<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 1996.
REGISTRATION NOS. 33-43800
811-6464
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 8 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 10 /X/
</TABLE>
VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2800 POST OAK BLVD., HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 993-0500
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copy to:
GEORGE M. BARTLETT, ESQ.
O'MELVENY & MYERS
400 SOUTH HOPE STREET
LOS ANGELES, CA 90071
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
---------------------
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/X/ on January 30, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES AND DID NOT FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDING SEPTEMBER 30, 1995 BECAUSE IT DID NOT SELL ANY SECURITIES PURSUANT TO
SUCH DECLARATIONS DURING SUCH FISCAL YEAR.
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SECURITY AMOUNT OFFERING PRICE OFFERING AMOUNT OF
BEING REGISTERED BEING REGISTERED PER UNIT(1) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Beneficial Interest $.01 par
value............................. 597,093 shares $10.78 $289,993 $100.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the offering price of $10.78 per share on January 23, 1996.
(2) This calculation is made pursuant to Rule 24e-2 under the Investment Company
Act of 1940. During the fiscal year ended September 30, 1995, 570,192 shares
(304,310 Class A, 215,721 Class B and 50,161 Class C) were redeemed or
repurchased. None of such redeemed or repurchased shares have been utilized
for reductions prior to this time and all of such shares are being used for
reduction at this time.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM
- -------------------------------------------------
PART A PROSPECTUS CAPTION
- ------------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... Investment Objective and Policies;
Investment Practices; The Fund; Description
of Shares of the Fund
5. Management of the Fund..................... The Fund; Investment Practices; Investment
Advisory Services; Inside Back Cover
6. Capital Stock and Other Securities......... Alternative Sales Arrangements; Shareholder
Services; Distribution Plans; The Fund;
Distributions from the Fund; Redemption
of Shares; Tax Status; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Shareholder
Services; Distribution Plans; Purchase of
Shares
8. Redemption or Repurchase................... Redemption of Shares; Shareholder Services
9. Legal Proceedings.......................... Inapplicable
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------------------------------------------------- -------------------------------------------
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Municipal Securities; Investment
Restrictions; Futures Contracts and Related
Options
14. Management of the Fund..................... General Information; Trustees and Executive
Officers; Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... Trustees and Executive Officers; Investment
Advisory Agreement; General Information
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Transfer Agent; Portfolio Transactions
and Brokerage; Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Alternative Sales
Arrangements
20. Tax Status................................. Federal Tax Information; Texas Tax
Information
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Financial Statements
PART C
- -------------------------------------------------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3
- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
Van Kampen American Capital Texas Tax Free Income Fund, formerly known as
American Capital Texas Municipal Securities, Inc. (the "Fund"), is a mutual fund
whose objective is to provide as high a level of interest income exempt from
federal income tax and Texas state income tax, if any, as is consistent with the
Fund's investment policies. The Fund invests principally in Texas state,
municipal and local government obligations and obligations of other qualifying
issuers which are tax-exempt. The Fund currently is available for sale only in
Texas and other selected states specified under "Shareholder
Services -- Exchange Privilege." There can be no assurance that the objective of
the Fund will be achieved.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is 2800
Post Oak Blvd., Houston, Texas 77056, and its telephone number is
(800) 421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated January 30, 1996, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission (the "SEC") and is hereby incorporated by reference into
this Prospectus. A copy of the Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or, for Telecommunications
Device For the Deaf, (800) 772-8889.
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED JANUARY 30, 1995.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary............................................... 3
Shareholder Transaction Expenses................................. 5
Annual Fund Operating Expenses and Example....................... 6
Financial Highlights............................................. 8
The Fund......................................................... 10
Investment Objective and Policies................................ 10
Municipal Securities............................................. 14
Investment Practices............................................. 16
Investment Advisory Services..................................... 21
Alternative Sales Arrangements................................... 22
Purchase of Shares............................................... 26
Shareholder Services............................................. 35
Redemption of Shares............................................. 39
Distribution Plans............................................... 43
Distributions from the Fund...................................... 45
Tax Status....................................................... 45
Fund Performance................................................. 48
Description of Shares of the Fund................................ 50
Additional Information........................................... 51
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital Texas Tax Free Income Fund (the "Fund") is
a non-diversified, open-end management investment company organized as a
Delaware business trust.
MINIMUM PURCHASE. $500 minimum initial investment and $25 minimum for each
subsequent investment (or less as described under "Purchase of Shares").
INVESTMENT OBJECTIVE. Interest income exempt from federal income taxes and Texas
state income taxes.
INVESTMENT POLICIES. The Fund invests principally in Texas state, municipal and
local government obligations and obligations of other qualifying issuers which
are tax-exempt.
INVESTMENT RESULTS. The investment results of the Fund since its inception are
shown in the table of "Financial Highlights." See also "Fund Performance."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
general public, each with its own sales charge structure: Class A shares, Class
B shares and Class C shares. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class of
shares that best suits their circumstances and objectives. See "Alternative
Sales Arrangements -- Factors for Consideration." Each class of shares
represents an interest in the same portfolio of investments of the Fund. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class A shares. See "Alternative Sales Arrangements." For
information on redeeming shares see "Redemption of Shares."
Class A Shares. These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. The Fund pays an annual
service fee of up to 0.25% of its average daily net assets attributable to such
class of shares. See "Purchase of Shares -- Class A Shares" and "Distribution
Plans."
Class B Shares. These shares are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of 4% of redemption
proceeds during the first and second years, declining each year thereafter to
zero after the fifth year. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class B
Shares" and "Distribution Plans." Class B shares will convert automatically to
Class A shares six years after the end of the calendar month in which the
shareholder's order
3
<PAGE> 6
to purchase was accepted. See "Alternative Sales Arrangements -- Conversion
Feature."
Class C Shares. These shares are offered at net asset value per share and are
subject to a contingent deferred sales charge of 1% on redemptions made within
one year of purchase. See "Redemption of Shares." The Fund pays a combined
annual distribution fee and service fee of up to 1% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution Plans." Class C shares will convert automatically to
Class A shares ten years after the end of the calendar month in which the
shareholder's order to purchase was accepted. See "Alternative Sales
Arrangements -- Conversion Feature."
DISTRIBUTIONS FROM THE FUND. The Fund declares dividends from net investment
income on each business day. Such dividends are distributed monthly. The daily
dividend is a fixed amount determined at least monthly which is not expected to
exceed the net income of the Fund for the month divided by the number of
business days during the month. Capital gains, if any, are distributed at least
annually. All dividends and distributions are automatically reinvested in shares
of the Fund at net asset value per share, without sales charge, unless payment
in cash is requested. See "Distributions from the Fund."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the investment adviser to the Fund.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
is the distributor to the Fund.
The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
4
<PAGE> 7
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- ----------------- -------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds).......... None(2) Year 1--4.00% Year 1--1.00%
Year 2--4.00%
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>
- ---------------
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a contingent deferred sales charge of one percent may
be imposed on certain redemptions made within one year of the purchase.
5
<PAGE> 8
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- --------- ---------
<S> <C> <C> <C>
Management fees (after reimbursement)
(as a percentage of average daily net
assets)............................... 0.30%(6) 0.30%(6) 0.30%(6)
12b-1 Fees(3) (as a percentage of
average daily net assets)............. 0.22% 1.00%(5) 1.00%(5)
Other Expenses(4) (as a percentage of
average daily net assets)............. 0.84% 0.84% 0.84%
Total Fund Operating Expenses (after
reimbursement) (as a percentage of
average daily net assets)............. 1.36%(7) 2.14%(7) 2.14%(7)
</TABLE>
- ---------------
(3) Up to 0.25% for Class A shares and one percent for Class B and C shares. See
"Distribution Plans."
(4) See "Investment Advisory Services."
(5) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(6) After expense reimbursement. In the absence of such reimbursement,
management fees for all classes of shares would be 0.60%.
(7) After expense reimbursement. In the absence of such reimbursement, total
fund operating expenses would be 1.66%, 2.44% and 2.44%, for Class A, Class
B and Class C, respectively.
6
<PAGE> 9
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLE: YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.36% for
Class A shares, 2.14% for Class B shares
and 2.14% for Class C shares, (ii) a 5%
annual return and (iii) redemption at the
end of each time period:
Class A............................... $ 61 $ 89 $118 $203
Class B............................... $ 63 $100 $132 $209*
Class C............................... $ 32 $ 67 $115 $247
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................... $ 61 $ 89 $118 $203
Class B............................... $ 22 $ 67 $115 $209*
Class C............................... $ 22 $ 67 $115 $247
</TABLE>
- ------------------------------------------------------------------------------
* Based on conversion to Class A shares after six years.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and are
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required to utilize a five percent annual return
assumption. Class B shares acquired through the exchange privilege are subject
to the deferred sales charge schedule relating to the Class B shares of the fund
from which the purchase of Class B shares was originally made. Accordingly,
future expenses as projected could be higher than those determined in the above
table if the investor's Class B shares were exchanged from a fund with a higher
contingent deferred sales charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services" and "Redemption of Shares."
7
<PAGE> 10
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Selected data for a share of beneficial interest outstanding throughout the
period indicated)
The following information has been audited by the Fund's independent
accountants, Price Waterhouse LLP, whose report thereon was unqualified. This
information should be read in conjunction with the related financial statements
and notes thereto included in the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
MARCH 2, 1992(1)
YEAR ENDED SEPTEMBER 30 THROUGH
------------------------------------- SEPTEMBER 30,
1995 1994 1993(2) 1992(2)
------- ------- ------- --------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................................... $ 9.64 $10.36 $ 9.74 $ 9.45
------- ------- ------- ----------
INCOME FROM OPERATIONS
Investment income..................................................... .67 .64 .63 .42
Expenses.............................................................. (.13) (.10) (.06) (.06)
------- ------- ------- ----------
Net investment income................................................... .54 .54 .57 .36
Net realized and unrealized gains or losses on securities............... .39 (.7025) .65 .23
------- ------- ------- ----------
Total from investment operations........................................ .93 (.1625) 1.22 .59
------- ------- ------- ----------
LESS DISTRIBUTIONS FROM
Net investment income................................................. (.54) (.545) (.5875) (.30)
Net realized gains on securities...................................... -- (.0125) (.0125) --
------- ------- ------- ----------
Total distributions..................................................... (.54) (.5575) (.60) (.30)
------- ------- ------- ----------
Net asset value, end of period.......................................... $10.03 $ 9.64 $10.36 $ 9.74
======= ======= ======= ==========
TOTAL RETURN(3)......................................................... 10.05% (1.62%) 12.94% 6.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................................... $11.1 $12.8 $18.0 $ 14.1
Ratios to average net assets (annualized)
Expenses.............................................................. 1.36% 1.03% .61% .93%
Expenses, without expense reimbursement............................... 1.66% 1.70% 1.86% 1.41%
Net investment income................................................. 5.51% 5.41% 5.74% 5.94%
Net investment income, without expense reimbursement.................. 5.21% 4.74% 4.49% 5.45%
Portfolio turnover rate................................................. 15% 10% 5% 4%
</TABLE>
(Table continued on following page)
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------- -------
JULY 27, YEAR
1992(1) ENDED
YEAR ENDED SEPTEMBER 30 THROUGH SEPTEMBER 30,
-------------------------------- SEPTEMBER 30, ------------
1995 1994 1993(2) 1992(2) 1995
------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............................. $ 9.64 $10.35 $ 9.74 $ 9.91 $ 9.65
------- ------- ------- --------- --------
INCOME FROM OPERATIONS
Investment income................................................ .67 .65 .63 .09 .67
Expenses......................................................... (.21) (.18) (.13) (.025) (.21)
------- ------- ------- --------- --------
Net investment income............................................. .46 .47 .50 .065 .46
Net realized and unrealized gains or losses on securities......... .396 (.7065) .633 (.103) .396
------- ------- ------- --------- --------
Total from investment operations.................................. .856 (.2365) 1.133 (.038) .856
------- ------- ------- --------- --------
LESS DISTRIBUTIONS FROM
Net investment income............................................ (.46) (.461) (.5105) (.132) (.46)
Excess of book-basis net investment income....................... (.006) -- -- -- (.006)
Excess of book-basis net realized gains on securities............ -- (.0125) (.0125) -- --
------- ------- ------- --------- --------
Total distributions............................................... (.466) (.4735) (.523) (.132) (.466)
------- ------- ------- --------- --------
Net asset value, end of period.................................... $10.03 $ 9.64 $10.35 $ 9.74 $10.04
======= ======= ======= ========= ========
TOTAL RETURN(3)................................................... 9.11% (2.35%) 11.97% (.73%) 9.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............................. $ 7.3 $ 8.6 $ 7.1 $ 0.9 $ 1.1
Ratios to average net assets (annualized)
Expenses......................................................... 2.14% 1.80% 1.30% 1.41% 2.14%
Expenses, without expense reimbursement.......................... 2.44% 2.47% 2.55% 2.15% 2.44%
Net investment income............................................ 4.74% 4.66% 4.92% 3.83% 4.73%
Net investment income, without expense reimbursement............. 4.44% 3.99% 3.67% 3.07% 4.43%
Portfolio turnover rate........................................... 15% 10% 5% 4% 15%
<CAPTION>
AUGUST 30,
1993(1)
THROUGH
SEPTEMBER 30,
1994(2) 1993(2)
------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............................. $10.36 $10.28
------- ---------
INCOME FROM OPERATIONS
Investment income................................................ .64 .05
Expenses......................................................... (.18) (.01)
------- ---------
Net investment income............................................. .46 .04
Net realized and unrealized gains or losses on securities......... (.6965) .121
------- ---------
Total from investment operations.................................. (.2365) .161
------- ---------
LESS DISTRIBUTIONS FROM
Net investment income............................................ (.461) (.081)
Excess of book-basis net investment income....................... -- --
Excess of book-basis net realized gains on securities............ (.0125) --
------- ---------
Total distributions............................................... (.4735) (.081)
------- ---------
Net asset value, end of period.................................... $ 9.65 $10.36
======= =========
TOTAL RETURN(3)................................................... (2.35%) 1.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............................. $ 1.2 $ 0.1
Ratios to average net assets (annualized)
Expenses......................................................... 1.79% .66%
Expenses, without expense reimbursement.......................... 2.46% 1.89%
Net investment income............................................ 4.59% 4.17%
Net investment income, without expense reimbursement............. 3.92% 2.92%
Portfolio turnover rate........................................... 10% 5%
</TABLE>
(1) Commencement of operations.
(2) Based on the average month-end outstanding.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
9
<PAGE> 12
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is an open-end, non-diversified management investment company. This
type of company is commonly known as a mutual fund. A mutual fund provides, for
those who have similar investment goals, a practical and convenient way to
invest in a diversified portfolio of securities by combining their resources in
an effort to achieve such goals.
The Adviser, 2800 Post Oak Boulevard, Houston, Texas 77056, determines the
investment of the Fund's assets, provides administrative services and manages
the Fund's business and affairs. The Adviser together with its predecessors, has
been in the investment advisory business since 1926.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The Fund is a non-diversified, open-end management investment company,
generally known as a mutual fund, originally organized as a Maryland corporation
on September 6, 1991 and reorganized on August 26, 1995, under the laws of the
State of Delaware as a business entity commonly known as a "Delaware business
trust," with an investment objective of providing as high a level of interest
income exempt from federal income tax and Texas state income tax, if any, as is
consistent with its investment policies. However, there can be no assurance that
the objective of the Fund will be achieved. The Fund invests primarily in
obligations issued by or on behalf of states, territories or possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities, the interest from which, in the opinion of bond
counsel for the issuer, is exempt from federal income tax ("Municipal
Securities").
Among the various types of Municipal Securities are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes. General obligations are backed by
the taxing power of the issuing municipality. Revenue obligations are backed by
the revenues of a project or facility-tolls from a toll-bridge, for example.
Industrial development revenue obligations are a specific type of revenue
obligation backed by the credit and security of a private user. Variable rate
demand notes and the risks thereof are described under "Investment
Practices -- Variable Rate Demand Notes."
The Fund maintains at least 80% of its net assets invested in Municipal
Securities except as a temporary defensive measure during periods of adverse
market conditions. At least 65% of the Fund's total assets will be invested in
securities issued by the State of Texas, its political subdivisions, agencies
and instrumentalities ("Texas Securities"). This is a fundamental policy and may
not be changed without the
10
<PAGE> 13
approval of at least a majority of the outstanding shares of the Fund. The Fund
does not invest in any securities except Municipal Securities and Temporary
Investments as defined below, except that the Fund may seek to hedge against
changes in interest rates through transactions in listed futures contracts
related to U.S. Government securities or based upon the Bond Buyers Municipal
Bond Index and options thereon. See "Investment Practices -- Futures Contracts
and Related Options."
On a temporary basis, to provide cash reserves or pending investment in
Municipal Securities, the Fund may invest up to 20% of its net assets in taxable
securities rated at the time of purchase by either Moody's Investor Service
("Moody's") as follows: Aaa through A by Moody's for bonds, MIG 1 through MIG 4,
or VMIG 1 through VMIG 4 for notes and Prime-1 through Prime-3 for commercial
paper; or by Standard & Poor's Corporation ("S&P") as follows: AAA through A for
bonds, SP-1 or SP-2 for notes and A-1 through A-3 for commercial paper; or, if
non-rated, are in the opinion of the Adviser, of comparable quality ("Temporary
Investments"). The Fund also may invest temporarily a greater proportion of its
assets in Temporary Investments for defensive purposes, when, in the judgment of
the Adviser, market conditions warrant. Temporary Investments include but are
not limited to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; corporate bonds and debentures; certificates of
deposit and bankers' acceptances of domestic banks with assets of $500 million
or more and having deposits insured by the Federal Deposit Insurance
Corporation; commercial paper; repurchase agreements; and shares of tax-exempt
money market investment companies. See "Investment Practices -- Money Market
Investment Companies."
Interest received on certain otherwise tax-exempt securities which are
classified as "private activity bonds" (in general bonds that benefit
non-governmental entities) may be subject to an alternative minimum tax. The
percentage of the Fund's assets invested in "private activity bonds" will vary
during the year, but will not exceed 20%. See "Distributions from the
Fund -- Federal Income Taxes" for further discussion.
The Fund may invest up to ten percent of its net assets in illiquid securities
which include Municipal Securities issued in limited placements under which the
Fund represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Securities acquired in
limited placements generally may be resold only in a privately negotiated
transaction to one or more other institutional investors. Such limitation could
result in the Fund's inability to realize a favorable price upon disposition,
and in some cases might make disposition of such securities at the time desired
by the Fund impossible. The ten percent limitation applies at the time the
purchase commitments are made. See "Investment Practices -- Repurchase
Agreements."
11
<PAGE> 14
Differences with respect to the quality and maturity of portfolio investments
can be expected to affect the yield on the Fund and the degree of market and
financial risk to which the Fund is subject. Generally, Municipal Securities
with longer maturities tend to produce higher yields and are subject to greater
market fluctuations as a result of changes in interest rates than Municipal
Securities with shorter maturities and lower yields. In general, market prices
of Municipal Securities vary inversely with interest rates. Lower-rated
Municipal Securities generally provide a higher yield than higher-rated
Municipal Securities of similar maturity but are subject to greater market and
financial risk. The Fund may purchase short-term or long-term Municipal
Securities (with remaining maturities of up to 30 years or more). There is no
limitation on the average maturity of the Municipal Securities in the Fund and
such average maturity is likely to change from time to time based on the
Adviser's view of market conditions. The average maturity of the Municipal
Securities owned by the Fund on September 30, 1995, was 19.63 years. Municipal
Securities ratings of Moody's and of S&P are described in the Statement of
Additional Information. See also "Municipal Securities" herein.
At least 80% of the Municipal Securities purchased by the Fund are rated at
the time of purchase as determined by Moody's in the following quality grades:
Aaa through Baa for bonds, MIG 1 through MIG 4, or VMIG 1 through VMIG 4 for
notes and Prime-1 through Prime-3 for commercial paper; or as determined by S&P
in the following grades: AAA through BBB for bonds, SP-1 or SP-2 for notes and
A-1 through A-3 for commercial paper; or, if non-rated, are in the opinion of
the Adviser of comparable quality. The lowest rating in each category described
above is considered by the rating agency to be of adequate quality.
During the fiscal period ended September 30, 1995, the average percentage of
the Fund's assets invested in Municipal Securities within the various rating
categories (based on the higher of the S&P or Moody's ratings), and the
non-rated debt securities, determined on a dollar weighted average, were as
follows:
<TABLE>
<S> <C>
AAA/Aaa...................................... 25.82%
AA/Aa........................................ 13.03%
A/A.......................................... 20.21%
BBB/Baa...................................... 17.62%
BB/Ba........................................ 0.84%
*Non-rated................................... 20.05%
Other Net Assets............................. 2.43%
--------
Total Net Assets.................... 100.00%
</TABLE>
- ------------
* The non-rated debt securities as a percentage of total net assets were
considered by the Adviser to be comparable to securities rated by Moody's as
follows: BBB - 20.05%.
12
<PAGE> 15
Up to 20% of the Municipal Securities purchased by the Fund may be obligations
rated BB or lower by S&P and Moody's or non-rated obligations which in the
opinion of the Adviser are of comparable quality. Such securities, (sometimes
referred to as high-yield, lower rated securities) are predominantly speculative
with respect to the capacity to pay interest and repay principal in accordance
with the terms of the security and generally involve a greater volatility of
price than securities in higher rating categories. The market prices of
high-yielding, lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. In purchasing
such securities, the Fund will rely on the Adviser's judgment, analysis and
experience in evaluating the creditworthiness of the issuer of such securities.
The Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of its management and regulatory matters. The
Adviser has extensive experience in high-yield tax-exempt asset management. See
in the Statement of Additional Information "Municipal Securities -- Additional
Risks of Lower Rated Municipal Securities" and in the Appendix "Ratings of
Investments" for additional information regarding ratings of debt securities.
The Fund does not invest in obligations which are not currently paying interest
or which are rated C (lowest grade by Moody's) or which are rated C or D by S&P
or which are non-rated obligations considered by the Adviser to be of comparable
quality.
The Fund is registered as a "non-diversified" company under the 1940 Act. The
Fund intends to comply with Subchapter M of the Code which limits the aggregate
value of all holdings (except U.S. Government and cash items, as defined in the
Code), each of which exceeds 5% of the Fund's total assets, to an aggregate
amount of 50% of such assets. Also, holdings of a single issuer (with the same
exceptions) may not exceed 25% of the Fund's total assets. These limits are
measured at the end of each quarter. Under the Subchapter M limits,
"non-diversification" allows up to 50% of the total assets to be invested in as
few as two single issuers. In the event of a decline in the creditworthiness of
or default upon, the obligations of one or more such issuers exceeding five
percent, an investment in the Fund will entail greater risk than in funds which
have a policy of "diversification" because a high percentage of the Fund assets
may be invested in Municipal Securities of one or two issuers. Furthermore, a
high percentage of investments among few issuers may result in a greater degree
of fluctuation in the market value of the assets of the Fund because the Fund
will be more susceptible to economic, political, or regulatory developments
affecting these securities than would be the case with a fund composed of more
varied obligations of issuers. Also, the net asset value per share of the Fund
will tend to increase more when, for example, the assets invested in a limited
number of single issuers increase in value, and decrease more when such assets
decrease in value.
13
<PAGE> 16
The Fund ordinarily will invest at least 65% of its total assets in Texas
Securities, and, therefore, it is more susceptible to factors adversely
affecting issuers of Texas Securities than is a municipal bond mutual fund that
is not concentrated in issuers of Texas Securities to this degree. Such factors
include the economic condition of the State of Texas (the "State") and its
regions, pressures on the State budget resulting from decreases in federal
reimbursements or other factors, and litigation affecting issuers of Texas
Securities. Any circumstances that adversely affect the State's credit standing
may also affect the market value of securities of other issuers in the State,
either directly or indirectly, as a result of a dependency of local governments
and other authorities upon State aid and reimbursement programs.
Texas' economy continues to recover from the recession that began in the mid-
1980s due to declining oil prices and a collapse in the real estate industry.
The economy has become more stable due to increased diversification, with the
oil and gas industry diminishing in relative importance and the
service-producing sectors providing the major sources of job growth. The
preliminary unemployment rate for 1995 is 5.8%. The Comptroller of Public
Accounts predicts that the overall Texas economy will outpace national economic
growth in the long term by an annual average of one-half percentage point.
The 74th State Legislature passed a balanced 1996-97 biennial State budget in
May of 1995 without increasing State taxes. The State of Texas finished fiscal
1995 with a $2.110 billion positive cash balance in the General Revenue Fund.
This was the eighth consecutive year that Texas ended a fiscal year with a
positive balance in the General Revenue Fund.
The Adviser does not believe that the factors described above will have a
significant adverse effect on the Fund's investment in investment grade Texas
Securities or Municipal Securities. Because the Fund's portfolio will consist
primarily of investment grade securities, the Fund is expected to be less
subject to market and credit risks than a fund that invests in lower quality
Texas Securities or Municipal Securities. See the Statement of Additional
Information.
- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------
Municipal Securities include debt obligations of a state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which Municipal Securities may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to lend to other public institutions and
14
<PAGE> 17
facilities. Certain types of Municipal Securities are issued to obtain funding
for privately operated facilities.
Many new issues of Municipal Securities are sold on a "when-issued" basis.
While the Fund has ownership rights to such Municipal Securities, the Fund does
not have to pay for them until they are delivered, normally 15 to 45 days later.
To meet that payment obligation, the Fund sets aside with the Custodian
sufficient cash or liquid securities equal to the amount that will be due. See
"Investment Practices -- Delayed Delivery and When-Issued Securities."
The yields of Municipal Securities depend on, among other things, general
market conditions, general conditions of the Municipal Securities market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P and Moody's represent their opinions of the quality of
the Municipal Securities they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon and rating may
have different yields while Municipal Securities of the same maturity and coupon
with different ratings may have the same yield.
The Fund considers investments in Municipal Securities not to be subject to
concentration policies and may invest a relatively high percentage of the assets
of the Fund in Municipal Securities issued by entities having similar
characteristics. The issuers may be located in the same geographic area or may
pay their interest obligations from revenue of similar projects such as
hospitals, utility systems and housing finance agencies. This may make the
Fund's investments more susceptible to similar economic, political or regulatory
occurrences. As the similarity in issuers increases, the potential for
fluctuation in the Fund's per share net asset value also increases. The Fund may
invest more than 25% of its total assets in Municipal Securities with similar
characteristics, such as industrial development revenue bonds, including
pollution control revenue bonds, housing finance agency bonds, or hospital
bonds. In such circumstances, economic, business, political or other changes
affecting one bond (such as proposed legislation affecting the financing of a
project; shortages or price increases of needed materials; or declining markets
or needs for the projects) may also affect other bonds in the same segment,
thereby potentially increasing market risk. The Fund may not, however, invest
more than 25% of its total assets in industrial development revenue bonds,
including pollution control bonds, issued for companies in the same industry.
See restriction 4 under "Investment Practices -- Investment Restrictions."
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of such issuers or any such related projects or facilities
experience financial difficulties.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. It may be expected that similar proposals may
be
15
<PAGE> 18
introduced in the future. If any such proposal were to be enacted, the ability
of the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
domestic banks or broker-dealers in order to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, thereby
determining the yield during the holding period. Repurchase agreements involve
certain risks in the event of default by the other party. The Fund will not
invest in repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid securities held by the Fund,
exceeds ten percent of the value of its net assets. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for the Fund than would be
available to the Fund investing separately. The manner in which the joint
account is managed is subject to conditions set forth in the SEC order obtained
by the Fund authorizing this practice, which conditions are designed to ensure
the fair administration of the joint account and to protect the amounts in that
account.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate adjustment
formula and which are subject to an unconditional right of demand on the part of
the holder thereof to receive payment of the principal balance plus accrued
interest upon a specified notice period (usually seven to 30 days). There is,
however, the possibility that because of default or insolvency, the demand
feature of VRDNs or Participating VRDNs, described below, may not be honored.
The interest rates are
16
<PAGE> 19
adjustable at intervals ranging from daily ("floating rate") to up to one year
to some prevailing market rate for similar investments, such adjustment formula
being calculated to maintain the market value of the VRDN at approximately the
par value of the VRDN upon the adjustment date. The adjustments are typically
set at a rate determined by the remarketing agent or based upon the prime rate
of a bank or some other appropriate interest rate adjustment index.
Investments by the Fund in VRDNs may also be made in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to Municipal Securities held by it. Under a "stand-by commitment," a bank or
dealer from which Municipal Securities are acquired agrees to purchase from the
Fund, at the Fund's option, the Municipal Securities at a specified price. Such
commitments are sometimes called "liquidity puts."
The amount payable to the Fund upon its exercise of a "stand-by commitment" is
normally (i) the Fund's acquisition cost of the Municipal Securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
"Stand-by commitments" generally can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than one year, and are
exercisable by the Fund at any time before the maturity of such obligations.
The Fund's right to exercise "stand-by commitments" is unconditional and
unqualified. A "stand-by commitment" generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Securities to a third party
at any time.
The Fund expects that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield-to-maturity
otherwise available for the
17
<PAGE> 20
same securities). The total amount paid in either manner for outstanding
"stand-by commitments" held in the Fund will not exceed 1/2 of 1% of the value
of the Fund's total assets calculated immediately after each "stand-by
commitment" is acquired. The Fund intends to enter into "stand-by commitments"
only with banks and dealers which, in the Adviser's opinion, present minimal
credit risks.
The Fund would acquire "stand-by commitments" solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a "stand-by commitment" would not affect the
valuation of the underlying Municipal Securities which would continue to be
valued in accordance with the method of valuation employed for the Fund in which
they are held. "Stand-by commitments" acquired by the Fund would be valued at
zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a "stand-by commitment," its costs would be reflected
as unrealized depreciation for the period during which the commitment was held
by the Fund.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. Municipal Securities may at times
be purchased or sold on a delayed delivery or a when-issued basis. These
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future, often a month or more after the
purchase. The payment obligation and the interest rate are each fixed at the
time the Fund enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities prior to settlement date if
it is deemed advisable. Purchasing Municipal Securities on a when-issued basis
involves the risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself; if yields so increase, the value of the when-issued obligation will
generally decrease. The Fund maintains a separate account at its custodian bank
consisting of cash or liquid high grade debt obligations, valued on a daily
basis, equal at all times to the amount of any when-issued commitment.
MONEY MARKET INVESTMENT COMPANIES. The Fund may invest in shares of open-end
investment companies which are tax-exempt money market funds. Such investment
would not exceed 3% of the total outstanding voting stock of the acquired
company; 5% of the value of the total assets of the Fund; or 10% of the total
assets of the acquired company as held by the Fund and all Van Kampen American
Capital funds. When the Fund invests in a tax-exempt money market fund, the
Adviser will reduce its advisory fee by the amount of any investment advisory
and administrative services fees paid to the investment adviser of the money
market fund.
FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may engage in transactions in
listed futures contracts and related options. Such transactions may be in listed
futures contracts based upon The Bond Buyer Municipal Bond Index, a price
18
<PAGE> 21
weighted measure of the market value of 40 large sized, recent issues of
tax-exempt bonds or in listed contracts based on U.S. Government securities.
Futures contracts and options thereon may be used for defensive hedging or
anticipatory hedging purposes, depending upon the composition of the Fund and
the Adviser's expectations concerning the securities markets. See the Statement
of Additional Information for discussion of futures contracts and related
options.
Potential Risks of Futures Contracts and Related Options. The purchase and
sale of futures contracts and related options involve risks different from those
involved with direct investments in securities. While utilization of futures
contracts and related options may be advantageous to the Fund, if the Adviser is
not successful in employing such instruments in managing the Fund's investments,
the Fund's performance will be worse than if the Fund did not make such
investments. In addition, the Fund would pay commissions and other costs in
connection with such investments, which may increase the Fund's expenses and
reduce its return. The Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed five
percent of the fair market value of the Fund's assets. In order to prevent
leverage in connection with the purchase of futures contracts or call options
thereon by the Fund, an amount of cash, cash equivalent or liquid high grade
debt securities equal to the market value of the obligation under the futures
contracts or options (less any related margin deposits) will be maintained in a
segregated account with the custodian.
PORTFOLIO TURNOVER. The Fund may purchase or sell securities without regard to
the length of time the security has been held to take advantage of short-term
differentials in bond yields consistent with its objective of seeking tax-exempt
interest income. The Fund may engage in short-term trading if the anticipated
benefits are expected by the Adviser to exceed the transaction costs. The annual
turnover rate for the Fund is expected to vary from year to year depending on
market conditions. The annual turnover rate for the Fund is not expected to
exceed 100%. A 100% turnover rate would occur, for example, if all the
securities in the Fund were replaced in a period of one year. Municipal
Securities with remaining maturities of less than one year are excluded in the
computation of the portfolio turnover rate. Higher portfolio turnover involves
higher transaction costs and may result in realization of short-term capital
gains if securities are held for one year. Such gains are taxable to
shareholders as ordinary income except to the extent such gains are offset by
any capital losses. Portfolio turnover is not a limiting factor in making
portfolio decisions, except as limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company. See "Federal
Tax Information" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund. The Municipal Securities and other obligations in which the Fund
invests
19
<PAGE> 22
are traded primarily in the over-the-counter market. Such securities are
generally traded on a net basis with dealers acting as principal for their own
accounts without a stated commission, although the prices of the securities
usually include a profit to the dealers. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
It is the policy of the Fund to obtain the best net results taking into account
such factors as price (including the applicable dealer spread), the size, type
and difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved and the provision of supplemental investment research by the firm.
While the Fund generally seeks reasonably competitive spreads or commissions,
the Fund will not necessarily be paying the lowest spread or commission
available. Brokerage commissions are paid on transactions in futures contracts
and options thereon. The Adviser is authorized to place portfolio transactions
with broker-dealers participating in the distribution of shares of the Fund and
other Van Kampen American Capital funds if it reasonably believes that the
quality of the execution and any commission are comparable to that available
from other qualified firms. The Adviser is authorized to pay higher commissions
to brokerage firms that provide it with investment and research information than
to firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which, like the investment objective, may not be changed without approval by a
majority (as defined in the 1940 Act) vote of the shareholders of the Fund.
These restrictions provide, among other things, the Fund may not:
1. Invest in securities other than Municipal Securities, Temporary
Investments (as defined herein), stand-by commitments, futures contracts
described in the next paragraph, and options on such contracts;
2. Purchase or sell commodities or commodity contracts except that the Fund
may purchase, hold and sell listed futures contracts related to U.S.
Government securities, Municipal Securities or to an index of
Municipal Securities;
3. Borrow money, except the Fund may borrow from banks to meet redemptions
or for other temporary or emergency purposes, with such borrowing not to
exceed five percent of the total assets of the Fund at market value at
the time of borrowing. Any such borrowing may be secured provided that
not more than ten percent of the total assets of the Fund at market value
at the time of pledging may be used as security for such borrowings; or
4. 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
20
<PAGE> 23
activities in the same industry; provided that this limitation shall not
apply to tax-exempt securities issued by governmental bodies or agencies
or instrumentalities thereof; so that industrial development bonds that
are considered to be issued by non-governmental users are subject to this
industry limitation.
Each state and each political subdivision, agency or instrumentality of such
state, and each multi-state agency of which a state is a member is a separate
"issuer" as that term is used in this Prospectus. The non-government user of
facilities financed by industrial development or pollution control securities is
also considered as a separate issuer. In certain circumstances, the guarantor of
a guaranteed security may also be considered to be an issuer in connection with
such guarantee.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and over
$54 billion under management or supervision. Van Kampen American Capital's more
than 35 open-end and 38 closed-end funds and more than 2,800 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital. Van Kampen American Capital is a wholly-owned
subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the
ownership of a substantial majority of its common stock, by The Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut
limited partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a
New York based private investment firm. The General Partner of C&D L.P. is
Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates L.P.").
The General Partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles
Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than seven percent
of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon
the exercise of options, approximately an additional 11% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns or would own five percent or
more of the common stock of VK/AC Holding, Inc.
21
<PAGE> 24
ADVISORY AGREEMENTS. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser an annual fee of
0.60% of the first $300 million of the average net assets of the Fund; 0.55% of
the next $300 million of the average net assets of the Fund; and 0.50% of the
average net assets in excess of $600 million. The fees are payable monthly.
Under the Advisory Agreement, the Fund also reimburses the Adviser for the costs
of the Fund's accounting services, which include maintaining its financial books
and records and calculating the daily net asset value of the Fund. Operating
expenses paid by the Fund include shareholder service agency fees,
service fees, distribution fees, custodial fees, legal and accounting fees, the
costs of reports and proxies to shareholders, trustees' fees, and all other
business expenses not specifically assumed by the Adviser. Advisory
(management) fees and total operating expense ratios are shown under the
caption "Annual Fund Operating Expenses and Example" herein.
From time to time as the Adviser and/or the Distributor may deem appropriate,
they may voluntarily undertake to reduce the Fund's expenses by reducing the
fees payable to them to the extent of, or bearing expenses in excess of, such
limitations as they may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp.
PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors/trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interests.
PORTFOLIO MANAGEMENT. Joseph A. Piraro has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since April 3, 1995.
Mr. Piraro is Vice President of the Fund and Vice President of the Adviser. Mr.
Piraro has been employed by Van Kampen American Capital Investment Advisory
Corp., an affiliate of the Adviser, since 1992. Prior to that time, Mr. Piraro
was employed by First Chicago Capital Markets.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
22
<PAGE> 25
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares are subject to
an ongoing service fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if they are redeemed within five years of purchase.
Class B shares are subject to an ongoing service fee at an annual rate of up to
0.25% of the Fund's aggregate average daily net assets attributable to the Class
B shares and an ongoing distribution fee at an annual rate of up to 0.75% of the
Fund's aggregate average daily net assets attributable to the Class B shares.
Class B shares enjoy the benefit of permitting all of the investor's dollars to
work from the time the investment is made. The ongoing distribution fee paid by
Class B shares will cause such shares to have a higher expense ratio and to pay
lower dividends than those related to Class A shares. See "Purchase of Shares --
Class B Shares." Class B shares will automatically convert to Class A shares six
years after the end of the calendar month in which the shareholder's order to
purchase was accepted. See "Conversion Feature" herein for discussion on
applicability of the conversion feature to Class B shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares." Class C shares will convert automatically to Class A shares ten years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "Conversion Feature" herein for discussion on applicability of
the conversion feature to Class C shares.
CONVERSION FEATURE. Class B shares and Class C shares will automatically
convert to Class A shares six years or ten years, respectively, after the end of
the calendar month in which the shares were purchased and will no longer be
subject to the distribution fee. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The
23
<PAGE> 26
purpose of the conversion feature is to relieve the holders of the Class B
shares and Class C shares that have been outstanding for a period of time
sufficient for the Distributor to have been substantially compensated for
distribution expenses related to the Class B shares or Class C shares as the
case may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares and Class C
shares in a shareholder's Fund account will be considered to be held in a
separate sub-account. Each time any Class B shares or Class C shares in the
shareholder's Fund account (other than those in the sub-account) convert to
Class A, an equal pro rata portion of the Class B shares or Class C shares in
the sub-account will also convert to Class A.
The conversion of Class B shares and Class C shares to Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution fee and higher transfer agency costs
with respect to Class B shares and Class C shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code, as amended (the "Code"), and (ii) the conversion of
shares does not constitute a taxable event under federal income tax law. The
conversion of Class B shares and Class C shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class B
shares or Class C shares would occur, and shares might continue to be subject to
the distribution fee for an indefinite period which may extend beyond the period
ending six years or ten years, respectively, after the end of the calendar month
in which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares or Class C shares prior to conversion would be less than the initial
sales charge on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher dividends per share on Class A
shares. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares. In this regard, Class A shares may
be more beneficial to the investor who qualifies for a reduced initial sales
charges or purchases at net asset value, as described herein under "Purchase of
Shares -- Class A Shares." For these reasons, the Distributor will reject any
order of more than $500,000 for Class B shares or any order of more than $1
million for Class C shares.
24
<PAGE> 27
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. In addition, the check writing privilege is only available for Class A
shares (see "Shareholder Services -- Shareholder Services Applicable to Class A
Shareholders Only -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end shares charge, put 100%
of their investment dollars to work immediately, and/or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon and/or desire a short
contingent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION
OF THE CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH
RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE
INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. See "Distribution Plans."
GENERAL. Dividends paid by the Fund with respect to Class A, Class B and Class
C shares will be calculated in the same manner at the same time on the same day,
except that the distribution fees and any incremental transfer agency costs
relating to Class B or Class C shares will be borne by the respective class. See
25
<PAGE> 28
"Distributions from the Fund." Shares of the Fund may be exchanged, subject to
certain limitations, for shares of the same class of other mutual funds advised
by the Adviser. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the Investment Company Act
of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares to the general public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers." Class A shares are sold with an initial sales charge; Class B and
Class C shares are sold without an initial sales charge and are subject to a
contingent deferred sales charge upon certain redemptions. See "Alternative
Sales Arrangements" for a discussion of factors to consider in selecting which
class of shares to purchase. Contact the Investor Services Department at (800)
421-5666 for further information and appropriate forms.
Initial investments in the Fund must be at least $500 and subsequent
investments must be at least $25. Both minimums may be waived by the Distributor
for shares involving periodic investments. Shares of the Fund may be sold in
foreign countries where permissible. The Fund and the Distributor reserve the
right to refuse any order for the purchase of shares. The Fund also reserves the
right to suspend the sale of the Fund's shares in response to conditions in the
securities markets or for other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares may also be purchased by completing the application accompanied
by this Prospectus and forwarding the application, through the designated
dealer, to ACCESS Investor Services, Inc. ("ACCESS"), a wholly-owned subsidiary
of Van Kampen American Capital. When purchasing shares of the Fund, investors
must specify whether the purchase is for Class A, Class B or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the method of
purchasing shares chosen by the investor, as shown in the tables herein. Net
asset value per
26
<PAGE> 29
share is computed as of the close of trading (currently 4:00 p.m. New York time)
on the New York Stock Exchange (the "Exchange") on each day such exchange is
open for trading. Net asset value per share for each class is determined by
dividing the value of all portfolio securities held by the Fund, cash and other
assets (including accrued interest), attributable to such class less all
liabilities (including accrued expenses) by the total number of shares of the
class outstanding. The Fund's investments are valued by an independent pricing
service.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class C
shares may differ from one another, reflecting the daily expense accruals of the
distribution and the higher transfer agency fees applicable with respect to the
Class B and Class C shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the net asset
value next computed (plus applicable Class A sales charges) after an order is
received by a dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by dealers
after the close of the Exchange are priced based on the next close provided they
are received by the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit orders received by
them to the Distributor so they will be received prior to such time. Orders of
less than $500 are mailed by the dealer and processed at the offering price next
calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights and is identical in all respects,
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and
incremental transfer agency costs) resulting from such sales arrangement, (ii)
generally, each class has exclusive voting rights with respect to approvals of
the Rule 12b-1 distribution plan pursuant to which its distribution fee and/or
service fee is paid which relate to a specific class, and (iii) Class B and
Class C shares are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service options available.
See "Distribution Plans" and "Shareholder Services -- Exchange Privilege." The
net income attributable to Class B and Class C shares and the dividends payable
on Class B and Class C shares will be reduced by the amount of the distribution
fee and incremental expenses associated with such distribution fees. Sales
personnel of broker-dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Agreements are in place which provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund, with subsidiaries of The Travelers Inc.
27
<PAGE> 30
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediaries at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying brokers, dealers or financial intermediaries
for certain services or activities which are primarily intended to result in
sales of shares of the Fund. Fees may include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Such fees paid
for such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. All of the foregoing payments are made by
the Distributor out of its own assets. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
REALLOWED
TO DEALERS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000................ 4.99% 4.75% 4.25%
$100,000 but less than $250,000... 3.90% 3.75% 3.25%
$250,000 but less than $500,000... 2.83% 2.75% 2.25%
$500,000 but less than
$1,000,000...................... 2.04% 2.00% 1.75%
$1,000,000 and over............... * * *
- --------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1% in the event of certain redemptions within one
year of the purchase. The contingent deferred sales charge incurred upon
redemption is paid
28
<PAGE> 31
to the Distributor in reimbursement for distribution-related expenses. A
commission will be paid to dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1% on sales to $2 million, plus
0.80% on the next million, plus 0.20% on the next $2 million and 0.08% on the
excess over $5 million.
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to dealers that sell shares of the Fund. Dealers which are
reallowed all or substantially all of the sales charges may be deemed to be
underwriters for purposes of the Securities Act of 1933.
The Distributor may also pay financial institutions, which may include banks,
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to dealers described in the preceding table.
Such financial institutions, other industry professionals and dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited under the Glass-Steagall Act from providing certain underwriting or
distribution services. If banking firms were prohibited from acting in any
capacity or providing any of the described services, the Distributor would
consider what action, if any, would be appropriate. The Distributor does not
believe that termination of a relationship with a bank would result in any
material adverse consequences to the Fund. State securities laws regarding
registration of banks and other financial institutions may differ from the
interpretation of federal law expressed herein and banks and other financial
institutions may be required to register as dealers pursuant to certain state
laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and minor children and any corporation, partnership or sole
proprietorship which is 100% owned, either alone or in combination, by any of
the foregoing; a trustee or
29
<PAGE> 32
other fiduciary purchasing for a single fiduciary account, or a "company" as
defined in Section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Tax Free Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve
Fund ("Reserve Fund") and The Govett Funds, Inc.
Volume Discounts. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person in shares of the
indicated Fund, or in any combination of shares of such Funds and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
Cumulative Purchase Discount. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
Letter of Intent. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the Participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the Participating
Funds previously purchased and still owned. An investor may elect to compute the
13-month period starting up to 90 days before the date of execution of a Letter
of Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. The
initial purchase must be for an amount equal to at least five percent of the
minimum total purchase amount of the level selected. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provisions, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. Such
adjustment in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application accompanied by this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or
30
<PAGE> 33
the Distributor. The Fund reserves the right to modify or terminate these
arrangements at any time.
Unit Trust Reinvestment Programs. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A shares
of the Fund, other Participating Funds, Tax Free Money Fund or Reserve Fund with
no minimum initial or subsequent investment requirement, and with a lower sales
charge if the administrator of an investor's unit investment trust program meets
certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all investments made from unit trust
distributions will be one percent of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their securities broker or dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS's processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:
(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Investment Advisory Corp. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an
31
<PAGE> 34
investment subadviser to any fund described in (1) above or an affiliate
of such subadviser; and such persons' families and their beneficial
accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or in any combination of
shares of the Fund and shares of other Participating Funds as described
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts,"
during the 13-month period commencing with the first investment pursuant
hereto equals at least $1 million. The Distributor may pay Service
Organizations through which purchases are made an amount up to 0.50% of
the amount invested, over a twelve-month period following such
transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to one percent for such purchases.
(6) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.
(8) Participants with accounts established after October 12, 1995, in any
405(b)(7) program of a college or university system which permits only net
asset value mutual fund investments and for which Van Kampen American
Capital Trust Company serves as custodian. In connection with such
purchases, the Distributor may pay, out of its own assets, a commission to
brokers, dealers, or financial intermediaries as follows: one percent on
sales up to $5 million, plus 0.50% on the next $5 million, plus 0.25% on
the excess over $10 million.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
32
<PAGE> 35
following acceptance of the order. An authorized dealer or financial institution
may charge a transaction fee for placing an order to purchase shares pursuant to
this provision or for placing a redemption order with respect to such shares.
Service Organizations will be paid a service fee as described herein under
"Distribution Plans" on purchases made as described in (3) through (8) above.
The Fund may terminate, or amend the terms of, offering shares of the Fund at
net asset value to such groups at any time.
CLASS B SHARES
Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within five years of purchase are subject to a
contingent deferred sales charge at the rates set forth in the following table
charged as a percentage of the dollar amount subject thereto. The charge is
assessed on an amount equal to the lesser of the then current market value or
the cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price. In addition,
no charge is assessed on shares derived from reinvestment of dividends or
capital gains distributions.
The amount of the contingent deferred sales charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
shares, all payments during a month are aggregated and deemed to have been made
on the last day of the month.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First........................................................... 4.0%
Second.......................................................... 4.0%
Third........................................................... 3.0%
Fourth.......................................................... 2.5%
Fifth........................................................... 1.5%
Sixth........................................................... None
- ------------------------------------------------------------------------------
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first, of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge, second, of shares held for over five years or shares acquired pursuant
to reinvestment of dividends or distributions and third, of shares held longest
during the five-year period. The charge is not applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
33
<PAGE> 36
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Fund.
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
contingent deferred sales charge of 1%. The charge is assessed on an amount
equal to the lower of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price. In addition, no charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and second of shares held for more than one year or shares acquired
pursuant to reinvestment of dividends or distributions.
A commission or transaction fee of 1% of the purchase amount will be paid to
broker-dealers and other Service Organizations at the time of purchase. Broker-
dealers and other Service Organizations will also be paid ongoing commissions
and transaction fees of up to 0.75% of the average daily net assets of the
Fund's Class C shares for the second through tenth year after purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives in the form of cash or other compensation to Service Organizations
that sell Class C shares of the Fund.
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WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B and
Class C shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) in connection with certain distributions from an IRA or
other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan
but limited to 12% annually of the initial value of the account, and (iv)
effected pursuant to the right of the Fund to liquidate a shareholder's account
as described herein under "Redemption of Shares." A contingent deferred sales
charge is waived on redemptions of Class C shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See the Statement of Additional Information
for further discussion of waiver provisions.
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SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder has an investment account under which
shares are held by ACCESS. Except as described herein, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in certain of the
Participating Funds or Reserve may receive statements quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized investment dealers or
by mailing a check directly to ACCESS.
SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received,
ACCESS will calculate no more than
35
<PAGE> 38
two percent of the net asset value of the issued shares, and bill the party to
whom the certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share, without sales
charge, on the record date. The reinvestment privilege is automatic unless the
shareholder instructs otherwise. This instruction may be made by telephone by
calling (800) 421-5666 ((800) 772-8889 for the hearing impaired). The investor
may, on the initial application or prior to any declaration, instruct that
dividends be paid in cash and capital gains distributions be reinvested at net
asset value, or that both dividends and capital gains distributions be paid in
cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in shares of the Fund. Additional
information is available from the Distributor or authorized investment dealers.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application accompanied by this
Prospectus, or by calling (800) 421-5666 ((800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a Class
A, Class B or Class C account in the Fund invested into a pre-existing Class A,
Class B or Class C account in any of the Participating Funds, Tax Free Money
Fund or Reserve Fund.
If a qualified, pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
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<PAGE> 39
EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund, other
than Van Kampen American Capital Government Target Fund ("Government Target"),
may be exchanged for shares of the same class of shares of any other fund
without sales charge, provided that shares of certain other Van Kampen American
Capital fixed-income funds may not be exchanged within 30 days of acquisition
without Adviser approval. Shares of Government Target may be exchanged for Class
A shares of the Fund without sales charge. Class A shares of Tax Free Money Fund
or Reserve Fund that were not acquired in exchange for Class B or Class C shares
of a Participating Fund may be exchanged for Class A shares of the Fund upon
payment of the excess, if any, of the sales charge rate applicable to the shares
being acquired over the sales charge rate previously paid. Shares of Tax Free
Money Fund or Reserve Fund acquired through an exchange of Class B or Class C
shares may be exchanged only for the same class of shares of a Participating
Fund without incurring a contingent deferred sales charge. Shares of any
Participating Fund, Tax Free Money Fund or Reserve Fund may be exchanged for
shares of any other Participating Fund if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund.
Class B and Class C shareholders of the Fund have the ability to exchange
their shares ("original shares") for the same class of shares of any other Van
Kampen American Capital fund that offers such shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares, without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a disposition of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B or
Class C shareholders remain subject to the contingent deferred sales charge
imposed by the fund initially purchased by the shareholder upon their redemption
from the Van Kampen American Capital complex of funds. The contingent deferred
sales charge is based on the holding period requirements of the original fund.
Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the exchanged shares, but is carried over and included in the
tax basis of the shares acquired. See the Statement of Additional Information.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application accompanied by this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
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<PAGE> 40
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges are effected
at the net asset value per share next calculated after the request is received
in good order with adjustment for any additional sales charge. See both
"Purchase of Shares" and "Redemption of Shares." If the exchanging shareholder
does not have an account in the fund whose shares are being acquired, a new
account will be established with the same registration, dividend and capital
gains options (except dividend diversification) and dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must file a specific written request. The Fund
reserves the right to reject any order to acquire its shares through exchange.
In addition, the Fund may modify, restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.
A prospectus of any of the Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25.
Class B and Class C shareholders who establish a withdrawal plan may redeem up
to 12% annually of the shareholder's initial account balance without incurring a
contingent deferred sales charge. Initial account balance means the amount of
the shareholder's investment in the Fund at the time the election to participate
in the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" and the Statement of Additional Information.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined
38
<PAGE> 41
net asset value. If periodic withdrawals continuously exceed reinvested
dividends and capital gains distributions, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted. Withdrawals made
concurrently with purchase of additional shares ordinarily will be
disadvantageous to the shareholder because of the duplication of sales charges.
Any taxable gain or loss will be recognized by the shareholder upon the
redemption of shares.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to ACCESS, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to the Class A shareholder. These
checks may be made payable by the Class A shareholder to the order of any person
in any amount of $100 or more.
When a check is presented to State Street Bank for payment, full and
fractional Class A shares required to cover the amount of the check are redeemed
from the shareholder's Class A account by ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of Class A shares. Any
gain or loss realized on the sale of shares is a taxable event. Since the net
asset value per share of the Fund is likely to fluctuate daily, check writing
redemptions can result in such a taxable event. See "Redemption of Shares."
Checks will not be honored for redemption of Class A shares held less than 15
days, unless such Class A shares have been paid for by bank wire. Any Class A
shares for which there are outstanding certificates may not be redeemed by
check. If the amount of the check is greater than the value of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or
State Street Bank. Accounts that are subject to backup withholding are not
eligible for the privilege. A "stop payment" system is not available on these
checks. See the Statement of Additional Information for further information
regarding the establishment of the privilege.
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REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be
39
<PAGE> 42
sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized investment
dealer. Orders received from dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by a dealer provided such order
is transmitted to the Distributor prior to the Distributor's close of business
on such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B or
Class C shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of 1% may be imposed on certain redemptions of
Class A shares made within one year of purchase for investments of $1 million or
more. The contingent deferred sales charge incurred upon redemption is paid to
the Distributor in reimbursement for distribution-related expenses. See
"Purchase of Shares." A custodian of a retirement plan account may charge fees
based on the custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed must accompany the redemption
request. In the event the redemption is requested by a corporation, partnership,
trust, fiduciary, executor or administrator, and the name and title of the
individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian and forwarded to ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7) or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.
40
<PAGE> 43
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share of the Fund next determined after the
request is received in proper form. Payment for shares redeemed is made by check
mailed within seven days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payment may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until the purchase check has cleared, usually a period of up to
15 days. Any taxable gain or loss will be recognized by the shareholder upon
redemption of shares.
The Fund may redeem any shareholder account with a net asset value on the date
of the notice of redemption less than the minimum investment as specified by the
Trustees. At least 60 days advance written notice of any such involuntary
redemption is required and the shareholder is given an opportunity to purchase
the required value of additional shares at the next determined net asset value
without sales charge. Any applicable contingent deferred sales charge will be
deducted from the proceeds of this redemption. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record for the account or to
the bank account of record as described below. To establish such privilege, a
shareholder must complete the appropriate section of the application accompanied
by this Prospectus or call the Fund at (800) 421-5666 to request that a copy of
the Telephone Redemption Authorization form be sent to them for completion. To
redeem shares contact the telephone transaction line at (800) 421-5684. VKAC and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares
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<PAGE> 44
represented by certificates. If an account has multiple owners, ACCESS may rely
on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. The Fund reserves the right at any time to terminate, limit or
otherwise modify this redemption privilege.
REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of a Class B and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B and Class C shares.
In cases of disability, the contingent deferred sales charge on Class B and
Class C shares will be waived where the disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the initial determination of disability.
This waiver of the contingent deferred sales charge on Class B and Class C
shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the initial determination of disability.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the net proceeds of such
redemption in Class A shares of the Fund. A Class C shareholder who has redeemed
shares of the Fund may reinstate any portion or all of the proceeds of such
redemption in Class C shares of the Fund with credit given for any contingent
deferred sales charge paid upon such redemption. Such reinstatement is made at
the net asset value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 120 days after the date of the redemption. See "Purchase of
Shares
42
<PAGE> 45
- -- Waiver of Contingent Deferred Sales Charge" and the Statement of Additional
Information. Reinstatement at net asset value is also offered to participants in
those eligible retirement plans held or administered by Van Kampen American
Capital Trust Company for repayment of principal (and interest) on their
borrowings on such plans.
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DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing its shareholders in accordance
with a plan adopted by the investment company board of directors and approved by
its shareholders. Pursuant to such Rule, the Trustees of the Fund, and the
shareholders of each class have adopted three Distribution Plans hereinafter
referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan."
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
NASD ("NASD Rules") applicable to mutual fund sales charges. The NASD Rules
limit the annual distribution charges and service fees that a mutual fund may
impose on a class of shares. The NASD Rules also limit the aggregate amount
which the Fund may pay for such distribution costs. Under the Class A Plan, the
Fund pays a service fee to the Distributor at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class A
shares. Under the Class B Plan and the Class C Plan, the Fund pays a service fee
to the Distributor at an annual rate of up to 0.25% and a distribution fee at an
annual rate of up to 0.75% of the Fund's aggregate average daily net assets
attributable to the Class B shares or Class C shares to reimburse the
Distributor for service fees paid by it to Service Organizations and for its
distribution costs.
The Distribution Plans provide that the Distributor shall use the Class A,
Class B and Class C service fees to compensate Service Organizations for
personal services and/or the maintenance of shareholder accounts. Under the
Class B Plan, the Distributor receives additional payments from the Fund in the
form of a distribution fee at the annual rate of up to 0.75% of the net assets
of the Class B shares as reimbursement for (i) upfront commissions and
transaction fees of up to 4% of the purchase price of Class B shares purchased
by the clients of broker-dealers and other Service Organizations, and (ii) other
distribution expenses as described in the Statement of Additional Information.
Under the Class C Plan, the Distributor receives additional payments from the
Fund at the annual rate of up to 0.75% of the net assets of the Class C shares
as reimbursements for (i) upfront commissions and transaction fees of up to
0.75% of the purchase price of Class C shares purchased by the clients of
broker-dealers and other Service Organizations and ongoing commissions and
transaction fees of up to 0.75% of the average daily net assets of the
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<PAGE> 46
Fund's Class C shares and (ii) other distribution expenses as described in the
Statement of Additional Information.
In adopting the Class A Plan, the Class B Plan and the Class C Plan, the
Trustees of the Fund determined that there was a reasonable likelihood that such
Plans would benefit the Fund and its shareholders. Information with respect to
distribution and service revenues and expenses is presented to the Trustees each
year for their consideration in connection with their deliberations as to the
continuance of the Distribution Plans. In their review of the Distribution
Plans, the Trustees are asked to take into consideration expenses incurred in
connection with the distribution and servicing of each class of shares
separately. The sales charge and distribution fee, if any, of a particular class
will not be used to subsidize the sale of shares of the other classes.
Service expenses accrued by the Distributor in one fiscal year may not be paid
from the Class A service fees received from the Fund in subsequent fiscal years.
Thus, if the Class A Plan were terminated or not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the Fund to the
Distributor.
The distribution fee attributable to Class B shares or Class C shares is
designed to permit an investor to purchase such shares without the assessment of
a front-end sales load and at the same time permit the Distributor to compensate
Service Organizations with respect to such shares. In this regard, the purpose
and function of the combined contingent deferred sales charge and distribution
fee are the same as those of the initial sales charge with respect to the Class
A shares of the Fund in that in both cases such charges provide for the
financing of the distribution of the Fund's shares.
Actual distribution expenditures paid by the Distributor with respect to Class
B or Class C shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and Class C Plan and payments received pursuant to
contingent deferred sales charges. Such excess will be carried forward and may
be reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan and Class C Plan so long as such Plans are in effect. For example,
if in a fiscal year the Distributor incurred distribution expenses under the
Class B Plan of $1 million, of which $500,000 was recovered in the form of
contingent deferred sales charges paid by investors and $400,000 was reimbursed
in the form of payments made by the Fund to the Distributor under the Class B
Plan, the balance of $100,000 would be subject to recovery in future fiscal
years from such sources. For the plan year ended June 30, 1995, the unreimbursed
expenses incurred by the Distributor under the Class B Plan and carried forward
were approximately $301,000 or 3.96% of the Class B shares' average daily net
assets. For the plan year ended June 30, 1995, the unreimbursed expenses
incurred by the Distributor under
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<PAGE> 47
the Class C Plan and carried forward were approximately $16,000 or 1.38% of the
Class C shares' average daily net assets.
If the Class B Plan or Class C Plan was terminated or not continued, the Fund
would not be contractually obligated to pay and has no liability to the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through contingent deferred sales charges.
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DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
DIVIDEND POLICY. The Fund declares dividends from net investment income on
each business day. Such dividends are distributed monthly. The daily dividend is
a fixed amount determined at least monthly which is not expected to exceed the
net income of the Fund for the month divided by the number of business days
during the month. The Fund intends to distribute after the end of a fiscal year
the net capital gains, if any, realized during the fiscal year except to the
extent that such gains are offset by capital loss carryovers. Unless the
shareholder instructs otherwise, dividends and distributions are automatically
reinvested in additional shares of the Fund. See "Shareholder Services --
Reinvestment Plan."
Shares (other than shares acquired through an exchange) become entitled to
dividends declared on the day ACCESS receives payment for the shares, and remain
entitled to dividends through the day such shares are priced for redemption.
With respect to shares acquired through an exchange, such shares become entitled
to dividends on the day after ACCESS receives payment for the shares, and
remains entitled to dividends through the day such shares are purchased for
payment on redemption. Therefore, if a dealer delays forwarding to ACCESS
payment for shares which an investor has made to the dealer, this will in effect
cost the investor money because it will delay the date upon which he or she
becomes entitled to dividends.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the distribution fees and
incremental transfer agency fees applicable to such classes of shares.
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TAX STATUS
- ------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund has qualified and intends to be taxed as a
"regulated investment company" under the Code by meeting certain requirements of
the Code. In addition, the Fund intends to invest in sufficient Municipal
Securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Securities qualify as exempt-interest dividends if, at the close of
each quarter of the fiscal year, at least 50% of the value of the total assets
of the Fund consists of Municipal
45
<PAGE> 48
Securities. See "Federal Tax Information" in the Statement of Additional
Information.
Exempt-interest dividends paid to shareholders are not includable in the
shareholders' gross income for federal income tax purposes. The percentage of
the total dividends paid by the Fund during any taxable year that qualify as
exempt-interest dividends will be the same for all shareholders of the Fund
receiving dividends during such year. Shareholders not subject to tax on their
income will not be required to pay tax on amounts distributed to them.
Interest on certain "private-activity bonds" issued after August 7, 1986, is
an item of tax preference subject to the alternative minimum tax on individuals
and corporations. The Fund invests a portion of its assets in Municipal
Securities subject to this provision so that a portion of its exempt-interest
dividends will be an item of tax preference to the extent such dividends
represent interest received from these private-activity bonds. For the fiscal
period ending September 30, 1993, approximately 12.23% of the Fund's income
consisted of interest on private-activity bonds. The Tax Reform Act also imposes
per capita volume limitations on certain private-activity bonds which could
limit the amount of such bonds available for investment by the Fund.
The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gains. One such provision affects tax-exempt
securities by requiring that gains on such securities purchased at a market
discount be treated as ordinary income to the extent of the accrued market
discount, if the securities are acquired after April 30, 1993. Such securities
were exempt from the market discount rules under prior law.
The Fund is subject to the requirement that at least 80% of its assets be
invested in securities the income from which is exempt from both regular federal
income tax and the federal alternative minimum tax.
Distributions of net investment income received by the Fund from investments
in debt securities other than Municipal Securities, and any net realized
short-term capital gains distributed by the Fund are taxable to shareholders as
ordinary income. Any distribution of net long-term capital gains by the Fund is
subject to capital gains tax rates. Interest on indebtedness which is incurred
to purchase or carry shares of a mutual fund which distributes exempt-interest
dividends during the year is not deductible for federal income tax purposes.
Shareholders are notified annually of the federal tax status of dividends and
any distributions paid by the Fund during the fiscal year.
Individuals whose modified income exceeds a base amount are subject to federal
income tax on up to one-half of their Social Security benefits. Modified income
46
<PAGE> 49
includes adjusted gross income, one-half of Social Security benefits and
tax-exempt interest, including tax-exempt interest dividends from the Fund.
To avoid being subject to a 31% federal back-up withholding tax on dividends
(except exempt-interest dividends), capital gains distributions and redemption
payments, shareholders must furnish the Fund with a certification of their
correct taxpayer identification number.
The foregoing is a brief summary of some of the important tax considerations
generally affecting the Fund and its investors who are U.S. residents or U.S.
corporations. Additional tax information of relevance to particular investors,
including corporations and investors who may be "substantial users" of
facilities financed by Municipal Securities, is contained in the Statement of
Additional Information. Investors are urged to consult their tax advisers with
specific reference to their own tax situation. Foreign investors should consult
their own counsel for further information as to the U.S. and their country of
residence or citizenship tax consequences of receipt of dividends and
distributions from the Fund.
FEDERAL INCOME TAX ASPECTS OF FUTURES AND OPTIONS. The Fund's ability to
engage in transactions in listed futures contracts and related options may be
limited by provisions of the Code, including the requirement that the Fund
derive less than 30% of its gross income from the sale or other disposition of
securities held for less than three months. Gains and losses recognized by the
Fund from transactions in futures contracts and options thereon constitute
capital gains and losses for federal income tax purposes. See "Federal Tax
Information" in the Statement of Additional Information. To the extent such
activities result in net realized short-term capital gains which are distributed
to shareholders, such distributions constitute taxable ordinary income. To the
extent such activities result in net realized long-term capital gains which are
distributed to shareholders, such distributions constitute taxable long-term
capital gains.
STATE AND LOCAL TAXES. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that investors consult their tax advisers for information in this
regard. Dividends and distributions paid by the Fund from sources other than
tax-exempt interest are generally subject to taxation at the state and local
levels. Dividends or distributions paid by the Fund to Texas residents are not
subject to taxation by Texas, because Texas does not impose a personal income
tax at this time.
47
<PAGE> 50
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one-year, five-year and ten-year periods or for the life of the
Fund. Other total return quotations, aggregate or average, over other time
periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 4.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable contingent deferred
sales charge has been paid. The Fund's total return will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and distributions paid by
the Fund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
Yield and total return are calculated separately for Class A, Class B and
Class C shares. Class A total return figures include the maximum sales charge of
4.75%. Class B and Class C total return figures include any applicable
contingent deferred sales charge. Because of the differences in sales charges
and distribution and other fees, the total returns for each of the classes will
differ.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semi-annual compounding. The Fund's "tax-equivalent
yield" is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment to produce the after-tax equivalent of
the Fund's yield, assuming certain tax brackets for a Fund shareholder.
48
<PAGE> 51
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
To increase the Fund's yield the Adviser may, from time to time, absorb a
certain amount of the future ordinary business expenses. The Adviser may stop
absorbing these expenses at any time without prior notice.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. Distribution rate is, therefore, not intended to be a complete measure
of the Fund's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Fund. Distribution rates will be
computed separately for each class of the Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the ratings or rankings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of
49
<PAGE> 52
mutual funds; or with municipal bond indices, such as Lehman Brothers Municipal
Bond Index or Bond Buyer's Index of 25 Revenue Securities or with the Consumer
Price Index, Dow Jones Industrial Average, Standard & Poor's, NASDAQ, other
appropriate indices of investment securities, or with investment or savings
vehicles. The performance information may also include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Investor's Business Daily, Kiplinger's Personal
Finance Magazine, Money, Mutual Fund Forecaster, Stanger's Investment Advisor,
USA Today, U.S. News & World Report and The Wall Street Journal. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. For these purposes, the performance of the
Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce Fund performance. The
Fund will include performance data for Class A, Class B and Class C shares of
the Fund in any advertisement or information including performance data of the
Fund.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Fund's Annual Report contains additional performance information. A copy
of the Annual Report may be obtained without charge by calling or writing the
Fund at the telephone number and address printed on the cover page of this
Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in the State of Maryland on September 6,
1991 and reorganized on August 26, 1995, under the laws of the state of Delaware
as a business entity commonly known as a "Delaware business trust." It is
authorized to issue an unlimited number of Class A, Class B and Class C shares
of beneficial interest of $0.01 par value. Other classes of shares may be
established from time to time in accordance with provisions of the Fund's
Declaration of Trust. Shares issued by the Fund are fully paid, non-assessable
and have no pre-emptive or conversion rights.
The Fund currently offers three classes, designated Class A shares, Class B
shares and Class C shares. Each class of shares represents an interest in the
same assets of the Fund and generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. See "Distribution Plans."
50
<PAGE> 53
The Fund is permitted to issue an unlimited number of classes. Each class of
shares is equal as to earnings, assets and voting privileges, except as noted
above, and each class bears the expenses related to the distribution of its
shares. There are no conversion, pre-emptive or other subscription rights,
except with respect to the conversion of Class B shares and Class C shares into
Class A shares as described above. In the event of liquidation, each of the
shares of the Fund is entitled to its portion of all of the Fund's net assets
after all debt and expenses of the Fund have been paid. Since Class B shares and
Class C shares pay higher distribution expenses, the liquidation proceeds to
Class B shareholders and Class C shareholders are likely to be lower than to
other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. More detailed information concerning the Fund is
set forth in the Statement of Additional Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
An investment in the Fund may not be appropriate for all investors.
The Fund is not intended to be a complete investment program, and investors
should consider their long-term investment goals and financial needs when making
an investment decision with respect to the Fund.
An investment in the Fund is intended to be a long-term investment, and should
not be used as a trading vehicle.
51
<PAGE> 54
VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
------------------
2800 Post Oak Blvd.
Houston, TX 77056
------------------
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
2800 Post Oak Blvd.
Houston, TX 77056
Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR ACCESS INVESTOR SERVICES, INC.
EXISTING ACCOUNT PLEASE CALL P.O. Box 418256
THE FUND'S TOLL-FREE Kansas City, MO 64141-9256
NUMBER--(800) 421-5666
Custodian
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666 STATE STREET BANK AND
TRUST COMPANY
DEALERS--FOR DEALER 225 Franklin Street, P.O. Box 1713
INFORMATION, SELLING Boston, MA 02105-1713
AGREEMENTS, WIRE ORDERS, Attn: Van Kampen American Capital Funds
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE Legal Counsel
NUMBER--(800) 421-5666
O'MELVENY & MYERS
FOR SHAREHOLDER AND 400 South Hope Street
DEALER INQUIRIES THROUGH Los Angeles, CA 90071
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD) Independent Accountants
DIAL (800) 772-8889
PRICE WATERHOUSE LLP
FOR TELEPHONE TRANSACTIONS 1201 Louisiana, Suite 2900
DIAL (800) 421-5684 Houston, TX 77002
<PAGE> 55
TEXAS TAX FREE
INCOME FUND
- --------------------------------------------------------------------------------
P R O S P E C T U S
JANUARY 30, 1996
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
- --------------------------------------------------------------------------------
<PAGE> 56
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
JANUARY 30, 1996
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated January 30,
1996. A Prospectus may be obtained without charge by calling or writing Van
Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook
Terrace, IL 60181 at (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GENERAL INFORMATION................................................................... B-2
MUNICIPAL SECURITIES.................................................................. B-2
TEMPORARY INVESTMENTS................................................................. B-7
REPURCHASE AGREEMENTS................................................................. B-8
FUTURES CONTRACTS AND RELATED OPTIONS................................................. B-8
INVESTMENT RESTRICTIONS............................................................... B-11
TRUSTEES AND EXECUTIVE OFFICERS....................................................... B-13
INVESTMENT ADVISORY AGREEMENT......................................................... B-18
DISTRIBUTOR........................................................................... B-19
DISTRIBUTION PLANS.................................................................... B-19
TRANSFER AGENT........................................................................ B-21
PORTFOLIO TURNOVER.................................................................... B-21
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. B-21
DETERMINATION OF NET ASSET VALUE...................................................... B-22
PURCHASE AND REDEMPTION OF SHARES..................................................... B-22
EXCHANGE PRIVILEGE.................................................................... B-26
CHECK WRITING PRIVILEGE............................................................... B-26
FEDERAL TAX INFORMATION............................................................... B-27
TEXAS TAX INFORMATION................................................................. B-30
FUND PERFORMANCE...................................................................... B-30
OTHER INFORMATION..................................................................... B-31
FINANCIAL STATEMENTS.................................................................. B-31
APPENDIX.............................................................................. B-32
</TABLE>
B-1
<PAGE> 57
GENERAL INFORMATION
Van Kampen American Capital Texas Tax Free Income Fund, formerly known as
American Capital Texas Municipal Securities, Inc. (the "Fund"), was originally
organized as a Maryland corporation on September 6, 1991 as American Capital
Texas Municipal Bond Fund, Inc. On February 18, 1992, the name of the Fund was
changed to American Capital Texas Municipal Securities, Inc. and reorganized
under the laws of Delaware on August 26, 1995.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly-owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of a
substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership. C&D L.P. is managed by Clayton, Dubilier & Rice, Inc. a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
VKAC own, in the aggregate, not more than seven percent of the common stock of
VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Advantage Capital Corporation, a retail broker-dealer affiliate of the
Distributor, is a wholly-owned subsidiary of VK/AC Holding, Inc.
VKAC offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- and is currently the nation's 5th largest broker-sold mutual fund
group according to Strategic Insight, July 1995. VKAC's roots in money
management extend back to 1926. Today, VKAC manages or supervises more than $50
billion in mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to VKAC in more than 2 million investor accounts. VKAC
has one of the largest research teams (outside of the rating agencies) in the
country, with 86 analysts devoted to various specializations.
As of January 12, 1996, no person was known by management to own
beneficially or of record as much as five percent of the outstanding shares of
any portfolio except the following:
<TABLE>
<CAPTION>
CLASS PERCENTAGE
NAME AND ADDRESS AMOUNT AND NATURE OF OF
OF HOLDER OF OWNERSHIP SHARES OWNERSHIP
- ---------------------------------- ------------------------- -------- ----------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner 37,356 shares of record Class B 5.39%
4800 Deer Lake Dr. East, 3rd Floor 37,288 shares of record Class C 31.80%
Jacksonville, FL 32246-6484
Smith Barney Inc. 110,439 shares of record Class A 9.12%
388 Greenwich Street, 11th Floor 56,363 shares of record Class C 48.07%
New York, NY 10013-2375
</TABLE>
MUNICIPAL SECURITIES
The Fund invests, under normal market conditions, at least 80% of its net
assets in obligations issued by or on behalf of the states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which
is exempt from federal income tax ("Municipal Securities").
Municipal Securities include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for general
operating expenses and loans to other public institutions and facilities. In
addition, certain types of industrial development obligations are issued by or
on behalf of public authorities to finance various privately-operated
facilities. Such obligations are included within the term Municipal Securities
if the interest paid
B-2
<PAGE> 58
thereon is exempt from federal income tax. Municipal Securities also include
short-term tax-exempt municipal obligations such as tax anticipation notes, bond
anticipation notes, revenue anticipation notes, and variable rate demand notes.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue" or "special obligations." General obligations are
secured by the issuer's pledge of faith, credit, and taxing power for the
payment of principal and interest. Revenue or special obligations are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or other specific
revenue source such as from the user of the facility being financed. Industrial
development bonds, including pollution control bonds, are revenue bonds and do
not constitute the pledge of the credit or taxing power of the issuer of such
bonds. The payment of the principal and interest on such industrial revenue
bonds depends solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. The Fund may also
include "moral obligation" bonds which are normally issued by special purpose
public authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.
When the Fund engages in when-issued and delayed delivery transactions, the
Fund relies on the buyer or seller, as the case may be, to consummate the trade.
Failure of the buyer or seller to do so may result in the Fund's missing the
opportunity of obtaining a price considered to be advantageous.
The Fund may invest in Municipal Notes which include demand notes and
short-term municipal obligations (such as tax anticipation notes, revenue
anticipation notes, construction loan notes and short-term discount notes) and
tax-exempt commercial paper provided that such obligations have the ratings
described in the Prospectus or if non-rated are of comparable quality as
determined by the Adviser. Demand notes are obligations which normally have a
stated maturity in excess of one year, but permit any holder to demand payment
of principal plus accrued interest upon a specified number of days' notice.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to prepay at its discretion the
outstanding principal of the note plus accrued interest upon a specified number
of days' notice to the noteholders. Demand notes may also include Municipal
Securities subject to a Stand-By Commitment as described in the Prospectus. The
interest rate on a demand note may be based on a known lending rate, such as a
bank's prime rate, and may be adjusted when such rate changes, or the interest
rate on a demand note may be a market rate that is adjusted at specified
intervals. Participation interests in variable rate demand notes will be
purchased only if in the opinion of counsel interest income on such interests
will be tax-exempt when distributed as dividends to shareholders.
Yields on Municipal Securities are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
Municipal Securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due. There are variations in the risks
involved in holding Municipal Securities, both within a particular
classification and between classifications, depending on numerous factors.
Furthermore, the rights of holders of Municipal Securities and the obligations
of the issuers of such Municipal Securities may be subject to applicable
bankruptcy, insolvency and similar laws and court decisions affecting the rights
of creditors generally, and such laws, if any, which may be enacted by Congress
or state legislatures imposing a moratorium on the payment of principal and
interest or imposing other constraints or conditions on the payments of
principal of and interest on Municipal Securities.
ADDITIONAL RISKS OF LOWER RATED MUNICIPAL SECURITIES
Up to 20% of the Municipal Securities purchased by the Fund may be
obligations rated BB or lower by Standard & Poor's Corporation ("S&P") and
Moody's Investor Service ("Moody's") or non-rated obligations which in the
opinion of the Adviser are of comparable quality ("high yield securities"). See
Appendix -- "Ratings of Investments" for additional information regarding
ratings of debt securities.
B-3
<PAGE> 59
High yield securities are considered by S&P and Moody's to have varying
degrees of speculative characteristics. Consequently, although high yield
securities can be expected to provide higher yields, such securities may be
subject to greater market price fluctuations and risk of loss of principal than
lower yielding, higher rated debt securities. Investments in high yield
securities will be made only when, in the judgment of the Adviser, such
securities provide attractive total return potential relative to the risk of
such securities, as compared to higher quality debt securities. The Fund will
not invest in obligations which are not currently paying interest or which are
rated C (lowest grade by Moody's) or which are rated C or D by S&P or which are
non-rated obligations considered by the Adviser to be of comparable quality. The
Fund does not intend to purchase debt securities that are in default or which
the Adviser believes will be in default.
Issuers or obligors of high yield securities may be highly leveraged and
may not have available to them more traditional methods of financing. Therefore,
the risks associated with acquiring the securities of such issuers or obligors
generally are greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers or obligors of high yield securities may be more likely to
experience financial stress, especially if such issuers or obligors are highly
leveraged. In addition, the market for high yield municipal securities is
relatively new and has not weathered a major economic recession, and it is
unknown what effects such a recession might have on such securities. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.
High yield securities frequently have call or redemption features that
would permit an issuer to repurchase the security from the Fund. If a call were
exercised by the issuer during a period of declining interest rates, the Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends to
shareholders.
The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield securities, there is no established
secondary market for many of these securities, and the Fund anticipates that
such securities could be sold only to a limited number of dealers or
institutional investors. To the extent that a secondary trading market for high
yield securities does exist, it is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
securities also may make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many high yield securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
It is expected that a significant portion of the high yield securities
acquired by the Fund will be purchased upon issuance, which may involve special
risks because the securities so acquired are new issues. In such instances the
Fund may be a substantial purchaser of the issue and, therefore, have the
opportunity to participate in structuring the terms of the offering. Although
this may enable the Fund to seek to protect itself against certain of such
risks, the considerations discussed herein would nevertheless remain applicable.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to adversely affect the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent that it is required to seek recovery upon a default on a portfolio
holding or participate in the restructuring of the obligation.
The Fund will take such actions as it considers appropriate in the event of
anticipated financial difficulties, default or bankruptcy of either the issuer
or any Municipal Securities owned by the Fund or the underlying source of funds
for debt service. Such action may include retaining the services of various
persons
B-4
<PAGE> 60
and firms to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Fund as a result of any such
event. The Fund incurs additional expenditures in taking protective action with
respect to Fund obligations in default and assets securing such obligations.
Investment in lower rated Municipal Securities are not generally meant for
short-term investment.
TEXAS SECURITIES
At least 65% of the Fund's total assets will be invested in Municipal
Securities issued by the State of Texas (the "State"), its agencies,
instrumentalities, and political subdivisions, and local governments of the
State ("Texas Securities"). Texas Securities could include general obligation
bonds of the State, counties, cities, towns, etc., revenue bonds of utility
systems, highways, bridges, port and airport facilities, colleges, hospitals,
etc. and industrial development and pollution control bonds.
The following information is from reports of state officials included in
official statements prepared in connection with Texas Securities and other
public records that are believed to be accurate. The Fund has not independently
verified this information.
The State is the second largest by size among the states of the United
States, covering approximately 266,807 square miles. It contains Houston,
Dallas, and San Antonio, which are respectively, the fourth, eighth, and ninth
largest cities by population in the United States. Texas' gross state product
accounts for more than 7% of the total economy of the United States. Because the
economic bases differ from region to region, economic developments, such as the
strength of the U.S. economy, a decline in oil prices, or changes in defense
spending, can be expected to affect the economy of each region differently.
Since 1990, Texas has added more jobs than any other state, accounting for
one-eighth of the nation's total job growth. The annual rate of employment
growth has risen during each of the past four years and presently ranks around
sixth among all states. Over the twelve months ending in September 1995, Texas
gained more than 235,000 jobs, an increase of 3%, based on information from the
U.S. Bureau of Labor Statistics and the Texas Employment Commission. Nonfarm
employment has grown nearly 13% since 1990 and reached an all-time high of 8.06
million in September 1995.
The state's unemployment rate fell more than two percentage points from
1992 to 1995. Since reaching nearly 8% in 1992, the unemployment rate improved
to below 6% in 1995. Approximately 95% of the new jobs added in the past year
are in the services sector.
Wholesale and retail trade play a significant part in the State's economy.
Houston has the second busiest port in the United States and ranks first in
import trade. Dallas/Ft. Worth is a major regional distribution center, serving
Texas and a number of surrounding states. Because of the State's proximity to
Mexico, international trade plays an important role in the Texas economy.
Several major U.S. corporations have established "sister plant" operations along
the Texas-Mexico border in which goods are partly manufactured in a plant in
Mexico and partly in a plant in the United States. The U.S. free trade agreement
with Mexico and Canada, the North American Free Trade Agreement ("NAFTA") took
effect in 1994. Texas gains proportionately more from NAFTA than the U.S. at
large, but the 1995 recession in the Mexican economy also has more negative
effects in Texas than nationwide. Exports to Mexico comprised 40% of all Texas
exports, and Texas accounted for 47% of the nation's exports to Mexico in 1994.
Exports from Texas to Mexico were up to 17% in 1994, and because of strong
activity among "sister plants," the effect of Mexico's recession on Texas has
been muted. Exports for 1995 are down only slightly.
The manufacturing segment of the state's economy is diversified, but the
most important sectors are those dealing with high technology manufacturing and
the recovery and processing of the state's natural resources. Petroleum-related
manufacturing, including oil-field machinery, petrochemicals and petroleum
refining, account for about 13% of total manufacturing employment. This has
dropped from 19% in the early 1980s with increasing diversification outside of
energy-related manufacturing. The high-technology industries employ about 30% of
all manufacturing workers, despite recent losses related to cutbacks in U.S.
defense expenditures. Exports of computers and electronics totaled $22.4 billion
in 1994, and account for over 37% of the state's total exports.
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Combined, Texas' manufacturing and construction industries have experienced
job growth of 6.7% over the past two years, for a rate nearly equal to the
growth of the service-producing sectors. Texas added a net of 90,400 jobs in the
goods-producing industries from September 1993 to September 1995, despite the
losses of over 12,000 oil and gas jobs and another 8,000 defense-related
aerospace jobs. Most of the 38,000 jobs added in manufacturing have been in the
relatively healthy computer and electronics industries and in construction-
related manufacturing, such as lumber and wood products, stone/clay/glass, and
fabricated metals.
Since the fall of 1993, construction has been the state's fastest-growing
industry, with employment growth of 6% from September 1994 to September 1995.
Residential building permits throughout the state and its major metropolitan
areas have risen at double-digit annual rates since 1990. Total residential
building permits rose from 40,916 in 1989 to 76,144 in 1993 and 94,000 in 1994.
Through the first three quarters of 1995, housing permits are 8.5% above those
in the same period of 1994. The increases in recent years are attributed in
large part to lower mortgage rates and net in-migration, with most of the
increase being in single-family residential building. Multi-family building
activity has begun to follow suit, with the number of starts more than
doubling from 11,600 in 1993 to 27,000 in 1994.
Overall, Texas financial institutions have been profitable in the 1990s.
Net bank income was $657 million in 1990, $1.1 billion in 1991, $2.0 billion in
1992, $2.4 billion in 1993, and $1.9 billion in 1994. Texas banks had total
assets of $188.124 billion in 1994, and the ratio of net income to net assets
represented an annualized return on assets of over 1%.
Consolidation of banks and other financial institutions is ongoing. As a
result of a trend toward larger banks with multiple branches, Texas now has
fewer than 1,000 operating banks, with 951 in June 1995. This is down from 1,125
at the beginning of 1992. It is expected that the number of banking
organizations in the state will continue to shrink, although the number of
branch locations will rise.
The trend toward consolidations has been even more prevalent in the savings
and loan industry. Texas had only 61 state and federal savings and loans in
operation at the beginning of 1995, although profits have been healthy since
1991. Texas savings and loans were profitable (92 percent of them in March 1995,
according to Sheshunoff Information Services), with a return on assets of 0.88%
at the end of 1994.
Twenty-seven state thrifts had assets of $9.8 billion, and 34 federal
thrifts has assets of $46.8 billion.
The State of Texas has long been identified with the oil and gas industry,
but the Texas economy has diversified. In 1981, drilling, production, refining,
chemicals, and energy-related manufacturing accounted for 25% of the State's
total output of goods and services. Currently, these businesses accounted for
11% of the State's economy. At 154,000 employees, mining has fewer jobs today
than at any time since 1977.
In 1994, agriculture output increased 14% over 1993 and contributed $8.2
billion, or 1.7%, to Texas' gross state product. The Comptroller of Public
Accounts forecasted that agriculture would contribute $8.6 billion in 1995, an
increase of 4% over the previous year. While the percent of total output is
relatively small, the State is second in agricultural income in the nation and
agriculture's economic impact affects all regions of the State. Estimated gross
receipts from all agricultural enterprises totaled over $12.8 billion in 1994
and have averaged over $10.9 billion annually during the last ten years. The
State typically leads the nation in the production of livestock and cotton, in
addition to being a major producer of peanuts and rice.
NAFTA is expected to enhance Texas' exports of beef, corn, cotton, rice,
sorghum and wheat, as well as consumer oriented food products. In the global
marketplace, Texas ranks first in agricultural exports to Mexico and is third
among other states in total agricultural exports.
Per capita personal income in Texas in 1995 stood at approximately $20,375,
compared to a national average of $22,346. The rate of growth in personal income
in Texas exceeded the national average from 1990 through 1993 and in 1995.
Between April 1990 and July 1994, the State's population grew by an average of
1.9 percent per year, compared to U.S. growth of 1.1 percent per year. The
Comptroller's office estimates migration accounted for 58 percent of the
1990-1994 growth. The median age of the State's population was 31.9 years in
1994, as compared to 34 years for the United States. According to the 1990
census, 72.1% of the State's population 25 years of age and older has completed
four or more years of high school, as compared to
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an average of 75.2% for the nation. Only one other state, California, has a
larger Hispanic population than Texas.
Due to the state's expansion in Medicaid spending and other Health and
Human Services programs requiring federal matching revenues, federal receipts
became the state's number one source of income in fiscal 1995. Sales tax, which
had been the main source of revenue for the previous 12 years prior to fiscal
1993, was second. Licenses, fees, fines and penalties are now the third largest
revenue source to the state, with motor fuels taxes and motor vehicle
sales/rental taxes following as fourth largest and fifth largest, respectively.
The remainder of the states' revenues are derived primarily from interest and
investment income, lottery proceeds, cigarette and tobacco, franchise, oil and
gas severance and other taxes. The state has no personal or corporate income
tax, although the state does impose a corporate franchise tax based on the
amount of a corporation's capital and "earned surplus," which includes corporate
net income and officers' and directors' compensation.
Before the 74th Legislature adjourned on May 29, 1995, a state budget
totaling $79.9 billion had passed, including $45.1 billion in general revenue
related funds. This general revenue related amount includes $1.0 billion in
revenues from consolidated accounts losing their dedication. The actions of the
74th Legislature coupled with improved economic activity enabled the Comptroller
to certify that sufficient revenue will be available to pay for the state's
1996-97 budget. The State of Texas finished fiscal year 1995 with a $2.110
billion positive cash balance in the General Revenue Fund. This was the eighth
consecutive year that Texas ended a fiscal year with a positive balance in the
General Revenue Fund.
The State of Texas has issued general obligation and revenue bonds for
various purposes. The principal amount per capita of general obligation bonds
and revenue bonds payable from the General Revenue Fund (including general
obligation bonds which, although legally secured by the State's taxing
authority, are expected to be repaid with sources outside the General Revenue
Fund) has increased from $186.54 in 1991 to $288.40 in 1995.
On May 31, 1993, the Texas governor signed a comprehensive legislative
revision to the school finance provisions of the Texas Education Code. The
legislative revisions resulted from a series of court decisions commonly
referred to as Edgewood v. Kirby, in which Texas courts have declared the Texas
school finance system unconstitutional under Texas law. Generally, the courts
declared the school finance system unconstitutional because there must be a
"direct and close correlation between a district's tax effort and the
educational resources available to it," and because districts must have
"substantially equal access to similar revenues per pupil at similar levels of
tax effort."
On January 30, 1995, the Texas Supreme Court issued an opinion which upheld
all provisions of the legislative revision. The Court suggested, however, that
further changes may be needed in the near future to provide equal access to
funding for facility needs. The Court also cautioned of the appearance of a
constitutionally-prohibited state ad valorem tax if all school districts were
effectively forced to tax at the same level.
During its most recent session, the Texas Legislature created a new $170
million school facilities construction funding program targeted at property-poor
school districts. The Legislature also modified the tax rate cap established
under the previous legislative revision. Whether the 1995 legislation satisfies
all constitutional standards for school financing is unknown at this time.
TEMPORARY INVESTMENTS
The taxable securities in which the Fund may invest as temporary
investments include United States Government securities, corporate bonds and
debentures, domestic bank certificates of deposit and bankers' acceptances of
domestic banks with assets of $500 million or more and having deposits insured
by the Federal Deposit Insurance Corporation, commercial paper and repurchase
agreements. The Fund may also invest, as temporary investments, in shares of
tax-exempt money market investment companies.
United States Government securities include obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies and instrumentalities which are supported by any of the
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following: (a) the full faith and credit of the United States Government, (b)
the right of the issuer to borrow an amount limited to a specific line of credit
from the United States Government, (c) discretionary authority of the United
States Government agency or instrumentality, or (d) the credit of the
instrumentality. Such agencies or instrumentalities include, but are not limited
to, the Federal National Mortgage Association, the Government National Mortgage
Association, Federal Land Banks, and the Farmer's Home Administration. A Fund
may not invest in any security issued by a commercial bank unless the bank is
organized and operating in the United States and has total assets of at least
$500 million and is a member of the Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement is required to maintain the value of the underlying
securities marked to market daily at not less than the repurchase price. The
underlying securities (securities of the United States Government, or its
agencies and instrumentalities), may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. The Fund will not
invest in repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid security owned by the Fund, exceeds
ten percent of the value of its net assets. See "Investment
Practices -- Repurchase Agreements" in the Prospectus for further information.
FUTURES CONTRACTS AND RELATED OPTIONS
FUTURES CONTRACTS
A municipal bond futures contract is an agreement pursuant to which two
parties agree to take and make delivery of an amount of cash equal to a
specified dollar amount times the differences between The Bond Buyer Municipal
Bond Index (the "Index") value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. The
Index is a price-weighted measure of the market value of 40 large sized, recent
issues of tax-exempt bonds.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid high
grade debt securities equal to not more than five percent of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security or index rises, that position increases in value, and
the Fund receives from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund purchases a futures contract and
the value of the
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underlying security or index declines, the position is less valuable, and the
Fund is required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is not fully
invested ("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or related options, the Fund could experience delays
and/or losses in liquidating open positions purchased and/or incur a loss of all
or part of its margin deposits with the broker. Transactions are entered into by
the Fund only with brokers or financial institutions deemed creditworthy by the
Adviser.
Special Risks Associated with Futures Transactions. There are several
risks connected with the use of futures contracts as a hedging device. These
include the risk of imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less then the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities, or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.
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There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movements, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in future contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
The Fund could engage in transactions involving futures contracts and
related options in accordance with the rules and interpretations of the
Commodity Futures Trading Commission ("CFTC") under which the Fund would be
exempt from registration as a "commodity pool." CFTC regulations require, among
other things, (i) that futures and related options be used solely for bona fide
hedging purposes (or meet certain conditions as specified in CFTC regulations)
and (ii) that the Fund not enter into futures and related options for which the
aggregate initial margin and premiums exceed five percent of the fair market
value of the Fund's assets. In order to minimize leverage in connection with the
purchase of futures contracts by the Fund, an amount of cash, cash equivalents
or liquid high grade debt securities equal to the market value of the obligation
under the futures contracts (less any related margin deposits) will be
maintained in a segregated account with the Custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included in initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as, it could sell a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
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ADDITIONAL RISKS TO FUTURES CONTRACTS AND RELATED OPTIONS
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An Exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most United States futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which, along with its
investment objective, cannot be changed without approval by the holders of a
majority of the outstanding shares of the Fund. Such majority is defined by the
1940 Act as the lesser of (i) 67% or more of the voting securities present in
person or by proxy at the meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or (ii) more
than 50% of the outstanding voting securities. In addition to the fundamental
investment limitations set forth in the Prospectus, the Fund shall not:
1. Purchase or hold securities of any issuer if, to the knowledge of the
Fund, any of the Fund's officers or trustees, or officers or directors
of its investment adviser, owns more than 1/2 of 1% of the outstanding
securities of that issuer, and such officers and trustees/directors who
individually own more than such amount together own more than five
percent of the outstanding securities of such issuer.
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 an equal amount of
such securities; provided that this prohibition does not apply to the
writing of options or the sale of futures or related options.
4. Make loans of money or securities to other persons except that the Fund
may purchase or hold debt instruments and enter into repurchase
agreements in accordance with its investment objective and policies.
5. Purchase or sell real estate or invest in mortgage loans (but this
shall not prevent the Fund from investing in Municipal Securities or
Temporary Investments secured by real estate or interests therein);
or in interests in oil, gas, or other mineral exploration or
development programs; or in any security not payable in United States
currency.
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6. Invest more than ten percent of the value of its net assets in
securities which are illiquid, including securities restricted as to
disposition under the Securities Act of 1933, and including repurchase
agreements maturing in more than seven days.
7. Invest in securities of any one issuer with a record of less than three
years of continuous operation, including predecessors, except
obligations issued or guaranteed by the United States Government or its
agencies or Municipal Securities (except that in the case of industrial
revenue bonds, this restriction shall apply to the entity supplying the
revenues from which the issue is to be paid), if such investments by
the Fund would exceed five percent of the value of its total assets
(taken at market value).
8. 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.
9. Invest in securities other than Municipal Securities, Temporary
Investments (as defined in the Prospectus), stand-by commitments,
futures contracts described in the next paragraph, and options on such
contracts.
10. Purchase or sell commodities or commodity contracts except that the
Fund may purchase, hold and sell listed futures contracts related to
U.S. Government securities, Municipal Securities or to an index of
Municipal Securities.
11. 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 five percent of the total assets of the Fund at
market value at the time of borrowing. Any such borrowing may be
secured provided that not more than ten percent of the total assets of
the Fund at market value at the time of pledging may be used as
security for such borrowings.
12. 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; provided that this limitation shall
not apply to tax-exempt securities issued by governmental bodies or
agencies or instrumentalities thereof; so that industrial development
bonds that are considered to be issued by non-governmental users are
subject to this industry limitation.
13. Issue senior securities as defined in the 1940 Act.
Because of the nature of the securities in which the Fund may invest, the
Fund may not invest in voting securities, or invest for the purpose of
exercising control or management, or invest in securities of other investment
companies. If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
will not constitute a violation of such restriction.
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TRUSTEES AND EXECUTIVE OFFICERS
The Fund's Trustees and Executive Officers and their principal occupations
for the past five years are listed below.
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
Strafford Hall President of MDT Corporation, a company which develops,
Suite 200 manufactures, markets and services medical and scientific
1009 Slater Road equipment. A Trustee of each of the Van Kampen American
Harrisville, NC 27560 Capital funds.
Age: 63
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital funds.
Age: 67
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndston, 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
Age: 46 of La Salle National Bank. A Trustee of each of the Van
Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. A Trustee of each of the
Lyme, CT 06371 Van Kampen American Capital funds.
Age: 76
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and a member of the Investment
Committee of the Joyce Foundation, a private foundation.
A Trustee of each of the Van Kampen American Capital
funds.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. A Trustee of each of the Van Kampen American
Capital funds and Chairman of each Van Kampen American
Capital fund advised by Van Kampen American Capital
Investment Advisory Corp.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. A Trustee of each of the Van
Kampen American Capital funds.
</TABLE>
B-13
<PAGE> 69
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and VKAC. Chairman, Chief Executive
Houston, TX 77056 Officer and a Director of the Distributor and the
Age: 56 Adviser. Chairman and a Director of ACCESS and Van Kampen
American Capital Trust Company. Chairman, President and a
Director of Van Kampen American Capital Services, Inc.
Director, Trustee or Managing General Partner of each of
the Van Kampen American Capital funds and other open-end
investment companies and closed-end investment companies
advised by the Adviser and its affiliates.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A Director of Source
Glendale, CA 91208 Capital, Inc., an investment company unaffiliated with
Age: 72 Van Kampen American Capital. A Director and the Second
Vice President of International Institute of Los Angeles.
A Trustee of each of the Van Kampen American Capital
funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 73 software programming company specializing in white collar
productivity. Director of Panasia Bank. A trustee of each
of the Van Kampen American Capital funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 Fund. Director, FPA Capital Fund, Inc.; FPA New Income
Los Angeles, CA 90067 Fund, Inc.; FPA Perennial Fund, Inc.; Source Capital,
Age: 63 Inc.; and TCW Convertible Security Fund, Inc., investment
companies unaffiliated with Van Kampen American Capital.
A Trustee of each of the Van Kampen American Capital
funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. A Trustee of each of the Van Kampen American
Age: 71 Capital funds and Chairman of the Van Kampen American
Capital funds advised by the Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to certain of the Van Kampen
Chicago, IL 60606 American Capital funds. A Trustee of each of the Van
Age: 56 Kampen American Capital funds. He also is a Trustee of
the Van Kampen Merritt Series Trust and closed-end
investment companies advised by an affiliate of the
Adviser.
</TABLE>
B-14
<PAGE> 70
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. A Trustee of each of the Van
Kampen American Capital funds.
</TABLE>
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940). Mr. Powell is an interested person of
the Adviser and the Fund by reason of his position with the Adviser. Mr.
Sheehan and Mr. Whalen are interested persons of the Adviser and the Fund by
reason of their firms having acted as legal counsel to the Adviser or an
affiliate thereof.
The Fund's officers other than Messrs. McDonnell and Nyberg are located at
2800 Post Oak Blvd., Houston, TX 77056. Messrs. McDonnell and Nyberg are
located at One Parkview Plaza, Oakbrook Terrace, IL 60181.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Tanya M. Loden........... Vice President and Vice President and Controller of most of
Age: 36 Controller the investment companies advised by the
Adviser, formerly Tax Manager/Assistant
Controller.
Dennis J. McDonnell...... Vice President President, Chief Operating Officer and a
Age: 53 Director of the Adviser. Executive Vice
President and a Director of VK/AC Holding,
Inc. and VKAC.
Curtis W. Morell......... Vice President and Vice President and Treasurer of most of the
Age: 49 Treasurer investment companies advised by the
Adviser.
Ronald A. Nyberg......... Vice President and Executive Vice President, General Counsel
Age: 42 Secretary and Secretary of Van Kampen American
Capital. Executive Vice President, General
Counsel and a Director of the Distributor.
Executive Vice President and General
Counsel of the Adviser. Director of ICI
Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute.
Robert C. Peck, Jr....... Vice President Executive Vice President and Director of
Age: 49 the Adviser.
</TABLE>
B-15
<PAGE> 71
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Joseph A. Piraro......... Vice President Vice President of the Adviser. Employed
Age: 47 since 1992 with Van Kampen American Capital
Investment Advisory Corp., an affiliate of
the Adviser. Prior to that time he was
employed by First Chicago Capital Markets.
Paul R. Wolkenberg....... Vice President Executive Vice President of the Adviser.
Age: 51 President, Chief Executive Officer and a
Director of Van Kampen American Capital
Trust Company and ACCESS.
</TABLE>
During the last fiscal year ended September 30, 1995, the Trustees who were
not affiliated with the Adviser or its parent received as a group $8,342 in
trustees' fees from the Fund in addition to certain out-of-pocket expenses. Such
trustees also received compensation for serving as directors or trustees of
other investment companies advised by the Adviser as identified in the notes to
the foregoing table. For legal services rendered during the last fiscal year the
Fund paid legal fees of $9,011 to the law firm of O'Melveny & Myers of which Mr.
Sheehan is Of Counsel. The Firm also serves as legal counsel to other Van Kampen
American Capital Funds.
Additional information regarding compensation paid by the Fund and the
related mutual funds for which the Trustees serve as trustees is set forth
below. The compensation shown for the Fund is for the most recent fiscal year
and the total compensation shown for the Fund and other related mutual funds is
for the calendar year ended December 31, 1994.
B-16
<PAGE> 72
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED AND FUND
FROM AS PART OF FUND COMPLEX PAID TO
NAME OF PERSON REGISTRANT EXPENSES(5) TRUSTEES(6)
-------------- ---------- ----------- -----------
<S> <C> <C> <C>
J. Miles Branagan........................................ $ 940 -0- $64,000
Dr. Richard E. Caruso(3)................................. 920(2) -0- 64,000
Philip P. Gaughan........................................ 150 -0- -0-
Linda H. Heagy........................................... 90 -0- -0-
Dr. Roger Hilsman........................................ 1,000 -0- 66,000
R. Craig Kennedy......................................... 200 -0- -0-
Donald C. Miller......................................... 200 -0- -0-
Jack E. Nelson........................................... -0- -0- -0-
David Rees............................................... 955 -0- 64,000
Jerome L. Robinson....................................... 200 -0- -0-
Lawrence J. Sheehan...................................... 1,000 -0- 67,000
Dr. Fernando Sisto(3).................................... 975 -0- 82,000
Wayne W. Whalen.......................................... 200 -0- -0-
William S. Woodside(4)................................... 940 -0- 18,000
</TABLE>
- ---------------
(1) Mr. Powell, a trustee of the Fund, is an affiliated person of the Adviser
and is not eligible for compensation or retirement benefits from the Fund.
Messrs. Gaughan, Kennedy, Miller, Nelson, Robinson and Whalen were elected
as trustees of the Fund at a shareholders meeting held July 21, 1995. Ms.
Heagy was appointed as a trustee of the Fund at a meeting of the Board of
Trustees on September 7, 1995.
(2) Amount reflects deferred compensation of $920 for Mr. Caruso.
(3) Messrs. Caruso and Sisto have deferred compensation in the past. The
cumulative deferred compensation accrued by the Fund as of September 30,
1995 is as follows: Caruso, $3,937; Sisto, $1,421.
(4) Prior to October 6, 1994, Mr. Woodside's compensation was paid by the
Registrant's adviser. With respect to column 4, $36,000 was paid by the
Adviser directly.
(5) The amounts in this column are the retirement benefits accrued during the
Fund's fiscal year ended September 30, 1995.
(6) As of December 31, 1994, the Fund Complex consisted of 29 mutual funds
advised by the Adviser which had the same members on each funds' Board of
Trustees. The amounts shown in this column are accumulated from the
Aggregate Compensation of each of these 29 mutual funds in the Fund Complex
during the calendar year ended December 31, 1994. The Adviser also serves as
investment adviser for other investment companies; however, with the
exception of Mr. Powell, such investment companies do not have the same
trustees as the Fund Complex.
As of January 12, 1996, the trustees and officers as a group own less than
1% of the shares of the Fund.
No officer or trustee of the Fund owns or would be able to acquire 5% or
more of the common stock of VK/AC Holding, Inc.
Beginning July 21, 1995, the Fund pays each trustee who is not affiliated
with the Adviser, the Distributor or VKAC an annual retainer of $629 and a
meeting fee of $18 per Board meeting plus expenses. No additional fees are paid
for committee meetings or to the chairman of the board. In order to alleviate an
additional expense that might be caused by the new compensation arrangement, the
trustees have approved a reduction in the compensation per trustee and have
agreed to an aggregate annual compensation cap with respect to the combined fund
complex of $84,000 per trustee until December 31, 1996, based upon the net
assets and the number of Van Kampen American Capital funds as of July 21, 1995
(except that Mr. Whalen, who is a trustee of 34 closed-end funds advised by an
affiliate of the Adviser, would receive an additional $119,000 for
B-17
<PAGE> 73
serving as a trustee of such funds). In addition, the Adviser has agreed to
reimburse the Fund through December 31, 1996 for any increase in the aggregate
trustees' compensation paid by the Fund over their 1994 fiscal year aggregate
compensation.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of 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, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of the Fund. The costs of such accounting
services include the salaries and overhead expenses of a Treasurer or other
principal financial officer and the personnel operating under his direction. The
services are provided at cost which is allocated among the investment companies
advised by the Adviser. The Fund also pays transfer agency fees, distribution
fees, service fees, custodial fees, legal fees, the costs of reports to
shareholders and all other ordinary expenses not specifically assumed by the
Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets at an annual rate of 0.60%
of the first $300 million of the Fund's average net assets, 0.55% of the next
$300 million of the Fund's average net assets and 0.50% of the Fund's average
net assets in excess of $600 million.
The average daily net assets is determined by taking the average of all of
the determinations of the net assets for each business day during a given
calendar month. Such fees are payable for each calendar month as soon as
practicable after the end of that month. The Adviser shall use its best efforts
to recapture all available tender solicitation fees and exchange offer fees in
connection with each of the Fund's transactions and shall advise the Trustees of
the Fund of any other commissions, fees, brokerage or similar payments which may
be possible under applicable laws for the Adviser or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc. to receive in
connection with the Fund's portfolio transactions or other arrangements which
may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where the Fund's shares are
qualified for sale, the Adviser's monthly compensation will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund an amount sufficient to make up
the deficiency, subject to readjustment during the year. Ordinary business
expenses do not include (1) interest and taxes, (2) brokerage commissions, (3)
payments made pursuant to distribution plans (described herein), and (4) certain
litigation and indemnification expenses as described in the Advisory Agreement.
The Advisory Agreement also provides that the Adviser shall not be liable to the
Fund for any actions or omissions if it acted in good faith without negligence
or misconduct.
Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million, and 1 1/2% of the remaining
average net assets.
The Advisory 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 such purpose. The Advisory Agreement
B-18
<PAGE> 74
provides that it shall terminate automatically if assigned and that it may be
terminated without penalty by either party on 30 days' written notice.
During the fiscal years ended September 30, 1993, 1994 and 1995, the
Adviser received $-0-, $-0- and $61,589, respectively, in advisory fees from the
Fund. For such period the Fund paid $67,451, $67,241 and $67,413, respectively,
for accounting services.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the shares of the Fund
pursuant to a written agreement (the "Underwriting Agreement"). The Distributor
has the exclusive right to distribute shares of the Fund through affiliated and
unaffiliated dealers. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay for
only such shares of the Fund as may be sold to the public. The Distributor is
not obligated to sell any stated number of shares. The Underwriting Agreement is
renewable from year to year if approved (a) by the Fund's Trustees or by a vote
of a majority of the Fund's outstanding voting securities, and (b) by the
affirmative vote of a majority of Trustees who are not parties to the
Underwriting Agreement or interested persons of any party, by votes cast in
person at a meeting called for such purpose. The Underwriting Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 60 days' written notice.
During the fiscal years ended September 30, 1993, 1994 and 1995, total
underwriting commissions on the sale of shares of the Fund were $205,498,
$52,218 and $18,330, respectively. Of such total, the amount retained by the
Distributor was $30,599, $7,912 and $2,589, respectively. The remainder was
reallowed to dealers. Of such dealer reallowances, $8,835, $3,346 and $157,
respectively, was received by Advantage Capital Corporation, a former affiliate
of the Fund.
DISTRIBUTION PLANS
The Fund adopted a Class A distribution plan, a Class B distribution plan
and a Class C distribution plan (the "Class A Plan," "Class B Plan" and "Class C
Plan," respectively) to permit the Fund directly or indirectly to pay expenses
associated with servicing shareholders and in the case of the Class B Plan and
Class C Plan the distribution of its shares (the Class A Plan, Class B Plan and
Class C Plan are sometimes referred to herein collectively as "Plans" and
individually as a "Plan").
The Trustees have authorized payments by the Fund under the Plans to
reimburse the Distributor for its payments to certain financial institutions
(which may include banks), securities dealers and other industry professionals
(collectively, "Service Organizations") for administration, for servicing Fund
shareholders who are also their clients and/or for distribution. Such payments
are based on an annual percentage of the value of Fund shares held in
shareholder accounts for which such Service Organizations are responsible. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate Service Organizations for personal service and/or the
maintenance of shareholder accounts. With respect to the Class B and Class C
Plans, authorized payments by the Fund include payments at an annual rate of up
to 0.25% of the net assets of the shares of the respective class to reimburse
the Distributor for payments for personal service and/or the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
the Fund also include payments at an annual rate of up to 0.75% of the net
assets of the Class B shares to reimburse the Distributor for (1) commissions
and transaction fees of up to 4% of the purchase price of Class B shares
purchased by the clients of broker-dealers and other Service Organizations, (2)
out-of-pocket expenses of printing and distributing prospectuses and annual and
semi-annual shareholder reports to other than existing shareholders, (3)
out-of-pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to broker-dealers and financial and industry professionals, (5)
advertising and promotion expenses, including conducting and organizing sales
seminars, marketing support salaries and bonuses, and travel-related expenses,
and (6) interest expense at the three-month LIBOR rate plus 1 1/2% compounded
quarterly on the unreimbursed distribution expenses. With respect to the Class C
Plan, authorized payments by the Fund also include payments at an annual rate of
up to 0.75% of the net assets of the Class C shares to reimburse the Distributor
B-19
<PAGE> 75
for (1) upfront commissions and transaction fees of up to 0.75% of the purchase
price of Class C shares purchased by the clients of broker-dealers and other
Service Organizations and ongoing commissions and transaction fees paid to
broker-dealers and other Service Organizations in an amount up to 0.75% of the
average daily net assets of the Fund's Class C shares, (2) out-of-pocket
expenses of printing and distributing prospectuses and annual and semi-annual
shareholder reports to other than existing shareholders, (3) out-of-pocket and
overhead expenses for preparing, printing and distributing advertising material
and sales literature, (4) expenses for promotional incentives to broker-dealers
and financial and industry professionals, (5) advertising and promotion
expenses, including seminars, marketing support salaries and bonuses, and
travel-related expenses, and (6) interest expense at the three-month LIBOR rate
plus 1 1/2% compounded quarterly on the unreimbursed distribution expenses. Such
reimbursements are subject to the maximum sales charge limits specified by the
NASD.
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreement and selling group agreement were approved by the Trustees,
including a majority of the Trustees who are not affiliated persons (as defined
in the 1940 Act) of the Fund and who have no direct or indirect financial
interest in the operation of any of the Plans or in any agreements related to
each Plan ("Independent Trustees"). In approving each Plan in accordance with
the requirements of Rule 12b-1, the Trustees determined that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
Each Plan requires the Distributor to provide the Fund's Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
the Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by a vote of a majority of the outstanding voting shares of the
respective class. Any change in any of the Plans that would materially increase
the distribution or service expenses borne by the Fund requires shareholder
approval voting separately by class; otherwise, it may be amended by a majority
of the Trustees, including a majority of the Independent Trustees, by vote cast
in person at a meeting called for the purpose of voting upon such amendment. So
long as the Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
For the fiscal year ended September 30, 1995, the Fund's aggregate expenses
under the Class A Plan were $26,331 or 0.22% of the Class A shares' average net
assets. Such expenses were paid to reimburse the Distributor for payments made
to Service Organizations for servicing Fund shareholders and for administering
the Class A Plan. For the fiscal year ended September 30, 1995, the Fund's
aggregate expenses under the Class B Plan were $75,938 or 1.00% of the Class B
shares' average net assets. Such expenses were paid to reimburse the Distributor
for the following payments: $56,954 for commissions and transaction fees paid to
broker-dealers and other Service Organizations in respect of sales of Class B
shares of the Fund and $18,984 for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan. For the
fiscal year ended September 30, 1995, the Fund's aggregate expenses under the
Class C Plan were $11,528 or 1.00% of the Class C shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $8,646 for commissions and transaction fees paid to broker-dealers and
other Service Organizations in respect of sales of Class C shares of the Fund
and $2,882 for fees paid to Service Organizations for servicing Class C
shareholders and administering the Class C Plan.
B-20
<PAGE> 76
TRANSFER AGENT
During the fiscal year ended September 30, 1995, ACCESS, shareholder
service agent and dividend disbursing agent for the Fund, received fees
aggregating $12,513 for these services. The services of ACCESS are provided at
cost plus a profit.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate is shown under
"Financial Highlights" in the Prospectus. The annual turnover rate is not
expected to exceed 100%. A 100% turnover rate would occur if all the Fund's
portfolio securities were replaced during one year.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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 any
commissions, if any, paid on such transactions. As most transactions made by the
Fund are principal transactions at net prices, the Fund incurs little or no
brokerage costs except for commissions paid with respect to transactions in
future contracts and options. Portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include the spread between the bid and
asked price. Sales to dealers are effected at bid prices.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker-dealers and in negotiating commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, consideration may be given to firms which also provide research
services to the Fund or the Adviser. No specific value can be assigned to such
research services which are furnished without cost to the Adviser. The
investment advisory fee is not reduced as a result of the Adviser's receipt of
such research services. Services provided may include (a) furnishing advice as
to the value of the 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 the accounts, and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody). Research services furnished by firms through which the Fund effects
its securities transactions may be used by the Adviser in servicing all of its
advisory accounts; not all of such services may be used by the Adviser in
connection with the Fund.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution of such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund and of the other Van Kampen
American Capital mutual funds as a factor in the selection of firms to execute
portfolio transactions for the Fund.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. 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.
B-21
<PAGE> 77
The Adviser's brokerage practices are monitored on a quarterly basis by the
Brokerage Review Committee comprised of Fund Trustees who are not affiliated
persons (as defined in the 1940 Act) of the Adviser. During the fiscal years
ended September 30, 1993, 1994 and 1995, the Fund paid no brokerage commissions.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is computed by dividing the
value of all securities held by the Fund plus other assets, less liabilities
(including accrued expenses), by the number of shares outstanding. Such
computation is made as of the close of the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) on each business day on which
the Exchange is open. The Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's investments are valued by an independent pricing service
("Service"). When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at such quoted bid prices (as obtained by
the Service from dealers in such securities). Other investments are carried at
fair value as determined by the Service, based on methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. Any assets which are not valued
by the Service would be valued at fair value using methods determined in good
faith by the Trustees. Expenses and fees, including the management fee are
accrued daily and taken into account for the purpose of determining the net
asset value of Fund shares. Short-term instruments having remaining maturities
of 60 days or less are valued at amortized cost.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the Securities and Exchange Commission ("SEC").
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in the Fund's
Prospectus under the heading "Purchase of Shares."
PURCHASE OF SHARES
The Fund's shares are sold in a continuous offering and may be purchased on
any business day through authorized dealers, including Advantage Capital
Corporation.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues three classes of shares: Class A shares are subject to an
initial sales charge; Class B shares and Class C shares are sold at net asset
value and are subject to a contingent deferred sales charge. The three classes
of shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B and Class C shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including higher transfer agency costs)
resulting from such sales arrangements, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the distribution
fee is paid.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.
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INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application included in the Prospectus and forwarding the application, through
the designated dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of $500 or more in the Fund, in the form
of a check payable to the Fund, must accompany the application. This minimum may
be waived by the Distributor for plans involving continuing investments.
Subsequent investments of $25 or more may be mailed directly to ACCESS. All such
investments are made at the public offering price of the Fund's shares next
computed following receipt of payment by ACCESS. Confirmations of the opening of
an account and of all subsequent transactions in the account are forwarded by
ACCESS to the investor's dealer of record, unless another dealer is designated.
In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same capacity
so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charges reflected in the sales charge table as shown in
the Prospectus apply to the purchases of Class A shares of the Fund where the
aggregate investment is $100,000 or more. For purposes of determining
eligibility for volume discounts, spouses and their minor children are treated
as a single purchaser, as is a trustee or other fiduciary purchasing for a
single fiduciary account. An aggregate investment includes all shares of the
Fund and all shares of certain other participating Van Kampen American Capital
mutual funds described in the Prospectus (the "Participating Funds"), which have
been previously purchased and are still owned, plus the shares being purchased.
The current offering price is used to determine the value of all such shares.
If, for example, an investor has previously purchased and still holds Class A
shares of the Fund and/or shares of other Participating Funds having a current
offering price of $50,000 and that person purchases $60,000 of additional Class
A shares of the Fund, the charge applicable to the $60,000 purchase would be
3.75% of the offering price. The same reduction is applicable to purchases under
a Letter of Intent as described in the next paragraph. THE DEALER MUST NOTIFY
THE DISTRIBUTOR AT THE TIME AN ORDER IS PLACED FOR A PURCHASE WHICH WOULD
QUALIFY FOR THE REDUCED CHARGE ON THE BASIS OF PREVIOUS PURCHASES. SIMILAR
NOTIFICATION MUST BE MADE IN WRITING WHEN SUCH AN ORDER IS PLACED BY MAIL. The
reduced sales charge will not be applied if such notification is not furnished
at the time of the order. The reduced sales charge will also not be applied
should a review of the records of the Distributor or ACCESS fail to confirm the
investor's represented holdings.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount," made pursuant to the Letter of Intent and
still owned, are also included in determining the applicable quantity discount.
A Letter of Intent permits an investor to establish a total investment goal to
be achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totaling five percent of the dollar amount of the Letter of Intent are
held by ACCESS in the name of the shareholder. The effective date of a Letter of
Intent may be back-dated up to 90 days in order that any investments made during
this 90-day period, valued at the investor's cost, can become subject to the
Letter of Intent. The Letter of Intent does not obligate the investor to
purchase the indicated amount. If the Letter of Intent goal is not achieved
within the 13-month period, the investor is required to pay the difference
between sales charges otherwise applicable to the purchases made during this
period and sales charges actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrow
shares to obtain such difference. If the goal is exceeded in an amount which
qualifies for a lower sales charge, a price adjustment is made by refunding to
the investor in shares of the Fund, the amount of excess sales charges, if any,
paid during the 13-month period.
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REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." The
right of redemption may be suspended and the payment therefore may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For investments of $1,000,000 or more of Class A shares of the Fund
("Qualified Purchaser"), the front-end sales charge will be waived and a
contingent deferred sales charge ("CDSC -- Class A") of one percent is imposed
in the event of certain redemptions within one year of the purchase. If a
CDSC -- Class A is imposed upon redemption, the amount of the CDSC -- Class A
will be equal to the lesser of one percent of the net asset value of the shares
at the time of purchase, or one percent of the net asset value of the shares at
the time of redemption.
The CDSC -- Class A will only be imposed if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. The CDSC --
Class A will be waived in connection with redemptions by certain Qualified
Purchasers (e.g., in retirement plans qualified under Section 401(a) of the
Internal Revenue Code (the "Code") and deferred compensation plans under Section
457 of the Code) required to obtain funds to pay distributions to beneficiaries
pursuant to the terms of the plans. Such payments include, but are not limited
to, death, disability, retirement, or separation from service. No CDSC -- Class
A will be imposed on exchanges between funds. For purposes of the CDSC -- Class
A, when shares of one fund are exchanged for shares of another fund, the
purchase date for the shares of the fund exchanged into will be assumed to be
the date on which shares were purchased in the fund from which the exchange was
made. If the exchanged shares themselves are acquired through an exchange, the
purchase date is assumed to carry over from the date of the original election to
purchase shares subject to a CDSC -- Class A rather than a front-end load sales
charge. In determining whether a CDSC -- Class A is payable, it is assumed that
shares held the longest are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of Van Kampen American Capital Reserve
Fund and Van Kampen American Capital Tax Free Money Fund with shares of certain
other participating funds described as "Participating Funds" in the Prospectus.
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B and Class C shares will be subject to a contingent deferred sales
charge.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
The CDSC -- Class B and C is waived on redemptions of Class B and Class C
shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC -- Class B and C on redemptions following the
death or disability of a Class B and Class C shareholder. An individual will be
considered disabled for this purpose if he or she meets the definition thereof
in Section 72(m)(7) of the Code, which in pertinent part defines a person as
disabled if such person "is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration." While the Fund does not specifically adopt the balance of the Code's
definition which
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pertains to furnishing the Secretary of Treasury with such proof as he or she
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC -- Class B and C.
In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Fund will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more of Van Kampen American
Capital funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held onto the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC -- Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge also will be waived on any minimum distribution required to
be distributed in accordance with Code Section 401(a)(9).
The Fund does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.
(c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC -- Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC -- Class
B and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Any involuntary redemption may only occur if
the shareholder account is less than the amount specified in the Prospectus due
to shareholder redemptions. The Fund will waive the CDSC -- Class B and Class C
upon such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Fund may reinvest at net
asset value, with credit for any CDSC -- Class C paid on the redeemed shares,
any portion or all of his or her redemption proceeds (plus
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<PAGE> 81
that amount necessary to acquire a fractional share to round off his or her
purchase to the nearest full share) in Class C shares of the Fund, provided that
the reinvestment is effected within 120 days after such redemption and the
shareholder has not previously exercised this reinvestment privilege with
respect to Class C shares of the Fund. Shares acquired in this manner will be
deemed to have the original cost and purchase date of the redeemed shares for
purposes of applying the CDSC -- Class C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. VKAC and its subsidiaries, including ACCESS
(collectively, "Van Kampen American Capital"), and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen American Capital nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital and the Fund may be liable for any losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed.
For purposes of determining the sales charge rate previously paid on Class
A shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the Prospectus for additional information
regarding such fund.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form and return both documents to ACCESS before checks will be
issued. All signatures on the authorization card must be guaranteed if any of
the signators are persons not referenced in the account registration or if more
than 30 days have elapsed since ACCESS established the account on its records.
Moreover, if the shareholder is a corporation, partnership, trust, fiduciary,
executor or administrator, the appropriate documents appointing authorized
signers (corporate
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<PAGE> 82
resolutions, partnerships or trust agreements) must accompany the authorization
card. The documents must be certified in original form, and the certificates
must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
FEDERAL TAX INFORMATION
The following is only a summary of certain additional federal, state and
local tax considerations generally affecting the Fund and its shareholders that
are not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
General. By maintaining its qualification as a "regulated investment
company" under the Code, the Fund will not incur any liability for federal
income taxes to the extent its taxable ordinary income and any capital gain net
income is distributed in accordance with Subchapter M of the Code.
The Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders at least 98% of its ordinary taxable (net
investment) income for the twelve-months ended December 31, plus 98% of its
capital gain net income for the twelve-months ended October 31 of such calendar
year. The Fund intends to distribute sufficient amounts to avoid liability for
the excise tax. The per share dividends on Class B and Class C shares will be
lower than the per share dividends on Class A shares as a result of the
distribution fee and higher transfer agency fees applicable to the Class B and
Class C shares. By qualifying as a regulated investment company, the Fund is not
subject to federal income taxes to the extent it distributes its taxable net
investment income and taxable net realized capital gains. If for any taxable
year the Fund does not qualify for the special tax treatment afforded regulated
investment companies, all of its taxable income, including any net realized
capital gains, would be subject to tax at regular corporate rates (without any
deduction for distributions to shareholders).
If shares of the Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized on
the basis of the subsequent shares.
The Code permits a regulated investment company whose assets consist
primarily of tax-exempt Municipal Securities to pass through to its investors,
tax-exempt, net Municipal Securities interest income. In order for the Fund to
be eligible to pay exempt-interest dividends during any taxable year, at the
close of each fiscal quarter, at least 50% of the aggregate value of the Fund's
assets must consist of exempt-interest obligations. In addition, the Fund must
distribute at least (i) 90% of the excess of its exempt-interest income over
certain disallowed deductions, and (ii) 90% of its "investment company taxable
income" (i.e., its ordinary taxable income and the excess, if any, of its net
short-term capital gains over any net long-term capital losses) recognized by
the Fund during the taxable year (the "Distribution Requirements").
Not later than 60 days after the close of its taxable year, the Fund will
notify its shareholders of the portion of the dividends paid by the Fund to the
shareholders for the taxable year which constitutes exempt-interest dividends.
The aggregate amount of dividends so designated cannot exceed, however, the
amount of interest exempt from tax under Section 103 of the Code received by the
Fund during the year over any amounts disallowed as deductions under Sections
265 and 171(a)(2) of the Code. Since the percentage of dividends which are
"exempt-interest" dividends is determined on an average annual method for the
fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend.
Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his or her tax adviser with respect to
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whether exempt-interest dividends retain this exclusion if the purchaser would
be treated as a "substantial user" or a "related person" with respect to any of
the tax-exempt obligations held the Fund if it is required to qualify as a
regulated investment company as described below. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who regularly
uses in his or her trade or business a part of any facilities financed with the
tax-exempt obligations and whose gross revenues derived from such facilities
exceed five percent of the total revenues derived from the facilities by all
users, or who occupies more than five percent of the useable area of the
facilities or for whom the facilities or a part thereof were specifically
constructed, reconstructed or acquired. Examples of "related persons" include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Fund is not deductible for federal income tax purposes if the Fund
distributes exempt-interest dividends during the shareholder's taxable year. If
a shareholder receives an exempt-interest dividend with respect to any shares
and such shares are held for six months or less, any short-term capital loss on
the sale or exchange of the shares will be disallowed to the extent of the
amount of such exempt-interest dividend.
If, during any taxable year, the Fund realizes net capital gains (the
excess of net long-term capital gains over net short-term capital losses) from
the sale or other disposition of Municipal Securities or other assets, the Fund
will have no tax liability with respect to such gains if they are distributed to
shareholders. Distributions designated as capital gains dividends are taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held his shares. Not later than 60 days after the close of the Fund's
taxable year, the Fund will send to its shareholders a written notice
designating the amount of any distributions made during the year which
constitute capital gain.
A capital gain dividend received after the purchase of the shares of the
Fund reduces the net asset value of the shares by the amount of the distribution
and will be subject to income taxes. A loss on the sale of shares held for less
than six months (to the extent not disallowed on account of the receipt of
exempt-interest dividends) attributable to a capital gain dividend is treated as
a long-term capital loss for federal income tax purposes.
Tax Treatment of Futures Contracts and Related Options. In connection with
its operations, the Fund may effect transactions in U.S. Government securities
and municipal bond futures contracts ("Futures Contracts") and in options
thereon ("Futures Options"). Gains or losses recognized by the Fund from
transactions in such Futures Contracts and Futures Options constitute capital
gains and losses for federal income tax purposes and do not therefore qualify as
exempt-interest income.
With respect to a Futures Contract closed out by the Fund, any realized
gain or loss will be treated as long-term capital gain or loss to the extent of
60% thereof and short-term capital gain or loss to the extent of 40% thereof
(hereinafter "60/40 gain or loss"). Open Futures Contracts held by the Fund at
the end of any fiscal year will be required to be treated as sold at market
value on the last day of such fiscal year for federal income tax purposes (i.e.
"marked-to-market"). Gain or loss recognized under this marked-to-market rule is
60/40 gain or loss. The federal income tax treatment accorded to Futures Options
will be the same as that accorded Futures Contracts. The Distribution
Requirements may limit the Fund's ability to hold Futures Contracts and Futures
Options at the end of a year.
A portion of the Fund's transactions in Futures Contracts and Futures
Options, particularly its hedging transactions, may constitute "straddles" with
respect to the Fund's holdings of Municipal Securities. Straddles are defined in
Section 1092 of the Code as offsetting positions with respect to personal
property. A straddle in which at least one (but not all) of the positions are
Section 1256 contracts is a "mixed straddle" under the Code if certain
identification requirements are met.
The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone a recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period, and (iii) "short sale" rules which may terminate the holding
period of
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securities owned by the Fund when offsetting positions are established and which
may convert certain losses from short-term to long-term.
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been made whether the Fund
will make any of these elections.
The Fund may acquire an option to "put" specified portfolio securities to
banks or municipal bond dealers from whom the securities are purchased. See
"Stand-By Commitments," in the Prospectus. The Fund has been advised by its
legal counsel that it will be treated for federal income tax purposes as the
owner of the Municipal Securities acquired subject to the put; and the interest
on the Municipal Securities will be tax-exempt to the Fund. Counsel has pointed
out that although the Internal Revenue Service has issued a favorable published
ruling on a similar but not identical situation, it could reach a different
conclusion from that of counsel. Counsel has also advised the Fund that the
Internal Revenue Service presently will not ordinarily issue private letter
rulings regarding the ownership of securities subject to stand-by commitments.
Restrictions on Futures Contracts and Related Options. Among the
requirements for qualification as a regulated investment company under the Code,
the Fund must derive less than 30% of its gross income each year from sales of
securities held for less than three months. This requirement and the
marked-to-market rule may restrict the Fund's ability to: (i) effect closing
purchase transactions in futures contracts and futures options which have been
held for less than three months and (ii) enter into various other short-term
transactions.
In addition, the Code requires that the Fund satisfy certain portfolio
diversification requirements at the end of each fiscal quarter of its taxable
year in order to maintain its qualification as a regulated investment company.
In general, no more than 25% of the value of the Fund's assets may be invested
in the securities of any one issuer and at least 50% of the value of the Fund's
assets must be represented by securities of issuers each of which separately
represents not more than five percent of the value of the total assets of the
Fund. Consequently, the Fund's ability to invest in futures contracts and
futures options may be limited.
Treatment of Dividends. While the Fund expects that a major portion of its
investment income will constitute tax-exempt interest, a significant portion may
consist of "investment company taxable income" and "net capital gains." As
pointed out above, a Fund will be subject to tax for any year on its
undistributed investment company taxable income and net capital gains.
It is anticipated that substantially all of the Fund's taxable income and
capital gain net income will be distributed by the Fund in order to meet the
Distribution Requirements and to avoid taxation at the Fund level. Distributions
that are not designated as capital gain dividends will be taxable to
shareholders as ordinary income. Dividends and distributions declared payable to
shareholders of record after September 30 of any year and paid before February 1
of the following year, are considered taxable income to shareholders on the
record date even though paid in the next year.
Since none of the Fund's net investment income will arise from dividends on
common or preferred stock, none of its distributions will be eligible for the
70% dividends received deduction available to corporations. To qualify for the
dividends received deduction, a corporate shareholder must hold the shares on
which the dividend is paid for more than 45 days.
The Tax Reform Act of 1986 (the "Tax Reform Act") added a provision that,
for taxable years beginning after December 31, 1989, 75% of the excess of a
corporation's adjusted current earnings (generally, earning and profits, with
adjustments) over its other alternative minimum taxable income is an item of tax
preference for corporations. All tax-exempt interest is included in the
definition of "adjusted current earnings" so a portion of such interest is
included in computing the alternative minimum tax on corporations. For
shareholders that are financial institutions, the Tax Reform Act eliminated
their ability to deduct interest payments to the extent allocated on a pro rata
basis to the purchase of Fund shares.
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BACK-UP WITHHOLDING
The Fund is required to withhold and remit to the United States Treasury
31% of (i) reportable taxable dividends and distributions and (ii) the proceeds
of any redemptions of Fund shares with respect to any shareholder who is not
exempt from withholding and who fails to furnish the Fund with a correct
taxpayer identification number, who fails to report fully dividend or interest
income or who fails to certify to the Fund that he has provided a correct
taxpayer identification number and that he is not subject to withholding. (An
individual's taxpayer identification number is his social security number.) The
31% "back-up withholding tax" is not an additional tax and may be credited
against a taxpayer's regular federal income tax liability.
TEXAS TAX INFORMATION
Dividends and distributions paid by the Fund to Texas residents are not
taxable by Texas because Texas presently has no personal income tax. Therefore,
at the present time, Texas residents enjoy no special State income tax benefits
by investing in the Fund.
The State of Texas does not have a corporate income tax. Under present
laws, the Fund will not be subject to the Texas franchise tax.
The foregoing are only summaries of the applicable provisions of the Code,
Treasury regulations and Texas tax laws presently in effect. For complete
provisions, reference should be made to the pertinent Code sections, Treasury
regulations promulgated thereunder and the Texas tax laws. The Code, Treasury
regulations and Texas tax laws are subject to change by legislative or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their own tax advisers with specific
reference to their own tax situation.
FUND PERFORMANCE
The average annual total return (computed in the manner described in the
Prospectus) for Class A shares of the Fund for the one-year and the three-years
and seven month periods ended September 30, 1995 was 4.83% and 6.15%,
respectively. The average annual total return (computed in the manner described
in the Prospectus) for Class B shares of the Fund for the one-year and the
three-years and two month periods ended September 30, 1995 was 5.11% and 4.76%,
respectively. The average annual total return (computed in the manner described
in the Prospectus) for Class C shares of the Fund for the one-year and the
two-year and one month periods ended September 30, 1995 was 8.11% and 3.85%,
respectively. These results are based on historical earnings and asset value
fluctuations and are not intended to indicate future performance. Such
information should be considered in light of the Fund's investment objective and
policies as well as the risks incurred by the Fund's investment practices.
The annualized current yield for Class A, Class B and Class C shares of the
Fund for the 30-day period ending September 30, 1995 was 4.96%, 4.40%, and
4.40%, respectively. The tax equivalent yield based on an assumption of a tax
rate of 36% for the same period for Class A, Class B and Class C shares of the
Fund was 7.75%, 6.87% and 6.86%, respectively. The yield for Class A, Class B
and Class C shares are not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield and total return are computed separately for Class A, Class B and
Class C shares.
From time to time VKAC will announce the results of its monthly polls of
U.S. investor intentions -- the Van Kampen American Capital Index of Investor
Intentions(SM) and the Van Kampen American Capital Mutual Fund
Index(SM) -- which polls measure how Americans plan to use their money.
From time to time, in reports or other communications, or in advertising or
sales materials, the Adviser may announce the results of actual tests performed
by DALBAR Financial Securities, Inc., an independent research firm, as they
relate to the level of services for mutual fund investors and may refer to the
Missouri Quality Award received by ACCESS, the Funds' transfer agent, in 1993.
In addition, the Adviser may also refer to the Houston Awards for Quality
received by Van Kampen American Capital in 1994.
B-30
<PAGE> 86
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Fund.
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS -- Shareholders are informed as to the sources of
distributions at the time of payment. Any capital gain distribution paid shortly
after a purchase of shares by an investor will have the effect of reducing the
per share net asset value of the shares owned by the amount of the distribution.
See "Distributions from the Fund" in the Prospectus for further information.
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas
77002, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
FINANCIAL STATEMENTS
The attached financial statements in the form in which they appear in the
Annual Report to Shareholders, including the related Report of Independent
Accountants on the September 30, 1995 financial statements, are included in the
Statement of Additional Information.
The following information is not included in the Annual Report. This
example assumes a purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth in the Prospectus at
a price based upon the net asset value of Class A shares of the Fund on
September 30, 1995.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
------
<S> <C>
Net Asset Value per Class A Share $10.03
Class A Per Share Sales Charge -- 4.75% of offering price
(4.99% of net asset value per share) $ 0.50
------
Class A Per Share Offering Price to the Public $10.53
</TABLE>
B-31
<PAGE> 87
APPENDIX
RATINGS OF INVESTMENTS
RATINGS OF MUNICIPAL SECURITIES
DESCRIPTIONS OF MOODY'S INVESTORS SERVICE ("MOODY'S") MUNICIPAL BOND RATINGS
Aaa -- Securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Securities which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A -- Securities which are rated A possess many favorable investment
attributes and are to be considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Securities which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Securities which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B -- Securities which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Securities which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca -- Securities which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Securities which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Conditional Rating: Securities for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3
in each generic rating classification from Aa through B in its municipal
bond rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
midrange ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
B-32
<PAGE> 88
Short-term Notes: The four ratings of Moody's for short-term notes are
MIG 1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable
quality . . . but lacking the undeniable strength of the preceding grades";
MIG 4 notes are of "adequate quality, carrying specific risk but having
protection . . . and not distinctly or predominantly speculative."
Beginning on February 5, 1985, Moody's started new rating categories
for variable rate demand obligations ("VRDO's"). VRDO's receive two
ratings. The first rating, depending on the maturity of the VRDO, is
assigned either a bond or MIG rating which represents an evaluation of the
risk associated with scheduled principal and interest payments. The second
rating, designated as "VMIG," represents an evaluation of the degree of
risk associated with the demand feature. The new VRDO's demand feature
ratings and symbols are:
VMIG 1: strong protection by established cash flows, superior
liquidity support, demonstrated access to the market for
refinancing.
VMIG 2: ample margins of protection, high quality.
VMIG 3: favorable quality, liquidity and cash flow protection may be
narrow, market access for refinancing may be less well
established.
VMIG 4: adequate quality, not predominantly speculative but there is
risk.
DESCRIPTIONS OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL ("S&P") DEBT RATINGS
A S&P's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources S&P considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
B-33
<PAGE> 89
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditor's rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB Debt rated "BB," "B," "CCC" or "CC" is regarded, on balance, as
predominantly
B speculative with respect to capacity to pay interest and repay
principal in
CCC accordance with the terms of the obligation. "BB" indicates the
lowest degree of
CC speculation and "CC" the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
C This rating is reserved for income bonds on which no interest is
being paid.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
A S&P Commercial Paper Rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Ratings are applicable to both
taxable and tax-exempt commercial paper. The four categories are as follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designation 1, 2 and 3 to indicate the
relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is very strong.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.
B-34
<PAGE> 90
B Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer and obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information.
Commencing on July 27, 1984, S&P instituted a new rating category with
respect to certain municipal note issues with a maturity of less than three
years. The new note ratings and symbols are:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be
given a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
S&P may continue to rate note issues with a maturity greater than three years in
accordance with the same rating scale currently employed for municipal bond
ratings.
S&P assigns dual ratings to all long-term debt issues that have a demand or
put feature. The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses the demand feature alone.
Long-term debt rating symbols are used for the long-term maturity and commercial
paper rating symbols are used for the put option (for example, AAA/A-1+). For
demand notes, S&P's note rating symbols are used with the commercial paper
symbols (for example, SP-1+/a-1+).
Rating criteria described in the Prospectus are applied on the basis of the
highest rating applicable to the Municipal Security. This applies to split rated
securities (i.e. different ratings by Moody's and S&P) and dual rated securities
as described above.
B-35
<PAGE> 91
PORTFOLIO OF INVESTMENTS
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 98.0%
EDUCATION 5.3%
$ 500 Houston, Texas, Higher Education
Finance Corp., Rev. (University of St.
Thomas Project)........................ 7.250% 12/01/07 $ 519,425
500 North Texas Higher Education Authority,
Inc., Texas Student Loan Rev.,
Refunding, Series D.................... 6.300 04/01/09 512,200
-----------
1,031,625
-----------
HOSPITAL 19.7%
165 Bell County, Texas, Health Facilities
Development Corp. (King's Daughters
Hospital).............................. 9.250 07/01/08 183,127
250 Harris County, Texas, Health Facilities
Development Corp., Health Care System
Rev. (Memorial Hospital System
Project)............................... 7.125 06/01/15 267,642
375 Harris County, Texas, Health Facilities
Development Corp., Health Care System
Rev. (Sisters of Charity).............. 7.100 07/01/21 400,493
90 Jefferson County, Texas, Health
Facility Authority (Baptist Health Care
Project)............................... 8.300 10/01/14 98,023
150 Montgomery County, Texas, Health
Facilities Development Corp., Hospital
Mortgage Rev. (Woodlands Medical Center
Project)............................... 8.850 08/15/14 162,837
500 Richardson, Texas, Hospital Authority,
Refunding & Improvement Rev.
(Richardson Medical Center)............ 6.750 12/01/23 509,880
300 Rusk County, Texas, Health Facility
Corp., Refunding Hospital Rev.
(Henderson Memorial Hospital Project).. 7.750 04/01/13 312,681
500 Tarrant County, Texas, Health Facilities
Development Corp., Refunding &
Improvement, Hospital Rev. (Fort Worth
Osteopathic Hospital).................. 7.000 05/15/28 516,550
250 Texas Health Facilities Development
Corp., Hospital Rev. (Fort Worth
Children's Center) FGIC................ 6.250 12/01/12 257,890
250 Tomball, Texas, Hospital Authority Rev.
Refunding.............................. 6.125 07/01/23 226,290
150 Tyler, Texas, Health Facilities
Development Corp., Refunding Rev. (East
Texas Medical Center-Regional Health)
Series A............................... 8.250 11/01/06 169,356
500 Tyler, Texas, Health Facilities
Development Corp., Refunding Rev. (East
Texas Medical Center-Regional Health)
Series B............................... 6.750 11/01/25 492,995
210 Weslaco, Texas, Health Facilities
Development Corp., Hospital Rev.
(Weslaco Health Facility).............. 10.375 06/01/16 243,415
-----------
3,841,179
-----------
HOUSING 15.2%
500 Austin, Texas, Housing Finance Corp.,
Multi-Family Mtg....................... 6.500 10/01/10 500,375
500 Baytown, Texas, Property Management &
Development Corp., Series A (Baytown
Terrace Project) FNMA.................. 6.100 08/15/21 500,575
330 Bexar County, Texas, Housing Finance
Corp., Rev., Series B, GNMA............ 9.250 04/01/16 344,127
115 East Texas Housing Finance Corp.,
Single Family Mtg. Rev., GNMA.......... 7.200 01/01/26 117,076
250 El Paso, Texas, Housing Authority,
Multi-Family Mtg. Rev.,
Series A............................... 6.250 12/01/09 249,042
</TABLE>
See Notes to Financial Statements
B-36
<PAGE> 92
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 135 El Paso,Texas, Property Finance
Authority, Inc., Single Family Mtg.
Rev., Series A, GNMA................... 8.700% 12/01/18 $ 142,370
140 Galveston, Texas Property Finance
Authority, Inc., Single Family Mtg.
Rev., Series A......................... 8.500 09/01/11 160,103
30 Harris County, Texas, Housing Financing
Corp., Single Family Mtg. Rev., Series
1983-A................................. 10.125 07/15/03 30,054
100 Harris County, Texas, Housing Financing
Corp., Single Family Mtg. Rev., Series
1983-A................................. 10.375 07/15/14 100,140
50 Houston, Texas, Housing Finance Corp.,
Single Family Mtg. Rev................. 10.000 09/15/14 50,167
395 Houston, Texas, Housing Finance Corp.,
Single Family Mtg. Rev................. 10.375 12/15/13 400,826
170 Texas Housing Agency, Single Family
Mtg. Rev., Refunding,
Series A............................... 7.150 09/01/12 176,321
190 Travis County, Texas, Housing Finance
Corp., Single Family Mtg. Rev., GNMA... 8.200 04/01/22 195,373
-----------
2,966,549
-----------
MISCELLANEOUS 7.3%
60 Fort Bend County, Texas, Levee
Improvement, District No. 11, G.O...... 8.700 03/01/10 68,009
250 Garland, Texas, Economic Development
Authority, IDR (Yellow Freight System,
Inc. Project).......................... 8.000 12/01/16 260,120
250 Lockhart, Texas, Correctional
Facilities Rev., Financing Corp., MBIA. 6.625 04/01/12 260,378
283 Texas General Services Community
Partner Interests (Office Building and
Land Acquisition Project).............. 7.000 08/01/09 292,087
250 Texas State, G.O., Refunding, Veterans
Land................................... 6.500 12/01/21 261,733
250 Texas State, G.O., National Research
Lab Commission......................... 7.125 04/01/20 279,990
-----------
1,422,317
-----------
MUNICIPAL UTILITY DISTRICT (MUD) 15.0%
250 Brazoria County, Texas, MUD No. 2,
Refunding.............................. 7.000 09/01/08 255,922
60 Fort Bend County, Texas, MUD No. 25,
Refunding.............................. 8.000 10/01/15 63,977
250 Harris County, Texas, MUD No. 120,
Refunding.............................. 8.000 08/01/14 276,493
500 Harris County, Texas, MUD No. 322...... 6.250 05/01/18 475,070
500 Mills Road, Texas, MUD, Refunding...... 6.500 09/01/14 496,205
125 Mission Bend, Texas, MUD No. 2......... 10.000 09/01/00 144,641
250 Montgomery County, Texas, MUD.......... 6.000 09/01/19 231,218
250 Montgomery County, Texas, MUD.......... 6.000 09/01/16 230,970
250 Montgomery County, Texas, MUD, MBIA.... 6.250 03/01/10 258,243
50 Montgomery County, Texas, MUD No. 4.... 8.900 09/01/02 56,177
100 West Harris County, Texas, MUD No. 1,
Refunding.............................. 7.000 04/01/05 104,677
300 Woodlands, Texas, Metro Center, MUD,
Refunding, Series B.................... 7.100 04/01/07 339,060
-----------
2,932,653
-----------
</TABLE>
See Notes to Financial Statements
B-37
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NURSING HOMES 1.4%
$ 250 San Antonio, Texas, Health Facilities
Development Corp., Rev. (Encore Nursing
Center Partner)........................ 8.250% 12/01/19 $ 273,265
-----------
TRANSPORTATION 7.7%
1,000 Austin, Texas, Airport System Rev.,
Series A, MBIA......................... 6.125 11/15/25 991,750
250 Harris County, Texas, Toll Road Rev.... 6.750 08/01/14 265,897
250 Texas State Turnpike Authority, Dallas
North Toll Road, Tollway Rev........... 6.000 01/01/20 244,660
-----------
1,502,307
-----------
UTILITIES 26.4%
220 Austin, Texas, Utility System Rev.,
Series B............................... 7.800 11/15/12 242,191
1,000 Bexar, Texas, Metro Water District,
Waterworks System Rev., MBIA........... 5.875 05/01/22 971,140
435 City of Brownsville, Texas, Utilities
System Priority Rev., Series 1990,
AMBAC.................................. 6.500 09/01/17 478,983
250 Coastal Water Authority, Texas, Water
Rev., AMBAC............................ 6.250 12/15/17 253,560
250 Colorado River, Texas, Municipal Water
District (Water Transmission Facilities
Project A), AMBAC...................... 6.625 01/01/21 272,707
250 Guadalupe Blanco River Authority,
Texas, IDR............................. 6.350 07/01/22 258,435
100 Harris County, Texas, Water Control &
Improvement District No. 75 7.000 03/01/14 104,286
500 Houston, Texas, Water and Sewer System,
Refunding Rev., Series B............... 6.375 12/01/14 511,790
100 Matagorda County, Texas, Navigation
District 1, Control Rev, (Central Power
& Light Co. Project)................... 7.875 12/01/16 105,624
385 Port of Corpus Christi, Texas, IDR
(Valero Refining & Marketing Co.),
Series A............................... 10.250 06/01/17 426,234
100 Port of Corpus Christi, Texas, IDR
(Valero Refining & Marketing Co.),
Series B............................... 10.625 06/01/08 111,295
220 San Antonio, Texas, Electric and Gas
Rev., Series A......................... 6.500 02/01/12 228,813
250 Tarrant County, Texas, Water Control &
Improvement Rev........................ 6.000 03/01/10 266,000
435 Texas Municipal Power Agency, Rev...... 5.500 09/01/13 413,789
500 Willow Fork, Texas, Drainage District.. 7.000 03/01/11 521,430
-----------
5,166,277
-----------
TOTAL INVESTMENTS (Cost $18,470,839) 98.0% .................... 19,136,172
OTHER ASSETS AND LIABILITIES, NET 2.0%......................... 394,903
-----------
NET ASSETS 100%................................................ $19,531,075
</TABLE> -----------
Insurers:
G.O. general obligation bond AMBAC AMBAC Indemnity Corp.
IDR industrial development FGIC Financial Guaranty Insurance Corp.
revenue bond FNMA Federal National Mtg. Association
Rev. revenue bond GNMA Government National Mtg. Association
MBIA Municipal Bond Investor's Assurance
Corp.
See Notes to Financial Statements
B-38
<PAGE> 94
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $18,470,839).................. $19,136,172
Interest receivable.............................................. 356,808
Receivable for Fund shares sold.................................. 216,682
Receivable for investments sold.................................. 10,030
Other assets..................................................... 4,278
-----------
Total Assets.................................................... 19,723,970
-----------
LIABILITIES
Dividends payable................................................ 47,345
Bank overdraft................................................... 32,376
Due to Distributor............................................... 15,607
Due to Adviser................................................... 9,690
Deferred Trustees' compensation.................................. 5,359
Due to shareholder service agent................................. 3,377
Due to Trustees.................................................. 2,310
Accrued expenses and other payables.............................. 76,831
-----------
Total Liabilities............................................... 192,895
-----------
NET ASSETS, equivalent to $10.03 per share for Class A and Class
B, and $10.04 per share for Class C shares...................... $19,531,075
-----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,110,686 Class A, 729,051
Class B and 107,241 Class C shares outstanding.................. $ 19,470
Capital surplus.................................................. 18,827,031
Undistributed net realized gain on securities.................... 24,601
Net unrealized appreciation of securities........................ 665,333
Accumulated net investment loss.................................. (5,360)
-----------
NET ASSETS....................................................... $19,531,075
-----------
</TABLE>
See Notes to Financial Statements
B-39
<PAGE> 95
STATEMENT OF OPERATIONS
Year Ended September 30, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $1,414,127
----------
EXPENSES
Management fees.................................................... 123,404
Shareholder service agent's fees and expenses...................... 18,769
Accounting services................................................ 67,413
Service fees--Class A.............................................. 26,331
Distribution and service fees--Class B............................. 75,938
Distribution and service fees--Class C............................. 11,528
Trustees' fees and expenses........................................ 9,920
Audit fees......................................................... 26,600
Custodian fees..................................................... 3,109
Legal fees......................................................... 9,038
Reports to shareholders............................................ 24,199
Registration and filing fees....................................... 9,230
Organization expenses.............................................. 3,000
Miscellaneous...................................................... 1,344
Expense reimbursement (see Note 2) ................................ (61,815)
----------
Total expenses.................................................... 348,008
----------
NET INVESTMENT INCOME.............................................. 1,066,119
----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities.................................... 65,437
Net unrealized appreciation of securities during the period........ 739,651
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 805,088
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $1,871,207
----------
</TABLE>
See Notes to Financial Statements
B-40
<PAGE> 96
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period...................... $22,616,594 $25,210,015
----------- -----------
OPERATIONS
Net investment income............................... 1,066,119 1,279,721
Net realized gain (loss) securities................. 65,437 (39,911)
Net unrealized appreciation (depreciation) of
securities during the period....................... 739,651 (1,799,595)
----------- -----------
Increase (decrease) in net assets resulting from
operations......................................... 1,871,207 (559,785)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (see Note 1D)
Net investment income(/1/)
Class A............................................. (653,415) (849,857)
Class B............................................. (363,880) (383,566)
Class C............................................. (55,017) (40,808)
----------- -----------
(1,072,312) (1,274,231)
----------- -----------
Excess of book-basis net realized gain on securities
Class A............................................. -- (21,198)
Class B............................................. -- (9,656)
Class C............................................. -- (729)
----------- -----------
-- (31,583)
----------- -----------
Total distributions................................. (1,072,312) (1,305,814)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A............................................. 517,409 1,892,676
Class B............................................. 362,817 2,691,555
Class C............................................. 299,878 1,309,798
----------- -----------
1,180,104 5,894,029
----------- -----------
Proceeds from shares issued for distributions
reinvested
Class A............................................. 299,151 428,301
Class B............................................. 179,325 197,947
Class C............................................. 9,580 10,051
----------- -----------
488,056 636,299
----------- -----------
Cost of shares redeemed
Class A............................................. (2,969,102) (6,308,560)
Class B............................................. (2,085,815) (872,378)
Class C............................................. (497,657) (77,212)
----------- -----------
(5,552,574) (7,258,150)
----------- -----------
Decrease in net assets from capital transactions.... (3,884,414) (727,822)
----------- -----------
DECREASE IN NET ASSETS............................... (3,085,519) (2,593,421)
----------- -----------
NET ASSETS, end of period (including accumulated net
investment loss of $(5,360) and undistributed net
investment income of $5,628, respectively).......... $19,531,075 $22,616,594
----------- -----------
</TABLE>
(1) Includes $2,502, $3,224, and $467 in excess of book-basis net investment
income as of September 30, 1995 for Class A, B, and C, respectively.
See Notes to Financial Statements
B-41
<PAGE> 97
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------
March 2, 1992(/1/)
Year Ended September 30 through
-------------------------- September 30,
1995 1994 1993(/2/) 1992(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $9.64 $10.36 $9.74 $9.45
------ ------ ------ -----
INCOME FROM OPERATIONS
Investment income............. .67 .64 .63 .42
Expenses...................... (.13) (.10) (.06) (.06)
------ ------ ------ -----
Net investment income.......... .54 .54 .57 .36
Net realized and unrealized
gains or losses on securities. .39 (.7025) .65 .23
------ ------ ------ -----
Total from investment opera-
tions......................... .93 (.1625) 1.22 .59
------ ------ ------ -----
LESS DISTRIBUTIONS FROM
Net investment income......... (.54) (.545) (.5875) (.30)
Excess of book-basis net real-
ized gains on securities..... -- (.0125) (.0125) --
------ ------ ------ -----
Total distributions............ (.54) (.5575) (.60) (.30)
------ ------ ------ -----
Net asset value, end of period. $10.03 $9.64 $10.36 $9.74
------ ------ ------ -----
TOTAL RETURN(/4/).............. 10.05% (1.62%) 12.94% 6.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (mil-
lions)........................ $11.1 $12.8 $18.0 $14.1
Average net assets (millions).. $11.8 $15.7 $16.8 $11.7
Ratios to average net assets
(annualized)(/3/)
Expenses...................... 1.36% 1.03% 0.61% 0.93%
Expenses, without expense re-
imbursement.................. 1.66% 1.70% 1.86% 1.41%
Net investment income......... 5.51% 5.41% 5.74% 5.94%
Net investment income, without
expense reimbursement........ 5.21% 4.74% 4.49% 5.45%
Portfolio turnover rate........ 15% 10% 5% 4%
</TABLE>
(1) Commencement of operations
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
B-42
<PAGE> 98
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------
July 27,
1992(/1/)
Year Ended September 30 through
--------------------------- September 30,
1995 1994 1993(/2/) 1992(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of pe-
riod............................. $9.64 $10.35 $9.74 $9.91
------ ------- ------- ------
INCOME FROM OPERATIONS
Investment income................ .67 .65 .63 .09
Expenses......................... (.21) (.18) (.13) (.025)
------ ------- ------- ------
Net investment income............. .46 .47 .50 .065
Net realized and unrealized gains
or losses on securities.......... .396 (.7065) .633 (.103)
------ ------- ------- ------
Total from investment operations.. .856 (.2365) 1.133 (.038)
------ ------- ------- ------
LESS DISTRIBUTIONS FROM
Net investment income............ (.46) (.461) (.5105) (.132)
Excess of book-basis net invest-
ment income..................... (.006) -- -- --
Excess of book-basis net realized
gains on securities............. -- (.0125) (.0125) --
------ ------- ------- ------
Total distributions............... (.466) (.4735) (.523) (.132)
------ ------- ------- ------
Net asset value, end of period.... $10.03 $9.64 $10.35 $9.74
------ ------- ------- ------
TOTAL RETURN(/4/)................. 9.11% (2.35%) 11.97% (.73%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (mil-
lions)........................... $7.3 $8.6 $7.1 $0.9
Average net assets (millions)..... $7.6 $8.4 $4.6 $0.5
Ratios to average net assets
(annualized)(/3/)
Expenses......................... 2.14% 1.80% 1.30% 1.41%
Expenses, without expense reim-
bursement....................... 2.44% 2.47% 2.55% 2.15%
Net investment income............ 4.74% 4.66% 4.92% 3.83%
Net investment income, without
expense reimbursement........... 4.44% 3.99% 3.67% 3.07%
Portfolio turnover rate........... 15% 10% 5% 4%
</TABLE>
(1) Commencement of operations
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
B-43
<PAGE> 99
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each
of the periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------
August 30,
Year Ended 1993(/1/)
September 30 through
----------------- September 30,
1995 1994(/2/) 1993(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $9.65 $10.36 $10.28
------ ------ ------
INCOME FROM OPERATIONS
Investment income.......................... .67 .64 .05
Expenses................................... (.21) (.18) (.01)
------ ------ ------
Net investment income....................... .46 .46 .04
Net realized and unrealized gains or losses
on securities.............................. .396 (.6965) .121
------ ------ ------
Total from investment operations............ .856 (.2365) .161
------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment income...................... (.46) (.461) (.081)
Excess of book-basis net investment income. (.006) -- --
Excess of book-basis net realized gains on
securities................................ -- (.0125) --
------ ------ ------
Total distributions......................... (.466) (.4735) (.081)
------ ------ ------
Net asset value, end of period.............. $10.04 $9.65 $10.36
------ ------ ------
TOTAL RETURN(/4/)........................... 9.11% (2.35%) 1.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)........ $1.1 $1.2 $0.1
Average net assets (millions)............... $1.2 $0.9 $.02
Ratios to average net assets
(annualized)(/3/)
Expenses................................... 2.14% 1.79% 0.66%
Expenses, without expense reimbursement.... 2.44% 2.46% 1.89%
Net investment income...................... 4.73% 4.59% 4.17%
Net investment income, without expense re-
imbursement............................... 4.43% 3.92% 2.92%
Portfolio turnover rate..................... 15% 10% 5%
</TABLE>
(1) Commencement of operations
(2) Based on average month-end shares outstanding.
(3) See Note 2.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
B-44
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Texas Tax Free Income Fund (the "Fund", formerly
American Capital Texas Municipal Securities, Inc.) is registered under the In-
vestment Company Act of 1940, as amended, as a non-diversified, open-end man-
agement investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements.
A. INVESTMENT VALUATIONS-Investments in municipal bonds are valued at the most
recently quoted bid prices or at bid prices based on a matrix system (which
considers such factors as security prices, yields, maturities and ratings)
furnished by dealers and an independent pricing service.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
Issuers of certain securities owned by the Fund have obtained insurance
guaranteeing their timely payment of principal at maturity and interest. Such
insurance reduces financial risk but not market risk of the security.
Fund investments include lower rated debt securities which may be more sus-
ceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties may exist as to an issuer's ability to meet princi-
pal and interest payments. At the end of the period, debt securities rated be-
low investment grade and comparable unrated securities represented
approximately 22% of the investment portfolio.
B. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders. It is anticipated that no further
distributions of capital gains will be made until tax basis capital loss
carryforwards, if any, expire or are offset by net realized capital gains.
C. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Interest income is
accrued daily.
B-45
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
D. DIVIDENDS AND DISTRIBUTIONS-The Fund declares dividends from net investment
income each business day. Dividends and distributions to shareholders are re-
corded on the record dates. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
and distributions may exceed financial statement earnings.
The Fund intends to continue to invest principally in tax-exempt obligations
sufficient in amount to qualify the Fund to pay "exempt-interest dividends" as
defined in the Internal Revenue Code. However, a portion of such dividends may
represent tax preference items subject to alternative minimum tax.
E. DEBT DISCOUNT OR PREMIUM-The Fund accounts for debt discounts and premiums
on the same basis as is used for federal income tax reporting. Accordingly,
original issue debt discounts and all premiums are amortized over the life of
a security. Market discounts are recognized at the time of sale as realized
gains for book purposes and ordinary income for tax purposes.
F. WHEN-ISSUED SECURITIES-Delivery and payment for securities purchased on a
when- issued basis may take place up to 45 days after the date of the transac-
tion. The securities purchased are subject to market fluctuations during this
period. To meet the payment obligation, sufficient cash or liquid securities,
equal to the amount that will be due, are set aside with the custodian.
G. ORGANIZATION COSTS-Organization expenses of approximately $15,000 were de-
ferred and are being amortized over a five year period ending April 1997.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen American Capital Asset Management, Inc. (the "Adviser") serves as
investment manager of the Fund. Management fees are paid monthly, based on the
average daily net assets of the Fund at an annual rate of .60% of the first
$300 million, .55% of the next $300 million, and .50% of the amount in excess
of $600 million. From time to time, the Adviser may voluntarily elect to reim-
burse the Fund a portion of the Fund's expenses. This reimbursement may be
discontinued at any time without prior notice. For the period, such reimburse-
ment was $61,815.
B-46
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $6,427 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period the fees for such services were $12,513.
The Fund has been advised that Van Kampen American Capital Distributors,
Inc. (the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"),
both affiliates of the Adviser, received $2,589 and $157, respectively, as
their portion of the commissions charged on sales of Fund shares during the
period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse the Distributor for expenses and serv-
ice fees incurred. Class B and Class C shares pay an additional fee of up to
.75% per annum of their average net assets to reimburse the Distributor for
its distribution expenses. Actual distribution expenses incurred by the Dis-
tributor for Class B and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At the end of the period, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans aggre-
gated approximately $347,000 and $16,000, respectively, and may be carried
forward and reimbursed through either the collection of the contingent de-
ferred sales charges from shares redemptions or, subject to the annual renewal
of the plans, future Fund reimbursements of distribution fees.
Legal fees of $9,011 were for services rendered by O'Melveny & Myers, coun-
sel for the Fund. Lawrence J. Sheehan, of counsel to that firm, is a trustee
of the Fund.
Certain officers and directors of the Fund are officers and trustees of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $3,050,373 and $6,987,281, re-
spectively.
For federal income tax purposes, the identified cost of investments owned at
the end of the period, was $18,470,877. Net unrealized appreciation of invest-
ments aggregated $665,295, gross unrealized appreciation of investments aggre-
gated $746,294, and gross unrealized depreciation of investments aggregated
$80,999.
B-47
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 4--TRUSTEE COMPENSATION
Fund trustees who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $629 plus a fee of $18 per day for Board meetings
attended. During the period, such fees aggregated $8,342.
The trustees may participate in a voluntary deferred compensation plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each trustee covered under the Plan elects to be credited
with an earnings component on amounts deferred equal to the income earned by
the Fund on its short-term investments or equal to the total return of the
Fund.
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Realized and unrealized gains
or losses, investment income and expenses (other than class specific expenses)
are allocated daily to each class of shares based upon the relative proportion
of net assets of each class. Class B and Class C shares automatically convert
to Class A shares six years and ten years after purchase, respectively, sub-
ject to certain conditions.
B-48
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
The Fund has an unlimited number of shares of $.01 par value beneficial in-
terest authorized. Transactions in shares of beneficial interest were as fol-
lows:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A.............................................. 52,801 187,834
Class B.............................................. 37,593 265,842
Class C.............................................. 30,198 128,146
----------- -----------
120,592 581,822
----------- -----------
Shares issued for distributions reinvested
Class A.............................................. 30,626 42,661
Class B.............................................. 18,363 19,840
Class C.............................................. 981 1,010
----------- -----------
49,970 63,511
----------- -----------
Shares redeemed
Class A.............................................. (304,310) (637,534)
Class B.............................................. (215,721) (87,755)
Class C.............................................. (50,161) (7,831)
----------- -----------
(570,192) (733,120)
----------- -----------
Decrease in shares outstanding........................ (399,630) (87,787)
----------- -----------
</TABLE>
NOTE 6--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to
a Delaware Business Trust and the election of fourteen trustees. On August 26,
1995, the reorganization became effective.
B-49
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, includ-
ing 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 Texas
Tax Free Income Fund at September 30, 1995, and the results of its operations,
the changes in its net assets and the financial highlights for each of the
fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter re-
ferred to as "financial statements") are the responsibility of the Fund's man-
agement; 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 re-
quire 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 dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall fi-
nancial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmation from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ PRICE WATERHOUSE LLP
Houston, Texas
November 7, 1995
B-50
<PAGE> 106
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
<TABLE>
<CAPTION>
INCLUDED IN
PART B
-----------
<S> <C>
Portfolio of Investments
September 30, 1995 *
Statement of Assets and Liabilities
September 30, 1995 *
Statement of Operations
Year ended September 30, 1995 *
Statement of Changes in Net Assets
Year ended September 30, 1995 *
Year ended September 30, 1994 *
Financial Highlights *
Notes to Financial Statements *
Report of Independent Accountants *
</TABLE>
The Statement of Sources of Net Assets and Schedules II and III are omitted
because the required information is included in the financial statements filed
herewith, or because the conditions requiring their filing do not exist.
(b) Exhibits
<TABLE>
<C> <S>
1.1 -- First Amended and Restated Agreement and Declaration of Trust.
1.2 -- Certificate of Amendment.
1.3 -- Certificate of Designation.
2 -- Amended and Restated Bylaws.
3 -- Inapplicable.
4.1 -- Specimen Class A Share Certificate.
4.2 -- Specimen Class B Share Certificate.
4.3 -- Specimen Class C Share Certificate.
5 -- Investment Advisory Agreement.
6.1 -- Underwriting Agreement.
6.2 -- Form of Selling Group Agreement incorporated herein by reference
(Exhibit 6.2 to Form N-1A of the Registrant's Pre-Effective Amendment
No. 1, filed January 21, 1991).
6.3 -- Form of Selling Agreement for bank affiliated broker/dealers and
banks incorporated herein by reference (Exhibit 6.3 to Form N-1A of
the Registrant's Pre-Effective Amendment No. 1, filed January 21,
1991).
7 -- Inapplicable.
8.1 -- Custodian Contract dated December 2, 1993 incorporated herein by
reference (Exhibit 8 to Form N-1A of Van Kampen American Capital
Utilities Income Fund, Registration No. 33-68452, Post-Effective
Amendment No. 1, filed May 19, 1994).
8.2 -- Transfer Agency and Service Agreement.
</TABLE>
C-1
<PAGE> 107
<TABLE>
<C> <S>
9 -- Data Access Service Agreement incorporated herein by reference
(Exhibit 9.2 to Form N-1A of Van Kampen American Capital Utilities
Income Fund, Registration No. 33-68452, Post-Effective Amendment No.
1, filed May 19, 1994).
10 -- Opinion of Counsel.
11 -- Consent of Independent Accountants.
12 -- Inapplicable.
13 -- Investment letter dated February 19, 1992 incorporated herein by
reference (Exhibit 13 to Form N-1A at the Registrant's Pre-Effective
Amendment No. 2, filed February 19, 1993).
14.1 -- Individual Retirement Account Brochure with Application incorporated
herein by reference (Exhibit 14.1 to Form N-1A of Van Kampen American
Capital Reserve Fund, Registration No. 2-50870, Post-Effective
Amendment No. 31, filed September 23, 1993).
14.2 -- 403(b)(7) Custodial Account incorporated herein by reference (Exhibit
14.2 to Form N-1A of Van Kampen American Capital Reserve Fund,
Registration No. 2-50870, Post-Effective Amendment No. 30, filed
September 24, 1992).
14.3 -- ORP 403(b)(7) Custodial Account incorporated herein by reference
(Exhibit 14.3 to Form N-1A of Van Kampen American Capital Reserve
Fund, Registration No. 2-50870, Post-Effective Amendment No. 30,
filed September 24, 1992).
14.4 -- Retirement Plans for the Small Business-Forms Package and Plan
Documents incorporated herein by reference (Exhibit 14.9 to Form N-1A
of Van Kampen American Capital Emerging Growth Fund, Post-Effective
Amendment No. 44, Registration No. 2-33214 filed December 21, 1990).
14.5 -- Prototype Profit Sharing/Money Purchase Plan and Trust incorporated
herein by reference to Exhibit 14.5 Form N-1A of Van Kampen American
Capital Growth and Income Fund, Registration No. 2-21657,
Post-Effective Amendment No. 61, filed March 26, 1991.
14.6 -- Prototype 401(k) Plan and Trust incorporated herein by reference
(Exhibit 14.6 to Form N-1A of Van Kampen American Capital Growth and
Income Fund, Registration No. 2-21657, Post-Effective Amendment No.
61, filed March 26, 1991).
14.7 -- Salary Reduction Simplified Employee Pension Plan incorporated herein
by reference (Exhibit 14.7 to Form N-1A of Van Kampen American
Capital World Portfolio Series Trust, Registration No. 33-37879, Post
Effective Amendment No. 9) filed on September 24, 1993).
14.8 -- Simplified Employee Pension Plan Brochure with Application
incorporated herein by reference (Exhibit 14.8 to Form N-1A of Van
Kampen American Capital Growth and Income Fund, Registration No.
2-21657, Post-Effective Amendment No. 69, filed March 24, 1994).
15.1 -- Class A Shares Distribution Plan.
15.2 -- Class B Shares Distribution Plan.
15.3 -- Class C Shares Distribution Plan.
15.4 -- Form of Servicing Agreement incorporated herein by reference (Exhibit
15.4 to Form N-1A of Registrant's Post-Effective Amendment No. 7,
filed August 24, 1995).
</TABLE>
C-2
<PAGE> 108
<TABLE>
<C> <S>
15.5 -- Form of Servicing Agreement for banks and bank affiliated
broker/dealers incorporated herein by reference (Exhibit 15.5 to Form
N-1A of Registrant's Post- Effective Amendment No. 7, filed August
24, 1995).
16 -- Computation Measure for Performance Information.
17.1 -- List of certain investment companies in response to Item 29(a).
17.2 -- List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
18 -- Multiple Class Plan incorporated herein by reference (Exhibit 18 to
Form N-1A of Registrant's Post-Effective Amendment No. 7, filed
August 24, 1995).
19.1 -- Powers-of-Attorney for J. Miles Branagan, Roger Hilsman, Don G.
Powell, David Rees, Fernando Sisto, Lawrence J. Sheehan, and William
S. Woodside incorporated herein by reference (Exhibit 19.1 to Form
N-1A of Registrant's Post-Effective Amendment No. 7, filed August 24,
1995).
19.2 -- Powers-of-Attorney for Philip P. Gaughan, R. Craig Kennedy, Donald C.
Miller, Jack E. Nelson, Jerome L. Robinson and Wayne W. Whalen
incorporated herein by reference (Exhibit 19.2 to Form N-1A of
Registrant's Post-Effective Amendment No. 7, filed August 24, 1995).
27 -- Financial Data Schedules.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF JANUARY 12, 1996
<TABLE>
<CAPTION>
(2)
NUMBER OF RECORD HOLDERS
(1) -------------------------------
TITLE OF CLASS CLASS A CLASS B CLASS C
- ----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Shares of Beneficial Interest, $0.01 par value 266 203 28
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
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 willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or
C-3
<PAGE> 109
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 "Investment Advisory Services" in the Prospectus and "Trustees and
Executive Officers" in the Statement of Additional Information for information
regarding the business of the Adviser. For information as to the business,
profession, vocation and employment of a substantial nature of directors and
officers of the Adviser, reference is made to the Adviser's current Form ADV
(File No. 801-1669) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17.1 incorporated by
reference herein.
(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17.2. Except as disclosed under the
heading, "Trustees and Executive Officers" in Part B of this Registration
Statement, none of such persons has any position or office with Registrant.
C-4
<PAGE> 110
ITEM 30. LOCATION OF BOOKS AND RECORDS.
Unless otherwise stated below, the books or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are in the physical possession of:
Fund Treasurer
Mutual Fund Accounting
2800 Post Oak Blvd
Houston, Texas 77056
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
- ------ ------------------------------------------------------------------
<S> <C> <C>
31a-1 (b)(2)(iii) Van Kampen American Capital Asset Management, Inc.
(b)(4)-(6) 2800 Post Oak Blvd.
(b)(9)-(11) Houston, Texas 77056
</TABLE>
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
- ------ ------------------------------------------------------------------
<S> <C> <C>
(b)(2)(iv) ACCESS Investor Services, Inc.
7501 Tiffany Springs Parkway
Kansas City, Missouri 64153
</TABLE>
ITEM 31. MANAGEMENT SERVICES.
There are no management related services contracts not discussed in Part A.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a Prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.
C-5
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Houston, and State of Texas, on the 25th day of
January, 1996.
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX
FREE INCOME FUND
By /s/ RONALD A. NYBERG
----------------------------------------------
Ronald A. Nyberg, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on January 25, 1996:
Principal Executive Officer:
<TABLE>
<C> <S>
/s/ *DON G. POWELL President and Trustee
- --------------------------------------------
Don G. Powell
Principal Financial Officer and Accounting
Officer:
/s/ CURTIS W. MORELL Vice President and Treasurer
- --------------------------------------------
Curtis W. Morell
Trustees:
/s/ *J. MILES BRANAGAN Trustee
- --------------------------------------------
J. Miles Branagan
/s/ *PHILIP P. GAUGHAN Trustee
- --------------------------------------------
Philip P. Gaughan
Trustee
- --------------------------------------------
Linda H. Heagy
/s/ *ROGER HILSMAN Trustee
- --------------------------------------------
Roger Hilsman
/s/ *R. CRAIG KENNEDY Trustee
- --------------------------------------------
R. Craig Kennedy
/s/ *DONALD C. MILLER Trustee
- --------------------------------------------
Donald C. Miller
/s/ *JACK E. NELSON Trustee
- --------------------------------------------
Jack E. Nelson
/s/ *DAVID REES Trustee
- --------------------------------------------
David Rees
/s/ *JEROME L. ROBINSON Trustee
- --------------------------------------------
Jerome L. Robinson
/s/ *LAWRENCE J. SHEEHAN Trustee
- --------------------------------------------
Lawrence J. Sheehan
/s/ *FERNANDO SISTO Trustee
- --------------------------------------------
Fernando Sisto
/s/ *WAYNE W. WHALEN Trustee
- --------------------------------------------
Wayne W. Whalen
/s/ *WILLIAM S. WOODSIDE Trustee
- --------------------------------------------
William S. Woodside
</TABLE>
/s/ RONALD A. NYBERG
-----------------------------
Ronald A. Nyberg
Attorney-in-Fact
* Signed pursuant to a Power-of-Attorney as previously filed.
<PAGE> 112
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
INDEX TO EXHIBITS TO FORM N-1A
REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- First Amended and Restated Agreement and Declaration of Trust.
1.2 -- Certificate of Amendment.
1.3 -- Certificate of Designation.
2 -- Amended and Restated Bylaws.
4.1 -- Specimen Class A Share Certificate.
4.2 -- Specimen Class B Share Certificate.
4.3 -- Specimen Class C Share Certificate.
5 -- Investment Advisory Agreement.
6.1 -- Underwriting Agreement.
8.2 -- Transfer Agency and Servicing Agreement.
10 -- Opinion of Counsel.
11 -- Consent of Independent Accountants.
15.1 -- Class A Shares Distribution Plan.
15.2 -- Class B Shares Distribution Plan.
15.3 -- Class C Shares Distribution Plan.
16 -- Computation Measure for Performance Information.
17.1 -- List of certain investment companies in response to Item 29(a).
17.2 -- List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
27 -- Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 1.1
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
OF
VAN KAMPEN
AMERICAN CAPITAL
TEXAS TAX FREE
INCOME FUND
Dated: June 21, 1995
<PAGE> 2
FIRST AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
Index
RECITALS ........................................................... 1
ARTICLE I THE TRUST ................................................. 2
SECTION 1.1 Name ...................................................... 2
SECTION 1.2. Location .................................................. 2
SECTION 1.3. Nature of Trust ........................................... 2
SECTION 1.4. Definitions ............................................... 2
SECTION 1.5. Real Property to be Converted into Personal Property ...... 5
ARTICLE 2 PURPOSE OF THE TRUST ...................................... 5
ARTICLE 3 POWERS OF THE TRUSTEES .................................... 6
SECTION 3.1. Powers in General ......................................... 6
(a) Investments ....................................................... 7
(b) Disposition of Assets ............................................. 7
(c) Ownership Powers .................................................. 7
(d) Form of Holding ................................................... 7
(e) Reorganization, etc. .............................................. 7
(f) Voting Trusts, etc. ............................................... 7
(g) Contracts, etc. ................................................... 8
(h) Guarantees, etc. .................................................. 8
(i) Partnerships, etc. ................................................ 8
(j) Insurance ......................................................... 8
(k) Pensions, etc. .................................................... 8
(I) Power of Collection and Litigation ................................ 9
(m) Issuance and Repurchase of Shares ................................. 9
(n) Offices ........................................................... 9
(o) Expenses .......................................................... 9
(p) Agents, etc. ...................................................... 9
(q) Accounts .......................................................... 9
(r) Valuation ......................................................... 9
(s) Indemnification ................................................... 9
(t) General ........................................................... 9
SECTION 3.2. Borrowings; Financings; Issuance of Securities ............ 10
i
<PAGE> 3
SECTION 3.3. Deposits ................................................... 10
SECTION 3.4. Allocations ................................................ 10
SECTION 3.5. Further Powers; Limitations ................................ 10
ARTICLE 4 TRUSTEES AND OFFICERS ...................................... 11
SECTION 4.1. Number, Designation, Election, Term, etc. .................. 11
(a) Initial Trustee .................................................... 11
(b) Number ............................................................. 11
(c) Election and Term .................................................. 11
(d) Resignation and Retirement ......................................... 11
(e) Removal ............................................................ 12
(f) Vacancies .......................................................... 12
(g) Acceptance of Trusts ............................................... 12
(h) Effect of Death, Resignation, etc. ................................. 12
(i) Conveyance ......................................................... 12
(j) No Accounting ...................................................... 13
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc. ....... 13
SECTION 4.3. Committees; Delegation ..................................... 13
SECTION 4.4. Officers ................................................... 13
SECTION 4.5. Compensation of Trustees and Officers ...................... 13
SECTION 4.6. Ownership of Shares and Securities of the Trust ............ 14
SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage
in Business; Authority of Trustees to Permit Others to Do
Likewise ................................................... 14
SECTION 4.8. Reliance on Experts ........................................ 14
SECTION 4.9. Surety Bonds ............................................... 15
SECTION 4.10. Apparent Authority of Trustees and Officers ................ 15
SECTION 4.11. Other Relationships Not Prohibited ......................... 15
SECTION 4.12. Payment of Trust Expenses .................................. 15
SECTION 4.13. 0wnership of the Trust Property ............................ 16
ii
<PAGE> 4
SECTION 4.14. By-Laws .................................................... 16
ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES .................. 16
SECTION 5.1. Appointment; Action by Less than All Trustees .............. 16
SECTION 5.2. Certain Contracts .......................................... 16
(a) Advisory ........................................................... 17
(b) Administration ..................................................... 17
(c) Underwriting ....................................................... 17
(d) Custodian .......................................................... 18
(e) Transfer and Dividend Disbursing Agent ............................. 18
(f) Shareholder Servicing .............................................. 18
(g) Accounting ......................................................... 18
Section 5.3. Distribution Arrangements .................................. 18
Section 5.4. Service Arrangements ....................................... 18
ARTICLE 6 SERIES AND SHARES .......................................... 18
SECTION 6.1. Description of Series and Shares ........................... 18
(a) General ............................................................ 18
(b) Establishment, etc. of Series; Authorization of Shares ............. 19
(c) Character of Separate Series and Shares Thereof .................... 19
(d) Consideration for Shares ........................................... 19
(e) Assets Belonging to Series ......................................... 20
(f) Liabilities of Series .............................................. 20
(g) Dividends .......................................................... 20
(h) Liquidation ........................................................ 20
(i) Voting ............................................................. 21
(j) Redemption by Shareholder .......................................... 21
(k) Redemption at the Option of the Trust .............................. 22
(I) Net Asset Value .................................................... 22
(m) Transfer ........................................................... 22
(n) Equality ........................................................... 23
(o) Rights of Fractional Shares ........................................ 23
(p) Conversion Rights .................................................. 23
SECTION 6.2. Ownership of Shares .......................................... 24
SECTION 6.3. Investments in the Trust ..................................... 24
SECTION 6.4. No Pre-emptive Rights ........................................ 24
iii
<PAGE> 5
SECTION 6.5. Status of Shares ........................................... 24
ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS ................... 24
SECTION 7.1. Voting Powers .............................................. 24
SECTION 7.2. Number of Votes and Manner of Voting; Proxies .............. 25
SECTION 7.3. Meetings ................................................... 25
SECTION 7.4. Record Dates ............................................... 26
SECTION 7.5. Quorum and Required Vote ................................... 26
SECTION 7.6. Action by Written Consent .................................. 26
SECTION 7.7. Inspection of Records ...................................... 27
SECTION 7.8. Additional Provisions ...................................... 27
ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION ................... 27
SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice.. 27
SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond
or Surety ................................................. 27
SECTION 8.3. Indemnification of Shareholders ............................ 28
SECTION 8.4. Indemnification of Trustees, Officers, etc. ................ 28
SECTION 8.5. Compromise Payment ......................................... 29
SECTION 8.6. Indemnification Not Exclusive, etc. ........................ 29
SECTION 8.7. Liability of Third Persons Dealing with Trustees ........... 29
ARTICLE 9 DURATION; REORGANIZATION; INCORPORATION; AMENDMENTS ........ 30
SECTION 9.1. Duration of Trust .......................................... 30
SECTION 9.2. Termination of Trust ....................................... 30
SECTION 9.3. Reorganization ............................................. 30
SECTION 9.4. Incorporation ............................................. 31
iv
<PAGE> 6
SECTION 9.5. Amendments; etc. ............................................. 31
SECTION 9.6. Filing of Copies of Declaration and Amendments ............... 31
ARTICLE 10 MISCELLANEOUS ................................................ 32
SECTION 10.1. Notices ...................................................... 32
SECTION 10.2. Governing Law ................................................ 32
SECTION 10.3. Counterparts ................................................ 32
SECTION 10.4. Reliance by Third Parties .................................... 32
SECTION 10.5. References; Headings ......................................... 32
SECTION 10.6. Provisions in Conflict With Law or Regulation ................ 32
SECTION 10.7. Use of the Name "Van Kampen American Capital" ................ 33
Signature ................................................................. 34
Acknowledgments ........................................................... 35
v
<PAGE> 7
AGREEMENT AND DECLARATION OF TRUST
OF
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
As amended and restated as of June 21, 1995
This CONSENT TO AMENDMENT AND RESTATMENT, made as of this 21st day of
June, 1995, by the Trustees whose signatures are set forth below:
W I T N E S S E T H T H A T:
WHEREAS, the AGREEMENT AND DECLARATION OF TRUST of Van Kampen American
Capital Texas Tax Free Income Fund, a trust organized as a business trust under
Delaware law (the "Trust"), was signed and delivered on May 10, 1995, by
Van Kampen American Capital, Inc. as Settlor (the "Settlor"), and Ronald A.
Nyberg as trustee (the "Initial Trustee"), in the city of Oakbrook Terrace,
Illinois; and
WHEREAS, a Certificate of Trust relating to the Trust was thereafter
filed in the offices of the Secretary of State of the State of Delaware; and
WHEREAS, Article IX, Sections 9.5 and 9.6 of the Declaration provide
certain procedures for the amendment and restatement thereof; and
WHEREAS, the Trustees have determined that it is desirable and in the
best interests of the Trust and the Shareholders that the Declaration be
amended and restated as herein provided.
NOW, THEREFORE, the undersigned, being at least a Majority of the
Trustees, do hereby consent, pursuant to Section 9.5 of the Declaration, to the
first amendment and restatement of the Agreement and Declaration of Trust, and
hereby declare, for the benefit of all Persons who shall hereafter become
holders of Shares of the Trust (or of any Series thereof), that the Trustees
will hold the sum delivered to the Initial Trustee upon his execution of the
Declaration, and all other and further cash, securities and other property of
every type and description which they may in any way acquire in their capacity
as such Trustees, together with the income therefrom and the proceeds thereof,
IN TRUST NEVERTHELESS, to manage and dispose of the same for the benefit of the
holders from time to time of the Shares being issued and to be issued hereunder
and in the manner and subject to the provisions hereof, to wit:
1
<PAGE> 8
ARTICLE I
THE TRUST
SECTION 1.1 Name. The name of the Trust shall be
"VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND"
and so far as may be practicable, the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under that name,
which name (and the word "Trust" wherever used in this Agreement and
Declaration of Trust, except where the context otherwise requires) shall refer
to the Trustees in their capacity as Trustees, and not individually or
personally, and shall not refer to the officers, agents or employees of the
Trust or of such Trustees, or to the holders of the Shares of the Trust or any
Series. If the Trustees determine that the use of such name is not practicable,
legal or convenient at any time or in any jurisdiction, or if the Trust is
required to discontinue the use of such name pursuant to Section 10.7 hereof,
then subject to that Section, the Trustees may use such other designation, or
they may adopt such other name for the Trust as they deem proper, and the Trust
may hold property and conduct its activities under such designation or name.
SECTION 1.2. Location. The Trust shall maintain a registered office in
the State of Delaware and may have such other offices or places of business as
the Trustees may from time to time determine to be necessary or expedient.
SECTION 1.3. Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The State of Delaware, of the type
defined in Title 12, Chapter 38, Section 3801 of the Delaware Code as a
business trust. The Trust is not intended to be, shall not be deemed to be, and
shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder.
SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:
"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.
"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.
"Affiliated Person" shall have the meaning assigned to it in the 1940
Act.
"By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time.
"Certificate of Designation" shall have the meaning designated in
Section 6.1 hereof.
"Certificate of Termination" shall have the meaning designated in
Section 6.1 hereof.
"Class" or "Classes" shall mean, with respect to the Trust (of any
Series thereof), any unissued Shares of the Trust (or such Series) in respect
of which the Trustees shall from time to time fix and determine any special
provisions relating to sales charges, any rights of redemption and the price,
terms and manner of redemption, special and relative rights as to dividends and
other distributions and on
2
<PAGE> 9
liquidation, sinking or purchase fund provisions, conversion rights,
and conditions under which the Shareholders of such Class shall have separate
voting rights or no voting rights.
"Commission" shall have the same meaning as in the 1940 Act.
"Contracting Party" shall have the meaning designated in the preamble
to Section 5.2 hereof.
"Conversion Date" shall mean with respect to Shares of any Class that
are convertible automatically into Shares of any other Class of the Trust (or
Series thereof) the date fixed by the Trustees for such conversion.
"Covered Person" shall have the meaning designated in Section 8.4
hereof.
"Custodian" shall have the meaning designated in Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time
to time in effect. This Agreement and Declaration of Trust is the "governing
instrument" of the Trust within the meaning of the laws of the State of
Delaware with respect to Delaware Business Trusts. References in this
Agreement and Declaration of Trust to "hereof", "herein" and "hereunder" shall
be deemed to refer to the Declaration of Trust generally, and shall not be
limited to the particular text, Article or Section in which such words appear.
"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.
"Distributor" shall have the meaning designated in Section 5.2(c)
hereof.
"Dividend Disbursing Agent" shall have the meaning designated in
Section 5.2(e) hereof.
"General Items" shall have the meaning defined in Section 6.2(a)
hereof.
"Initial Trustee" shall have the meaning defined in the preamble
hereto.
"Investment Advisor" shall have the meaning defined in Section 5.2(a)
hereof.
"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be only one
(1) Trustee in office, such term shall mean such Trustee.
"Majority Shareholder Vote," as used with respect to (a) the election
of any Trustee at a meeting of Shareholders, shall mean the vote for the
election of such Trustee of a plurality of all outstanding Shares of the Trust,
without regard to Series, represented in person or by proxy and entitled to
vote thereon, provided that a quorum (as determined in accordance with the
By-Laws) is present, (b) any other action required or permitted to be taken by
Shareholders, shall mean the vote for such action of the holders of that
majority of all outstanding Shares (or, where a separate vote of Shares of any
particular Series is to be taken, the affirmative vote of that majority of the
outstanding Shares of that Series) of the Trust which consists of: (i) a
majority of all Shares (or of Shares of the particular Series) represented in
person or by proxy and entitled to vote on such action at the meeting of
Shareholders at which such action is to be taken, provided that a quorum (as
determined in accordance with the By-Laws) is present; or (ii) if such action
is to be taken by written consent of Shareholders, a majority of all Shares (or
of Shares of the particular Series) issued and outstanding and entitled to vote
on such action; provided that (iii) as used
3
<PAGE> 10
with respect to any action requiring the affirmative vote of "a
majority of the outstanding voting securities," as the quoted phrase is defined
in the 1940 Act, of the Trust or of any Series, "Majority Shareholder Vote"
means the vote for such action at a meeting of Shareholders of the smallest
majority of all outstanding Shares of the Trust (or of Shares of the particular
Series) entitled to vote on such action which satisfies such 1940 Act voting
requirement.
"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to the Trust.
"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, land trusts, business trusts or
other organizations established under the laws of any jurisdiction, whether or
not considered to be legal entities, and governments and agencies and political
subdivisions thereof.
"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.
"Prospectus," as used with respect to the Trust (or the Shares of a
particular Series), shall mean the prospectus relating to the Trust (or such
Series) which constitutes part of the currently effective Registration
Statement of the Trust under the Securities Act of 1933, as such prospectus may
be amended or supplemented from time to time.
"Securities" shall have the same meaning ascribed to that term in the
Securities Act of 1993.
"Series" shall mean one or more of the series of Shares authorized by
the Trustees to represent the beneficial interest in one or more separate
components of the assets of the Trust which are now or hereafter established
and designated under or in accordance with the provisions of Article 6 hereof.
"Settlor" shall have the meaning defined in the preamble hereto.
"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding Shares
of any Series, and shall include a pledgee into whose name any such Shares are
transferred in pledge.
"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.
"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Series of the Trust (as the context may require)
shall be divided from time to time, and includes fractions of Shares as well as
whole Shares. All references herein to "Shares" which are not accompanied by a
reference to any particular Series or Class shall be deemed to apply to
outstanding Shares without regard to Series or Class.
"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a style of
voting in which each holder of one or more Shares shall be entitled to one vote
on the matter in question for each Share standing in his name on the records of
the Trust, irrespective of Series or Class of a Series, and all outstanding
Shares of all Series vote as a single class.
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"Statement of Additional Information," as used with respect to the
Trust (or any Series), shall mean the statement of additional information
relating to the Trust (or such Series) which constitutes part of the currently
effective Registration Statement of the Trust under the Securities Act of 1933,
as such statement of additional information may be amended or supplemented from
time to time.
"Transfer Agent" shall have the meaning defined in Section 5.2(e)
hereof.
"Trust" shall mean the trust named in Section 1.1 hereof.
"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or
the Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the
Trustees, without regard to the Series to which such property is allocated.
"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in question
have been duly elected or appointed as Trustees of the Trust in accordance with
the provisions hereof and who have qualified and are then in office. At any
time at which there shall be only one (I) Trustee in office, such term shall
mean such single Trustee.
SECTION 1.5. Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such conversion as long
as they in their uncontrolled discretion shall think fit, and for the purpose
of determining the nature of the interest of the Shareholders therein, all such
real property shall at all times be considered as personal property.
ARTICLE 2
PURPOSE OF THE TRUST
The purpose of the Trust shall be to (a) manage, conduct, operate and
carry on the business of an investment company; (b) subscribe for, invest in,
reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise deal in or dispose of any and all
sorts of property, tangible or intangible, including but not limited to
Securities of any type whatsoever, whether equity or nonequity, of any issuer,
evidences of indebtedness of any person and any other rights, interest,
instruments or property of any sort to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investment
of every kind and description, including without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect
of any of said investments. The Trustees shall not be limited by any law
limiting the investments which may be made by fiduciaries.
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ARTICLE 3
POWERS OF THE TRUSTEES
SECTION 3.1. Powers in General. The Trustees shall have, without other
or further authorization, full, entire, exclusive and absolute power, control
and authority over, and management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such powers
of delegation as may be permitted by this Declaration, subject only to such
limitations as may be expressly imposed by this Declaration of Trust or by
applicable law. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. Without limiting the foregoing; they may select, and from
time to time change, the fiscal year of the Trust; they may adopt and use a
seal for the Trust, provided that unless otherwise required by the Trustees, it
shall not be necessary to place the seal upon, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust; they may from time to time in accordance with the
provisions of Section 6.1 hereof establish one or more Series to which they may
allocate such of the Trust Property, subject to such liabilities, as they shall
deem appropriate, each such Series to be operated by the Trustees as a separate
and distinct investment medium and with separately defined investment
objectives and policies and distinct investment purposes, all as established by
the Trustees, or from time to time changed by them; they may as they consider
appropriate elect and remove officers and appoint and terminate agents and
consultants and hire and terminate employees, any one or more of the foregoing
of whom may be a Trustee; they may appoint from their own number, and
terminate, any one or more committees consisting of one or more Trustees,
including without implied limitation an Executive Committee, which may, when
the Trustees are not in session and subject to the 1940 Act, exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
in accordance with Section 5.2 they may employ one or more Investment Advisers,
Administrators and Custodians and may authorize any such service provider to
employ one or more other or service providers and to deposit all or any part of
such assets in a system or systems for the central handling of Securities,
retain Transfer, Dividend Disbursing, Accounting or Shareholder Servicing
Agents or any of the foregoing, provide for the distribution of Shares by the
Trust through one or more Distributors, Principal Underwriters or otherwise,
set record dates or times for the determination of Shareholders entitled to
participate in, benefit from or act with respect to various matters; and in
general they may delegate to any officer of the Trust, to any Committee of the
Trustees and to any employee, Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent, Dividend Disbursing Agent, or any other agent or
consultant of the Trust, such authority, powers, functions and duties as they
consider desirable or appropriate for the conduct of the business and affairs
of the Trust, including without implied limitation the power and authority to
act in the name of the Trust and of the Trustees, to sign documents and to act
as attorney-in-fact for the Trustees. Without limiting the foregoing and to the
extent not inconsistent with the 1940 Act or other applicable law, the Trustees
shall have power and authority:
(a) Investments. To subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to Securities of any type whatsoever,
whether equity or nonequity, of any issuer, evidences of indebtedness of any
person and any other rights, interest, instruments or property of any sort, to
exercise any and all rights, powers and privileges of ownership or
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interest in respect of any and all such investments of every kind and
description, including without limitation the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of said rights, powers and privileges in respect of any of said
investments, in every case without being limited by any law limiting the
investments which may be made by fiduciaries;
(b) Disposition of Assets. Upon such terms and conditions as they deem
best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer or otherwise dispose of,
and to trade in, any and all of the Trust Property, free and clear of all
trusts, for cash or on terms, with or without advertisement, and on such terms
as to payment, security or otherwise, all as they shall deem necessary or
expedient;
(c) Ownership Powers. To vote or give assent, or exercise any and all
other rights, powers and privileges of ownership with respect to, and to
perform any and all duties and obligations as owners of, any Securities or
other property forming part of the Trust Property, the same as any individual
might do; to exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of Securities, and to receive powers of
attorney from, and to execute and deliver proxies or powers of attorney to,
such Person or Persons as the Trustees shall deem proper, receiving from or
granting to such Person or Persons such power and discretion with relation to
Securities or other property of the Trust, all as the Trustees shall deem
proper;
(d) Form of Holding. To hold any Security or other property in a form
not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust, or of the Series to which
such Securities or property belong, or in the name of a Custodian, subcustodian
or other nominee or nominees, or otherwise, upon such terms, in such manner or
with such powers, as the Trustees may determine, and with or without indicating
any trust or the interest of the Trustees therein;
(e) Reorganizations etc. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer, any
Security of which is or was held in the Trust or any Series; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any Security forming
part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders of any Securities in
acting through a committee, depository, voting trustee or otherwise, and in
that connection to deposit any Security with, or transfer any Security to, any
such committee, depository or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depository or trustee as the Trustees shall deem proper;
(g) Contracts. etc. To enter into, make and perform all such
obligations, contracts, agreements and undertakings of every kind and
description, with any Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business of the Trust, for such
terms as they shall see fit, whether or not extending beyond the term of office
of the Trustees, or beyond the possible expiration of the Trust; to amend,
extend, release or cancel any such obligations, contracts, agreements or
understandings; and to execute, acknowledge, deliver and record all written
instruments which they may deem necessary or expedient in the exercise of their
powers;
(h) Guarantees. etc. To endorse or guarantee the payment of any notes
or other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
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and to mortgage and pledge the Trust Property or any part thereof to secure any
of or all such obligations;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or association;
(j) Insurance. To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, Investment Advisers, managers,
Administrators, Distributors, Principal Underwriters, or other independent
contractors, or any thereof (or any Person connected therewith), of the Trust,
individually, against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such Person
in any such capacity, whether or not the Trust would have the power to
indemnify such Person against such liability;
(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit sharing, share bonus, share purchase, savings, thrift, deferred
compensation and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust;
(I) Power of Collection and Litigation. To collect, sue for and receive
all sums of money coming due to the Trust, to employ counsel, and to commence,
engage in, prosecute, intervene in, join, defend, compound, compromise, adjust
or abandon, in the name of the Trust, any and all actions, suits, proceedings,
disputes, claims, controversies, demands or other litigation or legal
proceedings relating to the Trust, the business of the Trust, the Trust
Property, or the Trustees, officers, employees, agents and other independent
contractors of the Trust, in their capacity as such, at law or in equity, or
before any other bodies or tribunals, and to compromise, arbitrate or otherwise
adjust any dispute to which the Trust may be a party, whether or not any suit
is commenced or any claim shall have been made or asserted. Except to the
extent required for a Delaware Business Trust, the Shareholders shall have no
power to vote as to whether or not a court action, legal proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders.
(m) Issuance and Repurchase of Shares. To authorize, issue, sell,
repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to Article 6
hereof, to apply to any such repurchase, redemption, retirement, cancellation
or acquisition of Shares of any Series, any of the assets belonging to the
Series to which such Shares relate, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law;
provided that any Shares belonging to the Trust shall not be voted, directly or
indirectly;
(n) Offices. To have one or more offices, and to carry on all or any of
the operations and business of the Trust, in any of the States, Districts or
Territories of the United States, and in any and all foreign countries, subject
to the laws of such State, District, Territory or country;
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(o) Expenses. To incur and pay any and all such expenses and charges as
they may deem advisable (including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of money for which they may
be held liable by way of damages, penalty, fine or otherwise;
(p) Agents, etc. To retain and employ any and all such servants,
agents, employees, attorneys, brokers, Investment Advisers, accountants,
architects, engineers, builders, escrow agents, depositories, consultants,
ancillary trustees, custodians, agents for collection, insurers, banks and
officers, as they think best for the business of the Trust or any Series, to
supervise and direct the acts of any of the same, and to fix and pay their
compensation and define their duties;
(q) Accounts. To determine, and from time to time change, the method or
form in which the accounts of the Trust or any Series shall be kept;
(r) Valuation. Subject to the requirements of the 1940 Act, to
determine from time to time the value of all or any part of the Trust Property
and of any services, Securities, property or other consideration to be
furnished to or acquired by the Trust, and from time to time to revalue all or
any part of the Trust Property in accordance with such appraisals or other
information as is, in the Trustees' sole judgment, necessary and satisfactory;
(s) Indemnification. In addition to the mandatory indemnification
provided for in Article 8 hereof and to the extent permitted by law, to
indemnify or enter into agreements with respect to indemnification with any
Person with whom this Trust has dealings, including, without limitation, any
independent contractor, to such extent as the Trustees shall determine; and
(t) General. Subject to the fundamental policies in effect from time to
time with respect to the Trust, to do all such other acts and things and to
conduct, operate, carry on and engage in such other lawful businesses or
business activities as they shall in their sole and absolute discretion
consider to be incidental to the business of the Trust or any Series as an
investment company, and to exercise all powers which they shall in their
discretion consider necessary, useful or appropriate to carry on the business
of the Trust or any Series, to promote any of the purposes for which the Trust
is formed, whether or not such things are specifically mentioned herein, in
order to protect or promote the interests of the Trust or any Series, or
otherwise to carry out the provisions of this Declaration.
SECTION 3.2. Borrowings; Financings: Issuance of Securities. The
Trustees have power, subject to the fundamental policies in effect from time to
time with respect to the Trust, to borrow or in any other manner raise such sum
or sums of money, and to incur such other indebtedness for goods or services,
or for or in connection with the purchase or other acquisition of property, as
they shall deem advisable for the purposes of the Trust, in any manner and on
any terms, and to evidence the same by negotiable or nonnegotiable Securities
which may mature at any time or times, even beyond the possible date of
termination of the Trust; to issue Securities of any type for such cash,
property, services or other considerations, and at such time or times and upon
such terms, as they may deem advisable; and to reacquire any such Securities.
Any such Securities of the Trust may, at the discretion of the Trustees, be
made convertible into Shares of any Series, or may evidence the right to
purchase, subscribe for or otherwise acquire Shares of any Series, at such
times and on such terms as the Trustees may prescribe.
SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits
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are to be subject to withdrawal in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any loss which may
occur by reason of the failure of the bank, trust company or other banking
institution with which any such moneys or Securities have been deposited,
except as provided in Section 8.2 hereof.
SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a discount,
as income or capital, or to apportion the same between income and capital, to
apportion the sale price of any asset between income and capital, and to
determine in what manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as income
or as capital or such expense or disbursement would be charged to income or to
capital; to treat any dividend or other distribution on any investment as
income or capital, or to apportion the same between income and capital; to
provide or fail to provide reserves, including reserves for depreciation,
amortization or obsolescence in respect of any Trust Property in such amounts
and by such methods as they shall determine; to allocate less than all of the
consideration paid for Shares of any Series to surplus with respect to the
Series to which such Shares relate and to allocate the balance thereof to
paid-in capital of that Series, and to reallocate such amounts from time to
time; all as the Trustees may reasonably deem proper.
SECTION 3.5. Further Powers: Limitations. The Trustees shall have power
to do all such other matters and things, and to execute all such instruments,
as they deem necessary, proper or desirable in order to carry out, promote or
advance the interests of the Trust, although such matters or things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration of Trust, the presumption shall
be in favor of a grant of power to the Trustees. The Trustees shall not be
required to obtain any court order to deal with the Trust Property. The
Trustees may limit their right to exercise any of their powers through express
restrictive provisions in the instruments evidencing or providing the terms for
any Securities of the Trust or in other contractual instruments adopted on
behalf of the Trust.
ARTICLE 4
TRUSTEES AND OFFICERS
SECTION 4.1. Number. Designation, Election. Term, etc.
(a) Initial Trustee. Upon his execution of this Agreement and
Declaration of Trust dated May 10, 1995 or a counterpart hereof or some other
writing in which he accepted such Trusteeship and agreed to the provisions
hereof, the individual whose signature is affixed thereto as Initial Trustee
became the Initial Trustee thereof.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than fourteen (14)) or
decrease the number of Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority
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(or a supermajority if required by the By-Laws) of the Trustees). No
decrease in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term, but the number of
Trustees may be decreased in conjunction with the removal of a Trustee pursuant
to subsection (e) of this Section 4.1.
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of Shareholders immediately
prior to the initial issuance of shares of the Trust in a public offering and
the term of office of any Trustees in office before such election shall
terminate at the time of such election. Subject to Section 16(a) of the 1940
Act and to the preceding sentence of this subsection (c) and to any
requirements specified in the By-Laws, the Trustees shall have the power to set
and alter the terms of office of the Trustees, and at any time to lengthen or
shorten their own terms or make their terms of unlimited duration, to elect
their own successors and, pursuant to subsection (f) of this Section 4.1, to
appoint Trustees to fill vacancies; provided that Trustees shall be elected by
a Majority Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940 Act or,
if not so required, that such action is advisable; and further provided that,
after the initial election of Trustees by the Shareholders, the term of office
of any incumbent Trustee shall continue until the termination of this Trust or
his earlier death, resignation, retirement, bankruptcy, adjudicated
incompetency or other incapacity or removal, or if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this subsection (c).
(d) Resignation and Retirement. Any Trustee may resign his trust or
retire as a Trustee, by a written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.
(e) Removal. Any Trustee may be removed: (i) with cause at any time by
written instrument, signed by at least two thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding a majority of
the Shares of the Trust then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than a majority of the Shares of the Trust then
outstanding. Notwithstanding any other provisions set forth in this Declaration
of Trust, this Section 4.1(e) may not be amended (either directly or indirectly
through a reorganization) without the approval of (i) 80% of the Trustees then
in office or (ii) by vote of Shareholders holding a majority of the Shares of
the Trust then outstanding.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including an increase in the number of Trustees, may (but need not
unless required by the 1940 Act) be filled by a Majority (or a supermajority if
required by the By-Laws) of the Trustees, subject to the provisions of Section
16(a) of the 1940 Act, through the appointment in writing of such other
individual as such remaining Trustees in their discretion shall determine;
provided that if there shall be no Trustees in office, such vacancy or
vacancies shall be filled by Majority Shareholders Vote. Any such appointment
or election shall be effective upon such individual's written acceptance of his
appointment as a Trustee and his agreement to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in the
number of Trustees to be effective at a later date shall become effective only
at or after the effective date of said retirement, resignation or increase in
the number of Trustees.
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(g) Acceptance of Trusts. Whenever any conditions to the appointment or
election of any individual as a Trustee hereunder who was not, immediately
prior to such appointment or election, acting as a Trustee shall have been
satisfied, such individual shall become a Trustee and the Trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance. Such new Trustee shall accept such appointment or
election in writing and agree in such writing to be bound by the provisions
hereof, but the execution of such writing shall not be requisite to the
effectiveness of the appointment or election of a new Trustee.
(h) Effect of Death. Resignation, etc. No vacancy, whether resulting
from the death, resignation, retirement, bankruptcy, adjudicated incompetency,
incapacity, or removal of any Trustee, an increase in the number of Trustees or
otherwise, shall operate to annul or terminate the Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant
to the terms of this Declaration of Trust. Until such vacancy is filled as
provided in this Section 4.1, the Trustees in office (if any), regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration. Upon
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require in
order to effect the purpose of this Paragraph.
(i) Convevance. In the event of the resignation or removal of a
Trustee or his otherwise ceasing to be a Trustee, such former Trustee or his
legal representative shall, upon request of the continuing Trustees, execute
and deliver such documents as may be required for the purpose of consummating
or evidencing the conveyance to the Trust or the remaining Trustees of any
Trust Property held in such former Trustee's name, but the execution and
delivery of such documents shall not be requisite to the vesting of title to
the Trust Property in the remaining Trustees, as provided in subsection (g) of
this Section 4.1 and in Section 4.13 hereof.
(j) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no Person
ceasing to be a Trustee (nor the estate of any such Person) shall be required
to make an accounting to the Shareholders or remaining Trustees upon such
cessation.
SECTION 4.2. Trustees' Meetings: Participation by Telephone. etc.
Annual and special meetings may be held from time to time, in each case, upon
the call of such officers as may be thereunto authorized by the By-Laws or vote
of the Trustees, or by any three (3) Trustees, or pursuant to a vote of the
Trustees adopted at a duly constituted meeting of the Trustees, and upon such
notice as shall be provided in the By-Laws. Any such meeting may be held within
or without the state of Delaware. The Trustees may act with or without a
meeting, and a written consent to any matter, signed by all of the Trustees,
shall be equivalent to action duly taken at a meeting of the Trustees, duly
called and held. Except as otherwise provided by the 1940 Act or other
applicable law, or by this Declaration of Trust or the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees (a quorum, consisting of at least a Majority of the
Trustees, being present), within or without Delaware. If authorized by the
By-Laws, all or any one or more Trustees may participate in a meeting of the
Trustees or any Committee thereof by means of conference telephone or similar
means of communication by means of which all Persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
means of communication shall constitute presence in person at such meeting. The
minutes of any meeting thus held shall be prepared in the same manner as a
meeting at which all participants were present in person.
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SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to one or more other Committees, or to any
single Trustee, the doing of such things and the execution of such deeds or
other instruments, either in the name of the Trust or the names of the Trustees
or as their attorney or attorneys in fact, or otherwise as the Trustees may
from time to time deem expedient, and any agreement, deed, mortgage, lease or
other instrument or writing executed by the Trustee or Trustees or other Person
to whom such delegation was made shall be valid and binding upon the Trustees
and upon the Trust.
SECTION 4.4. Officers. The Trustees shall annually elect such officers
or agents, who shall have such powers, duties and responsibilities as the
Trustees may deem to be advisable, and as they shall specify by resolution or
in the By-Laws. Except as may be provided in the By-Laws, any officer elected
by the Trustees may be removed at any time with or without cause. Any two (2)
or more offices may be held by the same individual.
SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall
fix the compensation of all officers and Trustees. Without limiting the
generality of any of the provisions hereof, the Trustees shall be entitled to
receive reasonable compensation for their general services as such, and to fix
the amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal, accounting,
or other professional services, as they in good faith may deem reasonable. No
Trustee or officer resigning (except where a right to receive compensation for
a definite future period shall be expressly provided in a written agreement
with the Trust, duly approved by the Trustees) and no Trustee or officer
removed shall have any right to any compensation as such Trustee or officer for
any period following his resignation or removal, or any right to damages on
account of his removal, whether his compensation be by the month, or the year
or otherwise.
SECTION 4.6. Ownership of Shares and Securities of the Trust. Any
Trustee, and any officer, employee or agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of any Series and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of such Shares or
Securities to the same extent and in the same manner as if such Person were not
such a Trustee, officer, employee or agent of the Trust; subject, in the case
of Trustees and officers, to the same limitations as directors or officers (as
the case may be) of a Delaware business corporation; and the Trust may issue
and sell or cause to be issued and sold and may purchase any such Shares or
other Securities from any such Person or any such organization, subject only to
the general limitations, restrictions or other provisions applicable to the
sale or purchase of Shares of such Series or other Securities of the Trust
generally.
SECTION 4.7. Right of Trustees and Officers to Own Property or to
Engage in Business; Authority of Trustees to Permit Others to Do Likewise. The
Trustees, in their capacity as Trustees, and (unless otherwise specifically
directed by vote of the Trustees) the officers of the Trust in their capacity
as such, shall not be required to devote their entire time to the business and
affairs of the Trust. Except as otherwise specifically provided by vote of the
Trustees, or by agreement in any particular case, any Trustee or officer of the
Trust may acquire, own, hold and dispose of, for his own individual account,
any property, and acquire, own, hold, carry on and dispose of, for his own
individual account, any business entity or business activity, whether similar
or dissimilar to any property or business entity or business activity invested
in or carried on by the Trust, and without first offering the same as an
investment opportunity to the Trust, and may exercise all rights in respect
thereof as if he were not a Trustee or officer of the Trust. The Trustees shall
also have power, generally or in specific cases, to permit
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employees or agents of the Trust to have the same rights (or lesser
rights) to acquire, hold, own and dispose of property and businesses, to carry
on businesses, and to accept investment opportunities without offering them to
the Trust, as the Trustees have by virtue of this Section 4.7.
SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, engineers, brokers, appraisers, auctioneers, accountants,
investment bankers, securities analysts or other Persons (any of which may be a
firm in which one or more of the Trustees or officers is or are members or
otherwise interested) whose profession gives authority to a statement made by
them on the subject in question, and who are reasonably deemed by the Trustees
or officers in question to be competent, and the advice or opinion of such
Persons shall be full and complete personal protection to all of the Trustees
and officers in respect of any action taken or suffered by them in good faith
and in reliance on or in accordance with such advice or opinion. In discharging
their duties, Trustees and officers, when acting in good faith, may rely upon
financial statements of the Trust represented to them to be correct by any
officer of the Trust having charge of its books of account, or stated in a
written report by an independent certified public accountant fairly to present
the financial position of the Trust. The Trustees and officers may rely, and
shall be personally protected in acting, upon any instrument or other document
believed by them to be genuine.
SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of
the Trust shall, as such, be obligated to give any bond or surety or other
security for the performance of any of his duties, unless required by
applicable law or regulation, or unless the Trustees shall otherwise determine
in any particular case.
SECTION 4.10. Apparent Authority of Trustees and Officers. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or of such officer.
SECTION 4.11. Other Relationships Not Prohibited. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party (as defined in Section 5.2 hereof), or of or
for any parent or affiliate of any Contracting Party, or that the
Contracting Party or any parent or affiliate thereof is a Shareholder
or has an interest in the Trust or any Series, or that
(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or to the holders of Shares of any Series; provided
that, in the case of any relationship or interest referred to in the preceding
clause (i) on the part of any Trustee or officer of the Trust, either (x) the
material facts as to such relationship or interest have been disclosed to or
are known by the Trustees not having any such relationship or interest and the
contract involved is approved in good faith by a majority
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of such Trustees not having any such relationship or interest (even
though such unrelated or disinterested Trustees are less than a quorum of all
of the Trustees), (y) the material facts as to such relationship or interest
and as to the contract have been disclosed to or are known by the Shareholders
entitled to vote thereon and the contract involved is specifically approved in
good faith by vote of the Shareholders, or (z) the specific contract involved
is fair to the Trust as of the time it is authorized, approved or ratified by
the Trustees or by the Shareholders.
SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to
pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, and according to any
allocation to a particular Series and Class made by them pursuant to Section
6.1(f) hereof, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the business and affairs of the Trust or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, Investment Adviser, Administrator, Distributor,
Principal Underwriter, auditor, counsel, Custodian, Transfer Agent, Dividend
Disbursing Agent, Accounting Agent, Shareholder Servicing Agent, and such other
agents, consultants, and independent contractors and such other expenses and
charges as the Trustees may deem necessary or proper to incur.
SECTION 4.13. Ownership of the Trust Property. Legal title to all the
Trust Property shall be vested in the Trustees as joint tenants, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or of any particular Series, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided that the
interest of the Trust and of the respective Series therein is appropriately
protected. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee.
Upon the termination of the term of office of a Trustee as provided in Section
4.1(c), (d) or (e) hereof, such Trustee shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to Section 4.1(i) hereof.
SECTION 4.14. By-Laws. The Trustees may adopt and from time to time
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE 5
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1. Appointment; Action by Less than All Trustees. The
Trustees shall be responsible for the general operating policy of the Trust and
for the general supervision of the business of the Trust conducted by officers,
agents, employees or advisers of the Trust or by independent contractors, but
the Trustees shall not be required personally to conduct all the business of
the Trust and, consistent with their ultimate responsibility as stated herein,
the Trustees may appoint, employ or contract with one or more officers,
employees and agents to conduct, manage and/or supervise the operations of the
Trust, and may grant or delegate such authority to such officers, employees
and/or agents as the Trustees may, in their sole discretion, deem to be
necessary or desirable, without regard to whether such authority is normally
granted or delegated by trustees. With respect to those matters of the
operation and business of
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the Trust which they shall elect to conduct themselves, except as
otherwise provided by this Declaration or the By-Laws, if any, the Trustees may
authorize any single Trustee or defined group of Trustees, or any committee
consisting of a number of Trustees less than the whole number of Trustees then
in office without specification of the particular Trustees required to be
included therein, to act for and to bind the Trust, to the same extent as the
whole number of Trustees could do, either with respect to one or more
particular matters or classes of matters, or generally.
SECTION 5.2. Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time in their discretion and
without limiting the generality of their powers and authority otherwise set
forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnerships, limited partnerships or other
types of organizations, or individuals ("Contracting Party"), to provide for
the performance and assumption of some or all of the following services, duties
and responsibilities to, for or on behalf of the Trust and/or any Series,
and/or the Trustees, and to provide for the performance and assumption of such
other services, duties and responsibilities in addition to those set forth
below, as the Trustees may deem appropriate:
(a) Advisory. An investment advisory or management agreement whereby
the agent shall undertake to furnish the Trust (or any Series thereof) such
management, investment advisory or supervisory, statistical and research
facilities and services, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable, all upon such terms and
conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
or any applicable provisions of the By-Laws (any such agent being herein
referred to as an "Investment Adviser"). To the extent required by the 1940
Act, any such advisory or management agreement and any amendment thereto shall
be subject to approval by a Majority Shareholder Vote at a meeting of the
Shareholders of the Trust (or applicable Series). Notwithstanding any
provisions of this Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
securities of the Trust on behalf of the Trustees or may authorize any officer
or employee of the Trust or any Trustee to effect such purchases, sales, loans
or exchanges pursuant to recommendations of the Investment Adviser (and all
without further action by the Trustees). Any such purchases, sales, loans and
exchanges shall be deemed to have been authorized by all of the Trustees. The
Trustees may, in their sole discretion, call a meeting of Shareholders in order
to submit to a vote of Shareholders of the Trust (or applicable Series) at such
meeting the approval of continuance of any such investment advisory or
management agreement.
(b) Administration. An agreement whereby the agent, subject to the
general supervision of the Trustees and in conformity with any policies of the
Trustees with respect to the operations of the Trust and each Series thereof,
will supervise all or any part of the operations of the Trust (or any Series
thereof), and will provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for the
efficient administration and operations of the Trust (or any Series thereof)
(any such agent being herein referred to as an "Administrator").
(c) Underwriting. An agreement providing for the sale of Shares of the
Trust (or any Series thereof) to net the Trust not less than the net asset
value per Share (as described in Section 6.1(l) hereof) and pursuant to which
the Trust may appoint the other party to such agreement as its principal
underwriter or sales agent for the distribution of such Shares. The agreement
shall contain such terms and
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conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
and any applicable provisions of the By-Laws (any such agent being herein
referred to as a "Distributor" or a "Principal Underwriter," as the case may
be).
(d) Custodian. The appointment of an agent meeting the requirements for
a custodian for the assets of Investment Companies contained in the 1940 Act
as custodian of the Securities and cash of the Trust (or any Series thereof)
and of the accounting records in connection therewith (any such agent being
herein referred to as a "Custodian").
(e) Transfer and Dividend Disbursing Agent. An agreement with an agent
to maintain records of the ownership of outstanding Shares, the issuance and
redemption and the transfer thereof (any such agent being herein referred to
as a "Transfer Agent"), and to disburse any dividends declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends
(any such agent being herein referred to as a "Dividend Disbursing Agent").
(f) Shareholder Servicing. An agreement with an agent to provide
service with respect to the relationship of the Trust and its Shareholders,
records with respect to Shareholders and their Shares, and similar matters
(any such agent being herein referred to as a "Shareholder Servicing Agent").
(g) Accounting. An agreement with an agent to handle all or any part of
the accounting responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise (any such agent being herein referred
to as an "Accounting Agent").
In addition, the Trustees may from time to time cause the Trust (or any
Series thereof) to enter into agreements with respect to such other services
and upon such other terms and conditions as they may deem necessary,
appropriate or desirable. The same Person may be the Contracting Party for
some or all of the services, duties and responsibilities to, for and of the
Trust and/or the Trustees, and the contracts with respect thereto may contain
such terms interpretive of or in addition to the delineation of the services,
duties and responsibilities provided for, including provisions that are not
inconsistent with the 1940 Act relating to the standard of duty of and the
rights to indemnification of the Contracting Party and others, as the Trustees
may determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into subcontractual arrangements relative to
any of the matters referred to in subsections (a) through (g) of this Section
5.2.
Section 5.3. Distribution Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more plans of distribution pursuant to Rule 12b-1 of the 1940
Act which plan(s) will provide for the payment of specified marketing,
distribution and shareholder relations expenses of the Trust and any or all
Series and their agents and the agents of such agents.
Section 5.4. Service Arrangements. Subject to compliance with the
1940 Act, the Trustees may adopt and amend or repeal from time to time and
implement one or more service plans which plans will provide for the payment of
ongoing services to holders of the shares of such Trust (or any Series thereof)
and in connection with the maintenance of such shareholders' accounts.
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ARTICLE 6
SERIES AND SHARES
SECTION 6.1. Description of Series and Shares.
(a) General. The beneficial interest in the Trust shall be divided into
Shares (either full or fractional) with $.01 par value per Share, of which an
unlimited number may be issued. The Trustees shall have the authority from time
to time to establish and designate one or more separate, distinct and
independent Series of Shares (each of which Series shall represent interests
only in the asset attributed by the Trustees to such Series), and to authorize
separate Classes of Shares of the Trust (or any such Series), as they deem
necessary or desirable. All Shares shall be of one class, provided that the
Trustees shall have the power to classify or reclassify any unissued Shares of
any Series into any number of additional Classes of such Series.
(b) Establishment. etc. of Series and Classes; Authorization of Shares.
The establishment and designation of any Series and the authorization of the
Shares thereof shall be effective upon the execution by a Majority of the
Trustees (or by an officer of the Trust pursuant to the vote of a Majority of
the Trustees) of an instrument setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class
and the manner in which the same may be amended (a "Certificate of
Designation"), and may provide that the number of Shares of such Series or
Class which may be issued is unlimited, or may limit the number issuable. At
any time that there are no Shares outstanding of any particular Series or Class
previously established and designated, the Trustees may by an instrument
executed by a Majority of the Trustees (or by an officer of the Trust pursuant
to the vote of a Majority of the Trustees) terminate such Series or Class and
the establishment and designation thereof and the authorization of its Shares
(a "Certificate of Termination"). Each Certificate of Designation, Certificate
of Termination and any instrument amending a Certificate of Designation shall
have the status of an amendment to this Declaration of Trust.
(c) Character of Separate Series and Shares Thereof. Each Series
established hereunder shall represent beneficial interests in a separate
component of the assets of the Trust. Holders of Shares of a Series shall be
considered Shareholders of such Series, but such Shareholders shall also be
considered Shareholders of the Trust for purposes of receiving reports and
notices and, except as otherwise provided herein or in the Certificate of
Designation of a particular Series, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct Series, and to
fix and determine the relative rights and preferences as between the shares of
the respective Series, and as between the Classes of the Trust (or any Series
thereof), as to rights of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Series or the several
Classes of any Series of Shares shall have separate voting rights or no voting
rights. Except as otherwise provided as to a particular Series herein, or in
the Certificate of Designation therefor, the Trustees shall have all the rights
and powers, and be subject to all the duties and obligations, with respect to
each such Series and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
Separate and distinct records shall be maintained for each Series of Shares and
the assets and liabilities attributable thereto.
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(d) Consideration for Shares. The Trustees may issue Shares of the
Trust (or any Series thereof) for such consideration (which may include
property subject to, or acquired in connection with the assumption of,
liabilities) and on such terms as they may determine (or for no consideration
if pursuant to a Share dividend or split-up), all without action or approval of
the Shareholders. All Shares when so issued on the terms determined by the
Trustees shall be fully paid and nonassessable (but may be subject to mandatory
contribution back to the Trust (or applicable Series) as provided in Section
6.1(l) hereof. The Trustees may classify or reclassify any unissued Shares, or
any Shares of the Trust (or any Series thereof) previously issued and
reacquired by the Trust, into Shares of the Trust or one or more other Series
that may be established and designated from time to time.
(e) Assets Belonging to Series. Any portion of the Trust Property
allocated to a particular Series, and all consideration received by the Trust
for the issue or sale of Shares of such Series, together with all assets in
which such consideration is invested or reinvested, all interest, dividends,
income, earnings, profits and gains therefrom, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series and shall irrevocably belong to
that Series for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of such Series shall not have, and
shall be conclusively deemed to have waived, any claims to the assets of any
Series of which they are not Shareholders. Such consideration, assets,
interest, dividends, income, earnings, profits, gains and proceeds, together
with any General Items allocated to that Series as provided in the following
sentence, are herein referred to collectively as assets "belonging to" that
Series. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series (collectively, "General Items"), the
Trustees shall allocate such General Items to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable; and any
General Items so allocated to a particular Series shall belong to and be part
of the assets belonging to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
(f) Liabilities of Series. The assets belonging to each particular
Series shall be charged with the liabilities in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as pertaining to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the
Series established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable. The
indebtedness, expenses, costs, charges and reserves allocated and so charged to
a particular Series are herein referred to as "liabilities of" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series
for all purposes. Any creditor of any Series may look only to the assets
belonging to that Series to satisfy such creditor's debt.
(g) Dividends. Dividends and distributions on Shares of a particular
Series may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the
Shareholders of that Series, from such of the income, accrued or realized, and
capital gains,
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realized or unrealized, and out of the assets belonging to that Series,
as the Trustees may determine, after providing for actual and accrued
liabilities of that Series. All dividends and distributions on Shares of a
particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of such Shares held by such holders at the
date and time of record established for the payment of such dividends or
distributions, except that the dividends and distributions of investment income
and capital gains with respect to each Class of Shares of a particular Series
shall be in such amount as may be declared from time to time by the Trustees,
and such dividends and distributions may vary as between such Classes to
reflect differing allocations of the expenses of the Series between the
Shareholders of such several Classes and any resultant differences between the
net asset value of such several Classes to such extent and for such purposes as
the Trustees may deem appropriate and further except that, in connection with
any dividend or distribution program or procedure, the Trustees may determine
that no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the time
or times established by the Trustees under such program or procedure, or that
dividends or distributions shall be payable on Shares which have been tendered
by the holder thereof for redemption or repurchase, but the redemption or
repurchase proceeds of which have not yet been paid to such Shareholder. Such
dividends and distributions may be made in cash, property or Shares of any
Class of that Series or a combination thereof as determined by the Trustees, or
pursuant to any program that the Trustees may have in effect at the time for
the election by each Shareholder of the mode of the making of such dividend or
distribution to that Shareholder. Any such dividend or distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with subsection (l) of this Section 6.1.
(h) Liquidation. In the event of the liquidation or dissolution of the
Trust (or any particular Series), the Shareholders of the Trust (or that
Series) shall be entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to the Trust (or that Series) over the
liabilities of such Series. The assets so distributable to the Shareholders of
the Trust (or that Series) shall be distributed among such Shareholders in
proportion to the number of Shares of the Trust (or that Series) held by them
and recorded on the books of the Trust. The liquidation of the Trust (or any
particular Series) may be authorized by vote of a Majority of the Trustees,
subject to the affirmative vote of "a majority of the outstanding voting
securities" of that Series, as the quoted phrase is defined in the 1940 Act,
determined in accordance with clause (iii) of the definition of "Majority
Shareholder Vote" in Section 1.4 hereof.
(i) Voting. The Shareholders shall have the voting rights set forth in
or determined under Article 7 hereof.
(j) Redemption by Shareholder. Each holder of Shares of the Trust (or a
particular Series thereof) shall have the right at such times as may be
permitted by the Trust, but no less frequently than required by the 1940 Act,
to require the Trust (or such Series) to redeem all or any part of his Shares of
the Trust (or such Series) at a redemption price equal to the net asset value
per Share of the Trust (or Series) next determined in accordance with
subsection (l) of this Section 6.1 after the Shares are properly tendered for
redemption; provided, that the Trustees may from time to time, in their
discretion, determine and impose a fee for such redemption and that the
proceeds of the redemption of Shares (including a fractional Share) of any
Class of the Trust (or any Series thereof) shall be reduced by the amount of
any applicable contingent deferred sales charge or other sales charge, if any,
payable on such redemption to the distributor of Shares of such Class pursuant
to the terms of
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the initial issuance of the Shares of such Class (to the extent
consistent with the 1940 Act or regulations or exemptions thereunder) and the
Trust shall promptly pay to such distributor the amount of such deferred sales
charge. Payment of the redemption price shall be in cash; provided, however,
that if the Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable, the
Trust may make payment wholly or partly in Securities or other assets belonging
to such Series at the value of such Securities or assets used in such
determination of net asset value. Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
holders of Shares of the Trust (or any Series thereof) to require the Trust to
redeem Shares of the Trust (or such Series) during any period or at any time
when and to the extent permissible under the 1940 Act.
(k) Redemption at the Option of the Trust. The Trustees shall have the
power to redeem Shares of the Trust (or any Series thereof) at a redemption
price determined in accordance with Section 6.1(j), if at any time (i) the
total investment in such account does not have a value of at least such minimum
amount as may be specified in the Prospectus for the Trust (or such Series)
from time to time (ii) the number of Shares held in such account is equal to or
in excess of a specified percentage of Shares of the Trust or any Series as set
forth from time to time in the applicable Prospectus. In the event the Trustees
determine to exercise their power to redeem Shares provided in this Section
6.1(k), the Shareholder shall be notified that the value of his account is less
than the applicable minimum amount and shall be allowed 30 days to make an
appropriate investment before redemption is processed.
(l) Net Asset Value. The net asset value per Share of the Trust (or any
Series or Class) at any time shall be the quotient obtained by dividing the
value of the net assets of the Trust (or such Series or Class) at such time
(being the current value of the assets belonging to the Trust (or such Series
or Class), less its then existing liabilities) by the total number of Shares of
the Trust (or such Series) then outstanding, all determined in accordance with
the methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time in accordance with the
requirements of the 1940 Act. The net asset value of the several Classes of the
Trust (or a particular Series) shall be separately computed, and may vary from
one another. The Trustees shall establish procedures for the allocation of
investment income or capital gains and expenses and liabilities of a particular
Series between the several Classes of the Trust (or such Series). The Trustees
may determine to maintain the net asset value per Share of the Trust or any
Series or Class at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declaration of income attributable to the Trust or such Series or
Class as dividends payable in additional Shares of the Trust or such Series or
Class at the designated constant dollar amount and for the handling of any
losses attributable to the Trust or such Series or Class. Such procedures may
provide that in the event of any loss each Shareholder shall be deemed to have
contributed to the shares of beneficial interest account of the Trust or such
Series or Class his pro rata portion of the total number of Shares required to
be canceled in order to permit the net asset value per Share of the Trust or
such Series or Class to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each Shareholder of the Trust shall be
deemed to have expressly agreed, by his investment in the Trust (or any Series
thereof) with respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding sentence in
the event of any such loss.
(m) Transfer. All Shares of the Trust and each Series shall be
transferable, but transfers of Shares of the Trust or a particular Series will
be recorded on the Share transfer records of the Trust
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applicable to the Trust or such Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares of the
Trust or such Series and at such other times as may be permitted by the
Trustees.
(n) Equality. All Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities of that Series), and each Share of any particular Series shall
be equal to each other Share thereof; but the provisions of this sentence shall
not restrict any distinctions between the several Classes of a Series
permissible under this Section 6.1 or under Section 7. 1 hereof nor any
distinctions permissible under subsection (g) of this Section 6.1 that may
exist with respect to dividends and distributions on Shares of the same Series.
The Trustees may from time to time divide or combine the Shares of any class of
particular Series into a greater or lesser number of Shares of that class of a
Series without thereby changing the proportionate beneficial interest in the
assets belonging to that Series or in any way affecting the rights of the
holders of Shares of any other Series.
(o) Rights of Fractional Shares. Any fractional Share of the Trust (or
any Series thereof) shall carry proportionately all the rights and obligations
of a whole Share of the Trust (or such Series), including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or of the Series to which
they pertain.
(p) Conversion Rights. (i) Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that holders
of Shares of any Series shall have the right to convert said Shares into Shares
of one or more other Series, that holders of any Class of the Trust or a Series
of Shares shall have the right to convert said Shares of such Class into Shares
of one or more other Classes of the Trust or such Series, and that Shares of
any Class of the Trust or a Series shall be automatically converted into Shares
of another Class of the Trust or such Series, in each case in accordance with
such requirements and procedures as the Trustees may establish.
(ii) The number of Shares of into which a convertible Share shall
convert shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share for purposes of sales
and redemptions of the converting Share on the Conversion Date by the net asset
value per Share for purposes of sales and redemptions of the Class of Shares
into which it is converting on the Conversion Date.
(iii) On the Conversion Date, the Share converting into another
share will cease to accrue dividends and will no longer be deemed
outstanding and the rights of the holders thereof (except the right to receive
the number of target Shares into which the converting Shares have been
converted and declared but unpaid dividends to the Conversion Date) will cease.
Certificates representing Shares resulting from the conversion need not be
issued until certificates representing Shares converted, if issued, have been
received by the Trust or its agent duly endorsed for transfer.
(vi) The Trust will appropriately reflect the conversion of Shares
of one Class of the Trust (or a Series thereof) into Shares of another
Class of the Trust (or such Series) on the first periodic statements of account
sent to Shareholders of record affected which provide account information with
respect to a reporting period which includes the date such conversion occurred.
SECTION 6.2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a Transfer Agent or similar agent for
the Trust, which books shall be maintained
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separately for the Shares of each Series that has been authorized.
Certificates evidencing the ownership of Shares need not be issued except as
the Trustees may otherwise determine from time to time, and the Trustees shall
have power to call outstanding Share certificates and to replace them with book
entries. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the use of facsimile signatures, the transfer
of Shares and similar matters. The record books of the Trust as kept by the
Trust or any Transfer Agent or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders and as to the number of Shares of the
Trust and, if designated, each Series thereof held from time to time by each
such Shareholder.
The holders of Shares of the Trust and, if designated, each Series
thereof shall upon demand disclose to the Trustees in writing such information
with respect to their direct and indirect ownership of Shares of the Trust or,
if designated, such Series as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other authority.
SECTION 6.3. Investments in the Trust. The Trustees may accept
investments in any Series of the Trust from such Persons and on such terms and
for such consideration, not inconsistent with the provisions of the 1940 Act,
as they from time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or other Person
to accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares, whether or not conforming
to such authorized terms.
SECTION 6.4. No Preemptive Rights. No Shareholder, by virtue of holding
Shares of the Trust or, if designated, any Series thereof, shall have any
preemptive or other right to subscribe to any additional Shares of the Trust or
such Series, or to any shares of any other Series, or any other Securities
issued by the Trust.
SECTION 6.5. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. Shares shall be deemed to
be personal property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Series, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Declaration of Trust.
ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Sections 4.1(c)
and (e) hereof, (ii) with respect to the approval or termination in accordance
with the 1940 Act of any contract with a Contracting Party as provided in
Section 5.2 hereof as to which Shareholder approval is required by the 1940
Act, (iii) with respect to any termination or reorganization of the Trust or
any Series to the extent and as provided in Sections 9.2, 9.3 and 9.4 hereof,
(iv) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Section 9.5 hereof, (v) to the same extent as the
stockholders of a Delaware business
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corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or any Series, or the Shareholders of any of them
(provided. however, that a Shareholder of a particular Series shall not in any
event be entitled to maintain a derivative or class action on behalf of any
other Series or the Shareholders thereof), and (vi) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any State, or as the Trustees may
consider necessary or desirable. If and to the extent that the Trustees shall
determine that such action is required by law or by this Declaration, they
shall cause each matter required or permitted to be voted upon at a meeting or
by written consent of Shareholders to be submitted to a separate vote of the
outstanding Shares of each Series entitled to vote thereon; provided, that (i)
when expressly required by the 1940 Act or by other law, actions of
Shareholders shall be taken by Single Class Voting of all outstanding Shares
whose holders are entitled to vote thereon; and (ii) when the Trustees
determine that any matter to be submitted to a vote of Shareholders affects
only the rights or interests of Shareholders of one or more but not all Series
or of one or more but not all Classes of the Trust or a single Series
(including without limitation any distribution plan pursuant to Rule 12b-1 of
the 1940 Act applicable to such Class), then only the Shareholders of the
Series or Classes so affected shall be entitled to vote thereon. Any matter
required to be submitted to shareholders and affecting one or more Series shall
require separate approval by the required vote of Shareholders of the Trust or
each affected Series; provided, however, that to the extent required by the
1940 Act, there shall be no separate Series votes on the election or removal of
Trustees, the selection of auditors for the Trust and its Series or approval of
any agreement or contract entered into by the Trust or any Series. Shareholders
of a particular Series shall not be entitled to vote on any matter that affects
only one or more other Series.
SECTION 7.2. Number of Votes and Manner of Voting: Proxies. On each
matter submitted to a vote of the Shareholders, each holder of Shares of the
Trust or, if applicable, any Series shall be entitled to a number of votes
equal to the number of Shares of the Trust or such Series standing in his name
on the books of the Trust. There shall be no cumulative voting in the election
or removal of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two (2) or more Persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided, or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven (7) days before such
meeting, postage prepaid, stating the time, place and purpose of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records
of the Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than ten
percent (10%) of the Shares then outstanding. If the Trustees shall fail to
call or give notice of any meeting of Shareholders for a period of thirty (30)
days after written application by Shareholders holding at least ten percent
(10%) of the Shares then outstanding requesting that a
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meeting be called for any other purpose requiring action by the
Shareholders as provided herein or in the By-Laws, then Shareholders holding at
least ten percent (10%) of the Shares then outstanding may call and give notice
of such meeting, and thereupon the meeting shall be held in the manner provided
for herein in case of call thereof by the Trustees. Any meetings may be held
within or without The State of Delaware. Shareholders may only act with
respect to matters set forth in the notice to Shareholders.
SECTION 7.4. Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding thirty (30) days (except at
or in connection with the termination of the Trust), as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
and time not more than ninety (90) days prior to the date of any meeting of
Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
SECTION 7.5. Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A Majority Shareholder Vote at a meeting of which a quorum is
present shall decide any question, except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law or by this
Declaration of Trust or the By-Laws, or when the Trustees shall in their
discretion require a larger vote or the vote of a majority or larger fraction
of the Shares of one or more particular Series.
SECTION 7.6. Action By Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof or of the Shares of any particular
Series as shall be required by the 1940 Act or by any express provision of this
Declaration of Trust or the By-Laws or as shall be permitted by the Trustees)
consent to the action in writing and if the writings in which such consent is
given are filed with the records of the meetings of Shareholders, to the same
extent and for the same period as proxies given in connection with a
Shareholders' meeting. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
SECTION 7.7. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Delaware business corporation under the Delaware business
corporation law.
SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
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ARTICLE 8
LIMITATION OF LIABILITY: INDEMNIFICATION
SECTION 8.1. Trustees. Shareholders. etc. Not Personally Liable;
Notice. The Trustees, officers, employees and agents of the Trust, in incurring
any debts, liabilities or obligations, or in limiting or omitting any other
actions for or in connection with the Trust, are or shall be deemed to be
acting as Trustees, officers, employees or agents of the Trust and not in their
own capacities. No Shareholder shall be subject to any personal liability
whatsoever in tort, contract or otherwise to any other Person or Persons in
connection with the assets or the affairs of the Trust or of any Series, and
subject to Section 8.4 hereof, no Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever in tort, contract,
or otherwise, to any other Person or Persons in connection with the assets or
affairs of the Trust or of any Series, save only that arising from his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office or the discharge of his functions.
The Trust (or if the matter relates only to a particular Series, that Series)
shall be solely liable for any and all debts, claims, demands, judgments,
decrees, liabilities or obligations of any and every kind, against or with
respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed
that resort shall be had solely to the Trust Property of the Trust or the
Series Assets of such Series, as the case may be, for the payment or
performance thereof.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that a Certificate of
Trust in respect of the Trust is on file with the Secretary of the state of
Delaware and shall recite to the effect that the same was executed or made by
or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer, and not individually, and that the obligations of such instrument are
not binding upon any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust, or the particular Series in
question, as the case may be, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the Series Assets of any Series to the
obligations of any other Series.
SECTION 8.2. Trustees' Good Faith Action; Expert Advice: No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 8.4 hereof, a
Trustee shall be liable for his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (i) the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing
of any officer, agent, employee, consultant, Investment Adviser, Administrator,
Distributor or Principal Underwriter, Custodian or Transfer Agent, Dividend
Disbursing Agent, Shareholder Servicing Agent or Accounting Agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written
reports made to the Trustees by any officer appointed by them, any independent
public accountant, and (with respect to the subject matter of the contract
involved) any officer, partner or
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responsible employee of a Contracting Party appointed by the Trustees
pursuant to Section 5.2 hereof. The Trustees as such shall not be required to
give any bond or surety or any other security for the performance of their
duties.
SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being
or having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request
by the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified
against all loss and expense arising from such liability.
SECTION 8.4. Indemnification of Trustees. Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 8.4, the
Trust shall indemnify (from the assets of one or more Series to which the
conduct in question relates) each of its Trustees, officers, employees and
agents (including Persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise (hereinafter, together with
such Person's heirs, executors, administrators or personal representative,
referred to as a "Covered Person")) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel
fees, incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it has been
determined that such Covered Person (i) did not act in good faith in the
reasonable belief that such Covered Person's action was in or not opposed to
the best interests of the Trust; (ii) had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (iii) for a criminal proceeding, had
reasonable cause to believe that his conduct was unlawful (the conduct
described in (i), (ii) and (iii) being referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the Covered Person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum
of Trustees who are neither "interested persons" of the Trust as defined in
Section 2(a)(19) of the 1940 Act nor parties to the proceeding (the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments,
in compromise or as fines or penalties), may be paid from time to time by one
or more Series to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided that the Covered
Person shall have undertaken to repay the amounts so paid to such Series if it
is ultimately determined that indemnification of such expenses is not
authorized under this Article 8 and (i) the Covered Person shall
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have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the Disinterested Trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial type inquiry), that there
is reason to believe that the Covered Person ultimately will be found entitled
to indemnification.
SECTION 8.5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4
hereof, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent
legal counsel pursuant to clause (ii) shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
either of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office.
SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article 8, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article 8 shall affect
any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person.
SECTION 8.7. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
ARTICLE 9
DURATION: REORGANIZATION: INCORPORATION; AMENDMENTS
SECTION 9.1. Duration of Trust. Unless terminated as provided herein,
the Trust shall have perpetual existence.
SECTION 9.2. Termination of Trust. The Trust may be terminated at any
time by a Majority of the Trustees, subject to the favorable vote of the
holders of not less than a majority of the Shares outstanding and entitled to
vote of each Series of the Trust, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than a majority of
such Shares, or by such greater or different vote of Shareholders of any Series
as may be established by the Certificate of Designation by which such Series
was authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be
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determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with
the provisions of Section 6.1(h) hereof. After termination of the Trust or any
Series and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination. Upon
termination of the Trust, the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease. Upon termination of any Series, the
Trustees shall thereupon be discharged from all further liabilities and duties
with respect to such Series, and the rights and interests of all Shareholders
of such Series shall thereupon cease.
SECTION 9.3. Reorganization. The Trustees may sell, convey and transfer
all or substantially all of the assets of the Trust, or the assets belonging to
any one or more Series, to another trust, partnership, association, corporation
or other entity organized under the laws of any state of the United States, or
may transfer such assets to another Series of the Trust, in exchange for cash,
Shares or other Securities (including, in the case of a transfer to another
Series of the Trust, Shares of such other Series), or to the extent permitted
by law then in effect may merge or consolidate the Trust or any Series with any
other Trust or any corporation, partnership, or association organized under the
laws of any state of the United States, all upon such terms and conditions and
for such consideration when and as authorized by vote or written consent of a
Majority of the Trustees and approved by the affirmative vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Series whose assets are affected by such transaction, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, and/or by such other vote of any Series as
may be established by the Certificate of Designation with respect to such
Series. Following such transfer, the Trustees shall distribute the cash, Shares
or other Securities or other consideration received in such transaction (giving
due effect to the assets belonging to and indebtedness of, and any other
differences among, the various Series of which the assets have so been
transferred) among the Shareholders of the Series of which the assets have been
so transferred; and if all of the assets of the Trust have been so transferred,
the Trust shall be terminated. Nothing in this Section 9.3 shall be construed
as requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or
other organizations, and to sell, convey or transfer less than substantially
all of the Trust Property or the assets belonging to any Series to such
organizations or entities.
SECTION 9.4. Incorporation. Upon approval by Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization, in
exchange for the shares or securities thereof, or otherwise, and to lend money
to, subscribe for the shares of securities of, and enter into any contracts
with any such corporation, trust, partnership, association or organization in
which the Trust holds or is about to acquire shares or any other interests. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporation, trusts,
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partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
SECTION 9.5. Amendments; etc. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any Shareholder
or Trustee or the prohibition of assessment upon the Shareholders (otherwise
than as permitted under Section 6.1(l)) without the express consent of each
Shareholder or Trustee involved. Subject to the foregoing, the provisions of
this Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument in
writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.I
hereof of Shareholders holding a majority of all the Shares outstanding and
entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Series, by the
vote of the holders of a majority of all the Shares entitled to vote of each
Series so affected. Notwithstanding any other provisions set forth in this
Declaration of Trust, a provision in this Declaration of Trust requiring
shareholder approval of any action may be amended only with like shareholder
approval.
SECTION 9.6. Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration and of each amendment hereto (including
each Certificate of Designation and Certificate of Termination) shall be kept
at the office of the Trust where it may be inspected by any Shareholder. A
restated Declaration, integrating into a single instrument all of the
provisions of this Declaration which are then in effect and operative, may be
executed from time to time by a Majority of the Trustees and shall, upon
execution, be conclusive evidence of all amendments contained therein and may
thereafter be referred to in lieu of the original Declaration and the various
amendments thereto. A Certificate of Trust shall be filed in the office of the
Secretary of State of the State of Delaware.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.
SECTION 10.2. Governing Law. This Declaration of Trust is, with
reference to the laws thereof, and the rights of all parties and the
construction and effect of every provision hereof shall be, subject to and
construed according to the laws of said The State of Delaware.
SECTION 10.3. Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an
30
<PAGE> 37
original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust is a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form
of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust, (e)
the form of any By-Law adopted, or the identity of any officers elected, by the
Trustees, (f) the existence or nonexistence of any fact or facts which in any
manner relate to the affairs of the Trust, or (g) the name of the Trust or the
establishment of a Series shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees, or any of them, and
the successors of such Person.
SECTION 10.5. References; Headings. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part of this Declaration or control
or affect the meaning, construction or effect hereof.
SECTION 10.6. Provisions in Conflict With Law or Regulation. (a)
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Declaration; provided, however, that such determination shall not affect
any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION 10.7. Use of the Name "Van Kampen American Capital". Van Kampen
American Capital, Inc. ("Van Kampen American Capital") has consented to the use
by the Trust and by each Series and each Series thereof to the identifying
words "Van Kampen" or "Van Kampen Merritt" or any combination thereof in the
name of the Trust and of each Series and Series thereof. Such consent is
conditioned upon the Trust's employment of Van Kampen American Capital, its
successors or a subsidiary or affiliate thereof as investment adviser to the
Trust and to each Series and each Series thereof. As between Van Kampen
American Capital and the Trust, Van Kampen American Capital shall control the
use of such name insofar as such name contains the identifying words "Van
Kampen" or "Van Kampen Merritt". Van Kampen American Capital may from time to
time use the identifying words "American Capital," "Van Kampen" or "Van Kampen
Merritt" in other connections and for other purposes, including without
limitation in the names of other investment companies, corporations or
businesses that it may manage, advise, sponsor or own or in which it may have a
financial interest. Van Kampen American Capital may require the Trust or any
Series or Series thereof to cease using the identifying words "Van Kampen" or
"Van Kampen Merritt" in the name of the Trust or any Series or any Series
thereof if the Trust or any Series or Series thereof ceases to employ Van
Kampen American Capital, its successors or a subsidiary or affiliate thereof as
investment adviser.
31
<PAGE> 38
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees of the Trust, have set their hands and seal, for themselves and their
assigns, unto this First Amended and Restated Agreement and Declaration of
Trust of Van Kampen American Capital Texas Tax Free Income Fund, as of the day
and year first above written.
/s/ J. Miles Branagan /s/ Richard E. Caruso
___________________________________ ___________________________________
J. Miles Branagan Richard E. Caruso
/s/ Roger Hilsman /s/ Don G. Powell
___________________________________ ___________________________________
Roger Hilsman Don G. Powell
/s/ David Rees /s/ Lawrence J. Sheehan
___________________________________ ___________________________________
David Rees Lawrence J. Sheehan
/s/ Fernando Sisto /s/ William S. Woodside
___________________________________ ___________________________________
Fernando Sisto William S. Woodside
32
<PAGE> 39
A C K N O W L E D G M E N T
STATE OF TEXAS )
) ss
COUNTY OF HARRIS )
June 21, 1995
(Date)
Then personally appeared the above named individuals and each one
acknowledged the foregoing instrument to be his free act and deed.
Before me,
/s/ Pamela J. McLemore
_______________________________
(Notary Public)
My commission expires: 9-3-97
33
<PAGE> 1
EXHIBIT 1.2
CERTIFICATE OF AMENDMENT DATED SEPTEMBER 7, 1995
TO
FIRST AMENDED AND RESTATED AGREEMENT
AND DECLARATION OF TRUST DATED JUNE 21, 1995
WHEREAS, the Trustees of Van Kampen American Capital Texas Tax Free
Income Fund, a Delaware business trust (the "Trust") have approved the
amendment of the Trust's First Amended and Restated Agreement and Declaration
of Trust dated June 21, 1995 ("Declaration of Trust") in accordance with
Section 9.5 thereof;
WHEREAS, the Trustees have authorized the proper officers of the
Trust, including the officer whose name appears below, to effect such
amendment;
NOW, THEREFORE, the Declaration of Trust is amended as follows:
1. The first sentence of Section 4.1(b) is amended and restated in its
entirety to read as follows:
(b) Number. The Trustees serving as such, whether named above
or hereafter becoming Trustees, may increase (to not more than
fifteen (15)) or decrease the number of Trustees to a number
other than the number theretofore determined by a written
instrument signed by a Majority (or a supermajority if
required by the By-Laws) of the Trustees (or by an officer of
the Trust pursuant to the vote of a Majority (or a
supermajority if required by the By-Laws) of the Trustees).
2. Section 4.1(e) is amended and restated in its entirety to read as
follows:
(e) Removal. Any Trustee may be removed: (i) with cause at
any time by written instrument, signed by at least two-thirds
(2/3) of the number of Trustees prior to such removal,
specifying the date upon which such removal shall become
effective; or (ii) without cause at any time by written
instrument, signed by at least two-thirds (2/3) of the number
of Trustees prior to such removal, specifying the date upon
which such removal shall become effective; or (iii) by vote of
shareholders holding a majority of the Shares of the Trust
then outstanding, cast in person or by proxy at any meeting
called for the purpose; or (iv) by a written declaration
signed by Shareholders holding not less than a majority of the
Shares of the Trust then outstanding. Notwithstanding any
other provisions set forth in this Declaration of Trust, this
Section 4.1(e)
<PAGE> 2
may not be amended (either directly or indirectly through a
reorganization) without the approval of (i) two-thirds (2/3) of the
Trustees then in office or (ii) by vote of Shareholders holding a
majority of the Shares of the Trust then outstanding.
EXECUTED, to be effective as of September 7, 1995
/s/ NORI L. GABERT
_________________________
Nori L. Gabert,
Secretary
<PAGE> 1
EXHIBIT 1.3
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
Certificate of Designation
of
Van Kampen American Capital Texas Tax Free Income Fund
The undersigned, being the Secretary of Van Kampen American Capital Texas Tax
Free Income Fund, a Delaware business trust (the "Trust"), pursuant to
the authority conferred upon the Trustees of the Trust by Section 6.1 of the
Trust's First Amended and Related Agreement and Declaration of Trust
("Declaration"), and by the affirmative vote of a Majority of the Trustees does
hereby establish and designate the following classes of Shares of the Trust
with following the rights, preferences and characteristics:
1. Classes of Shares. The Shares of the Trust shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Trust.
2. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Trust's prospectus.
3. Conversion. Each Class B and Class C Share of the Trust shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Trust at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Trust's Prospectus.
4. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
5. Special Meetings. A special meeting of Shareholders of a Class of the
Trust may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
6. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust, or with respect to any Class of Shares set forth in the
Declaration shall apply to
1
<PAGE> 2
Shares of the Trust unless otherwise specified in this Certificate of
Designation, in which case this Certificate of Designation shall govern.
7. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Trust outstanding and entitled
to vote or, if such amendment affects the Shares of one or more but not all of
the Classes of the Trust, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
8. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
June 21, 1995
/s/ NORI L. GABERT
- ----------------------------
Nori L. Gabert,
Secretary
2
<PAGE> 1
EXHIBIT 2
VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
AMENDED AND RESTATED BYLAWS
(AS AMENDED SEPTEMBER 7, 1995)
<PAGE> 2
[TRUST]
Bylaws
Index
<TABLE>
<S> <C> <C>
ARTICLE 1 SHAREHOLDERS AND SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Presiding Officer; Secretary . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Authority of Chairman of Meeting to Interpret Declaration and Bylaws . . 1
Section 1.4. Voting; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 Records at Shareholder Meetings . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. Shareholders Action in Writing . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 TRUSTEES AND TRUSTEES' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1. Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2. Regular Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3. Special Meetings of Trustees . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5. Quorum; Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.6. Participation by Telephone . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7. Location of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.8. Actions by Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.9. Rulings of Presiding Trustee . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.10. Trustees' Action in Writing . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.11. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.12. Tenure of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 3 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1. Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2. Time and Terms of Election . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.3. Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.6. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.7. Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . 5
Section 3.8. Controller and Assistant Controllers . . . . . . . . . . . . . . . . . . 6
Section 3.9. Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . 6
Section 3.10. Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.11. Execution of Deeds, etc. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.12. Power to Vote Securities . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1. Power of Trustees to Designate Committees . . . . . . . . . . . . . . . 7
Section 4.2. Rules for Conduct of Committee Affairs . . . . . . . . . . . . . . . . 7
Section 4.3. Trustees May Alter, Abolish, etc., Committees . . . . . . . . . . . . . 7
Section 4.4. Minutes; Review by Trustees . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6 SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.1. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.2. Uncertificated Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.3. Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.4. Lost, Stolen, etc., Certificates . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 7 STOCK TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.1. Transfer Agents, Registrars, etc. . . . . . . . . . . . . . . . . . . . 9
Section 7.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.3. Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.1. Bylaws Subject to Amendment . . . . . . . . . . . . . . . . . . . . . 9
Section 8.2. Notice of Proposal to Amend Bylaws Required . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 5
VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
AMENDED AND RESTATED BYLAWS
(AS AMENDED SEPTEMBER 7, 1995)
These are the Bylaws of Van Kampen American Capital Texas Tax Free
Income Fund, a trust with transferable shares established under the laws of The
State of Delaware (the "Trust"), pursuant to an Agreement and Declaration of
Trust of the Trust (the "Declaration") made the 10th day of May, 1995, as
amended, and a Certificate of Trust filed in the office of the Secretary of
State pursuant to Section 3810 of The Delaware Business Trust Act, Title 12,
Chapter 38 of the Delaware Code. These Bylaws have been adopted by the
Trustees pursuant to the authority granted by Section 4.14 of the Declaration.
All words and terms capitalized in these Bylaws, unless
otherwise defined herein, shall have the same meanings as they have in the
Declaration.
ARTICLE 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1. Meetings. A meeting of the Shareholders of the Trust
shall be held whenever called by the Chairman, the President or a majority of
the Trustees and whenever election of a Trustee or Trustees by Shareholders is
required by the provisions of the 1940 Act. Meetings of Shareholders shall
also be called by the Trustees when requested in writing by Shareholders
holding at least ten percent (10%) of the Shares then outstanding for the
purpose of voting upon removal of any Trustee, or if the Trustees shall fail to
call or give notice of any such meeting of Shareholders for a period of thirty
(30) days after such application, then Shareholders holding at least ten
percent (10%) of the Shares then outstanding may call and give notice of such
meeting. Notice of Shareholders' meetings shall be given as provided in the
Declaration.
SECTION 1.2. Presiding Officer; Secretary. The President shall
preside at each Shareholders' meeting as chairman of the meeting, or in the
absence of the President, the Trustees present at the meeting shall elect one
of their number as chairman of the meeting. Unless otherwise provided for by
the Trustees, the Secretary of the Trust shall be the secretary of all meetings
of Shareholders and shall record the minutes thereof.
SECTION 1.3. Authority of Chairman of Meeting to Interpret
Declaration and Bylaws. At any Shareholders' meeting the chairman of the
meeting shall be empowered to determine the construction or interpretation
of the Declaration or these Bylaws, or any part thereof or hereof, and their
ruling shall be final.
SECTION 1.4. Voting; Quorum. At each meeting of Shareholders, except
as otherwise provided by the Declaration, every holder of record of Shares
entitled to vote shall be entitled to a number of votes equal to the number of
Shares standing in his name on the Share register of the Trust on the record
date of the meeting. Shareholders may vote by proxy and the form of any such
proxy may be prescribed from time to time by the Trustees. A quorum shall
exist if the holders of a majority of the outstanding Shares of the Trust
entitled to vote are present in person or by proxy, but any lesser
1
<PAGE> 6
number shall be sufficient for adjournments. At all meetings of the
Shareholders, votes shall be taken by ballot for all matters which may be
binding upon the Trustees pursuant to Section 7.1 of the Declaration. On other
matters, votes of Shareholders need not be taken by ballot unless otherwise
provided for by the Declaration or by vote of the Trustees, or as required by
the 1940 Act, but the chairman of the meeting may in his discretion authorize
any matter to be voted upon by ballot.
SECTION 1.5. Inspectors. At any meeting of Shareholders, the chairman
of the meeting may appoint one or more Inspectors of Election or Balloting to
supervise the voting at such meeting or any adjournment thereof. If Inspectors
are not so appointed, the chairman of the meeting may, and on the request of
any Shareholder present or represented and entitled to vote shall, appoint one
or more Inspectors for such purpose. Each Inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of Inspector of Election or Balloting, as the case may be, at such
meeting with strict impartiality and according to the best of his
ability. If appointed, Inspectors shall take charge of the polls and, when the
vote is completed, shall make a certificate of the result of the vote taken and
of such other facts as may be required by law.
SECTION 1.6. Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last
previous Meeting of Shareholders of the Trust and a list of the Shareholders of
the Trust, certified to be true and correct by the Secretary or other proper
agent of the Trust, as of the record date of the meeting or the date of closing
of transfer books, as the case may be. Such list of Shareholders shall contain
the name of each Shareholder. Shareholders shall have such other rights and
procedures of inspection of the books and records of the Trust as are granted
to shareholders of a Delaware corporation.
SECTION 1.7. Shareholders' Action in Writing. Nothing in this Article
1 shall limit the power of the Shareholders to take any action by means of
written instruments without a meeting, as permitted by Section 7.6 of the
Declaration.
ARTICLE 2
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1. Number of Trustees. The number of Trustees shall be
fifteen (15), provided that such number shall be reduced upon the death,
resignation or retirement of any Trustee until the number of Trustees is eight
(8), unless the Trustees shall find by a majority vote that such reduction is
not in the best interest of the Fund's shareholders, in which case the number
of Trustees shall not be reduced and a vacancy shall be created upon such
death, resignation or retirement of such Trustees.
SECTION 2.2. Regular Meetings of Trustees. Regular meetings of the
Trustees may be held without call or notice at such places and at such times as
the Trustees may from time to time determine; provided, that notice of such
determination, and of the time and place of the first regular meeting
thereafter, shall be given to each absent Trustee in accordance with Section
2.4 hereof.
SECTION 2.3. Special Meetings of Trustees. Special meetings of the
Trustees may be held at any time and at any place when called by the President
or the Treasurer or by three (3) or more
2
<PAGE> 7
Trustees, or if there shall be less than three (3) Trustees, by any Trustee;
provided, that notice of the time and place thereof is given to each Trustee
in accordance with Section 2.4 hereof by the Secretary or an Assistant
Secretary or by the officer or the Trustees calling the meeting.
SECTION 2.4. Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if given in writing to each
Trustee, and if sent by mail at least five (5) days, by a nationally recognized
overnight delivery service at least two (2) days or by facsimile at least
twenty-four (24) hours, before the meeting, addressed to his usual or last
known business or residence address, or if delivered to him in person at least
twenty-four (24) hours before the meeting. Notice of a special meeting need
not be given to any Trustee who was present at an earlier meeting, not more
than thirty-one (31) days prior to the subsequent meeting, at which the
subsequent meeting was called. Unless statute, these bylaws or a resolution of
the Trustees might otherwise dictate, notice need not state the business to be
transacted at or the purpose of any meeting of the Board of Trustees. Notice
of a meeting may be waived by any Trustee by written waiver of notice, executed
by him or her before or after the meeting, and such waiver shall be filed with
the records of the meeting. Attendance by a Trustee at a meeting shall
constitute a waiver of notice, except where a Trustee attends a meeting for the
purpose of protesting prior thereto or at its commencement the lack of notice.
No notice need be given of action proposed to be taken by unanimous written
consent.
SECTION 2.5. Quorum: Presiding Trustee. At any meeting of the
Trustees, a Majority of the Trustees shall constitute a quorum. Any meeting may
be adjourned from time to time by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice. Unless the Trustees shall otherwise elect,
generally or in a particular case, the Chairman shall be the presiding Trustee
at each meeting of the Trustees or in the absence of the Chairman, the
President shall preside over the meeting. In the absence of both the Chairman
and the President, the Trustees present at the meeting shall elect one of their
number as presiding Trustee of the meeting.
SECTION 2.6. Participation by Telephone. One or more of the Trustees
may participate in a meeting thereof or of any Committee of the Trustees by
means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 2.7. Location of Meetings. Trustees' meetings may be held at
any place, within or without the State of Delaware.
SECTION 2.8. Actions by Trustees. Unless statute, the charter or
By-laws requires a greater proportion, action of a majority of the Trustees
present at a meeting at which a quorum is present is action of the Board of
Trustees. The results of all voting shall be recorded by the Secretary in the
minute book.
3
<PAGE> 8
SECTION 2.9. Rulings of Presiding Trustee. All other rules of conduct
adopted and used at any Trustees' meeting shall be determined by the presiding
Trustee of such meeting, whose ruling on all procedural matters shall be
final.
SECTION 2.10. Trustees' Action in Writing. Nothing in this Article 2
shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.
SECTION 2.11. Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the Chairman, the President
or the Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
SECTION 2.12. Tenure of Trustees. Notwithstanding any other
provision herein to the contrary, through June 30, 1996, the term of office of
each Trustee shall end at the time such Trustee reaches the age of seventy-six
and one-half years (76 1/2) or seventy-four and one-half years (74 1/2) for
each person who had not been elected before January 1, 1986 as a trustee or
director of any open end investment company managed by Van Kampen American
Capital Asset Management, Inc. (formerly American Capital Asset Management,
Inc. and, prior thereto, American General Capital Management, Inc.) and on and
after July 1, 1996, the term of office of each Trustee shall end at the time
such Trustee reaches the age of seventy-six and one-half years (76 1/2) or
seventy-two and one-half years (72 1/2) for each person who had not been
elected before January 1, 1986 as a trustee or director of any open end
investment company managed by Van Kampen American Capital Asset Management,
Inc.; provided that the term of office of each Trustee shall end on December
31st of the year in which such Trustee reaches the age of seventy-five years
(75) for each person first elected on or after July 1, 1995 and prior to
December 1, 1995 as a Trustee who was over the age of seventy-two and one half
(72 1/2) and under the age of seventy-five (75) at the time of such election;
and further provided that the term of office of each Trustee first elected on
or after July 1, 1995 and prior to December 1, 1995 who is seventy-five years
(75) of age at the time of such election shall expire as of the date such
Trustees reaches the age of seventy-six years (76).
SECTION 2.13. Chairman of the Board. The Trustees shall from time to
time elect one of the Trustees to serve as Chairman of the Board of Trustees,
provided that the chairman shall be a Trustee who is not an "interested person"
of the Trust or the Trust's investment adviser, within the meaning of the 1940
Act.
ARTICLE 3
OFFICERS
SECTION 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and a Secretary, and may include a
Controller and one or more Vice Presidents, Assistant Treasurers and Assistant
Secretaries, and such other officers as the Trustees may designate. Any person
may hold more than one office.
SECTION 3.2. Time and Terms of Election. The President, the Treasurer
and the Secretary shall be elected by the Trustees at their first meeting and
thereafter at the annual meeting of the Trustees, as provided in Section 4.2 of
the Declaration. Such officers shall hold office until the next
4
<PAGE> 9
annual meeting of the Trustees and until their successors shall have been duly
elected and qualified, and may be removed at any meeting by the affirmative
vote of a Majority of the Trustees. All other officers of the Trust may be
elected or appointed at any meeting of the Trustees. Such officers shall hold
office for any term, or indefinitely, as determined by the Trustees, and shall
be subject to removal, with or without cause, at any time by the Trustees.
SECTION 3.3. Resignation and Removal. Any officer may resign at any
time by giving written notice to the Trustees. Such resignation shall take
effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective. If the office of any officer or agent becomes vacant by reason
of death, resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold office for the
unexpired term in respect of which such vacancy occurred. Except to the extent
expressly provided in a written agreement with the Trust, no officer resigning
or removed shall have any right to any compensation for any period following
such resignation or removal, or any right to damage on account of such removal.
SECTION 3.4. Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.
SECTION 3.5. President. The President shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property and affairs of
the Trust and such other powers and duties as the Trustees may prescribe.
SECTION 3.6. Vice Presidents. In the absence or disability of the
President, the Vice President or, if there shall be more than one, the Vice
Presidents in the order of their seniority or as otherwise designated by the
Trustees, shall exercise all of the powers and duties of the President. The
Vice Presidents shall have the power to execute bonds, notes, mortgages and
other contracts, agreements and instruments in the name of the Trust, and shall
do and perform such other duties as the Trustees or the President shall direct.
SECTION 3.7. Treasurer and Assistant Treasurers. The Treasurer shall
be the chief financial officer of the Trust, and shall have the custody of the
Trust's funds and Securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys, and other valuable effects in the name and to the credit of the
Trust, in such depositories as may be designated by the Trustees, taking
proper vouchers for such disbursements, shall have such other duties and
powers as may be prescribed from time to time by the Trustees, and shall
render to the Trustees, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Trust. If no
Controller is elected, the Treasurer shall also have the duties and powers
of the Controller, as provided in these Bylaws. Any Assistant Treasurer shall
have such duties and powers as shall be prescribed from time to time by the
Trustees or the Treasurer, and shall be responsible to and shall report to the
Treasurer. In the absence or disability of the Treasurer, the Controller shall
have the powers and duties of the Treasurer. If no Controller is elected, the
Assistant Treasurer or, if there shall be more than one, the Assistant
Treasurers in the order of their seniority or as otherwise designated by the
Trustees or the Chairman, shall have the powers and duties of the Treasurer.
5
<PAGE> 10
SECTION 3.8. Controller and Assistant Controllers. If a Controller
is elected, the Controller shall be the chief accounting officer of the Trust
and shall be in charge of its books of account and accounting records and of
its accounting procedures, and shall have such duties and powers as are
commonly incident to the office of a controller, and such other duties and
powers as may be prescribed from time to time by the Trustees. The Controller
shall be responsible to and shall report to the Trustees, but in the
ordinary conduct of the Trust's business, shall be under the supervision of
the Treasurer. Any Assistant Controller shall have such duties and powers as
shall be prescribed from time to time by the Trustees or the Controller, and
shall be responsible to and shall report to the Controller. In the absence or
disability of the Controller, the Assistant Controller or, if there shall be
more than one, the Assistant Controllers in the order of their seniority or as
otherwise designated by the Trustees, shall have the powers and duties of the
Controller.
SECTION 3.9. Secretary and Assistant Secretaries. The
Secretary shall, if and to the extent requested by the Trustees, attend all
meetings of the Trustees, any Committee of the Trustees and/or the Shareholders
and record all votes and the minutes of proceedings in a book to be kept for
that purpose, shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders and shall
perform such other duties as may be prescribed by the Trustees. The Secretary,
or in his absence any Assistant Secretary, shall affix the Trust's seal to any
instrument requiring it, and when so affixed, it shall be attested by the
signature of the Secretary or an Assistant Secretary. The Secretary shall be
the custodian of the Share records and all other books, records and papers of
the Trust (other than financial) and shall see that all books, reports,
statements, certificates and other documents and records required by law are
properly kept and filed. In the absence or disability of the Secretary, the
Assistant Secretary or, if there shall be more than one, the Assistant
Secretaries in the order of their seniority or as otherwise designated by the
Trustees, shall have the powers and duties of the Secretary.
SECTION 3.10. Substitutions. In case of the absence or disability
of any officer of the Trust, or for any other reason that the Trustees may deem
sufficient, the Trustees may delegate, for the time being, the powers or
duties, or any of them, of such officer to any other officer, or to any
Trustee.
SECTION 3.11. Execution of Deeds, etc. Except as the Trustees may
generally or in particular cases otherwise authorize or direct, all deeds,
leases, transfers, contracts, proposals, bonds, notes, checks, drafts and other
obligations made, accepted or endorsed by the Trust shall be signed or endorsed
on behalf of the Trust by its properly authorized officers or agents as
provided in the Declaration.
SECTION 3.12. Power to Vote Securities. Unless otherwise ordered by
the Trustees, the Treasurer shall have full power and authority on behalf of
the Trust to give proxies for, and/or to attend and to act and to vote at, any
meeting of stockholders of any corporation in which the Trust may hold stock,
and at any such meeting the Treasurer or his proxy shall possess and may
exercise any and all rights and powers incident to the ownership of such stock
which, as the owner thereof, the Trust might have possessed and exercised if
present. The Trustees, by resolution from time to time, or, in the absence
thereof, the Treasurer, may confer like powers upon any other person or persons
as attorneys and proxies of the Trust.
6
<PAGE> 11
ARTICLE 4
COMMITTEES
SECTION 4.1. Power of Trustees to Designate Committees. The Trustees,
by vote of a Majority of the Trustees, may elect from their number an Executive
Committee and any other Committees and may delegate thereto some or all of
their powers except those which by law, by the Declaration or by these
Bylaws may not be delegated; provided, that an Executive Committee shall not
be empowered to elect the President, the Treasurer or the Secretary, to amend
the Bylaws, to exercise the powers of the Trustees under this Section 4.1 or
under Section 4.3 hereof, or to perform any act for which the action of a
Majority of the Trustees is required by law, by the Declaration or by these
Bylaws. The members of any such Committee shall serve at the pleasure of the
Trustees.
SECTION 4.2. Rules for Conduct of Committee Affairs. Except as
otherwise provided by the Trustees, each Committee elected or appointed
pursuant to this Article 4 may adopt such standing rules and regulations for
the conduct of its affairs as it may deem desirable, subject to review and
approval of such rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or any contrary
provisions by the Trustees, the business of each Committee shall be conducted,
so far as practicable, in the same manner as provided herein and in the
Declaration for the Trustees.
SECTION 4.3. Trustees May Alter, Abolish, etc., Committees Trustees
may at any time alter or abolish any Committee, change membership of any
Committee, or revoke, rescind, waive or modify action of any Committee or the
authority of any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any third parties.
SECTION 4.4. Minutes: Review by Trustees. Any Committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees.
ARTICLE 5
SEAL
The seal of the Trust, if any, may be affixed to any instrument, and
the seal and its attestation may be lithographed, engraved or otherwise printed
on any document with the same force and effect as if had been imprinted and
affixed manually in the same manner and with the same force and effect as if
done by a Delaware corporation. Unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 6
SHARES
SECTION 6.1. Issuance of Shares. The Trustees may issue an unlimited
number of Classes of Shares of any or all Series either in certificated or
uncertificated form, they may issue certificates to the
7
<PAGE> 12
holders of a Class of Shares of a Series which was originally issued in
uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders of
such Series require the surrender of their Share certificates to the Trust for
cancellation, which surrender and cancellation shall not affect the ownership
of Shares for such Series.
SECTION 6.2. Uncertificated Shares. For any Class of Shares for which
the Trustees issue Shares without certificates, the Trust or the Transfer Agent
may either issue receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such Shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of such Shares as if they
had received certificates therefor and shall be held to have expressly assented
and agreed to the terms hereof and of the Declaration.
SECTION 6.3. Share Certificates. For any Class of Shares for which
the Trustees shall issue Share certificates, each Shareholder of such Class
shall be entitled to a certificate stating the number of Shares owned by him in
such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Trust. Such signatures may be facsimiles if the certificate
is countersigned by a Transfer Agent, or by a Registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he were such officer at the time of its issue.
SECTION 6.4. Lost, Stolen, etc., Certificates. If any
certificate for certificated Shares shall be lost, stolen, destroyed or
mutilated, the Trustees may authorize the issuance of a new certificate of the
same tenor and for the same number of Shares in lieu thereof. The Trustees
shall require the surrender of any mutilated certificate in respect of which a
new certificate is issued, and may, in their discretion, before the issuance of
a new certificate, require the owner of a lost, stolen or destroyed
certificate, or the owner's legal representative, to make an affidavit or
affirmation setting forth such facts as to the loss, theft or destruction as
they deem necessary, and to give the Trust a bond in such reasonable sum as the
Trustees direct, in order to indemnify the Trust.
ARTICLE 7
TRANSFER OF SHARES
SECTION 7.1. Transfer Agents, Registrars, etc. As approved in Section
5.2(e) of the Declaration, the Trustees shall have the authority to employ and
compensate such transfer agents and registrars with respect to the Shares of
the Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have the power to employ and compensate such dividend dispersing
agents, warrant agents and agents for reinvestment of dividends as they shall
deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
SECTION 7.2 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section
6.1(m) of the Declaration. The Trust, or its transfer agents, shall be
authorized to
8
<PAGE> 13
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
SECTION 7.3 Registered Shareholders. The Trust may deem and treat
the holder of record of any Shares the absolute owner thereof for all purposes
and shall not be required to take any notice of any right or claim of right of
any other person.
ARTICLE 8
AMENDMENTS
SECTION 8.1. Bylaws Subject to Amendment. These Bylaws may be
altered, amended or repealed, in whole or in part, at any time by vote of the
holders of a majority of the Shares issued, outstanding and entitled to vote.
The Trustees, by vote of a Majority of the Trustees (unless a greater vote is
required by Section 2.8 hereof), may alter, amend or repeal these Bylaws, in
whole or in part, including Bylaws adopted by the Shareholders, except with
respect to any provision hereof which by law, the Declaration or these Bylaws
requires action by the Shareholders. Bylaws adopted by the Trustees may be
altered, amended or repealed by the Shareholders.
SECTION 8.2. Notice of Proposal to Amend Bylaws Required. No proposal
to amend or repeal these Bylaws or to adopt new Bylaws shall be acted upon at a
meeting unless either (i) such proposal is stated in the notice or in the
waiver of notice, as the case may be, of the meeting of the Trustees or
Shareholders at which such action is taken, or (ii) all of the Trustees or
Shareholders, as the case may be, are present at such meeting and all agree to
consider such proposal without protesting the lack of notice.
9
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Texas Tax Free Income Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.2
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Texas Tax Free Inocome Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.3
NUMBER SHARES
__________ __________
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________
CUSIP 024904 30 2
_________________
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital Texas Tax Free Income Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
TEXAS TAX FREE INCOME FUND
DELAWARE SEAL]
NORI L. GABERT DON G. POWELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
By
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, _________________________________________ 19 ______
__________________________________________________________________
Owner
__________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this 26th day of August, 1995, by and between
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND, a Delaware business
trust (hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"ADVISER").
The FUND and the ADVISER agree as follows:
(1) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing
of routine legal services except for services provided by outside counsel to
the FUND selected by the Trustees, and the supervision of the FUND's Treasurer
and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
<PAGE> 2
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 authorization and to the extent authorized by
law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the FUND which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Trustees; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
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<PAGE> 3
(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 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or
to any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(3) Compensation Payable to ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rates:
.60% on the first $300 million of the FUND's average daily net assets; .55% on
the next $300 million of the FUND's average daily net assets; and .50% of any
excess over $600 million.
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc., in connection with the
purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such
commissions, fees, brokerage or similar payments. The ADVISER shall use its
best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Trustees of any other commissions, fees, brokerage or similar
payments which may be possible for the ADVISER or any other direct or indirect
majority
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<PAGE> 4
owned subsidiary of VK/AC Holding, Inc. to receive in connection with the
FUND's portfolio transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the Fund's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to Van Kampen American Capital Distributors, Inc., the distributor
of the FUND's shares, in connection with a distribution plan adopted by the
FUND's Trustees pursuant to Rule 12b-1 under the Investment Company Act of
1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) Books and Records
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
(5) Duration of Agreement
This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Trustees who are not parties to this Agreement or interested persons of
any such
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<PAGE> 5
parties, cast in person at a meeting called for the purpose of voting on such
approval, and by a vote of a majority of the FUND's Trustees or a majority of
the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Fund or
the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually but are binding only upon the
assets and property of the FUND. A Certificate of Trust in respect of the Fund
is on file with the Secretary of State of Delaware.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
By: /s/ NORI L. GABERT
----------------------------------------
Name: Nori L. Gabert
--------------------------------------
Its: Vice President
---------------------------------------
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ HUEY P. FALGOUT, JR.
----------------------------------------
Name: Huey P. Falgout, Jr.
--------------------------------------
Its: Vice President
---------------------------------------
5
<PAGE> 1
EXHIBIT 6.1
UNDERWRITING AGREEMENT
between
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
and
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
THIS AGREEMENT made this 26th day of August, 1995, by and between VAN KAMPEN
AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND, a Delaware business trust,
hereinafter referred to as the "Fund", and VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC., a Delaware corporation, hereinafter referred to as the
"Underwriter".
WHEREAS, the Fund proposes to issue its shares in three classes: Class A,
Class B and Class C, all as described in the Fund's current prospectus at the
time of sale;
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: The Fund hereby appoints the Underwriter as its exclusive agent for the
sale of shares of the Fund to the public through investment dealers in the
United States and throughout the world.
SECOND: The Fund shall not sell any of its shares except through the
Underwriter and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,
(A) the Fund may issue its shares to any other investment company or personal
holding company, or to the shareholders thereof, in exchange for all or a
majority of the shares or assets of any such company;
(B) the Fund may issue its shares at net asset value to any shareholder of the
Fund purchasing such shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders; and
(C) the Fund may issue its shares at net asset value to its Trustees.
THIRD: The Underwriter hereby accepts appointment as exclusive agent for the
sale of all classes of shares of the Fund and agrees that it will use its best
efforts to sell such shares; provided, however, that:
(A) the Underwriter may, and when requested by the Fund shall, suspend its
efforts to effectuate sales for any or all classes of shares of the Fund or
limit such sales efforts to existing
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<PAGE> 2
shareholders of the Fund at any time when, in the opinion of the Underwriter,
after consultation with the investment adviser to the Fund, or in the opinion
of the Fund, sales efforts should be limited or suspended because of market or
other economic considerations (including a determination by the Fund's
investment adviser that it would be in the best interests of existing
shareholders of the Fund to suspend sales of shares of the Fund or limit such
sales to existing shareholders of the Fund) or abnormal circumstances of any
kind;
(B) upon the limiting or suspension of sales efforts by the Underwriter
pursuant to clause (A) above, the Fund may in its discretion suspend the sale
of shares through the Underwriter or limit such sales to existing shareholders
of the Fund; and
(C) the Fund may withdraw the offering of its shares (i) at any time with the
consent of the Underwriter, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Underwriter does not undertake to sell any specific amount of shares
of the Fund. The Fund shall have the right to specify minimum amounts for
initial and subsequent orders for the purchase of shares.
FOURTH: The offering price of shares of the Fund (the "offering price") shall
be the net asset value per share plus, in the case of Class A shares, any
applicable initial sales charge. Net asset value per share shall be determined
in the manner provided in the then current prospectus of the Fund. The sales
charge for shares shall be established by the Underwriter. The Underwriter may
designate a scale of reducing sales charges on the basis of the value of shares
purchased or owned in accordance with Rule 22d-1 under the Investment Company
Act of 1940 (the "Act"). Included in the scale of reducing sales charges may
be a level at which no sales charges are added to the net asset value in
computing the public offering price. The Underwriter may also designate
eliminations of sales charges to particular classes of investors or
transactions in accordance with Rule 22d-1, provided such eliminations are
approved by the Fund and described in the prospectus. The Fund shall allow,
directly to investment dealers through whom shares of the Fund are sold, such
portion of the sales charge as may be payable to them and specified by the
Underwriter up to, but not exceeding, the amount of the total sales charge.
The difference between any portion of the sales charge so payable to investment
dealers and the total sales charges included in the offering price shall be
paid to the Underwriter.
The offering price of Class B and Class C shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Fund
agrees that the Underwriter shall impose certain contingent deferred sales
charges in connection with the redemption of Class B and Class C shares of the
Fund, not to exceed a
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<PAGE> 3
specified percentage of the original purchase price of the shares as from time
to time set forth in the prospectus of the Fund. The Underwriter may retain
(or receive from the Fund, as the case may be) all of such contingent deferred
sales charges. Net asset value per share shall be determined in the manner
provided in the then current prospectus of the Fund. The Underwriter may
designate eliminations of contingent deferred sales charges to particular
classes of investors or transactions in accordance with Rule 22d-1 provided
such eliminations are approved by the Fund and described in the prospectus.
The Underwriter proposes to pay to investment dealers through whom Class B and
Class C shares of the Fund are sold a dealer commission of a specified
percentage of the purchase price of Class B and Class C shares purchased
through them and as from time to time set forth in the prospectus of the Fund.
The Underwriter shall act as agent of the Fund in connection with the sale and
repurchase of shares of the Fund. Except with respect to such sales and
repurchases, the Underwriter shall act as principal in all matters relating to
the promotion of the sale of shares of the Fund and shall enter into all of its
own engagements, agreements and contracts as principal on its own account. The
Underwriter shall enter into selling group agreements with investment dealers
selected by the Underwriter, authorizing such investment dealers to offer and
sell shares of the Fund to the public upon the terms and conditions set forth
therein, which shall not be inconsistent with the provisions of this Agreement.
Each selling group agreement shall provide that the investment dealer shall act
as a principal, and not as an agent of the Fund.
FIFTH: The Underwriter shall bear
(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses relating to public offerings made by
the Underwriter pursuant to this Agreement and annual and semi-annual
shareowner reports used as sales literature (not, however, including
typesetting costs), as well as all printing and distribution costs of any other
sales literature used by the Underwriter or furnished by the Underwriter to
dealers in connection with such public offerings except as otherwise agreed by
the Trustees;
(B) expenses of advertising in connection with such public offerings except as
otherwise agreed by the Trustees; and
(C) all legal expenses in connection with the foregoing.
SIXTH: The Underwriter will accept orders for shares of the Fund only to the
extent of purchase orders actually received and not in excess of such orders,
and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders.
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<PAGE> 4
SEVENTH:
(A) The Fund and the Underwriter shall each comply with all applicable
provisions of the Act, the Securities Act of 1933 (the "Securities Act") and of
all other federal and state laws, rules and regulations governing the issuance
and sale of shares of the Fund.
(B) The Fund agrees to indemnify the Underwriter against any and all claims,
demands, liabilities and expenses which the Underwriter may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(C) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of or
based upon any act or deed of the Underwriter or its sales representatives
which has not been authorized by the Fund in its prospectus or in this
Agreement. The Underwriter agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any registration
statement or prospectus of the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Underwriter.
(D) The Underwriter agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur under the Securities
Act, or common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any prospectus of the Fund
prepared for use under Rule 482 of the Securities Act, or any omission to state
a material fact therein.
EIGHTH: Nothing herein contained shall require the Fund to take any action
contrary to any provision of its charter or to any applicable statute or
regulation.
NINTH: This Agreement shall become effective on the date hereof, shall have an
initial term of two years from the date hereof, and shall continue in force and
effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a)(i) by the Trustees of the Fund, or
(ii) by vote of a majority of the Fund's outstanding voting securities (as
defined in Section 2(a)(42) of the Act); and (b) by vote of a majority of the
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<PAGE> 5
Fund's Trustees who are not parties to this Agreement or interested persons (as
defined in Section 2(a)(19) of the Act) of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
TENTH:
(A) This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Underwriter, on sixty days
written notice to the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the Act).
ELEVENTH: Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed, postage paid, to the other party at such address as such
other party may designate for the receipt of such notices. Until further
notice to the other party, it is agreed that the address of the Fund shall be
2800 Post Oak Boulevard, Houston, Texas 77056 and the address of the
Underwriter shall be One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
TWELFTH: This Agreement is executed on behalf of the Fund or the Trustees of
the FUND as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding only upon the assets and property of the
Fund. A Certificate of Trust in respect of the Fund is on file with the
Secretary of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: /s/ DON G. POWELL
-----------------------------------------
Name: Don G. Powell
---------------------------------------
Its: Chief Executive Officer
----------------------------------------
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
By: /s/ NORI L. GABERT
-----------------------------------------
Name: Nori L. Gabert
---------------------------------------
Its: Vice President
----------------------------------------
5
<PAGE> 1
EXHIBIT 8.2
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of July, 1995 by and between each
of the VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A"
hereto, which are organized under the laws of the state and as the entities set
forth in Schedule "A" hereto, having their principal office and place of
business at Houston, Texas (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation, having its principal office at Houston,
Texas, and its principal place of business at Kansas City, Missouri ("ACCESS").
R E C I T A L:
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF ACCESS.
1.01 Subject to the terms and conditions set forth in this
Agreement, each of the Funds hereby employs and appoints ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and
agrees that on and after the effective date of this Agreement it will act as
the transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will
be performed in a competent, efficient and workmanlike manner with due
diligence in accordance with reasonable industry practice, and that the
necessary facilities, equipment and personnel for such performance will be
provided.
1.04 In order to assure compliance with section 1.03 and to
implement a cooperative effort to improve the quality of transfer agency and
shareholder services received by each of the Funds and its shareholders,
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<PAGE> 2
ACCESS agrees to provide and maintain quantitative performance objectives,
including maximum target turn-around times and maximum target error rates, for
the various services provided hereunder. ACCESS also agrees to provide a
reporting system designed to provide the Board of Trustees or Board of
Directors of each of the Funds (the "Board") on a quarterly basis with
quantitative data comparing actual performance for the period with the
performance objectives. The foregoing procedures are designed to provide a
basis for continuing monitoring by the Board of the quality of services
rendered hereunder.
ARTICLE 2. FEES AND EXPENSES.
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each
of the Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS.
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in the states of
Texas and Missouri.
3.03 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement.
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<PAGE> 3
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this
Agreement access to the necessary facilities, equipment and personnel to
perform its duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as
follows:
(a) Each "as of" transaction effected at a price other
than that in effect on the day of processing for which an estimate has
not been given to any of the affected Funds and which is necessitated
by ACCESS' error, or delay for which ACCESS is responsible or which
could have been avoided through the exercise of reasonable care, will
be identified, and the net effect of such transactions determined, on
a daily basis for each such Fund.
(b) The cumulative net effect of the transactions
included in paragraph (a) above will be determined each day throughout
each month. If, on any day during the month, the cumulative net
effect upon any Fund is negative and exceeds an amount equivalent to
1/2 of 1 cent per share of such Fund, ACCESS shall promptly make a
payment to such Fund (in cash or through use of a credit as described
in paragraph (c) below) in such amount as necessary to reduce the
negative cumulative net effect to less than 1/2 of 1 cent per share of
such Fund. If on the last business day of the month the cumulative
net effect (adjusted by the amount of any payments pursuant to the
preceding sentence) upon any Fund is negative, such Fund shall be
entitled to a reduction in the monthly transfer agency fee next
payable by an equivalent amount, except as provided in paragraph (c)
below. If on the last business day of the month the cumulative net
effect (similarly adjusted) upon any Fund is positive, ACCESS shall be
entitled to recover certain past payments and reductions in fees, and
to a credit against all future payments and fee reductions made under
this paragraph to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net
effect upon any Fund shall be deemed to be a credit to ACCESS which
shall first be applied to recover any payments and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar
year by increasing the amount of the monthly transfer agency fee next
payable in an amount equal to prior payments and fee
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<PAGE> 4
reductions made during such year, but not exceeding the sum of that
month's credit and credits arising in prior months during such year to
the extent such prior credits have not previously been utilized as
contemplated by this paragraph (c). Any portion of a credit to ACCESS
not so used shall remain as a credit to be used as payment against the
amount of any future negative cumulative net effects that would
otherwise require a payment or fee reduction to such Fund pursuant to
paragraph (b) above.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUNDS.
Each of the Funds hereby represents and warrants on behalf of
itself only and not any other Funds that are a party to this Agreement that:
4.01 It is duly organized and existing and in good standing under
the laws of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by
its Declaration of Trust or Articles of Incorporation and by-laws to enter into
and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to
authorize it to enter into and perform this Agreement.
4.04 It is an open-end, diversified, management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
ARTICLE 5. INDEMNIFICATION.
5.01 ACCESS shall not be responsible for and each of the Funds
shall indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities arising out of or attributable to:
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<PAGE> 5
(a) All actions of ACCESS required to be taken by ACCESS
for the benefit of such Fund pursuant to this Agreement, provided
ACCESS has acted in good faith with due diligence and without
negligence or willful misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable
use by ACCESS of, information, records and documents which have been
prepared or maintained by or on behalf of such Fund or have been
furnished to ACCESS by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying
out by ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation
of any requirement under the federal securities laws or regulations or
the securities laws or regulations of any state or in violation of any
stop order or other determination or ruling by any federal agency or
any state with respect to the offer or sale of such shares in such
state unless such violation results from any failure by ACCESS to
comply with written instructions of such Fund that no offers or sales
of such Fund's shares be made in general or to the residents of a
particular state.
(e) Such Fund's refusal or failure to comply with the
terms of this Agreement, or such Fund's lack of good faith, negligence
or willful misconduct or the breach of any representation or warranty
of such Fund hereunder.
5.02 ACCESS shall indemnify and hold each of the Funds harmless
from and against any and all losses, damages, costs, charges, reasonable
counsel fees, payments, expenses and liability arising out of or attributable
to ACCESS' refusal or failure to comply with the terms of this Agreement, or
ACCESS' lack of good faith, negligence or willful misconduct, or the breach of
any representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any
of the Funds for instructions, and may consult with any of the Funds' legal
counsel, at the expense of such concerned Fund, with respect to any matter
arising in connection with the services to be performed by ACCESS under this
Agreement, and ACCESS shall not be liable and shall be indemnified by such
concerned Fund for any action taken or omitted by it in good faith in
reasonable reliance upon such instructions or upon the opinion of such counsel.
ACCESS shall be protected and
5
<PAGE> 6
indemnified in acting upon any paper or document reasonably believed by ACCESS
to be genuine and to have been signed by the proper person or persons and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the concerned Fund. ACCESS shall also
be protected and indemnified in recognizing stock certificates which ACCESS
reasonably believes to bear the proper manual or facsimile signatures of the
officers of the concerned Fund, and the proper countersignature of any former
transfer agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it except with
the other party's prior written consent.
ARTICLE 6. COVENANTS OF EACH OF THE FUNDS AND ACCESS.
6.01 Each of the Funds shall promptly furnish to ACCESS the
following:
(a) Certified copies of the resolution of its Board
authorizing the appointment of ACCESS and the execution and delivery
of this Agreement.
(b) Certified copies of its Declaration of Trust or
Articles of Incorporation and by-laws and all amendments thereto.
6
<PAGE> 7
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any
of the Fund Records, ACCESS will endeavor to notify each of the concerned Funds
and to secure instructions from an authorized officer of each of the concerned
Funds as to such inspection. ACCESS reserves the right, however, to exhibit
such Fund Records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit such Fund Records to such person.
ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect from the date hereof
through December 31, 1996; provided, however, that this Agreement may be
terminated by any party with respect to that party for good and reasonable
7
<PAGE> 8
cause at any time by giving written notice to the other party at least 120 days
prior to the date on which such termination is to be effective. Any unpaid
fees or reimbursable expenses payable to ACCESS shall be due on any such
termination date. ACCESS agrees to use its best efforts to cooperate with each
of the Funds and the successor transfer agent or agents in accomplishing an
orderly transition.
7.02 Subject to the prior approval of the Board, this Agreement
shall be renewed and extended for periods of not more than one year each,
unless and until this Agreement is terminated in accordance with section 7.01
above.
ARTICLE 8. MISCELLANEOUS.
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of any of
the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of the
Funds for the acts and omissions of DST, Inc., or other qualified servicer as
it is for its own acts and omissions.
8.04 ACCESS may, without further consent on the part of any of the
Funds, provide services to its affiliated companies. Such services may be
provided at cost.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes any
prior agreement with respect thereto, whether oral or written, and this
Agreement may not be modified except by written instrument executed by the
affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the Trustees
of the Funds as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of
8
<PAGE> 9
the Trustees, officers or shareholders of the Funds individually but are
binding only upon the assets and property of the Funds. A Certificate of Trust
in respect of each of the Funds is on file with the Secretary of the State of
Delaware.
8.07 For each of those Funds that have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under this
Agreement shall apply only on a portfolio-by-portfolio basis and the assets of
one portfolio shall not be liable for the obligations of any other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties hereto
agree to renegotiate such affected portions in good faith.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf and through their duly
authorized officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN
CAPITAL OPEN END FUNDS LISTED ON
SCHEDULE "A" HERETO
BY: /s/ Nori L. Gabert
____________________________________
Vice President
ATTEST:
/s/ Huey Falgout
____________________________
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ Nori L. Gabert
____________________________________
Vice President
ATTEST:
/s/ Huey Falgout
____________________________
Assistant Secretary
10
<PAGE> 11
SCHEDULE "A"
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS
NOTE: All of the entities listed below are organized as Delaware business
trusts
FUND NAME
(INCLUDING PORTFOLIOS)
===============================================================================
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Common Stock Fund
Domestic Strategic Income Fund
Emerging Growth Fund
Global Equity Fund
Government Fund
Money Market Fund
Multiple Strategy Fund
Real Estate Securities Fund
Van Kampen American Capital Municipal Bond Fund
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Small Capitalization Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Insured Municipal Fund
Van Kampen American Capital Texas Tax Free Income Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital Utilities Income Fund
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
11
<PAGE> 1
EXHIBIT 10
[O'MELVENY & MYERS LETTERHEAD]
January 24, 1996
OUR FILE NUMBER
019,603-999
LA1-692320.V1
Van Kampen American Capital
Texas Tax Free Income Fund
2800 Post Oak Boulevard
Houston, Texas 77056
Ladies and Gentlemen:
At your request, we have examined the form of Post-Effective
Amendment No. 8 to Registration Statement No. 33-43800 to be filed by you with
the Securities and Exchange Commission on Form N-1A in connection with the
registration under the Securities Act of 1933 of 597,093 of your shares of
beneficial interest, $.01 par value (the "Shares"). We are familiar with the
proceedings taken and proposed to be taken by you in connection with the
authorization, issuance and sale of the Shares.
Based upon our examination and upon our knowledge of your
business trust activities, it is our opinion that the Shares will, when issued
and sold in a manner described in the Registration Statement at a price in
excess of par value, be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Respectfully submitted,
/s/ O'MELVENY & MYERS
0'MELVENY & MYERS
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8, Amendment No. 10, to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated November 7, 1995, relating to the financial statements and
financial highlights of Van Kampen American Capital Texas Tax Free Income Fund
which appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the references to us
under the headings "Financial Highlights" and "Independent Accountants" in such
Prospectus and to the reference to us under the heading "Independent
Accountants" in such Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
January 25, 1995
<PAGE> 1
EXHIBIT 15.1
CLASS A
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
Section 1. Van Kampen American Capital Texas Tax Free Income Fund (the
"Fund") may act as a distributor of securities of which it is the issuer,
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
according to the terms of this Distribution Plan (the "Plan").
Section 2. The Fund may incur as a distributor of securities of which it is
the issuer, expenses of up to twenty-five one-hundredths of one percent (0.25%)
per annum of the Fund's average daily net assets.
Section 3. Amounts set forth in Section 2 may be expended when and if
authorized in advance by the Fund's Trustees. Such amounts may be used to
finance any activity which is primarily intended to result in the sale of the
Fund's shares or the retention of shares by investors, including but not
limited to, expenses of organizing and conducting sales seminars, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature, supplemental
payments to dealers under a dealer incentive program to be established by Van
Kampen American Capital Distributors, Inc. ("VKAC") as the Fund's Distributor
in accordance with Section 4, and the costs of administering such a program.
All amounts expended pursuant to the Plan shall be paid to VKAC. VKAC shall be
required to use such amounts exclusively to finance those activities set forth
in Sections 3 and 4 of the Plan.
Section 4. (a) Amounts expended by the Fund under the Plan shall be used
primarily for the implementation by VKAC of a dealer incentive program and to
pay the costs of administering the calculation of payment under such program.
(b) Pursuant to this program, VKAC may enter into agreements ("Servicing
Agreements") with such broker/dealers ("Dealers") as may be selected from time
to time by VKAC for the provision of distribution assistance in connection with
the sale of shares of the Fund ("Shares") to the Dealers' clients and customers
("Customers") and for the provision of administrative support services to
Customers who may from time to time directly or beneficially own Shares. The
distribution assistance and administrative support services to be rendered by
Dealers under the Servicing Agreements may include, but shall not be limited
to, the following: distributing sales literature; answering routine Customer
inquiries concerning the Fund; assisting Customers in changing dividend
options, account designations and addresses, and
<PAGE> 2
in enrolling into the pre-authorized check plan, systematic withdrawal plan or
any of several tax sheltered retirement plans offered in connection with the
purchase of Shares; assisting in the establishment and maintenance of Customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and capital gains distributions automatically
in Shares and providing such other information and services as the Fund or the
Customer may reasonably request.
Section 5. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding voting
securities of the Fund.
Section 6. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority of both (a) the
Trustees of the Fund and (b) those Trustees of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to
it (the "Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 7. Unless sooner terminated pursuant to Section 9, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 6.
Section 8. VKAC shall provide to the Fund's Trustees and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
Section 9. This Plan may be terminated at any time by vote of a majority of
the Disinterested Trustees, or by vote of a majority of the Fund's outstanding
voting securities.
Section 10. Any agreement related to this Plan shall be in writing, and shall
provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees, or by a vote of
the Fund's outstanding voting securities, on not more than sixty days' written
notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 11. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2
2
<PAGE> 3
hereof unless such amendment is approved in the manner provided in Section 5
hereof, and no material amendment to the Plan shall be made unless approved in
the manner provided for in Section 6 hereof.
Section 12. The execution of this Plan has been authorized by the Fund's
Trustees and by the sole shareholder of the Class A shares of the Fund. This
Plan is executed on behalf of the Fund or the Trustees of the Fund as Trustees
and not individually and that the obligations of this Plan are not binding upon
any of the Trustees, officers or shareholders of the Fund individually but are
binding only upon the assets and property of the Fund. A Certificate of Trust
in respect of the Fund is on file with the Secretary of the State of Delaware.
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
By: /s/ NORI L. GABERT
---------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: August 26, 1995
3
<PAGE> 1
EXHIBIT 15.2
CLASS B
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
WHEREAS, Van Kampen American Capital Texas Tax Free Income Fund (the
"Fund"), engages in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Fund proposes to commence an offering of Class B shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class B shares, to make payments
in connection with the distribution of its Class B shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class B shares, and desires to adopt
a Class B Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class B shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class B shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;
WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class B shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class B Distribution
<PAGE> 2
Plan will benefit the Fund and its Class B shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class B Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class B shares.
2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class B shares rendered by VKAC, the
Fund shall pay VKAC out of the assets attributable to the Class B shares an
annual distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee and Service
Fee shall equal on an annual basis up to 1.00% of the average daily net assets
of the Funds' Class B shares. Only distribution expenditures of a type and
amount authorized in advance by the Fund's Trustees and properly attributable
to the sale of Class B shares will be used to justify any fee paid pursuant to
this Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class B shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class B shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 3
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
12. The execution of this Plan has been authorized by the Fund's Trustees and
by the sole shareholder of the Class B shares of the Fund. This Plan is
executed on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.
Van Kampen American Capital Texas Tax Free Income Fund
By: /s/ NORI L. GABERT
------------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: August 26, 1995
3
<PAGE> 1
EXHIBIT 15.3
CLASS C
DISTRIBUTION PLAN
OF
VAN KAMPEN AMERICAN CAPITAL TEXAS TAX FREE INCOME FUND
WHEREAS, Van Kampen American Capital Texas Tax Free Income Fund (the "Fund"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Fund proposes to commence an offering of Class C shares at net
asset value without initial sales charge but with a contingent deferred sales
charge ("CDSC");
WHEREAS, the Fund proposes to engage in activities which are primarily intended
to result in the distribution and sale of its Class C shares, to make payments
in connection with the distribution of its Class C shares and to engage Van
Kampen American Capital Distributors, Inc. ("VKAC") to act as principal
underwriter (as defined in the Act) of its Class C shares, and desires to adopt
a Class C Shares Distribution Plan pursuant to Rule 12b-1 under the Act;
WHEREAS, VKAC proposes to compensate broker-dealers or other persons for
providing distribution assistance in the offering of Class C shares and to
compensate financial and other industry professionals that provide services to
facilitate transactions in Class C shares for their clients (such
broker-dealers, other persons, financial institutions and other industry
professionals being collectively referred to as "Service Organizations");
WHEREAS, such compensation includes commissions to dealers and transaction fees
to other Service Organizations (such commissions and transaction fees being
collectively referred to as "Transactional Compensation"), plus supplemental
payments to Service Organizations ("Service Fees") pursuant to Servicing
Agreements proposed to be offered by VKAC to such Service Organizations;
WHEREAS, VKAC may provide additional promotional incentives to certain or all
Service Organizations and proposes to incur substantial additional expenses in
rendering distribution services for Class C shares, including but not limited
to, printing prospectuses and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature,
expenses of organizing and conducting sales seminars, and other operating
expenses;
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of this Class C Distribution
<PAGE> 2
Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Fund hereby adopts this Class C Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act and containing the
following terms and conditions:
1. Subject to the supervision of the Trustees of the Fund, VKAC will provide
the Fund with such distribution services and facilities as the Fund may from
time to time consider necessary to enhance the sale of its Class C shares.
2. In consideration of the Transactional Compensation and Service Fees paid
and the other distribution services for Class C shares rendered by VKAC, the
Fund shall pay VKAC out of the assets attributable to the Class C shares an
annual distribution fee and service fee ("Distribution Fee and Service Fee")
calculated daily and payable weekly. The combined Distribution Fee and Service
Fee shall equal on an annual basis up to 1.00% of the average daily net assets
of the Fund's Class C shares. Only distribution expenditures of a type and
amount authorized in advance by the Fund's Trustees and properly attributable
to the sale of Class C shares will be used to justify any fee paid pursuant to
this Plan.
3. This Plan shall not take effect until it has been approved by a vote of at
least a majority (as defined in the Act) of the outstanding Class C shares of
the Fund.
4. This Plan shall not take effect until it has been approved, together with
any related agreements, by votes of the majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
5. So long as the Plan remains in effect, the selection and nomination of
persons to serve as trustees of the Fund who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees then in office
who are not "interested persons" of the Fund.
6. Unless sooner terminated pursuant to Section 8, this Plan shall continue in
effect for a period of one year from the date it takes effect (which shall be
the date of the commencement of the public offering of Class C shares, provided
that the conditions of Sections 3 and 4 above have been met).
7. VKAC shall provide to the Fund's Trustees and the Trustees shall review, at
least quarterly, a written report of the expenses incurred hereunder and the
purposes for which such expenditures were made.
2
<PAGE> 3
8. The Plan may be terminated, without payment of any penalty, at any time by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the Fund.
9. Any agreement related to this Plan shall be in writing, and shall provide:
(a) That such agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Disinterested Trustees or by a vote of
the outstanding voting securities of the Fund, on not more than sixty days'
written notice to any other party to this agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
10. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in Section 2 hereof unless such amendment is
approved in the manner provided in Section 3 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for in Section
4 hereof.
11. The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 7 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
12. The execution of this Plan has been authorized by the Fund's Trustees and
by the sole shareholder of the Class C shares of the Fund. This Plan is
executed on behalf of the Fund or the Trustees of the Fund as Trustees and not
individually and that the obligations of this Plan are not binding upon any of
the Trustees, officers or shareholders of the Fund individually but are binding
only upon the assets and property of the Fund. A Certificate of Trust in
respect of the Fund is on file with the Secretary of the State of Delaware.
Van Kampen American Capital Texas Tax Free Income Fund
By: /s/ NORI L. GABERT
------------------------
Name: Nori L. Gabert
Its: Vice President
Plan effective as of: August 26, 1995
3
<PAGE> 1
EXHIBIT 16
COMPUTATION MEASURE FOR PERFORMANCE INFORMATION
CALCULATION OF TOTAL RETURN -- CLASS A SHARES
The Fund calculates its average annual total return quotations for the
one-, five- and ten-year periods ended on the date of the most recent balance
sheet included in the registration statement, by finding the average annual
compounded rates of return over the one-, five- and ten-year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1+T) =ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made at the beginning
of the periods at the end of the one-, five- or ten-year periods (or
fractional portion thereof)
</TABLE>
These calculations incorporate the following assumptions:
1. The maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 payment.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the one-, five- or ten-year periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 2
CALCULATION OF TOTAL RETURN -- CLASS B SHARES
The Fund calculates its average annual total return quotations for Class B
shares, by finding the average annual compounded rates of return over the
designated period or periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
n
P(1+T) =ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made at the beginning
of the designated period or periods at the end of the designated period or
periods (or fractional portion thereof)
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with the applicable contingent
deferred sales charge imposed upon redemption.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 3
CALCULATION OF TOTAL RETURN -- CLASS C SHARES
The Fund calculates its average annual total return quotations for Class C
shares, by finding the average annual compounded rates of return over the
designated period or periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
n
P(1+T) =ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made at the beginning
of the designated period or periods at the end of the designated period or
periods (or fractional portion thereof)
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with a 1% contingent deferred
sale charge imposed if redeemed during the first year.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of such period or
periods.
<PAGE> 4
CALCULATION OF YIELD
The Fund calculates its yield quotation based on a 30-day period ended on
the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b 6
YIELD (y) = 2[( ----- + 1) - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------- -------- -------
<S> <C> <C>
a = $ 57,478 $ 37,405 $ 4,784
b = $ 9,584 $ 11,066 $ 1,418
c = 1,110,314 722,446 92,359
d = $ 10.54 $ 10.03 $ 10.04
y = 4.96% 4.40% 4.40%
</TABLE>
CALCULATION OF TAX EQUIVALENT YIELD
The Fund calculates its tax equivalent yield based on an assumption of a
tax rate of 36% for a 30-day period ended on the date of the most recent balance
sheet included in the registration statement, computed by dividing that portion
of the yield of the Fund as disclosed above which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Tax Equivalent
Yield:....... 7.75% 6.87% 6.86%
</TABLE>
<PAGE> 1
EXHIBIT 17.1
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
DECEMBER 5, 1995
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Limited Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Emerging Markets Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Balanced Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen Merritt Series Trust
Van Kampen American Capital Quality Income Portfolio
Van Kampen American Capital High Yield Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Stock Index Portfolio
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Common Stock Fund
Van Kampen American Capital Domestic Strategic Income Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Government Fund
Van Kampen American Capital Money Market Fund
Van Kampen American Capital Multiple Strategy Fund
Van Kampen American Capital Real Estate Securities Fund
<PAGE> 2
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital High Yield 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 World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
<PAGE> 3
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 361
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1 through 1009
Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . . . . Series 5 through 85
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . Series 9 through 82
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 92
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 147
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . Series 1 through 22
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 28
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . . . Series 1 through 13
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 56
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 133
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 57
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 93
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 107
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 129
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 84
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 211
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 81
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-33
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 67
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>
<PAGE> 1
EXHIBIT 17.2
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Debra A. Nichols Sr. Vice President Houston, TX
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Howard A. Doss Vice President Tampa, FL
Jonathan Eckhard Vice President Boulder, CO
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Nori L. Gabert Vice President, Assoc. General Houston, TX
Counsel & Asst. Secretary
Erich P. Gerth Vice President Dallas, TX
Daniel Hamilton Vice President Houston, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Lowell Jackson Vice President Norcross, GA
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Ruth L. McKeel Vice President Oakbrook Terrace, IL
John Mills Vice President Kenner, LA
Robert Muller, Jr. Vice President Houston, TX
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, Va
Stephanie Scarlata Vice President Lynbrook, NY
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
James J. Boyne Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Rocco Fiordelisi III Asst. Vice President St. Louis, MO
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Hunter Knapp Asst. Vice President Laguna, CA
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
Gary Steele Asst. Vice President Philadelphia, PA
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
Gina Grippo Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
Francis McGarvey Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.
Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880854
<NAME> VKAC TEXAS TAX FREE INCOME
<SERIES>
<NUMBER> 1
<NAME> CLASS A SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 18,470,839
<INVESTMENTS-AT-VALUE> 19,136,172
<RECEIVABLES> 583,520
<ASSETS-OTHER> 4,278
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,723,970
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 192,895
<TOTAL-LIABILITIES> 192,895
<SENIOR-EQUITY> 19,470
<PAID-IN-CAPITAL-COMMON> 18,827,031
<SHARES-COMMON-STOCK> 1,110,686
<SHARES-COMMON-PRIOR> 1,331,569
<ACCUMULATED-NII-CURRENT> (5,360)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,601
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 665,333
<NET-ASSETS> 19,531,075
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,414,127
<OTHER-INCOME> 0
<EXPENSES-NET> 348,008
<NET-INVESTMENT-INCOME> 1,066,119
<REALIZED-GAINS-CURRENT> 65,437
<APPREC-INCREASE-CURRENT> 739,651
<NET-CHANGE-FROM-OPS> 1,871,207
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 653,415
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,801
<NUMBER-OF-SHARES-REDEEMED> 304,310
<SHARES-REINVESTED> 30,626
<NET-CHANGE-IN-ASSETS> (3,085,519)
<ACCUMULATED-NII-PRIOR> 5,628
<ACCUMULATED-GAINS-PRIOR> (45,872)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 21,198
<GROSS-ADVISORY-FEES> 123,404
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 409,823
<AVERAGE-NET-ASSETS> 11,804,378
<PER-SHARE-NAV-BEGIN> 9.64
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .39
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880854
<NAME> VKAC TEXAS TAX FREE INCOME
<SERIES>
<NUMBER> 2
<NAME> CLASS B SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 729,051
<SHARES-COMMON-PRIOR> 888,816
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 363,880
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,593
<NUMBER-OF-SHARES-REDEEMED> 215,721
<SHARES-REINVESTED> 18,363
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 9,656
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 7,610,145
<PER-SHARE-NAV-BEGIN> 9.64
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .396
<PER-SHARE-DIVIDEND> .466
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 2.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880854
<NAME> VKAC TEXAS TAX FREE INCOME
<SERIES>
<NUMBER> 3
<NAME> CLASS C SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 107,241
<SHARES-COMMON-PRIOR> 126,223
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55,017
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,198
<NUMBER-OF-SHARES-REDEEMED> 50,161
<SHARES-REINVESTED> 981
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 729
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,152,769
<PER-SHARE-NAV-BEGIN> 9.65
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .396
<PER-SHARE-DIVIDEND> .466
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 2.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
