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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
FILE NO. 811-6421
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6 [X]
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VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, IL 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (630) 684-6000
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, IL 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
Items 1, 2, 3 and 5A of Part A are omitted pursuant to Item F.4. of the General
Instructions to Form N-1A.
This Prospectus, which incorporates by reference the entire Statement of
Additional Information, concisely sets forth certain information about the Fund
that a prospective shareholder should know before investing in the Fund.
Shareholders should read this Prospectus carefully and retain it for future
reference. 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 at (800) 772-8889. The Statement of Additional Information has been
filed with the Securities and Exchange Commission ("SEC") and is available along
with other related Fund materials at the SEC's internet web site
(http://www.sec.gov).
This Prospectus is dated February 28, 1997.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
(a) (i) Van Kampen American Capital Small Capitalization Fund, formerly
known as American Capital Small Capitalization Fund, Inc. (the
"Fund"), is a diversified, open-end management investment company
registered under the Investment Company Act of 1940 (the "1940
Act"). The Fund was originally incorporated in Maryland on August
28, 1991 and was reorganized as a business trust under the laws of
Delaware on August 25, 1995.
(ii) The Fund's investment objective is to approximate the performance
of the small capitalization sector of the equities market by
investing primarily in common stocks of small capitalization
companies. The Fund may also invest in money market obligations
such as government securities, certificates of deposit and
commercial paper and may enter into repurchase agreements. It may
also enter into futures contracts and options thereon.
The Fund has been created and is managed to provide a convenient
vehicle for the publicly offered funds distributed by Van Kampen
American Capital Distributors, Inc. for which Van Kampen American
Capital Asset Management, Inc. (the "Adviser") and Van Kampen
American Capital Investment Advisory Corp. (the "VK Adviser")
serve as investment advisers or sub-advisers to participate
conveniently and economically in the "small capitalization" sector
of the equity securities market. To this end, it invests in a
broadly diversified selection of stocks of companies that have
relatively small capitalization.
The Adviser views companies with market capitalization smaller
than the 500 companies with the largest market capitalization as
being "small capitalization" companies.
(b) INAPPLICABLE
(c) INAPPLICABLE
ITEM 5. MANAGEMENT OF THE FUND.
(a) The business and affairs of the Fund are managed under the direction of
the Board of Trustees of the Fund. Subject to the Trustees' authority,
the Adviser determines the investment of the Fund's assets, provides
administrative services and manages the Fund's business and affairs.
(b) Van Kampen American Capital Asset Management, Inc. serves as investment
adviser to the Fund.
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 more than $57 billion under management or supervision.
Van Kampen American Capital's more than 40 open-end and 38 closed-end
funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide.
A-1
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Van Kampen American Capital is a wholly-owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is a wholly-owned subsidiary of MSAM
Holdings II, Inc. which, in turn, is a wholly-owned subsidiary of Morgan
Stanley Group Inc. The Adviser's principal office is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Morgan Stanley Group Inc. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley & Co. Incorporated, a
registered broker-dealer and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and
trading; merger, acquisition, restructuring and other corporate finance
advisory activities; merchant banking; stock brokerage and research
services; asset management; trading of futures, options, foreign
exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing
and investing; and global custody, securities clearance services and
securities lending.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover
& Co. announced that they had entered into an Agreement and Plan of
Merger to form a new company to be named Morgan Stanley, Dean Witter,
Discover & Co. Subject to certain conditions being met, it is currently
anticipated that the transaction will close in mid-1997. Thereafter, Van
Kampen American Capital Asset Management, Inc. will be an indirect
subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Dean Witter, Discover & Co. is a financial services company with three
major businesses: full service brokerage, credit services and asset
management of more than $100 billion in customer accounts.
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 Adviser provides these services to the
Fund without cost, but the Fund pays its own expenses including
reimbursement of the Adviser for the cost of the Fund's accounting
services, which include maintaining its financial books and records and
calculating its daily net asset value.
(c) John Cunniff and David Walker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Cunniff is a Vice
President of the Adviser and has been employed by the Adviser since
October 1995. Prior to that time, Mr. Cunniff was Vice President,
Portfolio Manager at Templeton Quantitative Advisors. Since October
1995, Mr. Cunniff has been a Vice President of the VK Adviser. Mr.
Walker is an Assistant Vice President of the Adviser and has been
employed by the Adviser as a quantitative analyst for the past five
years. Since June 1995, Mr. Walker has been an Assistant Vice President
of the VK Adviser.
(d) INAPPLICABLE
(e) ACCESS Investor Services, Inc. ("ACCESS"), P.O. Box 418256, Kansas
City, Missouri 64141-9256, serves as shareholder service agent for the
Fund. ACCESS, a wholly-owned subsidiary of Van Kampen American Capital,
provides these services at cost plus a profit.
(f) The Fund's total expense ratio for its most recent fiscal year as a
percentage of average net assets was 0.10%.
(g) INAPPLICABLE
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
Information contained in Annual Report.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
(a) The holders of Registrant's shares of beneficial interest will have
equal rights to participate in distributions made by the Fund, equal
rights to the Fund's assets upon dissolution and equal voting
A-2
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rights; the Fund does not allow cumulative voting. Shares may be
redeemed at any time at net asset value with no charge.
(b) The Fund's shares are offered and sold only to publicly offered funds
distributed by Van Kampen American Capital Distributors, Inc. and
advised or subadvised by the Adviser or the VK Adviser. In the event any
of such publicly offered funds owned more than 25% of the outstanding
shares of the Fund, such publicly offered fund would be deemed to
control the Fund within the meaning of the 1940 Act. As of February 19,
1997, Van Kampen American Capital Pace Fund and Common Sense Growth Fund
owned beneficially and of record approximately 44% and 53%,
respectively, of the outstanding shares of the Fund, and therefore, may
be deemed to control the Fund. Van Kampen American Capital Pace Fund is
a Delaware business trust and Common Sense Growth Fund is a series of
the Common Sense Trust, a Massachusetts business trust. Both trusts are
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
(c) INAPPLICABLE
(d) INAPPLICABLE
(e) Inquiries regarding the Fund or its shares should be made to the Fund's
Secretary, Ronald A. Nyberg, at One Parkview Plaza, Oakbrook Terrace, IL
60181.
(f) The Fund makes annual distributions of net investment income. The Fund
distributes realized capital gains to shareholders annually.
(g) The Fund intends to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As such, the Fund will distribute all of its net income and
capital gains to its shareholders and such distributions will generally
be taxable as such to its shareholders; while shareholders may be
proportionately liable for taxes on income and gains of the Fund,
shareholders not subject to tax on their income will not be required to
pay tax on amounts distributed to them; the Fund will inform its
shareholders of the amount and nature of such income and gains
distributed.
(h) INAPPLICABLE
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
(a) INAPPLICABLE
(b) Shares of the Fund are offered to eligible purchasers based on the next
calculation of a net asset value, which is determined as described under
Item 8(a) below, after the order is placed. There is no sales charge on
the sale of Fund shares.
(c) INAPPLICABLE
(d) INAPPLICABLE
(e) There is no continuing fee paid out of Fund assets to any dealer or any
persons who may be advising shareholders regarding the purchase, sale or
retention of Fund shares.
(f) INAPPLICABLE
(g) INAPPLICABLE
ITEM 8. REDEMPTION OR REPURCHASE.
(a) Shareholders may redeem shares at net asset value at any time without
charge by submitting a written request in proper form to ACCESS at P.O.
Box 418256, Kansas City, Missouri 64141-9256.
The net asset value per share is determined as of 2:00 p.m. eastern time
on each day on which the New York Stock Exchange (the "Exchange") is
open or such earlier time as determined by the Trustees when the
Exchange closes before 4:00 p.m. eastern time.
A-3
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The net asset value per share is determined using prices as of 2:00 p.m.
eastern time and (i) valuing securities listed or traded on a national
securities exchange at the last reported sale price, or if there has
been no sale that day, at the last reported bid price, (ii) valuing
options at the last sale price, or if there has been no sale that day,
at the mean between the bid and asked prices, (iii) valuing over-the-
counter securities for which the last sale price is available from the
National Association of Securities Dealers Automated Quotations
("NASDAQ") at that price, (iv) valuing all other over-the-counter
securities for which market quotations are available at the most recent
bid quotation supplied by NASDAQ or broker-dealers, and (v) valuing any
securities for which market quotations are not readily available, and
any other assets as fair value as determined in good faith by the
Trustees of the Fund; for these purposes "last price" means the last
price reported at or before 2:00 p.m. eastern time. The Fund reserves
the right to redeem in kind.
(b) INAPPLICABLE
(c) INAPPLICABLE
(d) Payment for shares redeemed may be postponed or the right of redemption
suspended as provided by rules of the SEC.
ITEM 9. PENDING LEGAL PROCEEDINGS.
INAPPLICABLE
A-4
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PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE
Van Kampen American Capital Small Capitalization Fund (the "Fund") is a
diversified open-end management investment company.
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all of the information a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen American Capital Distributors, Inc. at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at (800) 421-5666.
This Statement of Additional Information is dated February 28, 1997.
ITEM 11. TABLE OF CONTENTS.
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PAGE
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General Information and History............................. B-1
Investment Objectives and Policies.......................... B-1
Management of the Fund...................................... B-3
Control Persons and Principal Holders of Securities......... B-10
Investment Advisory and Other Services...................... B-11
Brokerage Allocation and Other Practices.................... B-12
Capital Stock and Other Securities.......................... B-13
Purchase, Redemption and Pricing of Securities Being
Offered..................................................... B-13
Tax Status.................................................. B-14
Underwriters................................................ B-14
Calculation of Performance Data............................. B-14
Report of Independent Accountants........................... B-14
Financial Statements........................................ B-15
Notes to Financial Statements............................... B-30
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ITEM 12. GENERAL INFORMATION AND HISTORY.
See Item 4.
The Fund and Van Kampen American Capital Asset Management, Inc., (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 preclearance and other
procedures designed to prevent conflicts of interest.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
(a) See Item 4.
(b) The Fund has adopted certain investment restrictions which may be
altered or rescinded only with the approval by the vote of a majority
of its outstanding voting shares, which is defined by the Investment
Company act of 1940, as amended (the "1940 Act"), 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
B-1
<PAGE> 7
securities are present or represented by proxy, or (ii) more than 50%
of the outstanding voting securities. These restrictions provide that
the Fund shall not:
(1) Issue senior securities within the meaning of the 1940 Act;
(2) 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. The deposit or payment by the Fund of an
initial or maintenance margin in connection with futures contracts or
related option transactions is not considered the purchase of a
security on margin;
(3) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional
cost securities identical to those sold short;
(4) Borrow money, except that the Fund may borrow from banks to meet
redemptions or for other temporary or emergency purposes, with such
borrowing not to exceed 5% of the total assets of the Fund at market
value at the time of the borrowing. Any such borrowing may be secured
provided that not more than 10% of the total assets of the Fund at
market value at the time of the pledging may be used as security for
such borrowings;
(5) Underwrite the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 by
virtue of disposing of portfolio securities;
(6) Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, except that this
restriction shall not apply to securities issued by the United States
Government, its agencies or instrumentalities;
(7) Invest more than 5% of its total assets at market value at the time
of purchase in the securities of any one issuer (other than
obligations of the United States Government, its agencies or
instrumentalities) or purchase more than 10% of the outstanding
voting securities of any one issuer;
(8) Invest in real estate or real estate mortgage loans, except that the
Fund may purchase securities secured by real estate or interests
therein;
(9) Purchase or sell commodities or commodity contracts, except that the
Fund may purchase, hold and sell listed futures contracts.
An additional fundamental policy provides that, under normal
circumstances, at least 80% of the Fund's total assets will be invested
in securities of companies with market capitalization no greater than
that of the company whose market capitalization ranks 500th among
publicly traded U.S. common stocks.
(c) INAPPLICABLE
(d) INAPPLICABLE
B-2
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ITEM 14. MANAGEMENT OF THE FUND.
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser"), Van Kampen American Capital Asset
Management, Inc. (the "AC Adviser"), Van Kampen American Capital Distributors,
Inc. (the "Distributor"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital"), VK/AC Holding, Inc. or ACCESS Investor Services, Inc.
("ACCESS"). For purposes hereof, the terms "Van Kampen American Capital Funds"
or "Fund Complex" includes each of the open-end investment companies advised by
the VK Adviser and each of the open-end investment companies advised by the AC
Adviser (excluding the Van Kampen American Capital Exchange Fund and the Common
Sense Trust).
TRUSTEES
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
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J. Miles Branagan......................... Co-founder, Chairman, Chief Executive Officer and
1632 Morning Mountain Road President of MDT Corporation, a company which develops
Raleigh, NC 27614 manufactures, markets and services medical and scientific
Date of Birth: 07/14/32 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Linda Hutton Heagy........................ Managing Partner, Paul Ray Berndtson, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Date of Birth: 06/03/49 of La Salle National Bank. Trustee of each of the Van
Kampen American Capital Funds.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*...................... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser, Van Kampen American Capital
Oakbrook Terrace, IL 60181 Advisors, Inc. and Van Kampen American Capital
Date of Birth: 05/20/42 Management, Inc. Executive Vice President and a Director
of VK/AC Holding, Inc. and Van Kampen American Capital.
President and Director of Van Kampen Merritt Equity
Advisors Corp. Director of Van Kampen Merritt Equity
Holdings Corp. Director of McCarthy, Crisanti & Maffei,
Inc. Prior to September 1996, Chief Executive Officer of
McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited. Prior to
July 1996, President, Chief Operating Officer and Trustee
of VSM Inc. and VCJ Inc. President, Chief Executive
Officer and Trustee of each of the Van Kampen American
Capital Funds. President, Chairman of the Board and
Trustee of other investment companies advised by the VK
Adviser. Executive Vice President of other investment
companies advised by the AC Adviser.
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B-3
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PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
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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
Date of Birth: 02/13/36 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). 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
Date of Birth: 10/10/22 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Fernando Sisto............................ George M. Bond Chaired Professor and, prior to 1995, Dean
155 Hickory Lane of Graduate School and Chairman, Department of Mechanical
Closter, NJ 07624-2322 Engineering, Stevens Institute of Technology. Director of
Date of Birth: 08/02/24 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee of each of the Van Kampen American
Capital Funds.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the Van Kampen
Chicago, IL 60606 American Capital Funds, The Explorer Institutional Trust
Date of Birth: 08/22/39 and the closed-end investment companies advised by the VK
Adviser. Trustee of each of the Van Kampen American
Capital Funds, The Explorer Institutional Trust and the
closed-end investment companies advised by the VK
Adviser.
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* Such trustees are "interested persons" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. McDonnell is an interested person of the VK
Adviser, the AC Adviser and the Fund by reason of his positions with the VK
Adviser and the AC Adviser. Mr. Whalen is an interested person of the Fund by
reason of his firm acting as legal counsel to the Fund.
B-4
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OFFICERS
The address for Curtis W. Morell, Alan T. Sachtleben, Paul R. Wolkenberg,
Tanya M. Loden, Huey P. Falgout, Jr. and Robert Sullivan is 2800 Post Oak Blvd.,
Houston, TX 77056. The address for Peter W. Hegel, Ronald A. Nyberg, Edward C.
Wood III, John L. Sullivan, Nicholas Dalmaso, Scott E. Martin, Weston B.
Wetherell and Steven M. Hill is One Parkview Plaza, Oakbrook Terrace, IL 60181.
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POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
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Peter W. Hegel.............. Vice President Executive Vice President of the VK Adviser,
Date of Birth: 06/25/56 AC Adviser, Van Kampen American Capital
Management, Inc. and Van Kampen American
Capital Advisors, Inc. Prior to September
1996, Director of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996, Director
of VSM Inc. Vice President of each of the
Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the VK Adviser and
Date of Birth: 08/04/46 Accounting Officer the AC Adviser. Vice President and Chief
Accounting Officer of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel
Date of Birth: 07/29/53 and Secretary of Van Kampen American
Capital and VK/AC Holding, Inc. Executive
Vice President, General Counsel and a
Director of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen Merritt Equity Advisors Corp. and
Van Kampen Merritt Equity Holdings Corp.
Executive Vice President, General Counsel
and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American
Capital Contractual Services, Inc., Van
Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc. and ACCESS. Executive Vice
President, General Counsel, Assistant
Secretary and Director of Van Kampen
American Capital Trust Company. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to September 1996,
General Counsel of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996, Executive
Vice President and General Counsel of VSM
Inc. and VCJ Inc. Vice President and
Secretary of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
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B-5
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POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
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Alan T. Sachtleben.......... Vice President Executive Vice President of the VK Adviser
Date of Birth: 04/20/42 and Van Kampen American Capital Management,
Inc. Executive Vice President and a
Director of the AC Adviser and Van Kampen
American Capital Advisors, Inc. Vice
President of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
Paul R. Wolkenberg.......... Vice President Executive Vice President of VK/AC Holding,
Date of Birth: 11/10/44 Inc., Van Kampen American Capital, the
Distributor and the AC Adviser. President,
Chief Executive Officer and a Director of
Van Kampen American Capital Trust Company
and ACCESS. Director of American Capital
Contractual Services, Inc. Vice President
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the VK Adviser,
Date of Birth: 01/11/56 Financial Officer the AC Adviser and Van Kampen American
Capital Management, Inc. Vice President and
Chief Financial Officer of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
John L. Sullivan............ Treasurer First Vice President of the VK Adviser and
Date of Birth: 08/20/55 the AC Adviser. Treasurer of each of the
Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Tanya M. Loden.............. Controller Vice President of the VK Adviser and the AC
Date of Birth: 11/19/59 Adviser. Controller of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Nicholas Dalmaso............ Assistant Secretary Assistant Vice President and Senior
Date of Birth: 03/01/65 Attorney of Van Kampen American Capital.
Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
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Huey P. Falgout, Jr......... Assistant Secretary Assistant Vice President and Senior
Date of Birth: 11/15/63 Attorney of Van Kampen American Capital.
Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of Van
Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the AC Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of Van Kampen
American Capital, the VK Adviser, the AC
Adviser, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Steven M. Hill.............. Assistant Treasurer Assistant Vice President of the VK Adviser
Date of Birth: 10/16/64 and AC Adviser. Assistant Treasurer of each
of the Van Kampen American Capital Funds
and other investment companies advised by
the VK Adviser and the AC Adviser.
</TABLE>
B-7
<PAGE> 13
<TABLE>
<S> <C> <C>
Robert Sullivan.............. Assistant Controller Assistant Vice President of the VK Adviser and the AC
Date of Birth: 03/30/33 Adviser. Assistant Controller of each of the Van
Kampen American Capital Funds and other investment
companies advised by the VK Adviser and the AC
Adviser.
</TABLE>
Each of the foregoing trustees and officers holds the same position with
each of the funds in the Fund Complex. As of December 31, 1995, there were 50
funds in the Fund Complex. Each trustee who is not an affiliated person of the
VK Adviser, the AC Adviser, the Distributor or Van Kampen American Capital (each
a "Non-Affiliated Trustee") is compensated by an annual retainer and meeting
fees for services to the funds in the Fund Complex. Each fund in the Fund
Complex provides a deferred compensation plan to its Non-Affiliated Trustees
that allows trustees to defer receipt of his or her compensation and earn a
return on such deferred amounts based upon the return of the common shares of
the funds in the Fund Complex as more fully described below. Each fund in the
Fund Complex also provides a retirement plan to its Non-Affiliated Trustees that
provides Non-Affiliated Trustees with compensation after retirement, provided
that certain eligibility requirements are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes a retainer by the
funds in the Fund Complex advised by the AC Adviser (the "AC Funds") in an
amount equal to $35,000 per calendar year, due in four quarterly installments on
the first business day of each calendar quarter. The AC Funds pay each Non-
Affiliated Trustee a per meeting fee in the amount of $2,000 per regular
quarterly meeting attended by the Non-Affiliated Trustee, due on the date of
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in
connection with his or her services as a trustee. Payment of the annual retainer
and the regular meeting fee is allocated among the AC Funds (i) 50% on the basis
of the relative net assets of each AC Fund to the aggregate net assets of all
the AC Funds and (ii) 50% equally to each AC Fund, in each case as of the last
business day of the preceding calendar quarter. Each AC Fund participating in
any special meeting of the trustees generally pays each Non-Affiliated Trustee a
per meeting fee in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.
The trustees approved an aggregate compensation cap with respect to funds
in the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding
any retirement benefits) for the period July 22, 1995 through December 31, 1996,
subject to the net assets and the number of funds in the Fund Complex as of July
21, 1995 and certain other exceptions. In addition, each of the VK Adviser or
the AC Adviser, as the case may be, agreed to reimburse each fund in the Fund
Complex through December 31, 1996 for any increase in the aggregate trustee's
compensation over the aggregate compensation paid by such fund in its 1994
fiscal year, provided that if a fund did not exist for the entire 1994 fiscal
year appropriate adjustments will be made.
Each Non-Affiliated Trustee can elect to defer receipt of all or a portion
of the compensation earned by such Non-Affiliated Trustee until retirement.
Amounts deferred are retained by the Fund and earn a rate of return determined
by reference to the return on the common shares of the Fund or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee. To the
extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
The Fund adopted a retirement plan on January 25, 1996. Under the Fund's
retirement plan, a Non-Affiliated Trustee who is receiving trustee's fees from
the Fund prior to such Non-Affiliated Trustee's retirement, has at least ten
years of service and retires at or after attaining the age of 60, is eligible to
receive a retirement benefit equal to $2,500 per year for each of the ten years
following such trustee's retirement. Trustees retiring prior to the age of 60 or
with fewer than 10 years but more than 5 years of service may receive reduced
retirement benefits from a series. The retirement plan contains a Fund Complex
retirement benefit
B-8
<PAGE> 14
cap of $60,000 per year. The AC Adviser is reimbursing the Fund for expenses
related to the retirement plan through December 31, 1996.
Additional information regarding compensation and benefits for trustees is
set forth below. The "Registrant" is the Trust, which currently consists of one
operating series. As indicated in the notes accompanying the table, the amounts
relate to either the Registrant's last fiscal year ended October 31, 1996 or the
Fund Complex' last calendar year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
ESTIMATED TOTAL
PENSION OR ANNUAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS BEFORE DEFERRAL
COMPENSATION BENEFITS ACCRUED FROM FROM REGISTRANT
BEFORE DEFERRAL AS PART OF REGISTRANT AND FUND
FROM REGISTRANT UPON COMPLEX PAID TO
NAME(1) REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TRUSTEE(5)
------- --------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan...................... 1,050 $-0- $2,500 $84,250
Dr. Richard E. Caruso.................. -0- -0- -0- 57,250
Philip P. Gaughan...................... 430 -0- -0- 76,500
Linda Hutton Heagy..................... 1,050 -0- 2,500 38,417
Dr. Roger Hilsman...................... 1,050 -0- -0- 91,250
R. Craig Kennedy....................... 1,050 -0- 2,500 92,625
Donald C. Miller....................... 1,000 -0- -0- 94,625
Jack E. Nelson......................... 1,050 -0- 2,500 93,625
David Rees............................. 530 -0- -0- 83,250
Jerome L. Robinson..................... 1,050 -0- -0- 89,375
Lawrence J. Sheehan.................... 530 -0- -0- 91,250
Dr. Fernando Sisto..................... 1,050 -0- 2,500 98,750
Wayne W. Whalen........................ 1,050 -0- 2,500 93,375
William S. Woodside.................... 1,050 -0- -0- 79,125
</TABLE>
- ---------------
(1) Mr. McDonnell, a trustee of the Trust, is an affiliated person of the VK
Adviser and AC Adviser and is not eligible for compensation or retirement
benefits from the Registrant. Messrs. Gaughan, Kennedy, Miller, Nelson,
Robinson and Whalen were elected by shareholders to the Board of Trustees on
July 21, 1995. Ms. Heagy was appointed to the Board of Trustees on September
7, 1995. Mr. McDonnell was appointed to the Board of Trustees on January 30,
1996. Mr. Don G. Powell resigned from the Board of Trustees on August 15,
1996, and did not receive any compensation or benefits from the Fund while a
trustee because he was an affiliated person of the VK Adviser and AC
Adviser. Messrs. Gaughan and Rees retired from the Board of Trustees on
January 26, 1996 and January 29, 1996, respectively. Messrs. Caruso and
Sheehan were removed from the Board of Trustees effective September 7, 1995
and January 29, 1996, respectively. Messrs. Hilsman, Miller and Woodside
retired from the Board of Trustees on December 31, 1996.
(2) The amounts shown in this column are aggregated from the compensation paid
by each series in operation during the Registrant's fiscal year ended
October 31, 1996 before deferral by the trustees under the deferred
compensation plan. The following trustees deferred all or a portion of their
compensation from the Registrant during the fiscal year ended October 31,
1996: Ms. Heagy, $900; Mr. Kennedy, $790; Mr. Miller, $1,000; Mr. Nelson,
$1,050; Mr. Rees, $260; Mr. Robinson, $1,050; and Mr. Whalen, $1,050. The
cumulative deferred compensation (including interest) accrued with respect
to each trustee from the Registrant as of October 31, 1996 is as follows:
Dr. Caruso, $1,479; Mr. Gaughan, $197; Ms. Heagy, $957; Mr. Kennedy, $853;
Mr. Miller, $1,057; Mr. Nelson, $1,113; Mr. Rees, $263; Mr. Robinson,
$1,113; Dr. Sisto, $1,350; and Mr. Whalen, $1,113. The deferred compensation
plan is described above the Compensation Table. Amounts deferred are
retained by the Fund and earn a rate of return determined by reference to
either the return on the common shares of the Fund or other funds in the
Fund Complex as selected by the respective Non-Affiliated Trustee. To the
extent permitted by the 1940 Act, the Fund may
B-9
<PAGE> 15
invest in securities of those funds selected by the Non-Affiliated Trustees in
order to match the deferred compensation obligation.
(3) The amounts shown in this column are zero in the Fund's fiscal year ended
October 31, 1996 because the Adviser has agreed to reimburse the Fund for
expenses related to the retirement plan through December 31, 1996. Absent
such reimbursement, the aggregate expenses of the Fund for all trustees
would have been approximately $3,600 in its fiscal year ended October 31,
1996. The Retirement Plan is described above the Compensation Table.
(4) The amounts shown in this column are the estimated annual benefits payable
by the Registrant in each year of the 10-year period commencing in the year
of such trustee's retirement from the Registrant (based on $2,500 per series
for each series of the Registrant in operation) assuming: the trustee has 10
or more years of service on the Board of the respective series and retires
at or after attaining the age of 60. The actual annual benefit may be less
if the trustee is subject to the Fund Complex retirement benefit cap or if
the trustee is not fully vested at the time of retirement.
(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 1995, before
deferral by the trustees under the deferred compensation plan. The following
trustees deferred compensation paid by the Registrant and the Fund Complex
during the calendar year ended December 31, 1995; Dr. Caruso, $41,750; Mr.
Gaughan, $57,750; Ms. Heagy, $8,750; Mr. Kennedy, $65,875; Mr. Miller,
$65,875; Mr. Nelson, $65,875; Mr. Rees, $8,375; Mr. Robinson, $62,375; Dr.
Sisto, $30,260; and Mr. Whalen, $65,625. The deferred compensation earns a
rate of return determined by reference to the return on the common shares of
the Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee. To the extent permitted by the 1940 Act, the Fund
may invest in securities of those funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap commenced on July 22, 1995.
Compensation received prior to July 22, 1995 was not subject to the cap. For
the calendar year ended December 31, 1995, while certain trustees received
compensation over $84,000 in the aggregate, no trustee received compensation
in excess of the pro rata amount of the Fund Complex cap for the period July
22, 1995 through December 31, 1995. In addition to the amounts set forth
above, certain trustees received lump sum retirement benefit distributions
not subject to the cap in 1995 related to three mutual funds that ceased
investment operations during 1995 as follows: Mr. Gaughan, $22,136; Mr.
Miller, $33,205; Mr. Nelson, $30,851; Mr. Robinson, $11,068; and Mr. Whalen,
$27,332. The VK Adviser, AC Adviser and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell and Whalen, the trustees were not trustees of
such investment companies. Combining the Fund Complex with other investment
companies advised by the VK Adviser, AC Adviser and their affiliates, Mr.
Whalen received Total Compensation of $268,857 during the calendar year
ended December 31, 1995.
As of February 19, 1997, no trustee or officer of the Fund owns or would be
able to acquire 5% or more of the common stock of VK/AC Holding, Inc. Mr.
McDonnell owns, or has the opportunity to purchase, an equity interest in VK/AC
Holding, Inc., the parent company of Van Kampen American Capital, and has
entered into an employment contract (for a term until February 17, 1998) with
Van Kampen American Capital.
Skadden, Arps, Slate, Meagher & Flom (Illinois) serves as legal counsel to
the Fund.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
(a) See Item 6(b).
(b) See Item 6(b).
(c) None of the Fund's Officers or Trustees owns or is eligible to own
shares of beneficial interest of the Fund.
B-10
<PAGE> 16
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
(a) (i) The Adviser and ACCESS, the Fund's shareholder service agent, 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 a wholly-owned subsidiary of MSAM
Holdings II, Inc. which, in turn, is a wholly-owned subsidiary of
Morgan Stanley Group Inc. The Adviser's principal office is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Morgan Stanley Group Inc. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley & Co.
Incorporated, a registered broker-dealer and investment adviser,
and Morgan Stanley International, are engaged in a wide range of
financial services. Their principal businesses include securities
underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities;
merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange,
commodities and swaps (involving foreign exchange, commodities,
indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and
securities lending.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter,
Discover & Co. announced that they had entered into an Agreement
and Plan of Merger to form a new company to be named Morgan
Stanley, Dean Witter, Discover & Co. Subject to certain conditions
being met, it is currently anticipated that the transaction will
close in mid-1997. Thereafter, Van Kampen American Capital Asset
Management, Inc. will be an indirect subsidiary of Morgan Stanley,
Dean Witter, Discover & Co.
Dean Witter, Discover & Co. is a financial services company with
three major businesses: full service brokerage, credit services
and asset management of more than $100 billion in customer
accounts.
(ii) See Item 14.
(iii) The Fund and the Adviser are parties to an investment advisory
agreement (the "Agreement"), which provides that the Adviser will
provide investment advisory services to the Fund at no fee. The
Fund is, however, required to reimburse the Adviser for the cost
of accounting services provided by the Adviser, which includes
maintaining its financial books and records and calculating its
daily net asset value. See Item 16(b).
The Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii)
by 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 agreement or interested persons of any
such party by votes cast in person at a meeting called for that
purpose. The Agreement provides that it may be terminated without
penalty by either party on 30 days' written notice.
(b) Under the 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. The Adviser is responsible for obtaining
and evaluating economic, statistical and financial data and for
formulating and implementing investment programs in furtherance of the
Fund's investment objectives. The Adviser also furnishes at no cost to
the Fund (except as noted herein) the services of sufficient executive
and clerical personnel for the Fund as are necessary to prepare
registration statements, shareholder reports and notices and proxy
solicitation materials. In addition, the Adviser furnishes at no cost
to the Fund the services of a Chief Executive Officer and other
executive and clerical personnel as needed.
Under the Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting
services include the salaries and overhead expenses of the Fund's
Principal Financial and
B-11
<PAGE> 17
Accounting Officer and personnel operating under his direction. The
Adviser receives no compensation for its investment management
services. During the fiscal years ended October 31, 1996, 1995 and
1994, the Fund paid $90,400, $23,710 and $6,422 for accounting
services. A portion of these amounts are 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, which is allocated among the
investment companies advised by the Adviser. The Fund also pays
shareholder service agency fees, custodian fees, legal and auditing
fees, the costs of reports to shareholders and all other ordinary
expenses not specifically assumed by the Adviser.
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.
(c) INAPPLICABLE
(d) INAPPLICABLE
(e) INAPPLICABLE
(f) INAPPLICABLE
(g) INAPPLICABLE
(h) The custodian of all the Fund's assets is State Street Bank and Trust
Company located at 225 Franklin Street, Boston, Massachusetts 02110.
Price Waterhouse LLP, 1201 Louisiana, Suite 2900, Houston, Texas 77002,
are the independent accountants for the Fund.
(i) During the fiscal years ended October 31, 1994, 1995 and 1996, ACCESS,
shareholder service agent for the Fund, received fees aggregating
$7,500, $16,490 and $14,800, respectively. These services are provided
at cost plus a profit.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
(a) The Adviser is responsible for decisions to buy and sell securities for
the Fund and for the placement of its portfolio business and the
negotiation of the commissions 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 it is believed
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. See also
Item 17(b).
(b) Brokerage commissions paid by the Fund on portfolio transactions for
the fiscal years ended October 31, 1994, 1995 and 1996 totalled
$29,523, $210,601 and $247,272, respectively. During these same
periods, the Fund paid $14,363, $210,601, $235,862, respectively, in
brokerage commissions on transactions totalling $11,704,468,
$342,387,038, $292,491,740, respectively, to brokers selected primarily
on the basis of research services provided to the Adviser.
(c) In selecting 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.
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
B-12
<PAGE> 18
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 Agreement, the Fund's 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 is of the opinion that the
continued receipt of supplemental investment research services from dealers
is essential to its provision of high quality portfolio management services
to the Fund. The Adviser undertakes 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 Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by
the Adviser in servicing all of its 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 will vary.
However, in the opinion of the Adviser, 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.
(d) See Item 17(b).
(e) INAPPLICABLE
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
See Item 6.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
(a) See Item 7.
(b) See Item 8.
(c) INAPPLICABLE
B-13
<PAGE> 19
ITEM 20. TAX STATUS.
See Item 6(g).
ITEM 21. UNDERWRITERS.
(a) INAPPLICABLE
(b) INAPPLICABLE
(c) INAPPLICABLE
ITEM 22. CALCULATION OF PERFORMANCE DATA.
INAPPLICABLE
ITEM 23. FINANCIAL STATEMENTS.
Price Waterhouse LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen American Capital
Small Capitalization Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, 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 Van Kampen American Capital Small
Capitalization Fund (the 'Fund') at October 31, 1996 and the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (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 October
31, 1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Houston, Texas
December 9, 1996
B-14
<PAGE> 20
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Common Stocks
Consumer Distribution 6.3%
Carson Pirie Scott & Co. (b) 23,000 $ 575,000
Claire's Stores, Inc. 56,250 956,250
CompUSA, Inc. (b) 7,000 324,625
Consolidated Stores Corp. (b) 29,000 1,112,875
DIMON, Inc. 5,000 93,125
Dollar Tree Stores, Inc. (b) 5,000 190,000
Eckerd Corp. (b) 19,600 546,350
Fingerhut Companies, Inc. 39,000 570,375
Herman Miller, Inc. 4,000 173,500
Hollywood Entertainment Corp. (b) 10,000 206,250
HON Industries, Inc. 19,000 665,000
Just For Feet, Inc. (b) 6,000 157,500
Lear Seating Corp. (b) 5,000 185,625
Meyer (Fred), Inc. (b) 3,000 104,250
Neiman Marcus Group, Inc. (b) 4,000 131,000
Pier 1 Imports, Inc. 38,900 549,463
Proffitts, Inc. (b) 2,940 119,254
Revco D.S., Inc. (b) 4,000 120,500
Rexel, Inc. (b) 6,000 86,250
Rite Aid Corp. 10,000 337,500
Ross Stores, Inc. 23,000 966,000
Tech Data Corp. (b) 13,000 333,125
Tiffany & Co. 16,000 590,000
TJX Companies, Inc. 17,000 673,625
U. S. Office Products Co. (b) 5,000 145,000
Vons Companies, Inc. (b) 14,000 775,250
Waban, Inc. (b) 37,000 966,625
Zale Corp. (b) 28,000 535,500
----------
12,189,817
----------
Consumer Durables 3.1%
Borg Warner Automotive, Inc. 8,000 305,000
Breed Technologies, Inc. 19,500 448,500
Brunswick Corp. 39,000 916,500
Callaway Golf Co. 11,000 339,625
Champion Enterprises, Inc. (b) 21,000 417,375
Department 56, Inc. (b) 1,500 32,625
Echlin, Inc. 7,000 228,375
Ethan Allen Interiors, Inc. 19,000 676,875
Galoob Toys, Inc. (b) 5,000 131,250
Harman International Industries, Inc. 2,400 123,000
</TABLE>
B-15
<PAGE> 21
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Consumer Durables (Continued)
Mohawk Industries, Inc. (b) 17,000 $ 403,750
Smith (A. O.) Corp. 7,000 184,625
Snap-On Tools, Inc. 21,000 677,250
Stanley Works 10,000 283,750
Sturm, Ruger & Company, Inc. 8,000 150,000
Toro Co. 22,000 682,000
----------
6,000,500
----------
Consumer Non-Durables 10.4%
Alberto Culver Co., Class B 14,100 638,025
American Greetings Corp., Class A 15,000 438,750
Amway Asia Pacific Ltd. 5,000 177,500
Barefoot, Inc. 54,000 546,750
Brown Group, Inc. 17,500 358,750
Burlington Industries, Inc. (b) 20,000 225,000
Donnkenny, Inc. (b) 25,000 312,500
First Brands Corp. 10,000 285,000
Fruit of the Loom, Inc. (b) 25,000 887,500
Herbalife International, Inc. 25,000 496,875
Hillenbrand Industries, Inc. 10,400 388,700
Hormel (G. A.) & Co. 16,000 380,000
IBP, Inc. 26,000 650,000
International Imaging Materials, Inc. (b) 20,000 472,500
Jones Apparel Group, Inc. (b) 44,000 1,331,000
Jostens, Inc. 10,000 212,500
Kellwood Co. 14,000 248,500
Lancaster Colony Corp. 17,000 654,500
Liz Claiborne, Inc. 36,000 1,503,000
Morningstar Group, Inc. (b) 30,000 498,750
Nautica Enterprises, Inc. (b) 42,000 1,291,500
Nu-Kote Holding Inc., Class A (b) 5,000 47,813
Oakley, Inc. (b) 62,000 914,500
Paragon Trade Brands, Inc. (b) 27,000 712,125
Revlon Inc., Class A (b) 10,600 367,025
Russell Corp. 44,800 1,276,800
St. John Knits, Inc. 16,000 746,000
Starbucks Corp. (b) 25,000 821,875
Tambrands, Inc. 7,000 299,250
Timberland Co. (b) 6,000 201,000
</TABLE>
B-16
<PAGE> 22
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Consumer Non-Durables (Continued)
Unifi, Inc. 19,000 $ 586,625
Warnaco Group, Inc. 25,000 615,625
Westpoint Stevens, Inc. (b) 45,000 1,192,500
Wolverine World Wide, Inc. 20,200 499,950
----------
20,278,688
----------
Consumer Services 5.7%
Anchor Gaming (b) 2,000 99,500
APAC Teleservices, Inc. (b) 3,000 138,000
Applebee's International, Inc. 4,000 99,000
Banta Corp. 15,000 315,000
Boston Chicken, Inc. (b) 27,000 988,875
Bowne & Co., Inc. 20,000 455,000
Corrections Corp. of America (b) 3,000 76,500
Equifax, Inc. 13,000 390,000
Gartner Group, Inc. (b) 16,000 496,000
Kelly Services, Inc. 30,000 810,000
King World Productions, Inc. (b) 20,000 705,000
Media General, Inc., Class A 5,300 156,350
MGM Grand, Inc. (b) 10,000 390,000
Mirage Resorts, Inc. (b) 8,000 177,000
National Education Corp. (b) 17,000 276,250
New York Times Co., Class A 19,000 684,000
Omnicom Group 16,700 818,300
Papa John's International, Inc. (b) 11,500 575,000
PHH Corp. 16,400 483,800
Promus Hotel Corp. (b) 7,200 232,200
Regal Cinemas, Inc. 36,750 950,906
Robert Half International, Inc. 18,000 731,250
Sbarro, Inc. 26,000 685,750
Sitel Corp. (b) 4,200 79,800
Sonic Corp. (b) 6,000 132,000
Station Casinos, Inc. (b) 5,000 55,625
Valassis Communications, Inc. (b) 7,000 124,250
----------
11,125,356
----------
Energy 9.3%
Ashland, Inc. 7,000 294,875
BJ Services Co. (b) 1,400 62,650
Brooklyn United Gas Co. 20,000 585,000
Canadian Occidental Petroleum 18,000 319,500
Chesapeake Energy Corp. (b) 3,000 177,000
</TABLE>
B-17
<PAGE> 23
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Energy (Continued)
Columbia Gas Systems, Inc. 8,000 $ 485,000
Eastern Enterprises 24,100 918,812
El Paso Natural Gas Co. 20,200 967,075
Energy Ventures, Inc. (b) 7,000 309,750
Global Marine, Inc. (b) 67,000 1,256,250
Marine Drilling Co., Inc. (b) 40,000 550,000
MCN Corp. 30,000 832,500
Mitchell Energy & Development, Class B 5,000 103,750
NACCO Industries, Inc., Class A 16,800 766,500
National Fuel Gas Co. 2,500 92,186
Newfield Exploration Co. (b) 12,000 562,500
NICOR, Inc. 5,000 173,750
ONEOK, Inc. 24,400 652,700
Oryx Energy Co. (b) 28,000 553,000
Pacific Enterprises 30,000 918,750
Parker & Parsley Petroleum Co. (b) 10,000 295,000
Pennzoil Co. 7,000 358,750
Questar Corp. 10,000 365,000
Reading & Bates Corp. (b) 40,000 1,185,000
Seagull Energy Corp. (b) 17,688 384,714
Smith International, Inc. (b) 30,000 1,143,750
Tesoro Petroleum Corp. (b) 11,000 162,250
Tosco Corp. 11,500 648,313
Union Texas Petroleum Holdings, Inc. 34,300 737,450
Valero Energy Corp. 11,000 262,625
Varco International, Inc. (b) 11,200 219,800
Washington Gas & Light Co. 21,000 462,000
WICOR, Inc. 19,400 691,125
Williams Cos. 10,188 536,144
----------
18,033,469
----------
Finance 14.6%
20th Century Industries (b) 24,000 384,000
Aames Financial Corp. 6,000 267,000
Alex. Brown, Inc. 4,000 229,000
Alliance Capital Management, LP 5,000 138,750
AMBAC, Inc. 20,000 1,257,500
American Financial Group, Inc. 14,000 500,500
American Re Corp. 20,000 1,290,000
Bankers Life Holding Corp. 39,000 955,500
California Federal Bancorp, Inc. (b) 18,000 418,500
Charter One Financial, Inc. 11,550 503,869
</TABLE>
B-18
<PAGE> 24
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Finance (Continued)
City National Corp. 48,000 $ 846,000
CMAC Investment Corp. 15,000 1,038,750
Commercial Federal Corp. 18,000 753,750
Countrywide Credit Industries, Inc. 7,500 212,812
Donaldson Lufkin & Jenrette, Inc. 16,000 512,000
Edwards (A. G.), Inc. 26,000 776,750
Finova Group, Inc. 2,000 122,750
First American Corp. 7,000 348,250
First American Financial Corp. 6,900 263,925
Fremont General Corp. 30,450 898,275
GreenPoint Financial Corp. 11,800 548,700
Lehman Brothers Holdings, Inc. 25,000 621,875
Mercury Financial Co. 46,500 540,562
Mercury General Corp. 5,000 245,000
MGIC Investment Corp. of Wisconsin 12,300 850,237
NationsBank Corp. 8,000 757,000
North American Mortgage Co. 6,000 123,000
North Fork Bancorporation 23,500 743,188
Northern Trust Corp. 12,000 831,000
Olympic Financial, LTD (b) 7,000 111,125
Orion Capital Corp. 9,100 490,263
Paine Webber Group, Inc. 30,000 716,250
Penncorp Financial Group, Inc. 10,000 347,500
Peoples Heritage Financial 3,182 73,584
PMI Group, Inc. (b) 2,000 114,500
Protective Life Corp. 20,000 695,000
Reliance Group Holding 25,600 211,200
Republic New York Corp. 10,000 762,500
Roosevelt Financial Group, Inc. 23,000 398,188
Southtrust Corp. 20,500 679,063
Sovereign Bancorp, Inc. 63,650 751,866
Star Banc Corp. 13,300 1,190,350
Summit Bancorp 5,000 205,625
TCF Financial Corp. 22,000 852,500
Transatlantic Holdings, Inc. 13,000 937,625
Union Planters Corp. 28,000 976,500
Vesta Insurance Group, Inc. 22,500 579,375
Washington Federal, Inc. 7,000 167,125
Washington Mutual, Inc. 28,000 1,204,000
----------
28,442,582
----------
</TABLE>
B-19
<PAGE> 25
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Health Care 8.9%
Advanced Technology Labs, Inc. (b) 20,000 $ 601,250
ALZA Corp. (b) 20,000 522,500
American HomePatient, Inc. (b) 5,000 114,375
Ballard Medical Products 9,000 158,625
Bausch & Lomb, Inc. 24,000 807,000
Beckman Industries, Inc. 14,000 518,000
Bio Rad Labs, Inc., Class A (b) 9,000 222,750
Bio-Technology General Corp. (b) 20,000 163,437
Biomet, Inc. (b) 25,000 404,687
ClinTrials Research, Inc. (b) 10,000 371,250
CNS, Inc. (b) 12,100 201,162
Coherent, Inc. (b) 7,000 263,375
Dura Pharmaceuticals, Inc. (b) 6,000 205,500
Guidant Corp. 3,000 137,625
Haemonetics Corp. (b) 22,000 387,750
HBO & Co. 12,000 708,000
Health Management Associates, Inc., Class A (b) 34,500 724,500
Healthcare Compare Corp. (b) 7,000 306,250
Healthcare & Retirement Corp. (b) 15,000 373,125
Healthsouth Rehabilitation (b) 23,400 877,500
Horizon/CMS Healthcare Corp. (b) 9,000 93,375
ICN Pharmaceuticals, Inc. 37,535 713,165
Lincare Holdings, Inc. (b) 29,000 1,094,750
Manor Care, Inc. 8,000 312,000
Medpartners/Mullikin, Inc. (b) 32,722 711,703
MiniMed, Inc. (b) 7,200 185,400
Nellcor Puritan Bennett, Inc. (b) 17,000 331,500
Omnicare, Inc. 20,000 540,000
Ornda Healthcorp (b) 20,000 540,000
Pacificare Health Systems, Inc., Class B (b) 7,000 479,500
Quintiles Transnational Corp. (b) 13,000 867,750
Quorum Health Group, Inc. (b) 11,000 294,938
Renal Treatment Centers, Inc. (b) 19,800 522,225
RoTech Medical Corp. (b) 4,800 75,600
Steris Corp. (b) 8,000 307,000
Sybron International Corp. (b) 24,000 699,000
TheraTx, Inc. (b) 14,000 140,000
U S Surgical Corp. 3,000 124,875
Universal Health Services, Inc., Class B (b) 24,000 597,000
Vencor, Inc. (b) 9,000 261,000
Watsons Pharmaceuticals, Inc. (b) 10,320 347,010
----------
17,306,452
----------
</TABLE>
B-20
<PAGE> 26
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Producer Manufacturing 8.0%
ACX Technologies, Inc. (b) 16,000 $ 282,000
American Power Conversion Corp. (b) 7,000 144,375
American Standard Cos., Inc. (b) 7,300 273,750
Ametek, Inc. 5,000 101,250
Aptar Group, Inc. 9,600 306,000
Blount International, Inc., Class A 3,500 125,563
Briggs & Stratton Corp. 16,000 644,000
Camco International, Inc. 7,000 279,125
Cummins Engine Co., Inc. 12,000 499,500
Danaher Corp. 26,000 1,059,500
Detroit Diesel Corp. (b) 6,700 123,950
Duriron Co., Inc. 2,500 67,500
Global Industrial Technologies, Inc. (b) 53,400 967,875
Global Industries, Ltd. (b) 26,000 468,000
Granite Construction, Inc. 10,500 204,750
Harnischfeger Industries, Inc. 6,000 240,750
IDEX Corp. 13,500 504,562
Intermet Corp. 10,000 116,250
Johnson Controls, Inc. 4,000 289,000
Kaydon Corp. 5,000 203,125
Litton Industries, Inc. 15,400 696,850
MEMC Electronic Materials, Inc. (b) 10,000 192,500
Mueller Industries, Inc. (b) 11,500 462,875
National Service Industries, Inc. 6,000 207,000
Navistar International Corp. (b) 14,000 131,250
Oregon Metallurgical Corp. 10,000 307,500
PACCAR, Inc. 19,000 1,054,500
Ruddick Corp. 10,000 131,250
Southdown, Inc. 32,000 872,000
Tecumseh Products Co., Class A 10,000 562,500
Thermo Instrument Systems, Inc. (b) 30,375 918,844
Timken Co. 16,000 716,000
Trinity Industries, Inc. 8,000 278,000
United Waste Systems, Inc. (b) 32,000 1,104,000
Wolverine Tube, Inc. (b) 23,000 911,375
----------
15,447,269
----------
</TABLE>
B-21
<PAGE> 27
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Raw Materials/Processing Industries 5.8%
A K Steel Holding Corp. 12,000 $ 423,000
Allegheny Teledyne, Inc. 36,175 768,719
Cleveland Cliffs, Inc. 12,000 492,000
Cytec Industries, Inc. (b) 30,000 1,080,000
First Mississippi Corp. 16,000 460,000
Glatfelter (P. H.) Co. 39,500 745,562
Goodrich (B. F.) Co. 10,000 423,750
Handy & Harman 46,000 874,000
Homestake Mining Co. 5,000 71,250
IP Timberlands 32,000 416,000
J&L Specialty Steel, Inc. 15,100 175,537
Longview Fibre Co. 25,000 412,500
Lyondell Petrochemical Co. 16,000 342,000
Medusa Corp. 3,500 116,812
Owens-Illinois, Inc. (b) 47,000 740,250
Pegasus Gold, Inc. (b) 55,000 556,875
Potlatch Corp. 7,000 297,500
Rayonier, Inc. 11,000 437,250
Safeskin Corp. (b) 7,000 277,375
Sigma-Aldrich Corp. 4,000 235,000
Sonoco Products Co. 5,000 133,750
Terra Industries, Inc. 37,000 536,500
Texas Industries, Inc. 3,400 192,950
UCAR International, Inc. (b) 10,000 392,500
USG Corp. (b) 11,000 324,500
Vulcan Materials Co. 5,200 319,800
----------
11,245,380
----------
Technology 12.2%
Adaptec, Inc. (b) 10,000 597,500
America Online, Inc. (b) 15,000 416,250
Andrew Corp. (b) 12,500 607,812
Ascend Communications, Inc. (b) 10,000 656,094
Auspex Systems, Inc. (b) 18,200 184,275
Avnet, Inc. 5,000 252,500
BMC Software, Inc. (b) 10,000 837,500
Cadence Design Systems, Inc. (b) 33,000 1,204,500
Cascade Communications (b) 11,700 880,425
Ciber, Inc. (b) 2,900 102,225
Citrix Systems, Inc. (b) 5,000 278,750
Compuware Corp. (b) 15,000 791,250
Dell Computer Corp. (b) 7,000 567,875
</TABLE>
B-22
<PAGE> 28
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Technology (Continued)
Documentum, Inc. (b) 24,000 $ 888,000
DSP Communications, Inc. (b) 6,000 225,000
Dynatech Corp. (b) 16,500 820,875
Electroglas, Inc. (b) 15,000 200,625
Fiserv, Inc. (b) 8,000 302,000
FORE Systems, Inc. (b) 22,000 882,750
Gateway 2000, Inc. (b) 11,000 530,062
GenRad, Inc. (b) 14,000 278,250
Geotek Communications, Inc. (b) 20,000 147,500
Harris Corp. 13,000 814,125
Hyperion Software Corp. (b) 18,000 362,812
International Rectifier Corp. (b) 8,900 110,138
Legato Systems, Inc. (b) 9,000 313,875
McAfee Associates, Inc. (b) 9,000 409,500
Microchip Technology, Inc. (b) 10,000 363,750
Molex, Inc. 14,000 504,000
Network General Corp. (b) 8,000 193,000
Novellus Systems, Inc. (b) 5,500 225,500
PairGain Technologies, Inc. (b) 6,000 421,500
Paychex, Inc. 7,500 422,813
P-Com, Inc. (b) 5,000 111,250
Perkin-Elmer Corp. 16,000 864,000
PictureTel Corp. (b) 3,000 84,000
Rational Software Corp. (b) 6,000 227,250
Recoton Corp. (b) 9,000 122,625
Remedy Corp. (b) 16,000 764,000
Rohr Industries, Inc. (b) 10,000 182,500
SCI Systems, Inc. (b) 15,000 748,125
Shiva Corp. (b) 11,000 451,000
SMART Modular Technologies (b) 10,000 210,625
Storage Technology Corp. (b) 24,000 1,035,000
Sundstrand Corp. 7,000 283,500
Sunguard Data Systems, Inc. (b) 10,000 420,000
Systemsoft Corp. (b) 10,000 284,375
Teradyne, Inc. (b) 5,000 79,375
Unitrode Corp. (b) 19,000 451,250
Vantive Corp. (b) 6,000 199,500
</TABLE>
B-23
<PAGE> 29
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Technology (Continued)
Varian Associates, Inc. 10,500 $ 473,813
Vitesse Semiconductor Corp. (b) 5,000 157,500
Wyle Electronics, Inc. 19,000 567,625
Wyman-Gordan Co. (b) 5,000 110,000
Xircom, Inc. (b) 3,400 69,275
----------
23,689,619
----------
Transportation 1.5%
Alaska Air Group, Inc. (b) 5,000 108,125
Continental Airlines, Inc., Class B (b) 25,000 615,625
Illinois Central Corp. 18,000 585,000
Northwest Airlines, Inc., Class A (b) 12,000 382,500
Pittston Brink's Group 9,000 258,750
UAL Corp. (b) 8,000 371,000
USAir Group, Inc. (b) 20,200 348,450
USFreightways Corp. 11,000 242,688
----------
2,912,138
----------
Utilities 9.8%
360 Communications Co. (b) 50,000 1,143,750
AES Corp. (b) 29,000 1,268,750
Boston Edison Co. 46,100 1,106,400
C-TEC Corp. (b) 15,500 372,000
Calenergy, Inc. (b) 25,000 721,875
Centerior Energy Corp. 59,000 582,625
Central Hudson Gas & Electric Corp. 19,500 582,562
Century Telephone Enterprises, Inc. 26,000 841,750
Cincinnati Bell, Inc. 8,000 389,000
Citizens Utilities Co., Class A (b) 20,645 229,676
Commnet Cellular, Inc. (b) 30,000 840,000
Commonwealth Energy System Cos. 5,000 118,750
Delmarva Power & Light Co. 19,000 387,125
DQE, Inc. 22,000 638,000
Eastern Utilities Association 18,000 288,000
Idaho Power Co. 5,000 155,625
Kansas City Power & Light Co. 22,000 602,250
LCI International, Inc. (b) 11,000 354,750
Long Island Lighting Co. 46,900 855,925
MidAmerican Energy Co. 35,000 546,875
Montana Power Co. 15,000 320,625
New York State Electric & Gas Corp. 30,000 633,750
NIPSCO Industries, Inc. 24,000 909,000
</TABLE>
B-24
<PAGE> 30
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
Utilities (Continued)
Oklahoma Gas & Electric Co. 16,500 $ 645,563
Portland General Corp. 27,000 1,184,625
Public Service Co. of Colorado 18,000 668,250
Public Service Co. of New Mexico 33,000 622,875
Southern New England Telecommunictions 19,200 715,200
United Illuminating Co. 6,400 212,000
VideoServer, Inc. (b) 10,000 461,250
Western Reserve, Inc. 20,000 605,000
----------
19,003,826
----------
Total Long Term Investments 95.6%
(Cost $152,735,835) (a) 185,675,096
Repurchase Agreement 4.8%
SBC Capital Markets, Inc. ($9,400,000 par collateralized by
U.S. Government obligations with a coupon rate of 7.25% and
a maturity date of 05/15/16 in a pooled cash account, dated
10/31/96, to be sold on 11/01/96 at $9,401,441) 9,400,000
Liabilities in Excess of Other Assets (0.4%) (867,504)
------------
Net Assets 100.0% $194,207,592
============
(a) At October 31, 1996, for federal income tax purposes, cost is
$152,847,091, the aggregate gross unrealized appreciation is
$37,938,915, and the aggregate gross unrealized depreciation is
$5,110,910, resulting in net unrealized appreciation of
$32,828,005.
(b) Non-income producing security as this stock currently does not
declare dividends.
</TABLE>
B-25
<PAGE> 31
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Statement of Assets and Liabilities
October 31, 1996
ASSETS:
<S> <C>
Long-Term Investments, at Market Value (Cost $152,735,835) (Note 1) $185,675,096
Repurchase Agreement (Note 1) 9,400,000
Cash 1,928
Receivables:
Securities Sold 7,864,858
Dividends 249,830
Unamortized Organizational Expenses (Note 1) 26,856
Other 13,675
-------------
Total Assets 203,232,243
-------------
LIABILITIES:
Payables:
Fund Shares Repurchased 9,000,000
Distributor and Affiliates (Note 2) 4,850
Deferred Compensation and Retirement Plans (Note 2) 13,098
Accrued Expenses 6,703
-------------
Total Liabilities 9,024,651
-------------
NET ASSETS $194,207,592
============
NET ASSETS CONSIST OF:
Capital (Note 3) $147,072,447
Net Unrealized Appreciation on Securities 32,939,261
Accumulated Net Realized Gain on Securities 11,780,941
Accumulated Undistributed Net Investment Income 2,414,943
-------------
NET ASSETS $194,207,592
=============
Net Asset Value, Offering Price and Redemption Price Per Share (Based
on net assets of $194,207,592 and 14,065,878 shares of beneficial
interest issued and outstanding) (Note 3) $ 13.81
============
</TABLE>
B-26
<PAGE> 32
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Statement of Operations
For the Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividends $ 2,758,370
Interest 270,834
-----------
Total Income 3,029,204
-----------
EXPENSES:
Accounting (Note 2) 90,363
Audit 26,045
Trustees' Fees and Expenses (Note 2) 18,564
Legal (Note 2) 17,809
Shareholder Services (Note 2) 14,823
Amortization of Organizational Expenses (Note 1) 12,395
Printing 9,794
Other 4,809
-----------
Total Expenses 194,602
Less Expenses Reimbursed (Note 2) 3,600
-----------
Net Expenses 191,002
-----------
NET INVESTMENT INCOME $ 2,838,202
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments $11,896,653
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period 19,691,003
End of the Period:
Investments 32,939,261
-----------
Net Unrealized Appreciation on Securities During
the Period 13,248,258
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES $25,144,911
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS $27,983,113
===========
</TABLE>
B-27
<PAGE> 33
Van Kampen American Capital Small Capitalization Fund
Statement of Changes in Net Assets
For the Years Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income $ 2,838,202 $ 1,931,971
Net Realized Gain on Securities 11,896,653 7,254,104
Net Unrealized Appreciation on Securities During the Period 13,248,258 19,737,220
------------ ------------
Change in Net Assets from Operations 27,983,113 28,923,295
------------ ------------
Distributions from:
Net Investment Income (2,187,156) (501,439)
Net Realized Gains on Securities (Note 1) (6,520,200) 0
------------ ------------
Total Distributions (8,707,356) (501,439)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 19,275,757 28,421,856
------------- -------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds from Shares Sold 91,004,000 200,761,987
Net Asset Value of Shares Issued Through Dividend Reinvestment 8,707,356 501,439
Cost of Shares Repurchased (125,124,342) (49,999,993)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS (25,412,986) 151,263,433
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS (6,137,229) 179,685,289
NET ASSETS:
Beginning of the Period 200,344,821 20,659,532
------------ ------------
End of the Period (Including undistributed net investment
income of $2,414,943 and $1,763,897, respectively) $194,207,592 $200,344,821
============ ============
</TABLE>
B-28
<PAGE> 34
<TABLE>
<CAPTION>
Van Kampen American Capital Small Capitalization Fund
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
November 23, 1993
(Commencement
of Investment
Year Ended October 31, Operations) to
1996 1995 (a) October 31, 1994 (a)
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 12.17 $ 9.82 $ 10.00
----------- ---------- ---------------
Net Investment Income 0.197 0.17 0.21
Net Realized and Unrealized Gain on Securities 1.968 2.26 (0.37)
----------- ---------- ---------------
Total from Investment Operations 2.165 2.43 (0.16)
----------- ---------- ---------------
Less:
Distributions from Net Investment Income 0.133 0.08 0.02
Distributions from Net Realized Gains on Securities 0.395 0.00 0.00
(Note 1)
----------- ---------- ---------------
Total Distributions 0.528 0.08 0.02
----------- ---------- ---------------
Net Asset Value, End of the Period $ 13.807 $12.17 $ 9.82
=========== ========== ===============
Total Return 18.50% 25.00% 1.80%**
Net Assets at End of the Period (In millions) $ 194.2 $200.3 $ 20.7
Ratio of Expenses to Average Net Assets * 0.10% 0.08% 0.30%
Ratio of Net Investment Income to Average Net 1.45% 1.59% 1.99%
Portfolio Turnover 75% 85% 34%**
Average Commission Paid Per Equity Share Trade $ 0.0222 ---- ----
* The Ratios of Expenses to Average Net Assets and Net Investment Income to Average Net Assets were not
affected by the reimbursement of expenses by VKAC.
** Non-Annualized
(a) Based on average shares outstanding.
(b) Represents the average brokerage commission paid per equity share traded during the period for trades
where commissions were applicable. This disclosure was not required in fiscal years prior to 1996.
</TABLE>
B-29
<PAGE> 35
Van Kampen American Capital Small Capitalization Fund
Notes to Financial Statements
October 31, 1996
1. Significant Accounting Policies
The Van Kampen American Capital Small Capitalization Fund (the "Fund" )
is organized as a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to
approximate the performance of the small capitalization sector of the
equities market by investing primarily in common stocks of small
capitalization companies. The Fund commenced investment operations on
November 23, 1993.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
A. Security Valuation - Investments listed or traded on a national securities
exchange are stated at value using market quotations as of 2:00PM Eastern
Standard Time. Unlisted and listed securities for which the last sale price
at 2:00PM Eastern Standard Time is not available are valued at the last
reported bid price. Short-term securities with remaining maturities of 60
days or less are valued at amortized cost.
B. Security Transactions - Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specific 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 by Van Kampen American Capital Asset Management,
Inc. (the "Adviser" ) or its affiliates, 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.
C. Investment Income - Dividend income is recorded on the ex-dividend date
and interest income is recorded on an accrual basis.
D. Organizational Expenses - The Fund will reimburse Van Kampen American
Capital Distributors, Inc. or its affiliates ("collectively VKAC" ) for
costs incurred in connection with the Fund's organization in the amount of
$62,000. These costs are being amortized on a straight line basis over the 60
month period ending October, 1998. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by VKAC are
redeemed during the amortization period, the Fund will be reimbursed for any
unamortized organizational expenses in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
E. Federal Income Taxes - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and gains
to its shareholders. Therefore, no provision for federal income taxes is
required.
Net realized gains or losses may differ for financial and tax
reporting purposes as a result of the deferral of losses for tax purposes
resulting from wash sales.
F. Distribution of Income and Gains - The Fund declares and pays dividends
annually from net investment income and net realized gains on securities,
if any. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income
for tax purposes.
B-30
<PAGE> 36
2. Investment Advisory Agreement and Other Transactions with Affiliates
The Adviser serves as the investment manager of the Fund, but receives no
compensation for its investment management services.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher &
Flom, counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the year ended October 31, 1996, the Fund recognized expenses of
approximately $90,400, representing VKAC's cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS" ), an affiliate of the
Adviser, serves as the shareholder servicing agent for the Fund. For the
year ended October 31, 1996, the Fund recognized expenses of
approximately $14,800, representing ACCESS' cost of providing transfer
agency and shareholder services plus a profit.
The Adviser has agreed to reimburse the Fund for certain trustees'
compensation in connection with the July, 1995 increase in the number of
trustees of the Fund. This reimbursement is expected to continue through
December 31, 1996.
Certain officers and trustees of the Fund are also officers and
directors of VKAC. The Fund does not compensate its officers or trustees
who are officers of VKAC.
The Fund has implemented deferred compensation and retirement plans
for its trustees. Under the deferred compensation plan, trustees may
elect to defer all or a portion of their compensation to a later date.
The retirement plan covers those trustees who are not officers of VKAC.
At October 31, 1996, the Fund was owned by two investment companies
advised by the Adviser; Van Kampen American Capital Common Sense Trust
Growth Fund and Van Kampen American Capital Pace Fund owned 53.4% and
46.6% of the Fund, respectively.
3. Capital Transactions
The Fund is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $.01 per share. Fund shares
are only available for purchase by Funds for which VKAC serves as
investment adviser.
At October 31, 1996 and 1995, capital aggregated $147,072,447 and
$172,485,433, respectively. Transactions in common shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
Beginning Shares 16,467,558 2,104,130
---------- ----------
Shares Sold 6,965,729 18,994,170
Shares Issued Through
Dividend Reinvestment 731,096 54,151
Shares Redeemed (10,098,505) (4,684,893)
---------- ----------
Net Increase/Decrease
in Shares Outstanding (2,401,680) 14,363,428
---------- ----------
Ending Shares 14,065,878 16,467,558
========== ==========
</TABLE>
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $143,072,474
and $176,906,152, respectively.
B-31
<PAGE> 37
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Included in the Statement of Additional Information:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<C> <S>
1.1 -- First Amended and Restated Agreement and Declaration of
Trust incorporated herein by reference to Form N-1A of
Registrant's Amendment No. 5 filed on February 28, 1996.
1.2 -- Certificate of Amendment incorporated herein by reference
to Form N-1A of Registrant's Amendment No. 5 filed on
February 28, 1996.
2 -- Amended and Restated Bylaws incorporated herein by
reference to Form N-1A of Registrant's Amendment No. 5
filed on February 28, 1996.
3 -- INAPPLICABLE.
4 -- Specimen Share Certificate incorporated herein by
reference to Form N-1A of Registrant's Amendment No. 4,
filed on August 25, 1995.
5 -- Investment Advisory Agreement.
6 -- INAPPLICABLE.
7 -- INAPPLICABLE.
8.1 -- Custodian Contract.
8.2 -- Transfer Agency and Servicing Agreement incorporated
herein by reference to Form N-1A of Registrant's
Amendment No. 5 filed on February 28, 1996.
9 -- Data Access Services Agreement.
10 -- INAPPLICABLE. (Omitted pursuant to Item 24(b).)
11 -- Consent of Independent Accountants.
12 -- INAPPLICABLE. (Omitted pursuant to Item 24(b).)
13 -- INAPPLICABLE.
14 -- INAPPLICABLE.
15 -- INAPPLICABLE.
16 -- INAPPLICABLE.
18 -- INAPPLICABLE.
27 -- Financial Data Schedule.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
AS OF FEBRUARY 19, 1997:
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest, $0.01 par
value 12
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
C-1
<PAGE> 38
Article 8; Section 8.4 of the 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 (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct 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 Disabling Conduct 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 officer 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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Management of the Fund" in Part A and "Management of the Fund" 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.
INAPPLICABLE
C-2
<PAGE> 39
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
INAPPLICABLE
ITEM 32. UNDERTAKINGS.
INAPPLICABLE
C-3
<PAGE> 40
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, Van Kampen American Capital Small Capitalization Fund, has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Oakbrook Terrace,
and State of Illinois, on the 28th day of February, 1997.
VAN KAMPEN AMERICAN CAPITAL
SMALL CAPITALIZATION FUND
By /s/ RONALD A. NYBERG
(Ronald A. Nyberg, Vice President and
Secretary)
<PAGE> 41
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
INDEX TO EXHIBITS TO AMENDMENT NO. 6 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 28, 1997
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
5 -- Investment Advisory Agreement.
8.1 -- Custodian Contract.
9 -- Data Access Services Agreement.
11 -- Consent of Independent Accountants.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 31st day of October 1996, by and between VAN KAMPEN
AMERICAN CAPITAL SMALL CAPITALIZATION 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:
l. 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 statement 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 excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such
<PAGE> 2
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 stockholders; (v) fees of outside counsel to and of independent accountants
of the FUND selected by the Trustees; (vi) custodian, registrar and transfer
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, if any; (x) expenses for
servicing stockholder accounts; (xi) insurance premiums for fidelity coverage
and errors and omissions insurance; (xii) dues for the FUND's membership in
trade associations approved by the Trustees; and (xiii) 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 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 any of the
shareholders, trustees, officers and employees of the FUND may be a shareholder,
director, officer or employee of, or be otherwise interested in, the ADVISER,
and in any person controlled
2
<PAGE> 3
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 stockholder 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 ADVISER shall provide to the FUND the services provided for herein without
charge.
The FUND's obligation to reimburse the ADVISER for certain expenses as described
in Section 1 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 Board
of 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.
4. Duration of Agreement
This Agreement shall become effective on the date hereof, and shall remain
in full force until May 30, 1997 unless sooner terminated as hereinafter
provided. This agreement shall continue in force from year to year
thereafter, but only so long as such continuance is approved at least annually
by the vote of a majority of 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 not
more than 60 days', nor less than 30 days' written notice, or upon such shorter
notice as may be mutually agreed upon. Such termination shall be without payment
of any penalty.
3
<PAGE> 4
5. 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 Investment Company Act of 1940 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, or such interpretive positions as may be taken by the Securities and
Exchange Commission or its staff, under said 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 as of the above date.
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
By: /s/ DENNIS J. MCDONNELL
-----------------------------------
Name: Dennis J. McDonnell
-----------------------------------
Its: President
-----------------------------------
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ PETER W. HEGEL
-----------------------------------
Name: Peter W. Hegel
-----------------------------------
Its: Executive Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 8.1
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES LISTED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Moneys . . . . . . . . . . . . . . . . . . 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . 10
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . 10
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.15 Communications Relating to Fund Securities . . . . . . . . 11
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . 11
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . 12
3.4 Agreements with Foreign Banking Institutions . . . . . . . 12
3.5 Access of Independent Accountants of the Fund . . . . . . 12
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . 12
3.7 Transactions in Foreign Custody Account . . . . . . . . . 13
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . 13
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . 13
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . 14
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . 14
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . 15
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . 16
6. Actions Permitted Without Express Authority . . . . . . . . . . . 16
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . 17
8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . 18
11. Reports to Fund by Independent Public Accountants . . . . . . . . 18
12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . 18
13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . 18
14. Effective Period, Termination and Amendment . . . . . . . . . . . 19
15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . 20
16. Interpretive and Additional Provisions . . . . . . . . . . . . . . 21
17. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . 22
19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. Shareholder Communications . . . . . . . . . . . . . . . . . . . . 22
21. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between each fund or series of a fund listed on
Appendix A which evidences its agreement to be bound hereby by executing a copy
of this Contract (each such fund is individually hereafter referred to as
the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to the
provisions of the Fund's governing documents. The Fund agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, beneficial
interest or partnership interest, as applicable, of the Fund, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Fund from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of the Fund, and provided
that the Custodian shall have no more or less responsibility or liability to
the Fund on account of any actions or omissions of any sub-custodian so
employed than any such sub-custodian has to the Custodian. The Custodian may
employ as sub-custodian for the Fund's foreign securities the foreign banking
institutions and foreign securities depositories designated in Schedule A
hereto but only in accordance with the provisions of Article 3.
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<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund all non-cash property, to be held by it
in the United States including all domestic securities owned by such
Fund, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian (the "Direct Paper System") pursuant to
Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee
2
<PAGE> 6
name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
3
<PAGE> 7
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board or of the
Executive Committee of the Fund signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Fund to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to
4
<PAGE> 8
Article 1. All securities accepted by the Custodian under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund ,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for a
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with
each such bank or trust company shall on behalf of each applicable
Fund be approved by vote of a majority of the Board of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund, make federal funds available to such Fund
as of specified times agreed upon from time to time by the Fund and
the Custodian in the amount of checks received in payment for Shares
of such Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when
5
<PAGE> 9
due on securities held hereunder. Income due each Fund on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Fund in the
following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of
a nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case
of repurchase agreements entered into between the Fund and
the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
6
<PAGE> 10
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified
copy of a resolution of the Board or of the Executive
Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
7
<PAGE> 11
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon (i) receipt of advice
from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund. Copies of all
advices from the Securities System of transfers of securities
for the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to
the Fund at its request. Upon request, the Custodian shall
furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice
and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
8
<PAGE> 12
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Fund for any loss or damage to the Fund resulting from use of
the Securities System by reason of any negligence, misfeasance
or misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may
have against the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Fund in
the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund ;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
9
<PAGE> 13
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the
Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each such Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund , the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund , a certified copy of a
resolution of the Board or of the Executive Committee of the Fund
signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Fund held by it
and in connection with transfers of securities.
10
<PAGE> 14
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Fund shall notify the Custodian at
least three business days prior to the date on which the Custodian is
to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board,
the Custodian and the Fund may agree to amend Schedule A hereto from
time to time to designate additional foreign banking institutions and
foreign securities depositories to act as sub-custodian. Upon receipt
of Proper Instructions, the Fund may instruct the Custodian to cease
the employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in
11
<PAGE> 15
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving
as sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
the Fund will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
the Fund will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund;
(d) officers of or auditors employed by, or other representatives of
the Custodian, including to the extent permitted under applicable law
the independent public accountants for the Fund, will be given access
to the books and records of the foreign banking institution relating
to its actions under its agreement with the Custodian; and (e) assets
of the Fund held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund securities and other assets and
advices or notifications of any transfers of securities to or from
each custodial account maintained by a foreign banking
12
<PAGE> 16
institution for the Custodian on behalf of the Fund indicating, as to
securities acquired for a Fund, the identity of the entity having
physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians. (b) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for securities
received for the account of the Fund and delivery of securities
maintained for the account of the Fund may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer. (c) Securities maintained in the custody of a
foreign sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee harmless from
any liability as a holder of record of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this
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<PAGE> 17
paragraph 3.9, in delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any responsibility to the
Fund for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Fund's assets to the extent necessary to obtain
reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Fund's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of
14
<PAGE> 18
said Act. The appointment of any such branch as a sub-custodian shall
be governed by paragraph 1 of this Contract. (b) Cash held for each
Fund in the United Kingdom shall be maintained in an interest bearing
account established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund and the Transfer Agent of any receipt by it of
payments for Shares of such Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares of
a Fund, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by
a holder of Shares, which checks have been furnished by the Fund to the holder
of Shares, when presented to the Custodian in accordance with such procedures
and controls as are mutually agreed upon from time to time between the Fund and
the Custodian.
15
<PAGE> 19
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of the Fund
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of the
Fund accompanied by a detailed description of procedures approved by the Board,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board and the
Custodian are satisfied that such procedures afford adequate safeguards for the
Funds' assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund ;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of the
Fund.
16
<PAGE> 20
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of the Fund as conclusive evidence (a) of the authority of any person to
act in accordance with such vote or (b) of any determination or of any action
by the Board pursuant to the governing documents of the Fund as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Fund to keep the books of
account of each Fund and/or compute the net asset value per share of the
outstanding shares of each Fund or, if the Custodian and the Fund execute the
applicable Price Source Authorization (the "Authorization"), the Custodian
shall keep such books of account and/or compute such net asset value per share
pursuant to the terms of the Authorization and the attachments thereto. If so
directed, the Custodian shall also calculate daily the net income of the Fund
as described in the Fund's currently effective Prospectus and shall advise the
Fund and the Transfer Agent daily of the total amounts of such net income and,
if instructed in writing by an officer of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Fund shall be made at the time or times described from
time to time in the Fund's currently effective Prospectus.
9. Records
The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to
17
<PAGE> 21
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in
18
<PAGE> 22
good faith without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United states (except as specifically provided in Article 3.9)
and regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S.
bank, as contemplated by paragraph 3.12 hereof, the Custodian shall not be
liable for any loss, damage, cost, expense, liability or claim resulting from
or caused by, the direction or authorization by the Fund to maintain custody of
any securities or cash of the Fund in a foreign country including, but not
limited to, losses resulting from nationalization, expropriation, currency
restrictions or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the
Fund assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30)
19
<PAGE> 23
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Fund has approved the initial use of a
particular Securities System by such Fund and the receipt of a certificate of
the Secretary or an Assistant Secretary that the Board has reviewed any
subsequent change regarding the use by such Fund of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940,
as amended and that the Custodian shall not with respect to a Fund act under
Section 2.11 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board has approved the initial use
of the Direct Paper System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of the
Fund has reviewed the use by such Fund of the Direct Paper System; provided
further, however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Declaration of Trust, and further provided, that the Fund may at any
time by action of its Board (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund shall be appointed by the Board
of the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities of the Fund then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of the
Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such
20
<PAGE> 24
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of the
Fund and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of the Fund and to transfer
to an account of such successor custodian all of the securities of the Fund
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the governing documents of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
17. Additional Funds
In the event that Van Kampen American Capital Distributors , Inc.
establishes any funds in addition to the Funds listed on Appendix A with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request. All references herein to
the "Fund" are to each of the Funds listed on Appendix A individually, as if
21
<PAGE> 25
this Contract were between each such individual Fund and the Custodian. With
respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Funds and the Custodian relating to the custody of
the Fund's assets.
20. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund. For the Fund's protection, the Rule prohibits the requesting company
from using the Fund's name and address for any purpose other than corporate
communications. Please indicate below whether the Fund consent or object by
checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the name,
address, and share positions of each Fund listed on
Exhibit A.
NO [X] The Custodian is not authorized to release the name,
address, and share positions of each Fund listed on
Exhibit A.
22
<PAGE> 26
21. Limitation of Liability.
The execution of this Contract has been authorized by each Fund's
Board. This Contract is executed on behalf of each Fund or the trustees of
such Fund as trustees and not individually and the obligations of the Fund
under this Contract are not binding upon any of the Fund's trustees, officers
or shareholders individually but are binding only upon the assets and property
of the Fund. A Certificate of Trust in respect of each Fund is on file with
the Secretary of State of Delaware.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 21st day of June, 1995.
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ HUEY P. FALGOUT, JR. By: /s/ NORI L. GABERT
- ------------------------ -----------------------------------
Nori L. Gabert, Vice President
ATTEST STATE STREET BANK AND TRUST COMPANY
[ILLEGIBLE] By: [ILLEGIBLE]
- ------------------------ -----------------------------------
Executive Vice President
23
<PAGE> 27
APPENDIX A
FUND NAMES
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 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 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
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 Fund
Van Kampen American Capital Global Government Securities Fund
24
<PAGE> 1
EXHIBIT 9
DATA ACCESS SERVICES AGREEMENT
This Data Access Services Agreement is a supplement to that certain
Custodian Contract dated June 21, 1995 between the undersigned each of the
Funds listed on Appendix A of the Custodian Contract (the "Customer") and State
Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, the Customer desires the ability to access certain
Customer-related data ("Customer Data") maintained by State Street on data
bases under the control and ownership of State Street ("Data Access Services");
and
WHEREAS, State Street agrees to grant the Customer such access to the
Customer Data as is consistent with the policy and standards issued from time
to time by State Street.
NOW THEREFORE, the parties agree as follows:
1. Services
A. State Street maintains Customer Data within its proprietary data
base system. State Street agrees to provide the Customer with certain Data
Access Services as provided herein and in the Data Access operating procedures
as may be issued from time to time.
B. Customer agrees to use the Data Access Services solely for its
internal use and benefit and not for resale or other transfer or disposition
to, or use by or for the benefit of any other person or organization without
the prior written approval of State Street. Customer agrees to comply with user
identification and other password control requirements and other security
procedures as may be issued from time to time by State Street.
2. Proprietary Information
Customer acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to Customer by State Street as part of the Data Access
Services constitute copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to State Street.
Customer agrees to treat all Proprietary Information as proprietary to State
Street and further agrees that it shall not divulge any Proprietary Information
to any person or organization except as may be provided hereunder. Without
limiting the foregoing, Customer agrees for itself and its employees and agents:
(1) to access Customer Data solely from locations as may be designated
in writing by State Street and solely in accordance with State Street's
applicable user documentation;
(2) to refrain from copying or duplicating in any way the Proprietary
Information;
(3) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform State Street in a timely manner of such fact and dispose of
such information in accordance with State Street's instructions;
<PAGE> 2
(4) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of State Street;
(5) that the Customer shall have access only to those authorized
transactions agreed upon by the parties;
(6) to honor all reasonable written requests made by State Street to
protect at State Street's expense the rights of State Street in
Proprietary Information at common law, under federal copyright law and
under other federal or state law.
Customer's obligation to maintain the confidentiality of the
Proprietary Information shall not apply where such:
(1) was already in Customer's possession prior to disclosure by State
Street, and such was received by Customer without obligation of
confidence;
(2) is or becomes publicly available without breach of this Agreement;
(3) is rightly received by Customer from a third party, who is not a
current or former employee, officer, director or agent of State Street,
without obligation of confidence;
(4) is disclosed by Customer with the written consent of State Street;
or
(5) is released in accordance with a valid order of a court or
governmental agency.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this section 2. The obligations of this section
shall survive any earlier termination of this agreement.
3. Warranties
If Customer notifies State Street that any of the Data Access Services
do not operate in material compliance with the most recently issued user
documentation for such services, State Street shall endeavor in a timely
manner to correct such failure. Organizations from which State Street may
obtain certain data included in the Data Access Services are solely responsible
for the contents of such data and Customer agrees to make no claim against
State Street arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED
ON AN AS IS, AS AVAILABLE BASIS. STATE STREET EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
4. Limitation of Liability
State Street shall not be liable to the Customer for any loss or damage
claimed to have resulted from the use of the Data Access Services except for
the direct loss or damage resulting from the negligence or willful conduct of
State
-2-
<PAGE> 3
Street. STATE STREET SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL,
OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ATTORNEYS' FEES) IN ANY WAY DUE TO OR ARISING IN CONNECTION WITH CUSTOMER'S USE
OF THE DATA ACCESS SERVICES OR THE PERFORMANCE OF OR FAILURE TO PERFORM STATE
STREET'S OBLIGATIONS UNDER THIS AGREEMENT. This disclaimer applies without
limitation to claims (i) arising from the provision of the Data Access
Services, the delivery, installation, use, maintenance, or removal of State
Street provided equipment, or any failure or delay in connection with any of
the foregoing; (ii) regardless of the form of action, whether in contract, tort
(including negligence), strict liability, or otherwise; and (iii) regardless of
whether such damages are foreseeable. Further, in no event shall State Street be
liable for any claims that arise more than one (1) year prior to the
institution of suit therefor or any claim arising from causes beyond State
Street's control.
5. Force Majeure
State Street shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Customer as a result of
work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility of
performance.
6. Exclusive Remedy
In consideration of the fees charged for Data Access Services, if any,
Customer's exclusive recovery with respect to Data Access Services regardless
of the basis of the claims asserted by it against State Street shall not exceed
six (6) times the average monthly fees billed to Customer hereunder and
computed by averaging the monthly billing for each of the twelve months
preceding the month in which the damage or injury is alleged to have occurred,
but if this agreement has not been in effect for twelve months preceding such
date, then by averaging the monthly billings for each of the preceding months
that this agreement has been in effect.
7. Indemnification
The Customer agrees to indemnify and hold State Street free and
harmless from any expense, loss, damage or claim including reasonable
attorney's fees, (collectively "costs") suffered by State Street and caused by
or resulting from (i) the negligence or willful misconduct in the use by the
Customer, its employees or agents, of the Data Access Services or the
application software systems supporting such services, including any costs
incurred by State Street resulting from a security breach at the Customer's
location or committed by its former or present employees or agents and (ii)
claims resulting from incorrect Customer Originated Electronic Financial
Instruction.
8. Customer Originated Electronic Financial Instruction ("COEFI")
If the transactions available to Customer include the ability to
originate electronic instructions to State Street in order to (i) effect the
transfer or movement of cash or securities held under custody or (ii) transmit
accounting or other information (such transactions constituting a "COEFI"),
then in such event State Street shall be entitled to rely on the validity and
authenticity of such instruction without undertaking any further inquiry as
long as such instruction is
-3-
<PAGE> 4
undertaken in conformity with security procedures established by State Street
from time to time.
9. Injunctive Relief
In the event of a breach or threatened breach by Customer of Section 1
or 2 hereof, State Street shall be entitled to obtain injunctive relief in
addition to any other remedies available at law or equity.
10. General
10.1 Term of Agreement. This agreement is effective from the date
it is accepted by State Street and shall remain in full force
and effect until terminated as hereinafter provided. Either
party may terminate this agreement for any reason by giving the
other party at least thirty days prior written notice of
termination. In addition, either party may terminate this
agreement immediately for failure of the other party to comply
with any material term and condition by giving the other party
written notice of termination. This agreement shall in any
event terminate contemporaneously with the Custodian Contract
applicable hereto.
10.2 Charges. Charges, if any, for Data Access Services shall be
as agreed upon between the parties from time to time.
10.3 Assignment; Successors. This Agreement shall not be assigned
by either party without the prior written consent of the other
party, except that either party may assign to a successor of
all or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such
party.
10.4 Survival. All provisions regarding indemnification,
warranty, liability and limits thereon, and confidentiality
and/or protection of proprietary rights and trade secrets shall
survive the termination of this agreement.
10.5 Consent to Breach not Waiver. No term or provision hereof
shall be deemed waived and no breach excused, unless such
waiver or consent shall be in writing and signed by the party
claimed to have waived or consented. Any consent by any party
to, or waiver of, a breach by the other, whether express or
implied, shall not constitute a consent to, waiver of, or
excuse for any other different or subsequent breach.
11. Signatory
The individual signing the agreement represents that he or she is an
authorized officer of the Customer (and, if identified below or on an attached
schedule, such investment manager or other party as may use Data Access
Services with respect to the Customer) so as to cause this agreement to be a
valid and binding obligation upon the Customer (and, if applicable, such other
parties as may be identified on the signature line below or on an attached
schedule).
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement.
STATE STREET BANK AND EACH OF THE VAN KAMPEN
TRUST COMPANY AMERICAN CAPITAL FUNDS
LISTED ON APPENDIX A OF
THE CUSTODIAN CONTRACT
By: [Illegible]
---------------------------
Title: Executive Vice President By: /s/ NORI L. GABERT
------------------------ --------------------
Nori L. Gabert
Date:
------------------------- Title: Vice President
-----------------
Date: June 21, 1995
------------------
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Amendment No. 6 to the registration statement on Form
N-1A of our report dated December 9, 1996, relating to the financial statements
and financial highlights of Van Kampen American Capital Small Capitalization
Fund, which appears in such Statement of Additional Information. We also consent
to the reference to us in Item 16(h) in such Statement of Additional
Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
- --------------------
Houston, Texas
February 28, 1997
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<APPREC-INCREASE-CURRENT> 13248258
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2187156)
<DISTRIBUTIONS-OF-GAINS> (6520200)
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<NUMBER-OF-SHARES-SOLD> 6965730
<NUMBER-OF-SHARES-REDEEMED> (10098506)
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