SPECIAL NOTICE TO SHAREHOLDERS OF SMITH BARNEY
SERIES FUND - emerging growth PORTFOLIo
YOUR VOTE IS IMPORTANT
Dear Investor:
The attached proxy statement seeks shareholder approval of a new
Investment Advisory Agreement between American Capital Asset
Management, Inc. and Smith Barney Series Fund (the "Fund"), on
behalf of the Emerging Growth Portfolio.
New Investment Advisory Agreement
This proxy statement contains detailed information about a new
investment advisory agreement, and should be read carefully. It is
important to note that NO CHANGES IN THE PORTFOLIO'S ADVISORY
FEES, OBJECTIVES OR POLICIES ARE PROVIDED FOR IN THE NEW
AGREEMENT, and investors should continue to receive the same high
quality shareholder services.
The new investment advisory agreement is necessary because of the
proposed sale of American Capital Management & Research, Inc., the
parent company of American Capital Asset Management, Inc. to The
Van Kampen Merritt Companies, Inc.
The proposal has been approved by the Trustees of the Fund, who
recommend you vote "FOR" the proposal. We look forward to your
participation.
PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Sincerely,
Heath B. McLendon
Chairman
SMITH BARNEY SERIES FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
THE Emerging Growth PORTFOLIO
To Be Held on December 20, 1994
To the Shareholders:
A Special Meeting of Shareholders of the Emerging Growth Portfolio
(the "Portfolio") of Smith Barney Series Fund (the "Fund") will be
held on December 20, 1994 at 2:00 P.M. at 388 Greenwich Street,
New York, New York, for the following purposes:
(1) To approve a new investment advisory agreement for the
Portfolio which is substantially the same as the current agreement, to
take effect upon the closing of the proposed acquisition of American
Capital Management & Research, Inc. by The Van Kampen Merritt
Companies, Inc. (the "Transaction"); and
(2) To transact such other business as may properly come before
the meeting or any adjournments thereof.
Only owners of variable annuity contracts that were invested in the
Portfolio as of the close of business on November 20, 1994 are
considered "shareholders of record" and are entitled to notice of and
to vote at the meeting.
Please mark, date and sign the enclosed proxy and return it in the
prepaid envelope enclosed for your convenience to insure that your
shares are represented. The prompt return of your proxy will save
the expense of further mailings. If you attend the meeting you can
revoke your proxy and vote your shares in person if you wish.
By Order of the Board of Trustees
Christina T. Sydor
Secretary
New York, New York
November ___, 1994
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THE
PROXY IN THE ENCLOSED PREPAID ENVELOPE.
SMITH BARNEY SERIES FUND
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
THE Emerging Growth PORTFOLIO
to be held on December 20, 1994
Proxies in the form enclosed with this Proxy Statement are solicited
by the Board of Trustees of the Smith Barney Series Fund (the
"Fund") for use at a Meeting of Shareholders of the Emerging Growth
Portfolio (the "Portfolio"), to be held at 388 Greenwich Street, _____
Floor, New York, New York 10013, at 2:00 p.m. on Tuesday, December
20, 1994 or at any adjournment(s) thereof. If the enclosed form of
proxy is executed and returned, it nevertheless may be revoked at
any time before it has been exercised by signing and sending to the
Fund a later dated proxy or written revocation, or by attending the
meeting and voting in person. A proxy when executed and not so
revoked will be voted and if it contains any specification will be
voted accordingly. If no choice is specified, it is the intention to vote
the proxy "FOR" the proposal.
The costs of soliciting proxies in the accompanying form for the
meeting, including the costs of preparing, printing and mailing the
accompanying Notice of Meeting and this Proxy Statement, the costs
of any solicitor and the costs of the meeting with respect to the
Portfolio will be borne equally by The Travelers Inc. ("Travelers")
and The Van Kampen Merritt Companies, Inc. if the Transaction (as
defined under Proposal No. 1 below) closes. Travelers is the indirect
parent company of American Capital Asset Management, Inc.
("ACAM"), the investment adviser to the Portfolio. If the Transaction
does not close, such cost will be borne by Travelers or, under certain
conditions, by The Van Kampen Merritt Companies, Inc.
Proxy material for the Portfolio may also be distributed through
brokers, custodians and nominees to beneficial owners and proxies
may be solicited by telephone or telegraph by officers, trustees and
regular and temporary employees of the Fund, Smith Barney Inc., the
distributor of shares of the Portfolio, Smith Barney Mutual Funds
Management Inc., the administrator for the Portfolio, The Boston
Company Advisors, Inc., the sub-administrator for the Portfolio
and/or The Shareholder Services Group, Inc., a subsidiary of First
Data Corporation, the transfer agent for the Portfolio. The mailing
address of the Fund is 388 Greenwich Street, New York, New York
10013. It is anticipated that proxies and proxy statements will be
mailed to shareholders on or about November 23, 1994.
In the event that sufficient votes in favor of the proposal set forth in
the Notice of Meeting and this Proxy Statement are not received by
the time scheduled for the meeting, the persons named as proxies
may move one or more adjournments of the meeting to permit
further solicitation of proxies with respect to the proposal. Any such
adjournment will require the affirmative vote of a majority of the
shares present at the meeting. The persons named as proxies will
vote in favor of such adjournment those shares which they are
entitled to vote and which have voted in favor of the proposal.
A rule under the Investment Company Act of 1940 (the "1940 Act")
provides that any matter required by the provisions of the 1940 Act
or applicable state law, or otherwise, to be submitted to the holders
of the outstanding voting securities of an investment company such
as the Fund shall not be deemed to have been effectively acted upon
unless approved by the requisite vote of the Portfolio affected by the
matter.
Proposal 1 requires for approval the affirmative vote of a "majority
of the outstanding voting securities" of the Portfolio, which, as
defined in the 1940 Act means the affirmative vote of the lesser of
(a) more than 50% of the outstanding shares of the Portfolio or (b)
67% or more of such shares present at a meeting if more than 50% of
the outstanding shares of the Portfolio are represented at the
meeting in person or by proxy. For purposes of determining the
presence of a quorum for transacting business at the meeting,
abstentions and broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote shares on
a particular matter with respect to which the brokers or nominees do
not have discretionary power) will be treated as shares that are
present but which have not been voted. For this reason, abstentions
and broker non-votes will have the effect of a "no" vote for purposes
of obtaining the requisite approval of the proposal.
Only owners of variable annuity contracts that were invested in the
Portfolio as of the close of business on November 20, 1994, (the
"Record Date") are considered "shareholders of record" and are
entitled to notice of and to vote at the meeting. Each share of stock is
entitled to one vote for the proposal. On the Record Date, the
Portfolio had outstanding _____ shares of voting securities.
On the Record Date, all of the outstanding shares were held by IDS
Life Insurance Company ("IDS Life") or IDS Life Insurance Company
of New York ("IDS Life of New York"), a wholly owned subsidiary of
IDS Life, for the benefit of owners of annuity contracts ("Contract
Owners") issued by IDS Life and IDS Life of New York. IDS Life's
address is IDS Tower 10, Minneapolis, Minnesota 55440-0010. IDS
Life of New York's address is 20 Madison Avenue Extension, Albany,
New York 12203. Each share is entitled to one vote, and any
fractional share is entitled to a fractional vote. IDS Life and IDS Life
of New York will vote the shares as directed by the Contract Owners
who have allocated purchase payments to annuity contract sub-
accounts investing in the Portfolio. Each Contract Owner has the right
to direct the votes of that number of shares of the Portfolio
determined by multiplying the total number of the Portfolio's
outstanding shares by a fraction, the numeration of which is the
number of units held by such Contract Owner in the Portfolio on the
Record Date and the denominator of which is the total number of
units of the Portfolio outstanding on the Record Date. Units reflect
client ownership in the separate account, while shares reflect
ownership in the Portfolio. IDS Life and IDS Life of New York will
vote all Portfolio shares related to the variable contracts for which it
has not received timely voting instructions in the same proportion as
the shares for which it has received timely instructions. With
respect to the shares they own directly, IDS Life and IDS Life of New
York will vote "FOR" the proposal described in this Proxy Statement.
As of Record Date, to the knowledge of the Fund and the Board of
Trustees, no single shareholder or "group" (as that term is used in
Section 13(d) of the Securities Exchange Act of 1934), except as set
forth in the table below, beneficially owned more than 5% of the
outstanding shares of the Portfolio's shares. In addition, as of the
Record Date, the trustees and officers of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the
Portfolio.
Amount
Name and of Beneficial Percent
Title of Class Name and Address of Beneficial Owner
Ownership of Class
PROPOSAL NO. 1
TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT FOR THE
PORTFOLIO WHICH IS SUBSTANTIALLY THE SAME AS THE CURRENT
AGREEMENT TO TAKE EFFECT UPON THE CLOSING OF THE PROPOSED
ACQUISITION OF AMERICAN CAPITAL MANAGEMENT & RESEARCH,
INC. BY THE VAN KAMPEN MERRITT
COMPANIES, INC.
BACKGROUND
In connection with the Transaction described below, shareholders of
the Portfolio are being asked to approve a new advisory agreement
("Successor Advisory Agreement") with American Capital Asset
Management, Inc. ("ACAM") that is substantially the same as the
current advisory agreement with ACAM dated ________, ("Current
Advisory Agreement"). ACAM is a wholly-owned subsidiary of
American Capital Management & Research, Inc. ("ACMR"), which is
wholly-owned (in part indirectly) by Travelers. ACAM serves as
investment adviser or investment subadviser for 45 investment
company portfolios (collectively, the "ACAM Advised Funds").
On August 24, 1994, Travelers and its wholly-owned subsidiary,
Associated Madison Companies, Inc. ("AMAD," and together with
Travelers, the "Sellers"), entered into a stock purchase agreement
(together with Amendment No. 1 thereto, the "Stock Purchase
Agreement") with The Van Kampen Merritt Companies, Inc. (the
"Buyer") and its parent company, VKM Holding, Inc. ("VKM Holding"),
providing for the sale by the Sellers to the Buyer of all the issued
and outstanding capital stock of ACMR, the parent company of ACAM
(the "Transaction"). ACAM acts as the Portfolio's adviser pursuant to
the Current Advisory Agreement, which was initially submitted to
and approved by the shareholders of the Portfolio on ____
____, 1994. Pursuant to Section 15 of the Investment Company Act
of 1940, as amended (the "1940 Act"), the Portfolio's Current
Advisory Agreement terminates automatically upon its "assignment,"
which is deemed to include any change of control of the investment
adviser. Consummation of the Transaction may be deemed to
constitute such an "assignment." Accordingly, because Section 15(a)
of the 1940 Act prohibits any person from serving as an investment
adviser to a registered investment company except pursuant to a
written contract that has been approved by the shareholders of the
registered investment company, in order for ACAM to continue to
provide investment advisory services to the Portfolio after the
closing of the Transaction, the shareholders of the Portfolio must
approve the Successor Advisory Agreement between ACAM and the
Fund (on behalf of the Portfolio). The form of the Successor Advisory
Agreement is attached hereto as Appendix A. The advisory fee and
expense limitations applicable to the Successor Advisory Agreement
are the same as those applicable to the Current Advisory Agreement.
Shareholders should read it carefully. The Transaction, which is
subject to a number of conditions, is currently expected to close in
late December, 1994 (the "Closing"). Among the conditions to the
consummation of the Transaction is the approval of the Successor
Advisory Agreement by the shareholders of the Portfolio and the
approval of other successor advisory agreements and successor
subadvisory agreements by the respective stockholders of ACAM
Advised Funds as to which ACAM or any other subsidiary of ACMR
will act as investment advisor, subadviser or manager following the
Closing having average aggregate assets of not less than
$13,869,450,000, determined over the 10-day period immediately
preceding the closing.
Upon the Closing, ACMR will become an indirect wholly-owned
subsidiary of VKM Holding (although the Buyer currently expects
that ACMR will be merged with and into the Buyer shortly after the
Closing as discussed below under "Effects of Transaction on ACAM").
The Buyer is a wholly-owned subsidiary of VKM Holding. The Buyer
and its affiliates sponsor, market and provide investment advisory
services to open- and closed-end investment companies, most of
which invest primarily in fixed-income securities. The Buyer and its
affiliates also sponsor and market unit investment trusts and
monitor and value their portfolios; provide investment advisory
services to insurance companies, pension funds, municipalities, high
net worth individuals and mutual funds sponsored by third parties;
and provide research services to institutions, primarily through the
Buyer's wholly-owned subsidiary, McCarthy, Crisanti & Maffei, Inc.
As of June 30, 1994, the Buyer and its affiliates had approximately
$22.2 billion of assets under management for all clients, including
approximately $16.0 billion for Van Kampen Merritt sponsored open-
and closed-end funds. VKM Holding 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 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, Alberto
Cribiore, Donald J. Gogel and Hubbard C. Howe, each of whom is a
principal of Clayton, Dubilier & Rice, Inc.
Summary of the Transaction
The purchase price under the Stock Purchase Agreement consists of
(i) $427.4 million in cash (the "Cash Amount") and (ii) an option (the
"Travelers' Option") entitling Travelers, upon the satisfaction of
certain conditions discussed below, to purchase from VKM Holding up
to an aggregate number of shares of non-voting Class B VKM Holding
Common Stock ("VKM Class B Common") representing 5% of all shares
of VKM Holding Common Stock outstanding at the Closing, in each
case subject to adjustment as discussed below. In addition, pursuant
to the terms of the Transaction, Travelers will purchase from VKM
Holding at the Closing a number of shares of VKM Class B Common
representing 4.9% of all shares of VKM Holding Common Stock
outstanding at the Closing (the "Travelers' Purchase"). Travelers will
pay $200 per share of VKM Class B Common purchased pursuant to
the Travelers' Purchase (estimated to be approximately $24 million
in the aggregate) and per share of VKM Class B Common purchased
pursuant to the Travelers' Option.
The Cash Amount is subject to adjustment at the Closing as follows:
(i) reduction (but not by more than $69,175,720) based upon
changes in the aggregate assets under management of the ACAM
Advised Funds, including the Portfolio, and certain other mutual
funds distributed by ACMR or its subsidiaries, (ii) increase or
reduction by an amount equal to the difference (if any) between
$340,214,154 and the adjusted net worth of ACMR and its
subsidiaries (determined as provided in the Stock Purchase
Agreement) as set forth on the audited balance sheet of ACMR and
its subsidiaries as of June 30, 1994 to be delivered to the Buyer prior
to the Closing, and (iii) increase by an amount equal to one-half of
the after-tax net income of ACMR from January 1, 1995 through the
Closing in the event that the Closing shall occur after December 31,
1994. The Cash Amount will also be increased by the amount, if any
(but not to exceed $10,000,000), by which the Buyer's earnings
before interest, taxes, depreciation and amortization for the year
ending December 31, 1995 exceed $164,700,000. Pursuant to the
Stock Purchase Agreement, the Buyer will also pay or cause to be
paid at the Closing certain intercompany indebtedness owed to
AMAD by ACMR.
The number of shares of VKM Class B Common available for purchase
pursuant to the Travelers' Option will be determined by reference to
the average annual compounded rate of increase, if any, during the
period commencing on the first day of the first calendar month
following the second anniversary of the Closing and ending on the
fifth anniversary of the Closing (subject to adjustment in the event of
a change of control of VKM Holding), in the net asset value of shares
of open-end investment companies advised by any subsidiary of
VKM Holding as to which certain affiliates of Travelers are
designated as broker of record. Such number of shares of VKM Class
B Common available for purchase pursuant to the Travelers' Option
may range from a minimum of no shares in the event that the
average annual compounded rate of increase in such net asset value
is less than 15%, to a maximum of that number of shares which
represents 5% of all shares of VKM Holding Common Stock
outstanding at the Closing in the event that the average annual
compounded rate of increase in such net asset value is 30% or
greater. The Travelers' Option shall not be exercisable until the
earlier of (i) the fifth anniversary of the Closing, and (ii) immediately
before a change in control of VKM Holding, provided that the
Travelers' Option shall not be exercisable at any time prior to the
second anniversary of the Closing.
In the Stock Purchase Agreement, Travelers also agrees (i) to
recommend or to cause its affiliates to recommend for a period of
seven years after the Closing, subject to fiduciary obligations where
applicable and to reasonable performance (as defined in the Stock
Purchase Agreement) of the mutual funds involved, (A) to the
administrator of their respective 401(k) programs, that certain
mutual funds advised by ACAM be included in such 401(k) programs
and (B) that ACAM or its affiliates continue to serve as adviser or
investment subadvisor to the Portfolio and one other fund included
in certain variable annuity programs and (ii) for a period of seven
years after the Closing, subject to reasonable performance (as
defined in the Stock Purchase Agreement) of the mutual funds
involved, not to permit Smith Barney Inc., an indirect wholly-owned
subsidiary of Travelers ("Smith Barney"), to have any investment
vehicle with objectives substantially similar to those of one of such
funds referred to in (i)(B) above and for which Smith Barney or its
affiliates acts as investment adviser included in such variable
annuity programs. The Stock Purchase Agreement also provides,
among other things, that Travelers and its affiliates will (i) permit
the use by ACMR and its subsidiaries of certain computer facilities
pursuant to existing arrangements for a specified period of time, (ii)
provide the benefit of certain master purchasing or other similar
arrangements to ACMR and its subsidiaries for a specified period of
time to the extent mutually beneficial to the Buyer and the Sellers,
and (iii) continue to provide certain services and arrangements that
are currently provided to ACMR and its subsidiaries for a specified
period of time.
The Stock Purchase Agreement contemplates that the parties will, at
or prior to the Closing, enter into an agreement relating to sales by
Smith Barney or its subsidiaries of open-end mutual funds advised
(directly or as subadviser) by affiliates of ACMR or the Buyer ("Buyer
Advised Funds") having terms substantially as described below and
such other terms as the parties shall agree. Pursuant to the Stock
Purchase Agreement, it is anticipated that such agreement will
provide that for a period of seven years from the Closing, Buyer
Advised Funds, including the Portfolio, will be accorded equivalent
treatment within the Smith Barney retail system (which for this
purpose includes all retail broker-dealers owned by Smith Barney or
any subsidiary thereof) to that of like (in terms of investment
objective and "load" structure and amount) open-end mutual funds
advised by Smith Barney or any other Travelers entity with respect
to direct and indirect compensation paid by Smith Barney to its
financial consultants for selling shares of Buyer Advised Funds. The
purpose of this arrangement is to encourage the continued sale of
ACAM Advised Funds within the Smith Barney retail system and to
enhance the sale within the Smith Barney retail system of other
Buyer Advised Funds. In the event that Smith Barney increases the
compensation paid to its financial consultants for selling funds
advised by Smith Barney or other Travelers entities, the amount of
compensation paid to such financial consultants for selling Buyer
Advised Funds must also be increased, although such increase is
subject to a maximum cost to Smith Barney. Travelers' obligation
with respect to such equivalent compensation will terminate in the
event that certain specified financial institutions that may be viewed
as competitors of Smith Barney acquire a majority voting interest in
VKM Holding or otherwise acquire Buyer or VKM Holding.
In the Stock Purchase Agreement, the Buyer and the Sellers have
each agreed to provide certain indemnities to the other and their
respective affiliates in connection with breaches of the
representations, warranties and covenants contained therein and
certain other matters specified therein.
The Transaction is also subject to the Buyer's obtaining adequate
financing. The Buyer and VKM Holding have received commitments
from certain financial institutions and from C&D L.P. to provide debt
and equity financing, respectively, in connection with the Transaction
(the "Proposed Financing") on terms that are anticipated to be as
follows: (i) $360 million under an approximately seven-year term
bank loan (with the principal balance to be amortized over the final
six years); (ii) $100 million under an approximately seven-year bank
revolving credit facility; (iii) up to approximately $131 million in the
form of an equity investment by C&D L.P. and other equity investors
in VKM Holding; and (iv) approximately $24 million in the form of an
equity investment by Travelers or an affiliate of Travelers in VKM
Holding. The Portfolio will not have any liability, contingent or
otherwise, in respect of the Proposed Financing. Proceeds of the
foregoing arrangements in excess of the purchase price will be
applied to prepay amounts outstanding under the Buyer's existing
term and revolving bank facilities, to repay certain intercompany
indebtedness owed by ACMR to AMAD, to pay expenses of the
Transaction, the Proposed Financing and related transactions, and to
be available as working capital for the Buyer. The amount actually
drawn down under the $100 million bank revolving credit facility
will depend on the amount of working capital that the Buyer, ACMR,
and their respective subsidiaries have on hand as of the completion
of the Transaction.
Although the Buyer and VKM Holding have indicated they believe
that the Proposed Financing will be available in the amounts set
forth above, the terms and conditions of the Proposed Financing are
still under discussion with the financial institutions that are expected
to provide the loans. It is anticipated that the Proposed Financing
will require, among other things, a guarantee by VKM Holding, a
pledge of all of the outstanding stock of the Buyer and certain of its
subsidiaries (possibly including the stock of ACAM or its successor
pursuant to the possible merger described below) and the
distribution of earnings to the Buyer by its subsidiaries. Any such
guarantees, pledges and other security interests will also secure
certain existing indebtedness of the Buyer consisting of $150 million
aggregate principal amount of 9-3/4% Senior Secured Notes due
2003. The terms of the Buyer's financing agreements (whether now
existing or to be entered into) in connection with the Proposed
Financing are expected to provide that in the event of a default that
is not timely cured, lenders holding any class of indebtedness of the
Buyer would be able to accelerate such indebtedness, and secured
lenders would be able to take steps to exercise their rights under the
pledge of stock of the Buyer and any other security interest held by
such lenders, including without limitation foreclosure of the pledge
and sale of the stock of the Buyer. However, such exercise would be
subject to the terms and conditions of the 1940 Act including, to the
extent required, the consent of the Board of Trustees and the
shareholders of the Portfolio. Such foreclosure with respect to such
stock may likely constitute an assignment of the Successor
Subadvisory Agreement.
The Buyer believes that, based on the earnings experience of the
Buyer and ACMR, after the Transaction and giving effect to the
Proposed Financing, the operating revenue of the combined company
should be more than sufficient to service the Buyer's debt and that
the Buyer and ACAM should be able to conduct their operations as
now conducted and as proposed to be conducted. Neither the Buyer
nor ACAM anticipates any reduction in the quality of services now
provided to the Portfolio, nor do they anticipate that the Transaction
or the Proposed Financing will have any adverse effect on ACAM's
ability to fulfill its obligations under the Successor Subadvisory
Agreement or to operate its business in a manner consistent with
past business practices.
Effect of Transaction on ACAM
Pursuant to the Stock Purchase Agreement, the Buyer may elect to
acquire, or to cause VKM Holding (the parent of the Buyer) or one or
more subsidiaries of the Buyer to acquire, the stock of one or more of
the subsidiaries of ACMR. In order to simplify and rationalize the
corporate structure of the combined group of companies, after the
Transaction, the Buyer is expected to cause ACMR to be merged into
the Buyer, with the combined company being renamed "Van
Kampen/
American Capital, Inc.," and may, in addition, arrange the following
restructuring transaction. With the approval of the Board of Trustees
of the Fund, the Buyer may cause ACAM to be merged into Van
Kampen Merritt Investment Advisory Corp. ("VKMIA"), a registered
investment advisor that currently provides investment management
services to the Van Kampen Merritt family of mutual funds, or may
cause some or substantially all of the employees and assets of ACAM
(including, with the approval of the Board of Directors of the Fund,
the Successor Subadvisory Agreement) to be transferred to VKMIA,
with VKMIA being renamed "Van Kampen/American Capital
Investment Advisers, Inc."
The Buyer currently contemplates that ACAM will continue to
operate out of its Texas offices after the Closing. In the event of a
merger of ACAM and VKMIA or a transfer of ACAM's assets to
VKMIA after the Closing, Buyer currently contemplates that the
combined business would continue to operate out of ACAM's Texas
office and out of VKMIA's Oak Brook Terrace, Illinois office. There
may, however, be a limited number of employee relocations. In
addition, certain key members of ACAM's senior management have
been offered employment by the Buyer. Don G. Powell, will become
Chief Executive Officer of the Buyer. It is expected that Mr. Powell,
Donald A. McMullen, Jr., Alan T. Sachtleben, Paul R. Wolkenberg and
William N. Brown will enter into employment agreements which are
intended to assure that their services are available to ACAM for
terms of from three to five years. Mr. Powell is President, Chief
Executive Officer and a Di-
rector of ACAM, and President and Director of certain ACAM Advised
Funds. Mr. McMullen is a Director of ACAM. Mr. Sachtleben is Senior
Vice President-Chief Investment Officer/Equity and a Director of
ACAM and Vice President of certain ACAM Advised Funds. Mr.
Wolkenberg is a Senior Vice President of ACAM and Vice President
of certain ACAM Advised Funds. Mr. Brown is a Senior Vice
President of ACAM. It is expected that upon the Closing, John C.
Merritt will resign from his current positions as Chairman and Chief
Executive Officer of each of the Van Kampen Merritt companies,
including VKM Holding and the Buyer.
While it is expected that there will be some staff reductions resulting
from the combination of the two groups of companies, neither the
Buyer nor ACAM currently expects that there will be material
changes in senior portfolio management personnel, and each believes
that the Portfolio and its shareholders will experience no
discontinuity or reduction in the quality of the services that they
currently receive as a result of any such staff reductions or changes.
There can be no assurance, however, that all investment
professionals will continue to serve in their current capacities. It is
anticipated that when the employee benefit plans and policies of the
Buyer and ACMR are integrated and rationalized, employees of
ACMR and its subsidiaries will have benefits that are, in the
aggregate, at least as favorable as those they currently enjoy.
As a means of incentivizing management, certain employees of ACMR
or its subsidiaries (including ACAM) are also expected to be given the
opportunity to purchase shares of VKM Holding Common Stock and to
be granted options to purchase additional shares of VKM Holding
Common Stock in an aggregate amount of up to approximately 9.3%
of VKM Holding Common Stock. Under such arrangements, Messrs.
Powell, McMullen, Sachtleben, Wolkenberg and Brown will have the
opportunity to purchase or receive options to purchase up to an
aggregate of approximately 4% of VKM Holding Common Stock. Any
such purchase will be at the same price as the purchases by
Travelers as contemplated by the Stock Purchase Agreement, but
may be subject to certain additional arrangements with VKM Holding
under which, among other things, such individual could be required,
or have the right, to dispose of such stock ownership to VKM Holding
in the event such individual's employment terminates. The Buyer or
its affiliates may agree to guarantee certain indebtedness incurred
by the foregoing individuals in connection with their purchase of
such Common Stock. Pursuant to certain existing arrangements,
certain employees of VKM Holding and its subsidiaries also own
shares of VKM Holding Common Stock and have options to purchase
additional shares of such Common Stock in an aggregate amount
approximately equal to the amount that employees of ACMR or its
subsidiaries will have the right to purchase or receive in option
awards under the arrangements described above.
It is a condition to the Closing that all directors of ACMR and its
subsidiaries, including ACAM, whose resignations have been
requested by the Buyer not less than five days prior to the Closing
shall have resigned or been removed from office, effective as of the
Closing. Such resignations or removals, if any, are currently expected
to involve only persons who will remain affiliated with the Sellers
after the Closing. None of such resignations or removals is expected
to affect the composition of the Board of Trustees of the Fund.
Section 15(f) of the 1940 Act provides that an investment advisor or
any of its affiliated persons may receive any amount or benefit in
connection with a sale of securities of, or a sale of any other interest
in, such investment advisor which results in any assignment of an
advisory agreement with a registered investment company if two
conditions are satisfied. The first condition to the availability of the
"safe harbor" created by Section 15(f) is that an "unfair burden" not
be imposed on the investment company for which the investment
advisor acts in such capacity as a result of the sale of such interest,
or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden," as defined in the 1940
Act, includes any arrangement during the two-year period after the
transaction whereby the investment advisor (or predecessor or
successor adviser) or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory and other
services) or from any person in connection with the purchase or sale
of securities or other property to, from or on behalf of the
investment company (other than ordinary fees for bona fide
principal underwriting services). Management of the Portfolio is
aware of no circumstances arising from the Transaction or the
Proposed Financing that will result in the imposition of an "unfair
burden" on the Portfolio.
The second condition of Section 15(f) is that during the three-year
period immediately following a transaction of the type described in
Section 15(f), at least 75% of the subject investment company's board
of trustees not be "interested persons" (as defined in the 1940 Act)
of such investment company's investment adviser or predecessor
adviser. The Board of Trustees of the Fund presently consists of four
Trustees, none of whom is an interested person of ACAM.
Under the Stock Purchase Agreement, the Buyer has covenanted to
conduct its business and, subject to applicable fiduciary duties to the
ACAM Advised Funds, use its reasonable best efforts to cause each of
its affiliates to conduct its business so as to assure that, insofar as is
within the control of the Buyer or its affiliates:
(i) for a period of three years after the Closing, at least 75% of the
members of the board of directors of each registered investment
company advised by ACAM or an affiliate which continues after the
Closing its existing or a replacement investment advisory agreement
are not (a) "interested persons" of the investment manager of such
fund after the Closing, or (b) "interested persons" of the present
investment manager of such fund; and
(ii) there is not imposed on any of the ACAM Advised Funds,
including the Portfolio, an "unfair burden" as a result of the
transactions contemplated by the Stock Purchase Agreement, any
payments in connection therewith, or understandings applicable
thereto.
In addition, the Buyer has covenanted in the Stock Purchase
Agreement that it will not, for a period of two years from the Closing,
voluntarily engage in any transaction which would constitute an
assignment of any investment advisory agreement with any ACAM
Advised Fund, including the Portfolio, to which the Buyer or any
affiliate is a party without first obtaining a covenant in all material
respects the same as that set forth in the previous paragraph.
The Successor Advisory Agreement, if approved by the shareholders,
will commence on the Closing of the Transaction or, if later, on the
date on which it receives such shareholder approval. Thereafter, the
Successor Advisory Agreement will remain in effect for an initial
two-year term and will continue in effect from year to year
thereafter, but only so long as such continuance is approved at least
annually by (a) the vote of a majority of the Fund's Trustees who are
not party to the agreement or interested persons of any such parties,
cast in person at a meeting called for the purpose of voting on such
approval, and (b) a vote of a majority of the Fund's Board or a
majority of the Portfolio's outstanding voting securities. The
Successor Advisory Agreement will terminate automatically in the
event of its "assignment" (as defined in the 1940 Act).
After careful consideration, the Board recommends that shareholders
vote "FOR" the Successor Advisory Agreement to replace the Current
Advisory Agreement upon consummation of the Transaction. See
"Evaluation by the Board" below.
The Investment Adviser
ACAM is a wholly-owned subsidiary of ACMR, which is located at
2800 Post Oak Blvd., Houston, Texas 77056. Eighty-three percent of
the outstanding voting securities of ACMR are owned by AMAD, and
17% of the outstanding voting securities of ACMR are owned by
Travelers. AMAD is a wholly-owned subsidiary of Travelers. The
address of AMAD and Travelers is 65 East 55th Street, New York,
New York 10022.
ACAM, together with its predecessors, has been in the investment
advisory business since 1926. It presently manages the assets of 45
investment company portfolios with total net assets of over $16.8
billion at August 31, 1994.
ACAM's executive officers and trustees, together with their principal
occupations, are listed below. Each is located at 2800 Post Oak Blvd.,
Houston, Texas 77056.
Name Position with ACAM Principal Occupation if
Different
Don G. Powell President, Chief Chairman of the Board,
Executive Officer Chief Executive Officer and
and Director Director of ACMR; Executive
Vice President and Director of
American Capital Marketing, Inc.
("Marketing") and American
Capital Companies Shareholder
Services, Inc. ("ACCESS")
Donald A. Director President and Director of ACMR;
McMullen, Jr. President, Chief Executive Officer
and Director of Marketing, ACCESS
and American Capital Trust Company
("Trust Company"); Chief Executive
Officer and Director of American
Capital Services, Inc. ("Services")
Robert C. Peck, Jr. Senior Vice Executive Vice President and
Director President, Chief of ACMR Investment Officer/
Fixed Income and
Director
Alan T. Sachtleben Senior Vice Executive Vice President and
Director President, Chief of ACMR
Investment Officer/
Equity and Director
Paul A. Hilstad Senior Vice Senior Vice President, General
President and Counsel, Secretary and Director of
General Counsel ACMR; formerly Vice President and
Deputy General Counsel of IDS
Financial Services Inc.
Name Position with ACAM Principal Occupation if
Different
William N. Brown Senior Vice Senior Vice President, Chief
President, Chief Financial Officer, Treasurer and
Financial Officer Director of ACMR; Vice President,
and Treasurer Chief Financial Officer, Treasurer and
Director of Trust Company and
ACCESS; Vice President and Chief
Financial Officer of Marketing
Paul R. Wolkenberg Senior Vice Executive Vice President and
Director President of ACMR; President, Chief
Operating Officer and Director of
Services; Executive Vice President,
Chief Operating Officer and Director
of Trust Company; Executive Vice
President and Director of ACCESS;
Executive Vice President, Chief
Operating Officer and Director of
Marketing
Nori L. Gabert Vice President, Not Applicable
Associate General
Counsel and
Secretary
J. David Wise Vice President, Not Applicable
Associate General
Counsel and
Compliance Review
Officer
Ralph P. Goldsticker Vice President Not Applicable
and Director/Equity
Research
Rosemary Pretty Vice President Not Applicable
and Director/Equity
Trading
ACAM is paid an advisory fee at the annual rate of 0.75% of the
Portfolio's average daily net assets. For the period December 3, 1994
(date of inception) through October 30, 1994, ACAM would have
been entitled to receive advisory fees totalling $54,232.61. ACAM
waived this entire fee, however. Appendix B indicates the size of
each investment company advised or subadvised by ACAM and the
advisory fee rate paid by each such investment company to ACAM.
Average net assets are calculated on a daily basis for open-end funds
and on a weekly basis for closed-end funds.
No Trustee of the Fund has owned any securities of or has had any
other material interest in, or a material interest in a material
transaction with, ACAM or its respective affiliates since the
beginning of the Fund's most recent fiscal year.
The audited balance sheet of ACAM, as of December 31, 1993, is
attached to this proxy statement as Appendix C.
The Successor Advisory Agreement
On October 19, 1994, the Board approved the Successor Advisory
Agreement between the Fund (on behalf of the Portfolio) and ACAM.
The Board recommends that the shareholders approve the Successor
Advisory Agreement, which will supersede the Current Advisory
Agreement upon the Closing. If the shareholders of the Portfolio fail
to approve the Successor Advisory Agreement, the Current Advisory
Agreement will remain in effect until the Closing, at which time it
will terminate. If the Successor Advisory Agreement is not approved
or in the event that the Transaction does not close, the Board will
take whatever action it believes to be in the best interest of the
Portfolio's shareholders at the time. The description of the Successor
Advisory Agreement made herein is qualified by reference to
Appendix A.
The terms of the Successor Advisory Agreement are the same in all
material respects as those of the Current Advisory Agreement.
Under the Successor Advisory Agreement, the Fund retains ACAM to
(i) manage the Portfolio's holdings in accordance with the Portfolio's
investment objective and policies as stated in the Fund's master trust
agreement, current prospectus and statement of additional
information; (ii) make investment decisions for the Portfolio; (iii)
maintain a trading desk and place purchase and sale orders for
portfolio transactions; and (iv) employ professional portfolio
managers and securities analysts who provide research services to
the Portfolio. The Successor Advisory Agreement also provides that
ACAM will not be liable to the Portfolio for any actions or omissions
if it acted without willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
ACAM bears all expenses in connection with the performance of its
services to the Portfolio. The Portfolio bears certain other expenses
incurred in its operation, including but not limited to, investment
advisory and administration fees, fees for necessary professional and
brokerage services, fees for any pricing service, the costs of
regulatory compliance and costs associated with maintaining the
Portfolio's legal existence and shareholder relations.
The Successor Advisory Agreement may be terminated as a whole at
any time, without the payment of any penalty, on 60 days' written
notice by (i) the Fund's Board, (ii) a vote of the holders of a majority
of the Portfolio's outstanding voting securities (as defined in the
1940 Act), or (iii) by ACAM, on 90 days' written notice.
The advisory fee under the Successor Advisory Agreement for the
Portfolio is the same as the fee under the Current Advisory
Agreement for the Portfolio. The Portfolio's average net assets are
determined by taking the average of all determinations of the net
assets during a given calendar month. Average net assets of the
Portfolio are calculated on a daily basis. The advisory fee is payable
for each calendar month on the first business day after the end of
that month. The Successor Advisory Agreement does not provide for
any reduction of the fee payable to ACAM in consideration of
brokerage commissions payable to Smith Barney for effecting
Portfolio transactions, although such an offset is now permitted
under the rules of the various stock exchanges of which Smith
Barney is a member.
Evaluation by the Board
On October 19, 1994, the Board met and discussed the Transaction,
its possible effect on the Portfolio and related matters and
determined to approve the Successor Advisory Agreement and
submit it to shareholders for their approval. In evaluating the
Successor Advisory Agreement, the Board reviewed materials
furnished by ACAM and the Buyer relevant to its decision. Those
materials included information regarding ACAM, the Buyer, their
respective affiliates and their personnel and operations and the
terms of the Transaction. The Board was advised by management
that the Transaction was not expected to have any effect on the
Portfolio and the Portfolio's shareholders. In its deliberations, the
Board considered the terms of the Transaction and also took into
account the representations of management that the quality of
services being provided to the Portfolio will not be diminished as a
result of the Transaction. In addition, the Board reviewed and
discussed the terms and provisions of the Successor Advisory
Agreement.
Based on its review, the Board approved the Successor Advisory
Agreement and determined to recommend that shareholders of the
Portfolio vote to approve the Successor Advisory Agreement as being
in the best interests of the Portfolio's shareholders. In this regard, it
was noted that the Buyer does not currently expect that there will be
material changes in senior portfolio management personnel (although
there can be no assurance that changes in personnel will not occur)
and that the fees payable under the Successor Advisory Agreement
are identical to the fees presently in effect under the Current
Advisory Agreement. Accordingly, after consideration of the above,
and such other factors and information as it deemed relevant, the
Board, including all members of the Board present at the meeting
who are not interested persons (as such term is defined by the 1940
Act), approved the Successor Advisory Agreement and voted to
recommend its approval to the Portfolio's shareholders.
Portfolio Transactions And Brokerage
Most of the purchases and sales of securities for the Portfolio,
whether effected on a securities exchange or over-the-counter, are
effected in the primary trading market for the securities. Decisions
to buy and sell securities for the Portfolio are made by ACAM, which
also is responsible for placing these transactions, subject to the
overall review of the Fund's Trustees. Although investment
decisions for the Portfolio are made independently from those of the
other accounts managed by ACAM, investments of the type the
Portfolio may make also may be made by those other accounts.
When the Portfolio and one or more other accounts managed by
ACAM are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by ACAM to be equitable to each. In
some cases, this procedure may adversely affect the price paid or
received by the Portfolio or the size of the position obtained or
disposed of by the Portfolio.
Transactions on U.S. stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated,
the cost of transactions may vary among different brokers.
Commissions generally are fixed on most foreign exchanges. There is
generally no stated commission in the case of securities traded in U.S.
or foreign over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters includes an underwriting
commission or concession and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or
mark-down. U.S. government securities generally are purchased
from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the United
States Treasury or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities
transactions on behalf of the Portfolio, ACAM seeks the best overall
terms available. In assessing the best overall terms available for any
transaction, ACAM considers the factors that it deems relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any,
for the specific transaction and on a continuing basis. In addition,
the Current Advisory Agreement between the Fund and ACAM
authorizes ACAM, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Fund and/or other accounts over which ACAM
or its affiliates exercise investment discretion. The fees under the
Current Advisory Agreement between the Fund and ACAM are not
reduced by reason of it receiving such brokerage and research
services. The Fund's Board of Trustees in its discretion may
authorize ACAM to cause the Portfolio to pay a broker that provides
such brokerage and research services a brokerage commission in
excess of that which another broker might have charged for effecting
the same transaction, in recognition of the value of such brokerage
and research services. The Fund's Board of Trustees periodically will
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Fund.
To the extent consistent with applicable provisions of the 1940
Act and the rules and exemptions adopted by the SEC thereunder,
the Fund's Board of Trustees has determined that portfolio
transactions for the Portfolio may be executed through Smith Barney
and other affiliated broker-dealers if, in the judgment of ACAM, the
use of such broker-dealer is likely to result in price and execution at
least as favorable as those of other qualified broker-dealers, and if,
in the transaction, such broker-dealer charges the Portfolio a rate
consistent with that charged to comparable unaffiliated customers in
similar transactions. In addition, pursuant to an exemption granted
by the SEC, the Portfolio may engage in transactions involving certain
money market instruments with Smith Barney or certain affiliates
acting as principal. Over-the-counter purchases and sales are
transacted directly with principal market makers except in those
cases in which better prices and executions may be obtained
elsewhere.
The Portfolio will not purchase any security, including U.S.
government securities, during the existence of any underwriting or
selling group relating thereto of which Smith Barney is a member,
except to the extent permitted by the SEC.
The Portfolio may use Smith Barney as a commodities broker in
connection with entering into futures contracts and options on
futures contracts. Smith Barney has agreed to charge the Portfolio
commodity commissions at rates comparable to those charged by
Smith Barney to its most favored clients for the comparable trades in
comparable accounts.
During the period June 30, 1994 through September 30, 1994,
the Portfolio paid $5,835 in commissions. Of that amount, none was paid to
Smith Barney. Approximately _____% of the
aggregate dollar amount of transactions were effected through Smith
Barney. ACAM's brokerage practices are monitored on a quarterly
basis by the Fund's Trustees.
The Distribution Agreement
Pursuant to a distribution agreement with the Fund, Smith Barney
acts as the Distributor of the Fund's shares for which it receives no
separate fee from the Fund; however, IDS Life or IDS Life of New
York pays Smith Barney for the services it provides and the expenses
it bears in distributing annuity contracts, including payment of
commissions for the sale of Portfolio shares and conducts a
continuous offering pursuant to a "best efforts" arrangement
requiring it to take and pay for only such securities as may be sold to
the public. As is the case with the Successor Advisory Agreement,
the distribution agreement terminates automatically in the event of
its assignment. The distribution agreement may be terminated at
any time, without penalty, by the Trustees of the Fund or by vote of
a "majority of the outstanding voting securities" of the Fund on 60
days' written notice to Smith Barney, or by Smith Barney on the
same notice to the Fund, and continues in effect only so long as
continuance is specifically approved at least annually by the Trustees
or by vote of a "majority of outstanding voting securities" of the Fund
and, in either case by the majority of the Trustees who are not
parties to the distribution agreement or "interested persons." Fund
officers who are also employed by Smith Barney in various capacities
are as follows: Stephen J. Treadway is an Executive Vice President of
Smith Barney; John C. Bianchi, Harry P. Cohen, James B. Conroy, Jack
S. Levande, Richard P. Roelofs, Phyllis Zahorodny, Lewis E. Daidone
and Christina T. Sydor are Managing Directors of Smith Barney;
George Mueller is Senior Vice President of Smith Barney; Caren
Cunningham is Vice President of Smith Barney. Smith Barney is a
wholly-owned subsidiary of Smith Barney Holdings Inc., which is, in
turn, a wholly-owned subsidiary of Travelers.
The Board of the Trustees recommends that shareholders of the
Emerging Growth Portfolio vote FOR approval of the Successor
Advisory Agreement.
OTHER MATTERS
The Board of Trustees of the Fund knows of no other matters that
may come before the meeting. If any such matters should properly
come before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote such proxy in accordance with
their best judgment.
SHAREHOLDERS PROPOSALS
The Fund does not hold shareholder meetings annually.
Shareholders wishing to submit proposals for consideration for
inclusion in a proxy statement for the next shareholder meeting
should send their written proposals to Smith Barney Series Fund, 388
Greenwich Street, New York, NY 10013, c/o Christina T. Sydor,
Secretary. Proposals must be received at a reasonable time prior to
the date of a meeting of shareholders to be considered for inclusion
in the materials for that meeting. Timely submission of a proposal
does not necessarily mean that such proposal will be included.
You are requested to mark, date, sign and return the enclosed proxy
promptly. No postage is required on the enclosed envelope.
By Order of the Board of Trustees
Christina T. Sydor
Secretary
New York, New York
November __, 1994
APPENDIX A
ADVISORY AGREEMENT
SMITH BARNEY SERIES FUND
(Emerging Growth Portfolio)
American Capital Asset Management, Inc.
2800 Post Oak Boulevard
Houston, TX 77056
Dear Sirs:
Smith Barney Series Fund (the "Company"), a trust organized under
the laws of the Commonwealth of Massachusetts, confirms its
agreement with American Capital Asset Management, Inc. (the
"Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
investment objective(s), policies and limitations specified in its
Master Trust Agreement, as amended from time to time (the "Master
Trust Agreement"), in the prospectus (the "Prospectus") and the
statement of additional information (the "Statement") filed with the
Securities and Exchange Commission as part of the Company's
Registration Statement on Form N-lA, as amended from time to time,
and in the manner and to the extent as may from time to time be
approved by the Board of Trustees of the Company (the "Board").
Copies of the Prospectus, the Statement and the Master Trust
Agreement have been or will be submitted to the Adviser. The
Company agrees to provide copies of all amendments to the
Prospectus, the Statement and the Master Trust Agreement to the
Adviser on an on-going basis. The Company desires to employ and
hereby appoints the Adviser to act as the investment adviser to the
Emerging Growth Portfolio (the "Portfolio"). The Adviser accepts the
appointment and agrees to furnish the services for the compensation
set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of the
Company, the Adviser will: (a) manage the Portfolio's holdings in
accordance with the Portfolio's investment objective(s) and policies
as stated in the Master Trust Agreement, the Prospectus and the
Statement; (b) make investment decisions for the Portfolio; (c)
maintain a trading desk and place purchase and sale orders for
portfolio transactions for the Portfolio; and (d) employ professional
portfolio managers and securities analysts who provide research
services to the Portfolio. In providing those services, the Adviser will
conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Portfolio's assets.
3. Brokerage
In selecting brokers or dealers to execute transactions on behalf of
the Portfolio, the Adviser will seek the best overall terms available.
In assessing the best overall terms available for any transaction, the
Adviser will consider factors it deems relevant, including, but not
limited to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any,
for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute a particular transaction, and in
evaluating the best overall terms available, the Adviser is authorized
to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934),
provided to the Portfolio and/or other accounts over which the
Adviser or its affiliates exercise investment discretion.
4. Information Provided to the Company
The Adviser will keep the Company informed of developments
materially affecting the Portfolio's holdings, and will, on its own
initiative, furnish the Company from time to time with whatever
information the Adviser believes is appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2 and 3 above. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by the Company in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect the Adviser against
any liability to the Company or to the shareholders of the Portfolio to
which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Company will pay the Adviser on the first business
day of each month a fee for the previous month at the annual rate of
0.75 of 1.00% of the Portfolio's average daily net assets. The fee for
the period from the Effective Date (defined below) of the Agreement
to the end of the month during which the Effective Date occurs shall
be prorated according to the proportion that such period bears to the
full monthly period. Upon any termination of this Agreement before
the end of a month, the fee for such part of that month shall be
prorated according to the proportion that such period bears to the
full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Prospectus
and/or the Statement.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Company will
bear certain other expenses to be incurred in its operation, including,
but not limited to, investment advisory and administration fees; fees
for necessary professional and brokerage services; fees for any
pricing service; the costs of regulatory compliance; and costs
associated with maintaining the Company's legal existence and
shareholder relations.
8. Reduction of Fee
If in any fiscal year the aggregate expenses of the Portfolio
(including fees pursuant to this Agreement and the Portfolio's
administration agreements, but excluding interest, taxes, brokerage
and extraordinary expenses) exceed the expense limitation of any
state having jurisdiction over the Portfolio, the Adviser will reduce
its fee to the Portfolio by the proportion of such excess expense equal
to the proportion that its fee thereunder bears to the aggregate of
fees paid by the Portfolio for investment advice and administration
in that year, to the extent required by state law. A fee reduction
pursuant to this paragraph 8, if any, will be estimated, reconciled
and paid on a monthly basis.
9. Services to Other Companies or Accounts
The Company understands that the Adviser now acts, will
continue to act and may act in the future as investment adviser to
fiduciary and other managed accounts, and as investment adviser to
other investment companies, and the Company has no objection to
the Adviser's so acting, provided that whenever the Portfolio and one
or more other investment companies advised by the Adviser have
available funds for investment, investments suitable and appropriate
for each will be allocated in accordance with a formula believed to be
equitable to each company. The Portfolio recognizes that in some
cases this procedure may adversely affect the size of the position
obtainable for the Portfolio. In addition, the Portfolio understands
that the persons employed by the Adviser to assist in the
performance of the Adviser's duties under this Agreement will not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote time
and attention to other businesses or to render services of whatever
kind or nature.
10. Term of Agreement
This Agreement shall become effective as of the date set forth
above (the "Effective Date") and shall continue for an initial two-year
term and shall continue thereafter so long as such continuance is
specifically approved at least annually by (i) the Board of the
Company or (ii) a vote of a "majority" (as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of
the Portfolio's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board
who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 60 days written notice, by the Board
of the Company or by vote of holders of a majority of the Portfolio's
shares, or upon 90 days' written notice, by the Adviser. This
Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act and the rules thereunder).
11. Representation by the Company
The Company represents that a copy of the Master Trust
Agreement is on file with the Secretary of The Commonwealth of
Massachusetts.
12. Limitation of Liability
The Company and the Adviser agree that the obligations of the
Company under this Agreement shall not be binding upon any of the
members of the Board, shareholders, nominees, officers, employees
or agents, whether past, present or future, of the Company,
individually, but are binding only upon the assets and property of
the Company, as provided in the Master Trust Agreement. The
execution and delivery of this Agreement have been authorized by
the Board and a majority of the holders of the Portfolio's outstanding
voting securities, and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such
members of the Board and shareholders nor such execution and
delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them
personally, but shall bind only the assets and property of the
Company as provided in the Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate
your acceptance of this Agreement by signing and returning the
enclosed copy of this Agreement.
Very truly yours,
SMITH BARNEY SERIES FUND
By:
Name:
Title:
Accepted:
American Capital Asset Management, Inc.
By:
Name:
Title:
APPENDIX B
The following table indicates the size of each investment company
advised or subadvised by ACAM and the advisory fee rate paid to
ACAM for the last fiscal year. Average net assets are calculated on a
daily basis for open-end funds and on a weekly basis for closed-end
funds.
Annual
Management
Fee as
Net Assets on Percent of
August 31, 1994 Average Net
Name (In Millions) Assets
ACAM
Open End:
American Capital Comstock
Fund, Inc 961.8 (12)
American Capital Corporate
Bond Fund, Inc 175.1 (1)
American Capital Emerging
Growth Fund, Inc 953.9 (20)
Emerging Growth
Fund, Inc 886.3 (12)
American Capital Equity
Income Fund, Inc 482.9 (1)
American Capital Exchange
Fund 39.1 (2)
American Capital Federal
Mortgage Trust 79.1 (3)
American Capital Global
Managed Assets Fund, Inc. 17.2 (15)
American Capital Government
Securities, Inc. 3,182.3 (4)
American Capital Government
Target Series Portfolio '97 18.0 (2)
Annual
Management
Fee as
Net Assets on Percent of
August 31, 1994 Average Net
Name (In Millions) Assets
ACAM
Open End:
American Capital Growth and
Income Fund, Inc. 234.2 (1)
American Capital Harbor Fund,
Inc 479.1 (17)
American Capital High
Yield Investments, Inc. 446.9 (5)
American Capital Life Investment Trust
Common Stock Portfolio 70.8 (6)
Domestic Strategic Income
Portfolio 28.2 (6)
Government Portfolio 67.7 (6)
Money Market Portfolio 28.5 (6)
Multiple Strategy Portfolio 62.6 (6)
American Capital Municipal
Bond Fund, Inc. 361.1 (2)
American Capital Pace Fund,
Inc 2,286.1 (12)
American Capital Real Estate
Securities Fund, Inc. 8.0 (15)
American Capital Reserve
Fund, Inc 396.8 (1)
American Capital Small
Capitalization Fund, Inc. 21.1 (23)
American Capital Tax-Exempt
Trust High Yield Municipal
Portfolio 599.1 (7)
Annual
Management
Fee as
Net Assets on Percent of
August 31, 1994 Average Net
Name (In Millions) Assets
Insured Municipal
Portfolio 114.5 (7)
American Capital Texas
Municipal Securities, Inc. 23.1 (16)
American Capital U.S.
Government Trust for
Income 348.2 (18)
American Capital Utilities
Income Fund, Inc. 19.9 (25)
American Capital World
Portfolio Series, Inc.
American Capital Global
Equity Fund 113.1 (15)
American Capital Global Government
Securities Fund 225.6 (14)
Common Sense Trust
Common Sense
Government Fund 345.5 (13)
Common Sense Growth Fund 2,182.9 (9)
Common Sense Growth
and Income Fund 725.4 (9)
Common Sense
Money Market Fund 54.8 (10)
Common Sense Municipal
Bond Fund 113.1 (11)
Common Sense II
Government Fund 6.2 (13)
Common Sense II
Growth Fund 5.6 (9)
Annual
Management
Fee as
Net Assets on Percent of
August 31, 1994 Average Net
Name (In Millions) Assets
Common Sense II Growth
and Income Fund 4.6 (9)
Smith Barney Shearson Series Fund
Emerging Growth Portfolio 11.4 (21)
Smith Barney/Travelers Series, Inc. - American
Capital Enterprise Portfolio 4.9 (24)
WRL Series Fund, Inc. Emerging
Growth Portfolio 176.9 (19)
CLOSED-END:
American Capital
Bond Fund, Inc. 222.7 (1)
American Capital
Convertible Securities, Inc. 4.7 (1)
American Capital
Income Trust 116.7 (8)
Mosher, Inc. 37.0 (22)
_________________
(1) 0.50% on the first $150 million; 0.45% on the next $100 million;
0.40% on the next $100 million; and 0.35% on the excess over $350
million.
(2) 0.50% on the Fund's average net assets.
(3) 0.50% on the first $1 billion; 0.475% on the next $1 billion;
0.45% on the next $1 billion; 0.40% on the next $1 billion; and 0.35%
on the excess over $4 billion.
(4) 0.540% on the first $1 billion; 0.515% on the next $1 billion;
0.490% on the next $1 billion; 0.440% on the next $1 billion; 0.390%
on the next $1 billion; 0.340% on the next $1 billion; 0.290% on the
next $1 billion; and 0.240% on the excess over $7 billion.
(5) 0.625% on the first $150 million; 0.55% on the next $150
million; and 0.50% on the next $300 million.
(6) 0.50% on the first $500 million of the combined net assets of all
Portfolios; 0.45% on the next $500 million; and 0.40% on the excess
over $1 billion.
(7) 0.60% on the first $300 million of the combined net assets of all
Portfolios; 0.55% on the next $300 million; and 0.50% on the excess
over $600 million.
(8) 0.65% of the Fund's average weekly net assets.
(9) 0.65% on the first $1 billion; 0.60% on the next $1 billion; 0.55%
on the next $1 billion; 0.50% on the next $1 billion; and 0.45% on the
excess over $4 billion.
(10) 0.50% on the first $2 billion; 0.475% on the next $2 billion; and
0.45% on the excess over $4 billion.
(11) 0.60% on the first $1 billion; 0.55% on the next $1 billion; 0.50%
on the next $1 billion; and 0.45% on the excess over $3 billion.
(12) 0.50% on the first $1 billion; 0.45% on the next $1 billion; 0.40%
on the next $1 billion; and 0.35% on the excess over $3 billion.
(13) 0.60% on the first $1 billion; 0.55% on the next $1 billion; 0.50%
on the next $1 billion; 0.45% on the next $1 billion; 0.40% on the next
$1 billion; and 0.35% on the excess over $5 billion.
(14) 0.75% of the Fund's average daily net assets.
(15) 1.00% of the Fund's average daily net assets.
(16) 0.60% on the first $300 million; 0.55% on the next $300 million;
and 0.50% on the excess over $600 million.
(17) 0.55% on the first $350 million; 0.50% on the next $350 million;
0.45% on the next $350 million; and 0.40% on the excess over $1.05
billion.
(18) 0.60% of the Fund's average daily net assets.
(19) 50% of the fees received by WRL pursuant to the following
schedule; 0.80% of the average daily net assets of the Portfolio.
(20) 0.575% on the first $350 million; 0.525% on the next $350
million; 0.475% on the next $350 million; and 0.425% on the excess
over $1.05 billion.
(21) 0.75 of 1.00% of the Portfolio's average daily net assets.
(22) 0.45% on the Fund's average weekly net assets.
(23) ACAM serves as Adviser without fee for American Capital
Small Capitalization Fund, Inc. ("Small Cap"), the shares of which are
held by other American Capital Funds listed above. The assets in
Small Cap are also reflected in the assets of the Funds that own
shares of Small Cap.
(24) 0.325% of the Portfolio's average daily net assets.
(25) 0.65% of the Fund's average daily net assets.
APPENDIX C
BALANCE SHEET OF ACAM
AMERICAN CAPITAL ASSET MANAGEMENT, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
December 31, 1993
ASSETS
Cash and cash equivalents $ 352,842
Management fees receivable 5,712,456
Receivables from affiliates 31,536,298
Marketable equity securities 5,226,888
Cost of contracts purchased, net of accumulated amortization of
$50,484,462 227,067,043
Excess of cost over net assets acquired, net of accumulated
amortization of $1,007,796 12,024,854
Investment in joint venture 2,654,265
Other assets 7,402,720
Total assets $ 291,977,366
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Payables to affiliates $ 1,842,622
Accrued compensation 4,188,580
Accounts payable and other liabilities 3,018,373
Deferred federal income tax 78,701,482
Total liabilities 87,751,057
Stockholder's equity
Preferred stock (par value $10 per share; 5,200 shares authorized;
no shares issued and outstanding) --
Common stock (par value $10 per share; 30 shares authorized;
issued and outstanding) 300
Capital in excess of par value 202,041,385
Retained earnings 2,184,624
Total stockholder's equity 204,226,309
Total liabilities and stockholder's equity
$291,977,366
See accompanying notes to consolidated statement of financial
position.
AMERICAN CAPITAL ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Capital Asset Management, Inc. (the "Company") is a
wholly-owned subsidiary of American Capital Management &
Research, Inc. (the "Parent") and is registered under the Investment
Advisers Act of 1940. The Company's principal activity is that of
investment advisor and manager to numerous registered
management investment companies (the "American Capital Funds").
Consolidation
The consolidated statement of financial position includes the accounts
of the Company and its wholly-owned subsidiaries, American Capital
Exchange Corporation and American Capital Partner, Inc. Investment
in an unconsolidated 50%-owned joint venture is accounted for using
the equity method. All material intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents and Marketable Equity Securities
Cash equivalents, securities which have original maturities of three
months or less, are carried at cost, which approximates market value.
The primary securities held at December 31, 1993 were investments
in Eurodollar time deposits and American Capital Reserve Fund, Inc.,
a money market fund managed by the Company.
Marketable equity securities are carried at the lower of aggregate
cost or market value. Unrealized depreciation of marketable equity
securities, if any, is reflected directly in stockholder's equity and,
accordingly, has no effect on income. At December 31, 1993, market
value exceeded cost by $523,000. Gross unrealized gains and losses
were approximately $527,000 and $4,000, respectively, at December
31, 1993.
Effective January 1, 1994, the Company will be required to adopt the
provisions of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company will classify its
marketable equity securities as available-for-sale which will require
such securities to be carried at market value.
Transactions with Affiliates
The Company provides investment advice to a 50%-owned joint
venture with an affiliate. This joint venture manages the portfolios
of the Common Sense Trust, a diversified, open-end management
investment company.
During 1993, the Company entered into a subadvisory agreement
with an affiliate to assist the Company in performing it investment
advisory function with respect to one American Capital Fund.
The Company provides services for payment and funding of payroll
and accounts payable for its Parent and subsidiaries of its Parent.
The Company also provides legal and accounting services to
subsidiaries of its Parent and allocates a portion of its expenses for
providing such services. An affiliate provides data processing,
administrative and other office services to the Company. Certain
salary-related costs, including costs of benefit plans of the Parent,
are allocated to the Company. The Company's Parent is obligated
under a long-term lease for office space and allocates a portion of its
costs to the Company based on space utilized.
Cost of Contracts Purchased
The cost of purchasing certain fund advisory and management
contracts is amortized over 10 to 28 years using the straight-line
method.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on a straight-line
basis over 40 years.
Income Taxes
The Company is included in its ultimate parent's consolidated federal
income tax return. The ultimate parent's allocation of federal income
taxes to its subsidiaries is based on the computation of tax that
would have been payable by or refundable to each subsidiary
assuming each filed separate tax returns and to the extent such
income or loss is utilized in the ultimate parent's consolidated federal
income tax return. The allocated current and deferred income tax
assets or liabilities are reflected in the intercompany accounts of
each subsidiary. Deferred income taxes represent the tax effect of
temporary differences in the recognition of income and expense for
tax purposes and financial reporting purposes and are provided
based on the tax rate at which the items of income and expense are
expected to be settled in the ultimate parent's consolidated tax
return.
The Company's net deferred tax asset included in intercompany
accounts at December 31, 1993, was approximately $1,966,000 and
consisted primarily of temporary differences related to benefit plans,
the amortization of the cost of management contracts and deferred
compensation. The deferred income tax liability presented
separately in the accompanying consolidated statement of financial
position relates to the cost of management contracts purchased.
(2) Marketable Equity Securities
Marketable equity securities held by the Company at December 31,
1993, include investments in American Capital Funds.
At December 31, 1993, the Company's investment at market value in
the American Capital Exchange Fund ("ACEF"), a California limited
partnership, was approximately $491,000. Under the terms of the
partnership agreement, the Company and a subsidiary serve as
nonmanaging general partners and are obligated to hold an aggregate
of at least one percent of ACEF's outstanding partnership units.
Accordingly, at December 31, 1993, the Company held approximately
4,409, or 1.3%, ACEF partnership units.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Capital Asset Management, Inc.:
We have audited the accompanying consolidated statement of
financial position of American Capital Asset Management, Inc. and
subsidiaries (the "Company") as of December 31, 1993. This
consolidated financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion
on this consolidated financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated statement of financial position is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
statement of financial position. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall consolidated statement
of financial position presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated statement of financial position
referred to above presents fairly, in all material respects, the
financial position of American Capital Asset Management, Inc. and
subsidiaries as of December 31, 1993, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK
Houston, Texas
January 28, 1994
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
...........................................................................
....................................................
SMITH BARNEY SERIES FUND - Emerging Growth Portfolio This Proxy is Solicited on
Behalf of the Trustees of
Smith Barney Series Fund
The undersigned holder of shares of the Emerging Growth Portfolio (the
"Portfolio"), a subtrust of Smith Barney Series Fund, a Massachusetts business
trust, hereby appoints Heath B. McLendon, Christina T. Sydor, Lee D. Augsburger
and Caren Cunningham attorneys and proxies for the undersigned with full powers
of
substitution and revocation, to represent the undersigned and to vote on
behalf of
the undersigned all shares of the Portfolio that the undersigned is entitled to
vote at the Special Meeting of Shareholders of the Portfolio to be held at the
offices of the Portfolio, 388 Greenwich Street, New York, New York 10013 on
Tuesday, December 20, 1994 at 2:00 P.M., and any adjournment or adjournments
thereof. The undersigned hereby acknowledges receipt of the Notice of Special
Meeting and Proxy Statement dated November __, 1994 and hereby instructs said
attorneys and proxies to vote said shares as indicated hereon. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Special Meeting. A majority or the proxies present
and
acting at the Special Meeting in person or by substitute (or, if only one shall
be
so present, then that one) shall have and may exercise all the power and
authority
of said proxies hereunder. The undersigned hereby revokes an proxy previously
given.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
NOTE: Please sign exactly as your name
appears on this Proxy. If joint
owners, EITHER may sign this Proxy.
When signing as attorney, executor,
administrator, trustee, guardian or
corporate officer, please give your
full title.
DATE:__________________________________
_______
_______________________________________
________
_______________________________________
________
Signature(s) (Title(s), if applicable)
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
............................................................................
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..........................................................................
Please indicate your vote by an "X" in the appropriate box below.
This proxy, if properly executed, will be voted in the manner directed herein
by
the undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
Please refer to the Proxy Statement for a discussion of the Proposal.
1. APPROVAL OF A NEW ADVISORY AGREEMENT FOR
THE EMERGING GROWTH PORTFOLIO SUBSTANTIALLY THE
SAME AS THE CURRENT AGREEMENT WHICH WILL TAKE
EFFECT UPON THE CLOSING OF THE PROPOSED
ACQUISITION OF AMERICAN CAPITAL MANAGEMENT &
RESEARCH, INC. BY THE VAN KAMPEN MERRITT
COMPANIES INC.
FOR
AGAINST
A
BSTAIN
Please sign on the reverse side. xxx
