands, or, if requested by any Trustee, by written ballot. The results of
all voting shall be recorded by the Secretary in the minute book.
3
<PAGE> 8
SECTION 2.9. Rulings of Presiding Trustee. All other rules of conduct
adopted and used at any Trustees' meeting shall be determined by the presiding
Trustee of such meeting, whose ruling on all procedural matters shall be
final.
SECTION 2.10. Trustees' Action in Writing. Nothing in this Article 2
shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.
SECTION 2.11. Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the Chairman, the President
or the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
SECTION 2.12. Tenure of Trustees. Notwithstanding any other
provision herein to the contrary, through June 30, 1996, the term of office of
each Trustee shall end at the time such Trustee reaches the age of seventy-six
and one-half years (76 1/2) or seventy-four and one-half years (74 1/2) for
each person who had not been elected before January 1, 1986 as a trustee or
director of any open end investment company managed by Van Kampen American
Capital Asset Management, Inc. (formerly American Capital Asset Management,
Inc. and, prior thereto, American General Capital Management, Inc.) and on and
after July 1, 1996, the term of office of each Trustee shall end at the time
such Trustee reaches the age of seventy-six and one-half years (76 1/2) or
seventy-two and one-half years (72 1/2) for each person who had not been
elected before January 1, 1986 as a trustee or director of any open end
investment company managed by Van Kampen American Capital Asset Management,
Inc.; provided that the term of office of each Trustee shall end on December
31st of the year in which such Trustee reaches the age of seventy-five years
(75) for each person first elected on or after July 1, 1995 and prior to
December 1, 1995 as a Trustee who was over the age of seventy-two and one half
(72 1/2) and under the age of seventy-five (75) at the time of such election;
and further provided that the term of office of each Trustee first elected on
or after July 1, 1995 and prior to December 1, 1995 who is seventy-five years
(75) of age at the time of such election shall expire as of the date such
Trustees reaches the age of seventy-six years (76).
SECTION 2.13. Chairman of the Board. The Trustees shall from time to
time elect one of the Trustees to serve as Chairman of the Board of Trustees,
provided that the chairman shall be a Trustee who is not an "interested person"
of the Trust or the Trust's investment adviser, within the meaning of the 1940
Act.
ARTICLE 3
OFFICERS
SECTION 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and a Secretary, and may include a
Controller and one or more Vice Presidents, Assistant Treasurers and Assistant
Secretaries, and such other officers as the Trustees may designate. Any person
may hold more than one office.
SECTION 3.2. Time and Terms of Election. The President, the Treasurer
and the Secretary shall be elected by the Trustees at their first meeting and
thereafter at the annual meeting of the Trustees, as provided in Section 4.2 of
the Declaration. Such officers shall hold office until the next
4
<PAGE> 9
annual meeting of the Trustees and until their successors shall have been duly
elected and qualified, and may be removed at any meeting by the affirmative
vote of a Majority of the Trustees. All other officers of the Trust may be
elected or appointed at any meeting of the Trustees. Such officers shall hold
office for any term, or indefinitely, as determined by the Trustees, and shall
be subject to removal, with or without cause, at any time by the Trustees.
SECTION 3.3. Resignation and Removal. Any officer may resign at any
time by giving written notice to the Trustees. Such resignation shall take
effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective. If the office of any officer or agent becomes vacant by reason
of death, resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold office for the
unexpired term in respect of which such vacancy occurred. Except to the extent
expressly provided in a written agreement with the Trust, no officer resigning
or removed shall have any right to any compensation for any period following
such resignation or removal, or any right to damage on account of such removal.
SECTION 3.4. Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.
SECTION 3.5. President. The President shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property and affairs of
the Trust and such other powers and duties as the Trustees may prescribe.
SECTION 3.6. Vice Presidents. In the absence or disability of the
President, the Vice President or, if there shall be more than one, the Vice
Presidents in the order of their seniority or as otherwise designated by the
Trustees, shall exercise all of the powers and duties of the President. The
Vice Presidents shall have the power to execute bonds, notes, mortgages and
other contracts, agreements and instruments in the name of the Trust, and shall
do and perform such other duties as the Trustees or the President shall direct.
SECTION 3.7. Treasurer and Assistant Treasurers. The Treasurer shall
be the chief financial officer of the Trust, and shall have the custody of the
Trust's funds and Securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys, and other valuable effects in the name and to the credit of the
Trust, in such depositories as may be designated by the Trustees, taking
proper vouchers for such disbursements, shall have such other duties and
powers as may be prescribed from time to time by the Trustees, and shall
render to the Trustees, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Trust. If no
Controller is elected, the Treasurer shall also have the duties and powers
of the Controller, as provided in these Bylaws. Any Assistant Treasurer shall
have such duties and powers as shall be prescribed from time to time by the
Trustees or the Treasurer, and shall be responsible to and shall report to the
Treasurer. In the absence or disability of the Treasurer, the Controller shall
have the powers and duties of the Treasurer. If no Controller is elected, the
Assistant Treasurer or, if there shall be more than one, the Assistant
Treasurers in the order of their seniority or as otherwise designated by the
Trustees or the Chairman, shall have the powers and duties of the Treasurer.
5
<PAGE> 10
SECTION 3.8. Controller and Assistant Controllers. If a Controller
is elected, the Controller shall be the chief accounting officer of the Trust
and shall be in charge of its books of account and accounting records and of
its accounting procedures, and shall have such duties and powers as are
commonly incident to the office of a controller, and such other duties and
powers as may be prescribed from time to time by the Trustees. The Controller
shall be responsible to and shall report to the Trustees, but in the
ordinary conduct of the Trust's business, shall be under the supervision of
the Treasurer. Any Assistant Controller shall have such duties and powers as
shall be prescribed from time to time by the Trustees or the Controller, and
shall be responsible to and shall report to the Controller. In the absence or
disability of the Controller, the Assistant Controller or, if there shall be
more than one, the Assistant Controllers in the order of their seniority or as
otherwise designated by the Trustees, shall have the powers and duties of the
Controller.
SECTION 3.9. Secretary and Assistant Secretaries. The
Secretary shall, if and to the extent requested by the Trustees, attend all
meetings of the Trustees, any Committee of the Trustees and/or the Shareholders
and record all votes and the minutes of proceedings in a book to be kept for
that purpose, shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders and shall
perform such other duties as may be prescribed by the Trustees. The Secretary,
or in his absence any Assistant Secretary, shall affix the Trust's seal to any
instrument requiring it, and when so affixed, it shall be attested by the
signature of the Secretary or an Assistant Secretary. The Secretary shall be
the custodian of the Share records and all other books, records and papers of
the Trust (other than financial) and shall see that all books, reports,
statements, certificates and other documents and records required by law are
properly kept and filed. In the absence or disability of the Secretary, the
Assistant Secretary or, if there shall be more than one, the Assistant
Secretaries in the order of their seniority or as otherwise designated by the
Trustees, shall have the powers and duties of the Secretary.
SECTION 3.10. Substitutions. In case of the absence or disability
of any officer of the Trust, or for any other reason that the Trustees may deem
sufficient, the Trustees may delegate, for the time being, the powers or
duties, or any of them, of such officer to any other officer, or to any
Trustee.
SECTION 3.11. Execution of Deeds, etc. Except as the Trustees may
generally or in particular cases otherwise authorize or direct, all deeds,
leases, transfers, contracts, proposals, bonds, notes, checks, drafts and other
obligations made, accepted or endorsed by the Trust shall be signed or endorsed
on behalf of the Trust by its properly authorized officers or agents as
provided in the Declaration.
SECTION 3.12. Power to Vote Securities. Unless otherwise ordered by
the Trustees, the Treasurer shall have full power and authority on behalf of
the Trust to give proxies for, and/or to attend and to act and to vote at, any
meeting of stockholders of any corporation in which the Trust may hold stock,
and at any such meeting the Treasurer or his proxy shall possess and may
exercise any and all rights and powers incident to the ownership of such stock
which, as the owner thereof, the Trust might have possessed and exercised if
present. The Trustees, by resolution from time to time, or, in the absence
thereof, the Treasurer, may confer like powers upon any other person or persons
as attorneys and proxies of the Trust.
6
<PAGE> 11
ARTICLE 4
COMMITTEES
SECTION 4.1. Power of Trustees to Designate Committees. The Trustees,
by vote of a Majority of the Trustees, may elect from their number an Executive
Committee and any other Committees and may delegate thereto some or all of
their powers except those which by law, by the Declaration or by these
Bylaws may not be delegated; provided, that an Executive Committee shall not
be empowered to elect the President, the Treasurer or the Secretary, to amend
the Bylaws, to exercise the powers of the Trustees under this Section 4.1 or
under Section 4.3 hereof, or to perform any act for which the action of a
Majority of the Trustees is required by law, by the Declaration or by these
Bylaws. The members of any such Committee shall serve at the pleasure of the
Trustees.
SECTION 4.2. Rules for Conduct of Committee Affairs. Except as
otherwise provided by the Trustees, each Committee elected or appointed
pursuant to this Article 4 may adopt such standing rules and regulations for
the conduct of its affairs as it may deem desirable, subject to review and
approval of such rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or any contrary
provisions by the Trustees, the business of each Committee shall be conducted,
so far as practicable, in the same manner as provided herein and in the
Declaration for the Trustees.
SECTION 4.3. Trustees May Alter, Abolish, etc., Committees Trustees
may at any time alter or abolish any Committee, change membership of any
Committee, or revoke, rescind, waive or modify action of any Committee or the
authority of any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any third parties.
SECTION 4.4. Minutes: Review by Trustees. Any Committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees.
ARTICLE 5
SEAL
The seal of the Trust, if any, may be affixed to any instrument, and
the seal and its attestation may be lithographed, engraved or otherwise printed
on any document with the same force and effect as if had been imprinted and
affixed manually in the same manner and with the same force and effect as if
done by a Delaware corporation. Unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 6
SHARES
SECTION 6.1. Issuance of Shares. The Trustees may issue an unlimited
number of Classes of Shares of any or all Series either in certificated or
uncertificated form, they may issue certificates to the
7
<PAGE> 12
holders of a Class of Shares of a Series which was originally issued in
uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders of
such Series require the surrender of their Share certificates to the Trust for
cancellation, which surrender and cancellation shall not affect the ownership
of Shares for such Series.
SECTION 6.2. Uncertificated Shares. For any Class of Shares for which
the Trustees issue Shares without certificates, the Trust or the Transfer Agent
may either issue receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such Shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of such Shares as if they
had received certificates therefor and shall be held to have expressly assented
and agreed to the terms hereof and of the Declaration.
SECTION 6.3. Share Certificates. For any Class of Shares for which
the Trustees shall issue Share certificates, each Shareholder of such Class
shall be entitled to a certificate stating the number of Shares owned by him in
such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Trust. Such signatures may be facsimiles if the certificate
is countersigned by a Transfer Agent, or by a Registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he were such officer at the time of its issue.
SECTION 6.4. Lost, Stolen, etc., Certificates. If any
certificate for certificated Shares shall be lost, stolen, destroyed or
mutilated, the Trustees may authorize the issuance of a new certificate of the
same tenor and for the same number of Shares in lieu thereof. The Trustees
shall require the surrender of any mutilated certificate in respect of which a
new certificate is issued, and may, in their discretion, before the issuance of
a new certificate, require the owner of a lost, stolen or destroyed
certificate, or the owner's legal representative, to make an affidavit or
affirmation setting forth such facts as to the loss, theft or destruction as
they deem necessary, and to give the Trust a bond in such reasonable sum as the
Trustees direct, in order to indemnify the Trust.
ARTICLE 7
TRANSFER OF SHARES
SECTION 7.1. Transfer Agents, Registrars, etc. As approved in Section
5.2(e) of the Declaration, the Trustees shall have the authority to employ and
compensate such transfer agents and registrars with respect to the Shares of
the Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have the power to employ and compensate such dividend dispersing
agents, warrant agents and agents for reinvestment of dividends as they shall
deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
SECTION 7.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section
6.1(m) of the Declaration. The Trust, or its transfer agents, shall be
authorized to
8
<PAGE> 13
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
SECTION 7.3 Registered Shareholders. The Trust may deem and treat
the holder of record of any Shares the absolute owner thereof for all purposes
and shall not be required to take any notice of any right or claim of right of
any other person.
ARTICLE 8
AMENDMENTS
SECTION 8.1. Bylaws Subject to Amendment. These Bylaws may be
altered, amended or repealed, in whole or in part, at any time by vote of the
holders of a majority of the Shares issued, outstanding and entitled to vote.
The Trustees, by vote of a Majority of the Trustees (unless a greater vote is
required by Section 2.8 hereof), may alter, amend or repeal these Bylaws, in
whole or in part, including Bylaws adopted by the Shareholders, except with
respect to any provision hereof which by law, the Declaration or these Bylaws
requires action by the Shareholders. Bylaws adopted by the Trustees may be
altered, amended or repealed by the Shareholders.
SECTION 8.2. Notice of Proposal to Amend Bylaws Required. No proposal
to amend or repeal these Bylaws or to adopt new Bylaws shall be acted upon at a
meeting unless either (i) such proposal is stated in the notice or in the
waiver of notice, as the case may be, of the meeting of the Trustees or
Shareholders at which such action is taken, or (ii) all of the Trustees or
Shareholders, as the case may be, are present at such meeting and all agree to
consider such proposal without protesting the lack of notice.
9
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL ________ FUND
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
--------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
--------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL ________ FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
--------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
--------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
--------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
--------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.2
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL ________ FUND
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
--------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
--------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL ________ FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
--------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
--------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
--------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
--------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.3
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL ________ FUND
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital ________ Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
________ FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
--------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
--------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL ________ FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
--------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
--------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
--------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
--------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this 31st day of July, 1995, by and between
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND, a Delaware
business trust (hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN
CAPITAL ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter referred to
as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing
of routine legal services except for services provided by outside counsel to
the FUND selected by the Trustees, and the supervision of the FUND's Treasurer
and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in
<PAGE> 2
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction. In the event of such authorization and to the
extent authorized by law, the ADVISER shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the FUND which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Trustees; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
(2) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to
2
<PAGE> 3
others and engage in other activities, so long as the services rendered to the
FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or
to any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(3) Compensation Payable to ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rates:
.50% on the first $1 billion of the FUND's average daily net assets; .475% on
the next $1 billion of the FUND's average daily net assets; .45% on the next $1
billion of the FUND's average daily net assets; .40% on the next $1 billion of
the FUND's average daily net assets; and .35% of any excess over $4 billion.
Average daily net assets shall be determined by taking the average calendar
month calculated in the manner provided in the FUND's Declaration of Trust.
Such fee shall be payable for each calendar month as soon as practicable after
the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such
commissions, fees, brokerage or similar payments. The ADVISER shall use its
best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Trustees of any other commissions, fees, brokerage or similar
payments which may be possible for the ADVISER or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc. to receive in connection with
the FUND's portfolio transactions or other arrangements which may benefit the
FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed 1.5% of the first $30 million of the
3
<PAGE> 4
FUND's average daily net assets plus 1% of any excess over $30 million, the
compensation due the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the FUND, and if such
amount should exceed such monthly compensation, the ADVISER shall pay the FUND
an amount sufficient to make up the deficiency, subject to readjustment during
the FUND's fiscal year. For purposes of this paragraph, all ordinary business
expenses of the FUND shall include the investment advisory fee and other
operating expenses paid by the FUND except (i) for interest and taxes; (ii)
brokerage commissions; (iii) as a result of litigation in connection with a
suit involving a claim for recovery by the FUND; (iv) as a result of litigation
involving a defense against a liability asserted against the FUND, provided
that, if the ADVISER made the decision or took the actions which resulted in
such claim, it acted in good faith without negligence or misconduct; (v) any
indemnification paid by the FUND to its officers and trustees and the ADVISER
in accordance with applicable state and federal laws as a result of such
litigation; and (vi) amounts paid to Van Kampen American Capital Distributors,
Inc., the distributor of the FUND's shares, in connection with a distribution
plan adopted by the FUND's Trustees pursuant to Rule 12b-1 under the Investment
Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) Books and Records
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
(5) Duration of Agreement
This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Trustees who are not parties to this Agreement or interested persons of
any such parties, cast in person at a meeting called for the purpose of voting
on such approval, and by a vote of a majority of the FUND's Trustees or a
majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such
4
<PAGE> 5
termination shall be without payment of any penalty.
(6) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Fund or
the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually but are binding only upon the
assets and property of the FUND. A Certificate of Trust in respect of the Fund
is on file with the Secretary of State of Delaware.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
By: /s/ NORI L. GABERT
----------------------------------------
Name: Nori L. Gabert
--------------------------------------
Its: Vice President
---------------------------------------
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ HUEY P. FALGOUT, JR.
----------------------------------------
Name: Huey P. Falgout, Jr.
--------------------------------------
Its: Vice President
---------------------------------------
5
<PAGE> 1
UNDERWRITING AGREEMENT
between
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
and
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
THIS AGREEMENT made this 31st day of July, 1995 by and between VAN KAMPEN
AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND, a Delaware business trust,
hereinafter referred to as the "Fund" and VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC., a Delaware corporation, hereinafter referred to as the
"Underwriter".
WHEREAS, the Fund proposes to issue its shares in three classes: Class A, Class
B and Class C, all as described in the Fund's current prospectus at the time of
sale;
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: The Fund hereby appoints the Underwriter as its exclusive agent for the
sale of shares of the Fund to the public through investment dealers in the
United States and throughout the world.
SECOND: The Fund shall not sell any of its shares except through the
Underwriter and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,
(A) the Fund may issue its shares to any other investment company or personal
holding company, or to the shareholders thereof, in exchange for all or a
majority of the shares or assets of any such company;
(B) the Fund may issue its shares at net asset value to any shareholder of the
Fund purchasing such shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders; and
(C) the Fund may issue its shares at net asset value to its Trustees.
THIRD: The Underwriter hereby accepts appointment as exclusive agent for the
sale of all classes of shares of the Fund and agrees that it will use its best
efforts to sell such shares; provided, however, that:
(A) the Underwriter may, and when requested by the Fund shall, suspend its
efforts to effectuate sales for any or all classes of shares of the Fund or
limit such sales efforts to existing shareholders of the Fund at any time when,
in the opinion of the Underwriter, after consultation with the investment
adviser to the Fund, or in the opinion of the Fund, sales efforts should be
limited or suspended because of market or other economic considerations
(including a determination by the Fund's investment
1
<PAGE> 2
adviser that it would be in the best interests of existing shareholders of the
Fund to suspend sales of shares of the Fund or limit such sales to existing
shareholders of the Fund) or abnormal circumstances of any kind;
(B) upon the limiting or suspension of sales efforts by the Underwriter
pursuant to clause (A) above, the Fund may in its discretion suspend the sale
of shares through the Underwriter or limit such sales to existing shareholders
of the Fund; and
(C) the Fund may withdraw the offering of its shares (i) at any time with the
consent of the Underwriter, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Underwriter does not undertake to sell any specific amount of shares
of the Fund. The Fund shall have the right to specify minimum amounts for
initial and subsequent orders for the purchase of shares.
FOURTH: The offering price of shares of the Fund (the "offering price") shall
be the net asset value per share plus, in the case of Class A shares, any
applicable initial sales charge. Net asset value per share shall be determined
in the manner provided in the then current prospectus of the Fund. The sales
charge for shares shall be established by the Underwriter. The Underwriter may
designate a scale of reducing sales charges on the basis of the value of shares
purchased or owned in accordance with Rule 22d-1 under the Investment Company
Act of 1940 (the "Act"). Included in the scale of reducing sales charges may
be a level at which no sales charges are added to the net asset value in
computing the public offering price. The Underwriter may also designate
eliminations of sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1, provided such eliminations are
approved by the Fund and described in the prospectus. The Fund shall allow,
directly to investment dealers through whom shares of the Fund are sold, such
portion of the sales charge as may be payable to them and specified by the
Underwriter up to, but not exceeding, the amount of the total sales charge.
The difference between any portion of the sales charge so payable to investment
dealers and the total sales charges included in the offering price shall be
paid to the Underwriter.
The offering price of Class B and Class C shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Fund
agrees that the Underwriter shall impose certain contingent deferred sales
charges in connection with the redemption of Class B or Class C shares of the
Fund, not to exceed a specified percentage of the original purchase price of
the shares as from time to time set forth in the prospectus of the Fund. The
Underwriter may retain (or receive from the Fund, as the case may be) all of
such contingent deferred sales charges. Net asset value per share shall be
determined in the manner provided in the then current prospectus of the Fund.
The Underwriter may designate eliminations of contingent deferred sales charges
to particular classes of investors or transactions in accordance with Rule
22d-1 provided such eliminations are approved by the Fund and described in the
prospectus. The Underwriter proposes to pay to investment
2
<PAGE> 3
dealers through whom Class B and Class C shares of the Fund are sold a dealer
commission of a specified percentage of the purchase price of Class B and Class
C shares purchased through them and as from time to time set forth in the
prospectus of the Fund.
The Underwriter shall act as agent of the Fund in connection with the sale and
repurchase of shares of the Fund. Except with respect to such sales and
repurchases, the Underwriter shall act as principal in all matters relating to
the promotion of the sale of shares of the Fund and shall enter into all of its
own engagements, agreements and contracts as principal on its own account. The
Underwriter shall enter into selling group agreements with investment dealers
selected by the Underwriter, authorizing such investment dealers to offer and
sell shares of the Fund to the public upon the terms and conditions set forth
therein, which shall not be inconsistent with the provisions of this Agreement.
Each selling group agreement shall provide that the investment dealer shall act
as a principal, and not as an agent of the Fund.
FIFTH: The Underwriter shall bear
(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses relating to public offerings made by
the Underwriter pursuant to this Agreement and annual and semi-annual
shareowner reports used as sales literature (not, however, including
typesetting costs), as well as all printing and distribution costs of any other
sales literature used by the Underwriter or furnished by the Underwriter to
dealers in connection with such public offerings except as otherwise agreed by
the Trustees;
(B) expenses of advertising in connection with such public offerings except as
otherwise agreed by the Trustees; and
(C) all legal expenses in connection with the foregoing.
SIXTH: The Underwriter will accept orders for shares of the Fund only to the
extent of purchase orders actually received and not in excess of such orders,
and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.
SEVENTH:
(A) The Fund and the Underwriter shall each comply with all applicable
provisions of the Act, the Securities Act of 1933 (the "Securities Act") and of
all other federal and state laws, rules and regulations governing the issuance
and sale of shares of the Fund.
(B) The Fund agrees to indemnify the Underwriter against any and all claims,
demands, liabilities and expenses which the Underwriter may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection
3
<PAGE> 4
therewith by or on behalf of the Underwriter.
(C) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of or
based upon any act or deed of the Underwriter or its sales representatives
which has not been authorized by the Fund in its prospectus or in this
Agreement. The Underwriter agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(D) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur under the Securities
Act, or common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any prospectus of the Fund
prepared for use under Rule 482 of the Securities Act, or any omission to state
a material fact therein.
EIGHTH: Nothing herein contained shall require the Fund to take any action
contrary to any provision of its Declaration of Trust or to any applicable
statute or regulation.
NINTH: This Agreement shall become effective on the date hereof, shall have an
initial term of two years from the date hereof, and shall continue in force and
effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a)(i) by the Trustees of the Fund, or
(ii) by vote of a majority of the Fund's outstanding voting securities (as
defined in Section 2(a)(42) of the Act); and (b) by vote of a majority of the
Fund's Trustees who are not parties to this Agreement or interested persons (as
defined in Section 2(a)(19) of the Act) of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
TENTH:
(A) This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Underwriter, on sixty days
written notice to the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the Act).
ELEVENTH: Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed, postage paid, to the other party at such address as such
other party may designate for the receipt of such notices. Until further
notice to the other party,
4
<PAGE> 5
it is agreed that the address of the Fund shall be 2800 Post Oak Boulevard,
Houston, Texas 77056 and the address of the Underwriter shall be One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.
TWELFTH: This Agreement is executed on behalf of the Fund or the Trustees of
the FUND as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding only upon the assets and property of the
Fund. A Certificate of Trust in respect of the Fund is on file with the
Secretary of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: /s/ Don G. Powell
-----------------------------------------
Name: Don G. Powell
---------------------------------------
Its: Chief Executive Officer
----------------------------------------
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
By: /s/ Nori L. Gabert
-----------------------------------------
Name: Nori L. Gabert
---------------------------------------
Its: Vice President
----------------------------------------
5
<PAGE> 1
Exhibit 8.2
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of July, 1995 by and between each
of the VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A"
hereto, which are organized under the laws of the state and as the entities set
forth in Schedule "A" hereto, having their principal office and place of
business at Houston, Texas (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation, having its principal office at Houston,
Texas, and its principal place of business at Kansas City, Missouri ("ACCESS").
R E C I T A L:
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF ACCESS.
1.01 Subject to the terms and conditions set forth in this
Agreement, each of the Funds hereby employs and appoints ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and
agrees that on and after the effective date of this Agreement it will act as
the transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will
be performed in a competent, efficient and workmanlike manner with due
diligence in accordance with reasonable industry practice, and that the
necessary facilities, equipment and personnel for such performance will be
provided.
1.04 In order to assure compliance with section 1.03 and to
implement a cooperative effort to improve the quality of transfer agency and
shareholder services received by each of the Funds and its shareholders,
1
<PAGE> 2
ACCESS agrees to provide and maintain quantitative performance objectives,
including maximum target turn-around times and maximum target error rates, for
the various services provided hereunder. ACCESS also agrees to provide a
reporting system designed to provide the Board of Trustees or Board of
Directors of each of the Funds (the "Board") on a quarterly basis with
quantitative data comparing actual performance for the period with the
performance objectives. The foregoing procedures are designed to provide a
basis for continuing monitoring by the Board of the quality of services
rendered hereunder.
ARTICLE 2. FEES AND EXPENSES.
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each
of the Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS.
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in the states of
Texas and Missouri.
3.03 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement.
2
<PAGE> 3
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this
Agreement access to the necessary facilities, equipment and personnel to
perform its duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as
follows:
(a) Each "as of" transaction effected at a price other
than that in effect on the day of processing for which an estimate has
not been given to any of the affected Funds and which is necessitated
by ACCESS' error, or delay for which ACCESS is responsible or which
could have been avoided through the exercise of reasonable care, will
be identified, and the net effect of such transactions determined, on
a daily basis for each such Fund.
(b) The cumulative net effect of the transactions
included in paragraph (a) above will be determined each day throughout
each month. If, on any day during the month, the cumulative net
effect upon any Fund is negative and exceeds an amount equivalent to
1/2 of 1 cent per share of such Fund, ACCESS shall promptly make a
payment to such Fund (in cash or through use of a credit as described
in paragraph (c) below) in such amount as necessary to reduce the
negative cumulative net effect to less than 1/2 of 1 cent per share of
such Fund. If on the last business day of the month the cumulative
net effect (adjusted by the amount of any payments pursuant to the
preceding sentence) upon any Fund is negative, such Fund shall be
entitled to a reduction in the monthly transfer agency fee next
payable by an equivalent amount, except as provided in paragraph (c)
below. If on the last business day of the month the cumulative net
effect (similarly adjusted) upon any Fund is positive, ACCESS shall be
entitled to recover certain past payments and reductions in fees, and
to a credit against all future payments and fee reductions made under
this paragraph to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net
effect upon any Fund shall be deemed to be a credit to ACCESS which
shall first be applied to recover any payments and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar
year by increasing the amount of the monthly transfer agency fee next
payable in an amount equal to prior payments and fee
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<PAGE> 4
reductions made during such year, but not exceeding the sum of that
month's credit and credits arising in prior months during such year to
the extent such prior credits have not previously been utilized as
contemplated by this paragraph (c). Any portion of a credit to ACCESS
not so used shall remain as a credit to be used as payment against the
amount of any future negative cumulative net effects that would
otherwise require a payment or fee reduction to such Fund pursuant to
paragraph (b) above.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUNDS.
Each of the Funds hereby represents and warrants on behalf of
itself only and not any other Funds that are a party to this Agreement that:
4.01 It is duly organized and existing and in good standing under
the laws of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by
its Declaration of Trust or Articles of Incorporation and by-laws to enter into
and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to
authorize it to enter into and perform this Agreement.
4.04 It is an open-end, diversified, management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
ARTICLE 5. INDEMNIFICATION.
5.01 ACCESS shall not be responsible for and each of the Funds
shall indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities arising out of or attributable to:
4
<PAGE> 5
(a) All actions of ACCESS required to be taken by ACCESS
for the benefit of such Fund pursuant to this Agreement, provided
ACCESS has acted in good faith with due diligence and without
negligence or willful misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable
use by ACCESS of, information, records and documents which have been
prepared or maintained by or on behalf of such Fund or have been
furnished to ACCESS by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying
out by ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation
of any requirement under the federal securities laws or regulations or
the securities laws or regulations of any state or in violation of any
stop order or other determination or ruling by any federal agency or
any state with respect to the offer or sale of such shares in such
state unless such violation results from any failure by ACCESS to
comply with written instructions of such Fund that no offers or sales
of such Fund's shares be made in general or to the residents of a
particular state.
(e) Such Fund's refusal or failure to comply with the
terms of this Agreement, or such Fund's lack of good faith, negligence
or willful misconduct or the breach of any representation or warranty
of such Fund hereunder.
5.02 ACCESS shall indemnify and hold each of the Funds harmless
from and against any and all losses, damages, costs, charges, reasonable
counsel fees, payments, expenses and liability arising out of or attributable
to ACCESS' refusal or failure to comply with the terms of this Agreement, or
ACCESS' lack of good faith, negligence or willful misconduct, or the breach of
any representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any
of the Funds for instructions, and may consult with any of the Funds' legal
counsel, at the expense of such concerned Fund, with respect to any matter
arising in connection with the services to be performed by ACCESS under this
Agreement, and ACCESS shall not be liable and shall be indemnified by such
concerned Fund for any action taken or omitted by it in good faith in
reasonable reliance upon such instructions or upon the opinion of such counsel.
ACCESS shall be protected and
5
<PAGE> 6
indemnified in acting upon any paper or document reasonably believed by ACCESS
to be genuine and to have been signed by the proper person or persons and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the concerned Fund. ACCESS shall also
be protected and indemnified in recognizing stock certificates which ACCESS
reasonably believes to bear the proper manual or facsimile signatures of the
officers of the concerned Fund, and the proper countersignature of any former
transfer agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it except with
the other party's prior written consent.
ARTICLE 6. COVENANTS OF EACH OF THE FUNDS AND ACCESS.
6.01 Each of the Funds shall promptly furnish to ACCESS the
following:
(a) Certified copies of the resolution of its Board
authorizing the appointment of ACCESS and the execution and delivery
of this Agreement.
(b) Certified copies of its Declaration of Trust or
Articles of Incorporation and by-laws and all amendments thereto.
6
<PAGE> 7
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any
of the Fund Records, ACCESS will endeavor to notify each of the concerned Funds
and to secure instructions from an authorized officer of each of the concerned
Funds as to such inspection. ACCESS reserves the right, however, to exhibit
such Fund Records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit such Fund Records to such person.
ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect from the date hereof
through June 30, 1995; provided, however, that this Agreement may be terminated
by any party with respect to that party for good and reasonable
7
<PAGE> 8
cause at any time by giving written notice to the other party at least 120 days
prior to the date on which such termination is to be effective. Any unpaid
fees or reimbursable expenses payable to ACCESS shall be due on any such
termination date. ACCESS agrees to use its best efforts to cooperate with each
of the Funds and the successor transfer agent or agents in accomplishing an
orderly transition.
7.02 Subject to the prior approval of the Board, this Agreement
shall be renewed and extended for periods of not more than one year each,
unless and until this Agreement is terminated in accordance with section 7.01
above.
ARTICLE 8. MISCELLANEOUS.
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of any of
the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of the
Funds for the acts and omissions of DST, Inc., or other qualified servicer as
it is for its own acts and omissions.
8.04 ACCESS may, without further consent on the part of any of the
Funds, provide services to its affiliated companies. Such services may be
provided at cost.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes any
prior agreement with respect thereto, whether oral or written, and this
Agreement may not be modified except by written instrument executed by the
affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on
behalf of the Funds or the Trustees of the Funds as Trustees and not
individually and that the obligations of this Agreement are not binding upon
any of
8
<PAGE> 9
the Trustees, officers or shareholders of the Funds individually but are
binding only upon the assets and property of the Funds. A Certificate of Trust
in respect of each of the Funds is on file with the Secretary of the State of
Delaware.
8.07 For each of those Funds that have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under this
Agreement shall apply only on a portfolio-by-portfolio basis and the assets of
one portfolio shall not be liable for the obligations of any other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties hereto
agree to renegotiate such affected portions in good faith.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf and through their duly
authorized officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN
CAPITAL OPEN END FUNDS LISTED ON
SCHEDULE "A" HERETO
BY: /s/ NORI L. GABERT
____________________________________
Vice President
ATTEST:
/s/ HUEY FALGOUT, JR.
____________________________
Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ NORI L. GABERT
____________________________________
President
ATTEST:
/s/ HUEY FALGOUT, JR.
____________________________
Secretary
10
<PAGE> 11
SCHEDULE "A"
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS
Fund Name
(including Portfolios)
=========================================================================
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Securities Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Insured Municipal Fund
Van Kampen American Capital Texas Tax Free Income Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity
Van Kampen American Capital Global Government Securities Fund
11
<PAGE> 12
PRICING SCHEDULE
PRICE PER ACCOUNT PLUS OUT OF POCKETS
<TABLE>
<S> <C> <C>
Van Kampen American Capital Funds:
Fixed Income
------------
Van Kampen American Capital Corporate Bond Fund $25.21* Plus Out of Pockets
Van Kampen American Capital Government Securities Fund $26.12* Plus Out of Pockets
Van Kampen American Capital Government Target Fund $23.54 Plus Out of Pockets
Van Kampen American Capital High Income Corporate Bond Fund $26.17* Plus Out of Pockets
Van Kampen American Capital Municipal Bond Fund $26.36* Plus Out of Pockets
Van Kampen American Capital Global Government Securities Fund $29.17* Plus Out of Pockets
Van Kampen American Capital Texas Tax Free Income Fund $29.17* Plus Out of Pockets
Daily Accrual
-------------
Van Kampen American Capital Limited Maturity Government Fund $28.52* Plus Out of Pockets
Van Kampen American Capital High Yield Municipal Fund $27.18* Plus Out of Pockets
Van Kampen American Capital Insured Municipal Fund $26.60* Plus Out of Pockets
Van Kampen American Capital U.S. Government Trust for Income $30.97* Plus Out of Pockets
Money Market
------------
Van Kampen American Capital Reserve Fund $28.10* Plus Out of Pockets
Equity
------
Van Kampen American Capital Enterprise Fund $23.16* Plus Out of Pockets
Van Kampen American Capital Growth and Income Fund $24.58* Plus Out of Pockets
Van Kampen American Capital Harbor Fund $24.98* Plus Out of Pockets
Van Kampen American Capital Pace Fund $21.26* Plus Out of Pockets
Van Kampen American Capital Comstock Fund $22.56* Plus Out of Pockets
Van Kampen American Capital Emerging Growth Fund $23.82* Plus Out of Pockets
Van Kampen American Capital Global Managed Assets Fund $28.71* Plus Out of Pockets
Van Kampen American Capital Equity Income Fund $26.26* Plus Out of Pockets
Van Kampen American Capital Utilities Income Fund $25.95* Plus Out of Pockets
Van Kampen American Capital Global Equity Fund $26.38* Plus Out of Pockets
Van Kampen American Capital Real Estate Securities Fund $30.17* Plus Out of Pockets
*Add $1.00 for Class B or Class C Surcharge
Van Kampen American Capital Funds Annual Charge(1)
--------------------------------------------------
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
Multiple Strategy Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
Domestic Strategic Income Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
Money Market Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
Common Stock Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
Government Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
*Global Equity Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
*Emerging Growth Fund
Van Kampen American Capital Life Investment Trust - $15,000 Plus Out of Pockets
*Real Estate Securities Fund
American Capital Exchange Fund $15,000 Plus Out of Pockets
Van Kampen American Capital Small Capitalization Fund $15,000 Plus Out of Pockets
</TABLE>
(1) Minimum annual charge based on reimbursement, profit margin expense not
applied.
* New funds, when added, will have an annual charge of $15,000 after a six
months zero fee grace period.
12
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 18, Amendment No. 20 to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated February 16, 1995, relating to the financial statements and
financial highlights of American Capital Federal Mortgage Trust, the predecessor
of the registrant under the Registration Statement, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in such Prospectus and to the
reference to us under the heading "Independent Accountants" in such Statement of
Additional Information.
PRICE WATERHOUSE LLP
Houston, Texas
August 4, 1995
<PAGE> 1
CLASS A
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
Section 1. Van Kampen American Capital Limited Maturity Government Fund, (the
"Fund") may act as a distributor of securities of which it is the issuer,
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
according to the terms of this Distribution Plan (the "Plan").
Section 2. The Fund may incur as a distributor of securities of which it is
the issuer, expenses of up to twenty-five one-hundredths of one percent (0.25%)
per annum of the Fund's average daily net assets.
Section 3. Amounts set forth in Section 2 may be expended when and if
authorized in advance by the Fund's Trustees. Such amounts may be used to
finance any activity which is primarily intended to result in the sale of the
Fund's shares or the retention of shares by investors, including but not
limited to, expenses of organizing and conducting sales seminars, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental
payments to dealers under a dealer incentive program to be established by Van
Kampen American Capital Distributors, Inc. ("VKAC") as the Fund's Distributor
in accordance with Section 4, and the costs of administering such a program.
All amounts expended pursuant to the Plan shall be paid to VKAC. VKAC shall be
required to use such amounts exclusively to finance those activities set forth
in Sections 3 and 4 of the Plan.
Section 4. (a) Amounts expended by the Fund under the Plan shall be used
primarily for the implementation by VKAC of a dealer incentive program and to
pay the cost of administering the calculation of payments under such program.
(b) Pursuant to this program, VKAC may enter into agreements ("Servicing
Agreements") with such broker/dealers ("Dealers") as may be selected from time
to time by VKAC for the provision of distribution assistance in connection with
the sale of shares of the Fund ("Shares") to the Dealers' clients and customers
("Customers") and for the provision of administrative support services to
Customers who may from time to time directly or beneficially own Shares. The
distribution assistance and administrative support services to be rendered by
Dealers under the Servicing Agreements may include, but shall not be limited
to, the following: distributing sales literature; answering routine Customer
inquiries concerning the Fund; assisting Customers in changing dividend
options, account designations and addresses, and
<PAGE> 2
in enrolling into the pre-authorized check plan, systematic withdrawal plan or
any of several tax sheltered retirement plans offered in connection with the
purchase of Shares; assisting in the establishment and maintenance of Customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and capital gains distributions automatically
in Shares and providing such other information and services as the Fund or the
Customer may reasonably request.
Section 5. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding voting
securities of the Fund.
Section 6. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority of both (a) the
Trustees of the Fund and (b) those Trustees of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to
it (the "Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 7. Unless sooner terminated pursuant to Section 9, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 6.
Section 8. VKAC shall provide to the Fund's Trustees and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
Section 9. This Plan may be terminated at any time by vote of a majority of
the Disinterested Trustees, or by vote of a majority of the Fund's outstanding
voting securities.
Section 10. Any agreement related to this Plan shall be in writing, and shall
provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees, or by a vote of
the Fund's outstanding voting securities, on not more than sixty days' written
notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 11. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in
2
<PAGE> 3
Section 5 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for in Section 6 hereof.
Section 12. The execution of this Plan has been authorized by the Fund's
Trustees and by the sole shareholder of the Class A shares of the Fund. This
Plan is executed on behalf of the Fund or the Trustees of the Fund as Trustees
and not individually and that the obligations of this Plan are not binding upon
any of the Trustees, officers or shareholders of the Fund individually but are
binding only upon the assets and property of the Fund. A Certificate of Trust
in respect of the Fund is on file with the Secretary of the State of Delaware.
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
By: /s/ Nori L. Gabert
---------------------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: July 31, 1995
3
<PAGE> 1
CLASS B
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
WHEREAS, Van Kampen American Capital Limited Maturity Government Fund, (the
"Fund"), engaged in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Fund proposes to commence an offering of Class B shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class B shares, to make payments
in connection with the distribution of its Class B shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class B shares, and desires to adopt
a Class B Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class B shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class B shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;
WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class B shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class B Distribution
<PAGE> 2
Plan will benefit the Fund and its Class B shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class B Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class B shares.
2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class B shares rendered by VKAC, the
Fund shall pay VKAC out of the assets attributable to the Class B shares an
annual distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee and Service
Fee shall equal on an annual basis 1.00% of that portion of the Fund's net
assets attributable to Class B shares. Only distribution expenditures of a
type and amount authorized in advance by the Fund's Trustees and properly
attributable to the sale of Class B shares will be used to justify any fee paid
pursuant to this Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class B shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class B shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 3
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
12. The execution of this Plan has been authorized by the Fund's Trustees and
by the sole shareholder of the Class B shares of the Fund. This Plan is
executed on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.
Van Kampen American Capital Limited Maturity Government Fund
By: /s/ Nori L. Gabert
-------------------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: July 31, 1995
3
<PAGE> 1
CLASS C
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
WHEREAS, Van Kampen American Capital Limited Maturity Government Fund, (the
"Fund"), engaged in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Fund proposes to commence an offering of Class C shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class C shares, to make payments
in connection with the distribution of its Class C shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class C shares, and desires to adopt
a Class C Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class C shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class C shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;
WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class C shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class C Distribution
<PAGE> 2
Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class C Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class C shares.
2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class C shares rendered by VKAC, the
Fund shall pay VKAC out of the assets attributable to the Class C shares an
annual distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee shall equal
on an annual basis 1.00% of that portion of the Fund's net assets attributable
to Class C shares. Only distribution expenditures of a type and amount
authorized in advance by the Fund's Trustees and properly attributable to the
sale of Class C shares will be used to justify any fee paid pursuant to this
Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class C shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class C shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 1
EXHIBIT 15.4
SERVICING AGREEMENT RELATING TO SHARES OF
CERTAIN AMERICAN CAPITAL MUTUAL FUNDS
--------------------------------------------------------------------------------
Dear Sir:
This Service Agreement (the "Agreement") between Van Kampen American Capital
Distributors, Inc. ("VKAC") and the undersigned authorized dealer defines the
services to be provided by the authorized dealer for which it may receive
payment pursuant to Distribution Plans (hereinafter severally referred to as the
"Plan") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act") by certain mutual funds for which VKAC serves as distributor (the
"Funds"). Each such fund has acted severally and not jointly in adopting the
Plan and the agreement and hereinafter is referred to severally as the "Fund".
The Plan and the Agreement have been approved by a majority of the Trustees of
the Fund including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or any related agreements (the "non-interested Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan. Such approval
included a determination that in the exercise of their reasonable business
judgement and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders. The Plan
has also been approved by a vote of a majority of the Fund's outstanding voting
securities, as defined in the Act.
--------------------------------------------------------------------------------
1 To the extent you provide distribution assistance and administrative support
services to Customers who may from time to time, directly or beneficially own
shares, including but not limited to, distributing prospectuses and sales
literature, answering routine Customer inquiries regarding the Fund, assisting
Customers in changing divided options, account designations and addresses, and
in enrolling into the pre-authorized check plan, systematic withdrawal plan or
any of several tax sheltered retirement plans offered in connection with the
purchase of shares in the case of those Funds offering such Plans, assisting in
the establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions, investing dividends and
capital gains distributions automatically in shares and providing such other
services as the Fund or the Customer may reasonably request, we shall pay you
quarterly a fee as indicated in each Fund's then current prospectus based on the
net asset value of Fund shares owned shareholders whose shares are owned of
record by your firm as nominee for your Customers or which are owned by those
Customers of your firm whose records, as maintained by the Fund or its Agents,
designate your firm as the Customer's dealer of record. No such quarterly fee
will be paid to you with respect to shares purchased by you and redeemed or
repurchased by the Fund or by us as Agent within seven (7) business days after
the date of our confirmation of such purchase. No such fee shall be payable with
respect to shares purchased at net asset value without a sales charge by
investors of the classes described in the Fund's Prospectus pursuant to Rule
22d-1 under the Act, other than classes of net asset value categories pursuant
to Rule 22d-1 as may from time to time be approved by the Fund.
--------------------------------------------------------------------------------
<PAGE> 2
2 By accepting such fee you agree to assign a representative to each account, to
require such representative to contact the Customer regularly and to pay at
least a portion of such fee to such representative. Additionally, you understand
that VKAC will monitor service levels which you provide to your Customers
pursuant to this agreement and that consistently low levels of service will
result in non-payment of the fee.
--------------------------------------------------------------------------------
3 In accordance with your agreement to provide distribution assistance, you
agree to use your best efforts to support the asset value of the Fund to the
extent consistent with the suitability requirements of your Customer. You
understand that VKAC will monitor levels of redemption and that redemption
levels consistently above those dictated by market conditions will result in
non-payment of the fee.
--------------------------------------------------------------------------------
4 This Agreement does not require any authorized dealer to hold Fund shares in
street name or to provide shareholder accounting and record keeping services for
any Customers who are beneficial owners of Fund shares.
--------------------------------------------------------------------------------
5 You shall furnish us and the Fund with such information as shall reasonably be
requested by either the Trustees of the Fund or by us with respect to the fees
paid to you pursuant to this Agreement.
--------------------------------------------------------------------------------
6 We shall furnish to the Trustees of the Fund, for their review on a quarterly
basis, a written report of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
--------------------------------------------------------------------------------
7 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Fund except those contained in the then
current Prospectus for the Fund, and you shall have no authority to act as Agent
for the Fund or for VKAC.
--------------------------------------------------------------------------------
8 We may enter into other similar Servicing Agreements with any other person
without your consent.
--------------------------------------------------------------------------------
9 This Agreement may be terminated with respect to any Fund at any time without
payment of any penalty by the vote of a majority of the non-interested Trustees
or by a vote of a majority of the Fund's outstanding shares, on sixty (60) days
written notice. It will be terminated by any act which terminates either the
Fund's Underwriting Agreement with us or the Selling Group Agreement between
your firm and us and shall terminate automatically in the event of its
<PAGE> 3
assignment as that term is defined in the Act.
--------------------------------------------------------------------------------
10 The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Plan, are incorporated herein by reference. This Agreement
shall become effective upon execution and delivery hereof and shall continue in
full force and effect so long as the continuance of the Plan and this related
Agreement are approved at least annually by a vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the foregoing address. Any notice to you shall be duly given if mailed
or telegraphed to you at the address specified by you below.
--------------------------------------------------------------------------------
11 As described in the prospectus of each Fund which is organized as a trust,
the Agreement and Declaration of Trust ("Declaration") establishing such Trust,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder or officer of said Trust shall be held to any personal liability,
nor shall resort be had to their private property for satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Trust,
but only the assets and property of the Trust, or of the particular series of
the Trust in question, as the case may be, shall be liable. In the case of each
Fund comprised of series, all obligations of such Fund under this Agreement
shall apply only on a series by series basis and the assets of one series shall
not be liable for the obligations of any other series.
--------------------------------------------------------------------------------
12 This Agreement shall be construed in accordance with the laws of the State of
Texas.
Van Kampen American Capital Distributors, Inc.
Dated_______________19____ By:_____________________________
Accepted:
_____________________________
Please sign both copies and return to:
Van Kampen American Capital Distributors, Inc. _____________________________
P.O. Box 1411
Houston, TX 77251-1411
By:_____________________________
Title:__________________________
<PAGE> 1
EXHIBIT 15.5
SERVICING AGREEMENT RELATING TO SHARES OF
CERTAIN AMERICAN CAPITAL MUTUAL FUNDS FOR
BANKS AND BANK AFFILIATED BROKER / DEALERS
--------------------------------------------------------------------------------
Dear Sir:
This Servicing Agreement (the "Agreement") between Van Kampen American Capital
Distributors, Inc. ("VKAC") and the undersigned authorized bank or bank
affiliated dealer defines the services to be provided by the authorized bank or
bank affiliated dealer for which it may receive payment pursuant to Distribution
Plans (hereinafter severally referred to as the "Plan") adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by certain mutual
funds for which VKAC serves as distributor (the "Funds"). Each such fund has
acted severally and not jointly in adopting the Plan and the Agreement and
hereinafter is referred to severally as the "Fund". The Plan and the Agreement
have been approved by a majority of the Trustees of the Fund including a
majority of Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or any
related agreements (the "non-interested Trustees"), cast in person at a meeting
called for the purpose of voting on the Plan. Such approval included a
determination that in the exercise of their reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. The Plan has also been approved by a
vote of a majority of the Fund's outstanding voting securities, as defined in
the Act.
--------------------------------------------------------------------------------
1 To the extent you provide administrative support services to your agency
clients who may from time to time, directly or beneficially own shares,
including but not limited to, distributing prospectuses, performing
sub-accounting, answering routine shareholder inquiries regarding the Fund,
assisting shareholders in changing dividend options, account designations and
addresses, and in enrolling into the pre-authorized check plan, systematic
withdrawal plan or any of several tax sheltered retirement plans offered in
connection with the purchase of shares in the case of those Funds offering such
Plans, assisting in the establishment and maintenance of customer accounts and
records and in the processing of purchase and redemption transaction, investing
dividends and capital gains distributions automatically in shares and providing
such other services as the Fund or your client may reasonably request, to the
extent you are permitted by applicable statute, rule or regulation to provide
such services, we shall pay you quarterly a fee as indicated in each Fund's then
current prospectus based on the net asset value of Fund shares owned by
shareholders whose shares are owned of record by your bank or bank affiliated
dealer as nominee for your clients or which are owned by your agency clients
whose records, as maintained by the Fund or its Agent, designate your bank or
bank affiliated dealer as the shareholder's dealer of record. No such quarterly
fee will be paid to you with respect to shares purchased by your agency client
and redeemed or repurchased by the Fund or by us as Agent within seven (7)
<PAGE> 2
business days after the date of our confirmation of such purchase. No such fee
shall be payable with respect to shares purchased at net asset value without a
sales charge by investors of the classes described in the Fund's Prospectus
pursuant to Rule 22d-1 under the Act, other than classes of net asset value
categories pursuant to Rule 22d-1 as may from time to time be approved by the
Board.
--------------------------------------------------------------------------------
2 By accepting such fee you agree to contact your client regularly.
Additionally, you understand that VKAC will monitor service levels which you
provide to your Customers pursuant to this agreement and that consistently low
levels of service will result in non-payment of the fee.
--------------------------------------------------------------------------------
3 This Agreement does not require any authorized bank or bank affiliated dealer
to hold Fund shares in street name or to provide shareholder accounting and
record keeping services for any clients who are beneficial owners of Fund
shares.
--------------------------------------------------------------------------------
4 You shall furnish us and the Fund with such information as shall reasonably be
requested by either the Trustees of the Fund or by us with respect to the fees
paid to you pursuant to this Agreement.
--------------------------------------------------------------------------------
5 We shall furnish to the Trustees of the Fund, for their review on a quarterly
basis, a written report of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
--------------------------------------------------------------------------------
6 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Fund except those contained in the then
current prospectus for the Fund, and you shall have no authority to act as agent
for the Fund or for VKAC.
--------------------------------------------------------------------------------
7 We may enter into other similar Servicing Agreements with any other person
without your consent.
--------------------------------------------------------------------------------
8 This Agreement may be terminated with respect to any Fund at any time without
payment of any penalty by the vote of a majority of the non-interested Trustees
or by a vote of a majority of the Fund's outstanding shares on sixty (60) days
written notice. It will be terminated by any act
<PAGE> 3
which terminates either the Fund's Underwriting Agreement with us or the Selling
Group Agreement between you and us and shall terminate automatically in the
event of its assignment as that term is defined in the Act.
--------------------------------------------------------------------------------
9 The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Plan, are incorporated herein by reference. This Agreement
shall become effective upon execution and delivery hereof and shall continue in
full force and effect so long as the continuance of the Plan and this related
Agreement are approved at least annually by a vote of the Fund's Trustees,
including a majority of the non-interested Trustees, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the foregoing address. Any notice to you shall be duly given if mailed
or telegraphed to you at the address specified by you below.
--------------------------------------------------------------------------------
10 As described in the prospectus of each Fund which is organized as a trust,
the Agreement and Declaration of Trust ("Declaration") establishing such Trust,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder or officer of said Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Trust,
but only the assets and property of the Trust, or of the particular series of
the Trust in question, as the case may be, shall be liable. In the case of each
Fund comprised of series, all obligations of such Fund under this Agreement
shall apply only on a series by series basis and the assets of one series shall
not be liable for the obligations of any other series.
--------------------------------------------------------------------------------
11 This Agreement shall be construed in accordance with the laws of the State of
Texas.
Van Kampen American Capital Distributors, Inc.
Dated _____________19___ By:____________________________________________
Accepted:
____________________________________________
Bank or Dealer's Name
____________________________________________
Address
By:____________________________________________
Title:_________________________________________
<PAGE> 1
EXHIBIT 16
COMPUTATION MEASURE FOR PERFORMANCE INFORMATION
CALCULATION OF TOTAL RETURN -- CLASS A SHARES
The Fund calculates its average annual total return quotations for Class A
shares for the period ended December 31, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n=ERV
<TABLE>
<S> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods, at the end of the designated
period or periods, or fractional portion thereof
</TABLE>
These calculations incorporate the following assumptions:
1. The maximum sales load, or other charges deducted from payments, is
deducted from the initial $1,000 payment.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 2
CALCULATION OF TOTAL RETURN -- CLASS B SHARES
The Fund calculates its average annual total return quotations for Class B
shares for the period ended December 31, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n=ERV
<TABLE>
<S> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated period or periods, at the end of the designated
period or periods, or fractional portion thereof
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with the applicable contingent
deferred sales charge imposed upon redemption.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 3
CALCULATION OF TOTAL RETURN -- CLASS C SHARES
The Fund calculates its average annual total return quotations for Class C
shares for the period ending December 31, 1994, the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the designated period or periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n=ERV
<TABLE>
<S> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made at the beginning
of the designated period or periods, at the end of the designated period or
periods, or fractional portion thereof
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with a one percent contingent
deferred sale charge imposed if redeemed during the first year.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 4
CALCULATION OF YIELD
The Fund calculates its yield quotations based on a 30-day period ended on
the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
<TABLE>
<S> <C> <C>
a-b
YIELD (y) = 2[ ----- + 1)6 - 1]
cd
</TABLE>
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------- ------------ ------------
<S> <C> <C>
a = $ 232,542 a = $ 100,144 a = $31,343
b = $ 56,339 b = $ 36,884 b = $11,536
c = 3,697,608 c = 1,592,660 c = 498,284
d = $ 12.17 d = $ 11.91 d = $ 11.90
y = 4.75% y = 4.04% y = 4.04%
</TABLE>
<PAGE> 1
EXHIBIT 17.1
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
JULY 13, 1995
Van Kampen Merritt U.S. Government Trust
Van Kampen Merritt Tax Free Fund
Van Kampen Merritt Insured Tax Free Income Fund
Van Kampen Merritt Tax Free High Income Fund
Van Kampen Merritt California Insured Tax Free Fund
Van Kampen Merritt Municipal Income Fund
Van Kampen Merritt Limited Term Municipal Income Fund
Van Kampen Merritt Florida Insured Tax Free Income Fund
Van Kampen Merritt New Jersey Tax Free Income Fund
Van Kampen Merritt New York Tax Free Income Fund
Van Kampen Merritt Trust
Van Kampen Merritt High Yield Fund
Van Kampen Merritt Short-Term Global Income Fund
Van Kampen Merritt Adjustable Rate U.S. Government Fund
Van Kampen Merritt Strategic Income Fund
Van Kampen Merritt Emerging Markets Income Fund
Van Kampen Merritt Growth Fund
Van Kampen Merritt Equity Trust
Van Kampen Merritt Growth and Income Fund
Van Kampen Merritt Utility Fund
Van Kampen Merritt Balanced Fund
Van Kampen Merritt Total Return Fund
Van Kampen Merritt Pennsylvania Tax Free Income Fund
Van Kampen Merritt Money Market Trust
Van Kampen Merritt Money Market Fund
Van Kampen Merritt Tax Free Money Fund
Van Kampen Merritt Prime Rate Income Trust
Van Kampen Merritt Series Trust
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc..
American Capital Reserve Fund, Inc.
American Capital Tax -Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
The Govett Funds, Inc.
<PAGE> 2
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 352
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . Series 1 through
1009 Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . Series 5 through 84
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 9 through 80
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 142
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . Series 1 through 20
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 27
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 95
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . Series 1 through 12
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 76
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 55
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 72
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 130
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 55
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 90
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 104
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust-Intermediate . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 127
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . Series 1 through 81
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 97
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 204
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . Series 1 through 79
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-31
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 65
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>
<PAGE> 1
EXHIBIT 17.2
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Robert J. Froehlich Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
Howard A. Doss Vice President Tampa, FL
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Erich P. Gerth Vice President Dallas, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Ruth L. McKeel Vice President Oakbrook Terrace, IL
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Colette Saucedo Vice President Houston, TX
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Jeffrey A. Urbina Vice President Oakbrook Terrace, IL
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jeanette M. Dierkes Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Scott M. Pulkrabek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Secretary Houston, TX
Nori L. Gabert Asst. Secretary Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.
Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
<PAGE> 1
EXHIBIT 19.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Philip G. Gaughan Trustee July 8, 1995
-----------------------------------------------
Philip G. Gaughan
</TABLE>
<PAGE> 2
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. Craig Kennedy Trustee July 8, 1995
-----------------------------------------------
R. Craig Kennedy
</TABLE>
<PAGE> 4
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald C. Miller Trustee July 8, 1995
----------------------------------------------
Donald C. Miller
</TABLE>
<PAGE> 6
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
either of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack E. Nelson Trustee July 10, 1995
-----------------------------------------------
Jack E. Nelson
</TABLE>
<PAGE> 8
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jerome L. Robinson Trustee July 8, 1995
----------------------------------------------
Jerome C. Robinson
</TABLE>
<PAGE> 10
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of each
of the investment companies listed on Exhibit A hereto does hereby severally
constitute and appoint Don G. Powell, Nori L. Gabert and Ronald A. Nyberg, or
any of them, the true and lawful agents and attorneys-in-fact of the
undersigned with respect to any Registration Statements and any and all
amendments (including post-effective amendments) thereto, with full power and
authority to execute said Registration Statements for and on behalf of the
undersigned, in the undersigned's name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission. The
undersigned hereby gives to said agents and attorneys-in-fact full power and
authority to act in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agents and
attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Wayne W. Whalen Trustee July 8, 1995
-----------------------------------------------
Wayne W. Whalen
</TABLE>
<PAGE> 12
Exhibit A
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Trust
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Yield Investments Trust
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
High Yield Municipal Fund
Insured Municipal Fund
Van Kampen American Capital Texas Municipal Securities Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital
Global Equity Fund
Van Kampen American Capital
Global Government Securities Fund
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000783743
<NAME> AC FMT - A
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 73544
<INVESTMENTS-AT-VALUE> 72638
<RECEIVABLES> 453
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73100
<PAYABLE-FOR-SECURITIES> 7026
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 641
<TOTAL-LIABILITIES> 7667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82620
<SHARES-COMMON-STOCK> 3466
<SHARES-COMMON-PRIOR> 5178
<ACCUMULATED-NII-CURRENT> 50
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16373)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (919)
<NET-ASSETS> 65433
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4961
<OTHER-INCOME> 0
<EXPENSES-NET> 1192
<NET-INVESTMENT-INCOME> 3769
<REALIZED-GAINS-CURRENT> (2512)
<APPREC-INCREASE-CURRENT> (1405)
<NET-CHANGE-FROM-OPS> (148)
<EQUALIZATION> (170)
<DISTRIBUTIONS-OF-INCOME> 2394
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1589
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