-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PHSNLlMWG5VtNG0RvYF8YpRaDWwZrgzddxgk1wIzxT0UYtmeXQwuP44DaDNm0RYN eM8Loa0Q4bI4vt1ZGVvOMQ== 0000950124-96-001745.txt : 19960425 0000950124-96-001745.hdr.sgml : 19960425 ACCESSION NUMBER: 0000950124-96-001745 CONFORMED SUBMISSION TYPE: 485B24E PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19960424 EFFECTIVENESS DATE: 19960424 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL HARBOR FUND CENTRAL INDEX KEY: 0000045507 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 952240576 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485B24E SEC ACT: 1933 Act SEC FILE NUMBER: 002-12685 FILM NUMBER: 96550070 FILING VALUES: FORM TYPE: 485B24E SEC ACT: 1940 Act SEC FILE NUMBER: 811-00734 FILM NUMBER: 96550071 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: 46TH FLOOR CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7139930500 MAIL ADDRESS: STREET 2: 2800 POST OAK BLVD 46TH FLOOR CITY: HOUSTON STATE: TX ZIP: 77056 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL HARBOR FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GENERAL HARBOR FUND INC DATE OF NAME CHANGE: 19830926 FORMER COMPANY: FORMER CONFORMED NAME: HARBOR FUND INC DATE OF NAME CHANGE: 19810106 485B24E 1 FORM N-1A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1996. REGISTRATION NOS. 2-12685 811-734 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ POST-EFFECTIVE AMENDMENT NO. 77 /X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 25 /X/
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) ONE PARKVIEW PLAZA, OAKBROOK TERRACE, IL 60181 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (708) 684-6000 RONALD A. NYBERG, ESQ. COPIES TO: EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND WAYNE W. WHALEN, ESQ. SECRETARY THOMAS A. HALE, ESQ. VAN KAMPEN AMERICAN CAPITAL, INC. SKADDEN, ARPS, MEAGHER & FLOM ONE PARKVIEW PLAZA 333 WEST WACKER DRIVE OAKBROOK TERRACE, IL 60181 CHICAGO, IL 60606 (NAME AND ADDRESS OF AGENT FOR SERVICE) (312) 407-0700
--------------------- 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 April 29, 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 INTENDS TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION A FORM 24F-2 FOR ITS FISCAL YEAR ENDING DECEMBER 31, 1996 ON OR ABOUT MARCH 1, 1997. - -------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933 - --------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSES MAXIMUM TITLE OF SECURITY BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF BEING REGISTERED REGISTERED PER UNIT(1) PRICE(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------- Common Shares of Beneficial Interest, par value $0.01 per share................ 6,678,154 shares $15.98 $289,985 $100.00 - -------------------------------------------------------------------------------------------------
(1) Based on the offering price of $15.98 per share on April 10, 1996. (2) This calculation is made pursuant to Rule 24e-2 under the Investment Company Act of 1940. During the fiscal year ended December 31, 1995, 6,660,007 shares (5,489,901 Class A, 1,095,295 Class B and 74,811 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND CROSS REFERENCE SHEET
FORM N-1A ITEM PROSPECTUS CAPTION ------------------------------------------- PART A 1. Cover Page................................. Cover Page 2. Synopsis................................... Shareholder Transaction Expenses; Annual Fund Operating Expenses and Example; Prospectus Summary 3. Condensed Financial Information............ Financial Highlights 4. General Description of Registrant.......... The Fund; Investment Objective and Policies; Investment Practices; Description of Shares of the Fund 5. Management of the Fund..................... The Fund; Investment Practices; Investment Advisory Services; Inside Back Cover 6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements; Shareholder Services; Distribution Plans; Redemption of Shares; Dividends from the Fund; Tax Status; Inside Back Cover 7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of Shares; Shareholder Services; Distribution Plans 8. Redemption or Repurchase................... 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......... Investment Objective and Policies; Investment Restrictions; Options, Futures Contracts and Related Options; Portfolio Turnover 14. Management of the Fund..................... General Information; Investment Advisory Agreement; Trustees and Officers 15. Control Persons and Principal Holders of Securities.................... Investment Advisory Agreement; Trustees and Officers; General Information 16. Investment Advisory and Other Services................................. Investment Advisory Agreement; Distributor; Distribution Plans; Other Information; Portfolio Transactions and Brokerage; Transfer Agent 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; Exchange Privilege 20. Tax Status................................. Dividends, Distributions and Federal Taxes 21. Underwriters............................... Distributor 22. Calculation of Performance Data............ Fund Performance 23. Financial Statements....................... Financial Statements
PART C Information required to be included in Part C is set forth under the appropriate item in Part C of this registration statement. 3 - -------------------------------------------------------------------------------- VAN KAMPEN AMERICAN CAPITAL HARBOR FUND - -------------------------------------------------------------------------------- Van Kampen American Capital Harbor Fund (the "Fund") is a diversified mutual fund. The Fund's investment objective is to seek to provide current income, capital appreciation, and conservation of capital. The Fund seeks to achieve its investment objective by investing principally in debt securities, primarily convertible bonds and convertible preferred stocks. There is no assurance that the Fund will achieve its investment objective. The Fund's investment adviser is Van Kampen American Capital Asset Management, Inc. This Prospectus sets forth certain information that a prospective investor should know before investing in the Fund. Please read it carefully and retain it for future reference. The address of the Fund is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, 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 April 29, 1996, containing additional information about the Fund has been filed with the Securities and Exchange Commission and is hereby incorporated by reference in its entirety 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 at (800) 772-8889. ------------------ VAN KAMPEN AMERICAN CAPITAL(SM) ------------------ THIS PROSPECTUS IS DATED APRIL 29, 1996. 4 - ------------------------------------------------------------------------------ TABLE OF CONTENTS - ------------------------------------------------------------------------------
PAGE --- 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 Risks of Medium and Lower-Rated Securities....................... 12 Investment Practices............................................. 15 Investment Advisory Services..................................... 19 Alternative Sales Arrangements................................... 21 Purchase of Shares............................................... 24 Shareholder Services............................................. 33 Redemption of Shares............................................. 38 Distribution Plans............................................... 41 Distributions from the Fund...................................... 43 Tax Status....................................................... 44 Fund Performance................................................. 45 Description of Shares of the Fund................................ 47 Additional Information........................................... 48 Appendix -- Ratings of Senior Securities......................... 49
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 5 - ------------------------------------------------------------------------------ PROSPECTUS SUMMARY - ------------------------------------------------------------------------------ THE FUND. Van Kampen American Capital Harbor Fund (the "Fund") is a diversified, open-end management investment company organized as a Delaware business trust. MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and $25 minimum subsequent investment for each class of shares (or less as described under "Purchase of Shares"). INVESTMENT OBJECTIVE. The Fund's investment objective is to seek current income, capital appreciation and conservation of capital. There is, however, no assurance that the Fund will be successful in achieving its objective. See "Investment Objective and Policies." INVESTMENT POLICY AND RISKS. The Fund seeks to achieve its investment objective by investing principally in debt securities, primarily convertible bonds and convertible preferred stocks. The Fund may invest in lower-rated convertible securities (commonly referred to as "junk bonds") which involve additional risks. See "Risks of Medium and Lower-Rated Securities." Use of options, futures contracts and related options may involve additional risks. See "Investment Practices -- Using Options, Futures Contracts and Related Options." INVESTMENT RESULTS. The investment results of the Fund during the past ten years are shown in the table of "Financial Highlights." ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the 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, who may choose the class of shares that best suits their circumstances and objectives. Each class of shares represents an interest in the same portfolio of investments of the Fund. See "Alternative Sales Arrangements." For information on redeeming shares see "Redemption of Shares." Class A Shares. Class A shares are offered at net asset value per share plus a maximum initial sales charge of 5.75% of the offering price (6.10% of the net amount invested), reduced on investments of $50,000 or more. Investments of $1 million or more are not subject to any sales charge at the time of purchase, but a contingent deferred sales charge of 1.00% may be imposed on redemptions made within one year of purchase. Class A shares are subject to 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. Class B shares are offered at net asset value per share and are subject to a maximum contingent deferred sales charge of 5.00% of redemption 3 6 proceeds on redemptions made within first year after purchase, reduced thereafter to 0.00% after the fifth year. See "Redemption of Shares." Class B shares are subject to a combined annual distribution fee and service fee of up to 1.00% of the Fund's average daily net assets attributable to such class of shares. See "Purchase of Shares -- Class B Shares" and "Distribution Plans." Class B shares convert automatically to Class A shares six years after the end of the calendar month in which the shareholder's order to purchase was accepted. See "Alternative Sales Arrangements -- Conversion Feature." Class C Shares. Class C shares are offered at net asset value per share and are subject to a contingent deferred sales charge of 1.00% of redemption proceeds on redemptions made within one year of purchase. See "Redemption of Shares." Class C shares are subject to an annual distribution fee and service fee of up to 1.00% of the Fund's average daily net assets attributable to such class of shares. See "Purchase of Shares -- Class C Shares" and "Distribution Plans." Class C shares 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." INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the "Adviser") is the Fund's investment adviser. DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor") distributes the Fund's shares. DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are distributed quarterly; 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." The above is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Prospectus. 4 7 - ------------------------------------------------------------------------------ SHAREHOLDER TRANSACTION EXPENSES - ------------------------------------------------------------------------------
CLASS A CLASS B CLASS C SHARES SHARES SHARES --------- ----------------- ------------- Maximum sales charge imposed on purchases (as a percentage of offering price)............... 5.75%(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--5.00% Year 1--1.00% Year 2--4.00% After--None 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
- ------------------------------------------------------------------------------ (1) Reduced for purchases of $50,000 and over. See "Purchase of Shares -- Class A Shares." (2) Investments of $1 million or more are not subject to any sales charge at the time of purchase, but a contingent deferred sales charge of 1.00% may be imposed on redemptions made within one year of purchase. See "Purchase of Shares -- Class A Shares." 5 8 - ------------------------------------------------------------------------------ ANNUAL FUND OPERATING EXPENSES AND EXAMPLE - ------------------------------------------------------------------------------
CLASS A CLASS B CLASS C SHARES SHARES SHARES --------- --------- --------- Management Fees (as a percentage of average daily net assets)............. 0.54% 0.54% 0.54% 12b-1 Fees (as a percentage of average daily net assets)(1).................. 0.20% 1.00%(2) 1.00%(2) Other Expenses (as a percentage of average daily net assets)............. 0.26% 0.27% 0.26% Total Fund Operating Expenses (as a percentage of average daily net assets)............................... 1.00% 1.81% 1.80%
- ------------------------------------------------------------------------------ (1) Class A shares are subject to an annual service fee of up to 0.25% of the average daily net assets attributable to such class of shares. Class B shares and Class C shares are each subject to a combined annual distribution and service fee of up to 1.00% of the average daily net assets attributable to such class of shares. See "Distribution Plans." (2) Individual long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted as a fund-level expense by NASD Rules. 6 9
ONE THREE FIVE TEN EXAMPLE: YEAR YEARS YEARS YEARS ------ ------ ------ ------ You would pay the following expenses on a $1,000 investment, assuming (i) an operating expense ratio of 1.00% for Class A shares, 1.81% for Class B shares and 1.80% for Class C shares, (ii) a 5% annual return and (iii) redemption at the end of each time period: Class A............................... $67 $ 88 $110 $173 Class B............................... $70 $ 90 $116 $172* Class C............................... $29 $ 57 $ 97 $212 You would pay the following expenses on the same $1,000 investment assuming no redemption at the end of each time period: Class A............................... $67 $ 88 $110 $173 Class B............................... $18 $ 57 $ 98 $172* Class C............................... $18 $ 57 $ 97 $212
- ------------------------------------------------------------------------------ * Based on conversion to Class A shares after six years. The purpose of the foregoing table is to assist an investor in understanding the various costs and expenses that an investor in the Fund will bear directly or indirectly. The "Example" reflects expenses based on the "Annual Fund Operating Expenses" table as shown above carried out to future years and is included to provide a means for the investor to compare expense levels of funds with different fee structures over varying investment periods. To facilitate such comparison, all funds are required by the Securities and Exchange Commission (the "SEC") to utilize a 5% 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," "Redemption of Shares" and "Distribution Plans." 7 10 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest outstanding throughout each of the periods indicated) - -------------------------------------------------------------------------------- The following financial highlights have been audited by Price Waterhouse LLP, independent accountants, whose report thereon was unqualified. This information should be read in conjunction with the financial statements and notes thereto included in the Statement of Additional Information.
CLASS A SHARES ------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 ------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 ---------- ---------- --------- ---------- --------- ---------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period............ $13.24 $15.12 $14.95 $14.92 $12.93 $14.05 ---------- ---------- --------- ---------- --------- ---------- INCOME FROM INVESTMENT OPERATIONS Investment income.............................. 0.83 0.78 0.85 0.90 0.955 1.115 Expenses....................................... (0.15) (0.15) (0.16) (0.15) (0.13) (0.12) ---------- ---------- --------- ---------- --------- ---------- Net investment income........................... 0.68 0.63 0.69 0.75 0.825 0.995 Net realized and unrealized gain (loss) on securities..................................... 2.25 (1.5625) 1.365 0.6275 2.085 (1.1525) ---------- ---------- --------- ---------- --------- ---------- Total from investment operations................ 2.93 (0.9325) 2.055 1.3775 2.91 (0.1575) ---------- ---------- --------- ---------- --------- ---------- LESS DISTRIBUTIONS FROM Net investment income.......................... (0.7025) (0.62) (0.66) (0.84) (0.92) (0.87) Net realized gain on securities................ (0.4175) (0.108) (1.225) (0.5075) -- (0.0925) Excess of book-basis net realized gain on securities................................... -- (0.2195) -- -- -- -- ---------- ---------- --------- ---------- --------- ---------- Total distributions............................. (1.12) (0.9475) (1.885) (1.3475) (0.92) (0.9625) ---------- ---------- --------- ---------- --------- ---------- Net asset value, end of period.................. $15.05 $13.24 $15.12 $14.95 $14.92 $12.93 =========== =========== ========== =========== ========== =========== TOTAL RETURN(4)................................. 22.46% (6.43%) 13.56% 9.63% 23.08% (1.23%) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)............ $394.5 $369.7 $432.3 $394.1 $385.5 $336.9 Ratios to average net assets Expenses....................................... 1.00% 1.04% 1.02% 0.99% 0.91% 0.89% Net investment income.......................... 4.62% 4.39% 4.37% 5.00% 5.86% 7.29% Portfolio turnover rate......................... 130% 105% 134% 85% 91% 71% 1989 1988 1987 1986(3) --------- -------- ---------- -------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period............ $12.39 $11.48 $13.42 $13.99 --------- -------- ---------- -------- INCOME FROM INVESTMENT OPERATIONS Investment income.............................. 1.00 0.94 0.76 0.79 Expenses....................................... (0.105) (0.09) (0.08) (0.09) --------- -------- ---------- -------- Net investment income........................... 0.895 0.85 0.68 0.70 Net realized and unrealized gain (loss) on securities..................................... 1.605 1.03 (1.0625) 1.13 --------- -------- ---------- -------- Total from investment operations................ 2.50 1.88 (0.3825) 1.83 --------- -------- ---------- -------- LESS DISTRIBUTIONS FROM Net investment income.......................... (0.84) (0.84) (0.84) (0.84) Net realized gain on securities................ -- (0.13) (0.7175) (1.56) Excess of book-basis net realized gain on securities................................... -- -- -- -- --------- -------- ---------- -------- Total distributions............................. (0.84) (0.97) (1.5575) (2.40) --------- -------- ---------- -------- Net asset value, end of period.................. $14.05 $12.39 $11.48 $13.42 ========== ========= =========== ========= TOTAL RETURN(4)................................. 20.59% 16.76% (3.76%) 13.73% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)............ $387.3 $342.1 $364.4 $317.3 Ratios to average net assets Expenses....................................... 0.76% 0.71% 0.60% 0.64% Net investment income.......................... 6.52% 6.82% 4.87% 4.88% Portfolio turnover rate......................... 94% 95% 83% 83%
(Table continued on following page) 8 11 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- (CONTINUED) - --------------------------------------------------------------------------------
CLASS B SHARES(1) -------------------------------------------- YEAR ENDED DECEMBER 31 -------------------------------------------- 1995 1994 1993(3) 1992(3) --------- --------- -------- --------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period...................................... $13.20 $15.07 $14.90 $14.91 --------- --------- -------- --------- INCOME FROM INVESTMENT OPERATIONS Investment income........................................................ 0.83 0.77 0.83 0.87 Expenses................................................................. (0.27) (0.26) (0.27) (0.275) --------- --------- -------- --------- Net investment income..................................................... 0.56 0.51 0.56 0.595 Net realized and unrealized gain (loss) on securities..................... 2.23 (1.5505) 1.375 0.63 --------- --------- -------- --------- Total from investment operations.......................................... 2.79 (1.0405) 1.935 1.225 --------- --------- -------- --------- LESS DISTRIBUTIONS FROM Net investment income.................................................... (0.5825) (0.502) (0.54) (0.7275) Net realized gain on securities.......................................... (0.4175) (0.108) (1.225) (0.5075) Excess of book-basis net realized gain on securities..................... -- (0.2195) -- -- --------- --------- -------- --------- Total distributions....................................................... (1.00) (0.8295) (1.765) (1.235) --------- --------- -------- --------- Net asset value, end of period............................................ $14.99 $13.20 $15.07 $14.90 ========== ========== ========= ========== TOTAL RETURN(4)........................................................... 21.46% (7.11%) 12.68% 8.56% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)...................................... $78.1 $71.1 $60.1 $20.0 Ratios to average net assets (annualized) Expenses................................................................. 1.81% 1.84% 1.73% 1.88% Net investment income.................................................... 3.81% 3.63% 3.62% 4.08% Portfolio turnover rate................................................... 130% 105% 134% 85% CLASS C SHARES -------------------------------------- OCTOBER 26, YEAR ENDED 1993(2) DECEMBER 31 THROUGH ------------------------ DECEMBER 31, 1995 1994 1993(3) --------- --------- ------------ PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period...................................... $13.25 $15.13 $16.14 --------- --------- ------------ INCOME FROM INVESTMENT OPERATIONS Investment income........................................................ 0.83 0.78 0.22 Expenses................................................................. (0.27) (0.26) (0.07) --------- --------- ------------ Net investment income..................................................... 0.56 0.52 0.15 Net realized and unrealized gain (loss) on securities..................... 2.26 (1.5705) (0.0325) --------- --------- ------------ Total from investment operations.......................................... 2.82 (1.0505) 0.1175 --------- --------- ------------ LESS DISTRIBUTIONS FROM Net investment income.................................................... (0.5825) (0.502) (0.125) Net realized gain on securities.......................................... (0.4175) (0.108) (1.0025) Excess of book-basis net realized gain on securities..................... -- (0.2195) -- --------- --------- ------------ Total distributions....................................................... (1.00) (0.8295) (1.1275) --------- --------- ------------ Net asset value, end of period............................................ $15.07 $13.25 $15.13 ========== ========== ========== TOTAL RETURN(4)........................................................... 21.52% (7.14%) 0.93% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)...................................... $3.6 $3.3 $1.1 Ratios to average net assets (annualized) Expenses................................................................. 1.80% 1.84% 1.90% Net investment income.................................................... 3.80% 3.72% 3.88% Portfolio turnover rate................................................... 130% 105% 134%
------------ (1) Sales of Class B shares commenced on December 20, 1991 at a net asset value of $14.32 per share. At December 31, 1991, there were 15,738 Class B shares outstanding with a per share net asset value of $14.91. The increase in net asset value was due principally to unrealized appreciation; there were no dividends or distributions paid during the period. Other financial highlights for the Class B shares for this short period are not presented as they are not meaningful. (2) Commencement of offering of sales. (3) Based on average month-end shares outstanding. (4) Total return of periods of less than one year are not annualized. Total return does not consider the effect of sales charges. 9 12 - ------------------------------------------------------------------------------ THE FUND - ------------------------------------------------------------------------------ The Fund is an open-end, diversified management investment company, 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. Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides investment advisory and administrative services to the Fund. The Adviser and its affiliates also manage other mutual funds distributed by Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses and other information on any of these other funds, please call the telephone number on the cover page of the Prospectus. - ------------------------------------------------------------------------------ INVESTMENT OBJECTIVE AND POLICIES - ------------------------------------------------------------------------------ The investment objective of the Fund is to seek to provide current income, capital appreciation, and conservation of capital. The Fund seeks to achieve its investment objective by investing principally in debt securities, primarily convertible bonds and convertible preferred stocks. The Fund has a fundamental investment policy of investing, under normal market conditions, at least 50% of the Fund's total assets, exclusive of cash, cash equivalents and government securities, in convertible debt securities. There can be no assurance that the Fund will achieve its investment objective. Convertible bonds and preferred stocks generally are debt securities that do not participate in any dividend increases or decreases of the underlying common stocks. However, the market prices of convertible bonds and preferred stocks may be affected by any such dividend changes. The Fund will give priority, where consistent with its other objectives, to the convertible securities and common stocks of companies whose common stocks appear to have good prospects for capital appreciation. This policy will ordinarily emphasize companies that have an established record of growth. However, the Fund may invest in more cyclical companies when the investment can be made at prices considered attractive by the Adviser. The Fund has a fundamental policy of not investing more than 45% of its total assets in common stocks. Convertible securities rank senior to common stocks in a corporation's capital structure and generally entail less risk than the corporation's common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. Through careful selection of individual securities, diversification of investments, and by continuing supervision of the investment portfolio, the Adviser strives to reduce risk and thereby conserve principal. While attractive convertible 10 13 securities of desired quality may not be available in all industries at all times, their general availability is considered by the Adviser to be more than adequate in light of the Fund's investment objectives. Debt securities acquired by the Fund are not subject to any limitations as to ratings and may include high, medium, lower and non-rated debt securities. To the extent that the Fund invests a large portion of its total assets in lower-rated securities, the Fund's ability to conserve shareholder capital may be diminished. Medium grade debt securities are those rated BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), comparably rated short-term debt obligations and unrated debt securities determined by the Adviser to be of comparable quality. Debt securities rated BBB by S&P generally are regarded by S&P as having an adequate capacity to pay interest and repay principal; adverse economic conditions or changing circumstances are, however, more likely in S&P's view to lead to a weakened capacity to pay interest and repay principal as compared with higher rated debt securities. Debt securities rated Baa by Moody's generally are considered by Moody's as medium grade obligations, i.e., they are neither highly protected nor poorly secured. In Moody's view, 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. In Moody's view, such securities lack outstanding investment characteristics and have speculative characteristics as well. Lower grade debt securities are those rated between BB and D (inclusive) by S&P, Ba and C by Moody's, comparably rated short-term debt obligations and unrated debt securities determined by the Adviser to be of comparable quality, which securities sometimes are referred to as "junk bonds". Debt securities rated BB, B, CCC, CC and C by S&P generally are regarded by S&P, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation with respect to such securities. While such debt will likely have some quality and protective characteristics, in S&P's view these are outweighed by large uncertainties or major risk exposures to adverse conditions. Securities rated D by S&P are in default. Securities rated B by Moody's are viewed by Moody's as generally lacking characteristics of the desirable investment. In Moody's view, assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa by Moody's are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca by Moody's represent obligations which are speculative in a high degree. Such issues are often in default or have other market shortcomings. Bonds which are rated C by Moody's are the lowest rated class of bonds and issues so rated can be regarded as having 11 14 extremely poor prospects of ever attaining any real investment standing. A complete description of the various S&P and Moody's rating categories is included as Appendix A to this Prospectus. During the fiscal year ended December 31, 1995, the average percentage of the Fund's assets invested in debt 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: - ------------------------------------------------------------------------------ AAA/Aaa................... 0.54% AA/Aa..................... 3.74% A/A....................... 9.96% BBB/Baa................... 17.07% BB/Ba..................... 11.16% B/B....................... 6.32% CCC/Caa................... 0.26% *Non-rated................. 6.63% Preferred Stocks.......... 16.73% Common Stocks/Warrants.... 17.77% Cash and Equivalents...... 9.82% ----- Total Net Assets.... 100% =====
------------------------------------------------------------------------------ * The non-rated securities as a percentage of total net assets were considered by the Adviser to be comparable to securities rated by Moody's as follows: AA/Aa -- 0.28%, A/A -- 2.10%, BBB/Baa -- 2.98%, BB/Ba -- 0.96% and B/B -- 0.31%. In abnormal market conditions, the Fund may invest up to 100% of its assets in cash, cash equivalents and government securities for temporary, defensive purposes. Cash equivalents include certificates of deposit, prime commercial paper, bankers' acceptances and repurchase agreements. - ------------------------------------------------------------------------------ RISKS OF MEDIUM AND LOWER-RATED SECURITIES - ------------------------------------------------------------------------------ Debt securities which are in the medium and lower grade categories generally offer a higher current yield than is offered by higher grade debt securities, but they also generally involve greater price volatility and greater credit and market risk. Credit risk relates to the issuer's ability to make timely payment of interest and principal when due. Market risk relates to the changes in market value that occur as a result of variation in the level of prevailing interest rates and yield relationships in the debt securities market and as a result of real or perceived changes in credit risk. The value of the Fund's portfolio securities can be expected to fluctuate over time. When interest rates decline, the value of a portfolio invested in fixed income securities generally can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested in fixed income securities generally can be expected to decline. However, the secondary market prices of medium and lower grade debt securities are less sensitive to changes in interest rate and are more sensitive to adverse economic changes or individual developments than are the secondary market prices of higher grade debt securities. A significant increase in interest rates or a general economic downturn could severely disrupt the market for lower grade 12 15 debt securities and adversely affect the market value of such securities. Such events also could lead to a higher incidence of default by issuers of lower grade debt securities as compared with historical default rates. In addition, changes in interest rates and periods of economic uncertainty can be expected to result in increased volatility in the market price of the debt securities in the Fund's portfolio and thus in the net asset value of the Fund. Adverse publicity and investor perceptions, whether or not based on rational analysis, may affect the value and liquidity of medium and lower grade debt securities. Increases in interest rates and changes in the economy may adversely affect the ability of issuers of medium and lower grade debt securities to pay interest and to repay principal, to meet projected financial goals and to obtain additional financing. In the event that an issuer of securities held by the Fund experiences difficulties in the timely payment of principal or interest and such issuer seeks to restructure the terms of its borrowings, the Fund may incur additional expenses and may determine to invest additional assets with respect to such issuer or the project or projects to which the Fund's portfolio securities relate. Further, the Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of interest or the repayment of principal on its portfolio holdings, and the Fund may be unable to obtain full recovery thereof. To the extent that there is no established retail market for some of the medium or lower grade debt securities in which the Fund may invest, trading in such securities may be relatively inactive. The Adviser is responsible for determining the net asset value of the Fund, subject to the supervision of the Board of Trustees. During periods of reduced market liquidity and in the absence of readily available market quotations for medium and lower grade debt securities held in the Fund's portfolio, the ability of the Adviser to value the Fund's securities becomes more difficult and the Adviser's use of judgment may play a greater role in the valuation of the Fund's securities due to the reduced availability of reliable objective data. The effects of adverse publicity and investor perceptions may be more pronounced for securities for which no established retail market exists as compared with the effects on securities for which such a market does exist. Further, the Fund may have more difficulty selling such securities in a timely manner and at their stated value than would be the case for securities for which an established retail market does exist. To the extent that the Fund purchases illiquid debt securities or securities which are restricted as to resale, the Fund may be required to incur costs in connection with the registration of restricted securities in order to dispose of such securities, although under Rule 144A under the Securities Act of 1933, as amended such securities may become more liquid. The Fund will rely on the Adviser's judgment, analysis and experience in evaluating the creditworthiness of an issue. In its analysis, the Adviser may consider the credit ratings of Moody's and S&P in evaluating debt securities although it does 13 16 not rely primarily on these ratings. Such ratings evaluate only the safety of principal and interest payments, not market value risk. Additionally, because the creditworthiness of an issuer may change more rapidly than is able to be timely reflected in changes in credit ratings, the Adviser continuously monitors the issuers of debt securities held in the Fund's portfolio. Because of the nature of medium and lower rated debt securities, achievement by the Fund of its investment objective may be more dependent on the credit analysis of the Adviser than is the case for an investment company which invests primarily in higher grade securities. CONVERTIBLE SECURITIES. A "convertible security" includes any debt security which has the right to be converted into any other security or which carries with it the right to purchase any other security, any unit including one of the foregoing, and any other security for which it is expected that one of the foregoing will be received in exchange within a reasonably short period of time in a merger, acquisition, reorganization, recapitalization, or otherwise. A convertible security entitles the holder to exchange it for a fixed number of shares of common stock or other equity security, usually of the same company, at fixed prices within a specified period of time. A convertible security entitles the holder to receive the income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. The difference between the market price of the convertible security and the market price of the securities into which it may be converted is called the "premium." When the premium is small, the convertible security has performance characteristics similar to an equity security; when the premium is large, the convertible security has performance characteristics similar to a debt security. The conversion privilege may take the form of warrants attached to the bond or preferred stock which entitle the holder to purchase a specific number of shares of common stock or other equity security, usually of the same company, at fixed prices for a specified period of time. 14 17 - ------------------------------------------------------------------------------ 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 may invest up to 25% of its assets in repurchase agreements but 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, would exceed 10% of the value of its net assets. In the event of a 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) a possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (b) a possible lack of access to income on the underlying security during this period and (c) expenses of enforcing its rights. See the Statement of Additional Information. For the purpose of investing in repurchase agreements, the Adviser may aggregate the cash that substantially all of the funds advised or subadvised by the Adviser would otherwise invest separately into a joint account. The cash in the joint account is then invested in repurchase agreements 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 an SEC order authorizing this practice, which conditions are designed to ensure the fair administration of the joint account and to protect the amounts in that account. RESTRICTED SECURITIES. The Fund may invest up to 10% of its net assets in restricted securities and other illiquid assets. As used herein, restricted securities are those that have been sold in the United States without registration under the Securities Act of 1933 and are thus subject to restrictions on resale. Excluded from the limitation, however, are any restricted securities which are eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and which have been determined to be liquid by the Trustees or by the Adviser pursuant to guidelines established by the Trustees. Restricted securities generally may be resold only in privately negotiated transactions with a limited number of purchasers or in a public offering registered under the Securities Act of 1933. Considerable delay could be encountered in either event. These difficulties and delays could result in the Fund's 15 18 inability to realize a favorable price upon disposition of restricted securities, and in some cases might make disposition of such securities at the time desired by the Fund impossible. Since market quotations may not be readily available for restricted securities, such securities will be valued by a method that the Fund's Trustees believe accurately reflects fair value. USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The Fund expects to utilize options, futures contracts and options thereon in several different ways, depending upon the status of the Fund's portfolio and the Adviser's expectations concerning the securities markets. The Fund may use one or more of the following strategies in connection with the equity portion of its portfolio. In times of stable or rising security prices, the Fund generally seeks to be fully invested in the securities markets. Nevertheless, even when the Fund is fully invested, prudent management requires that at least a small portion of assets be available as cash to honor redemption requests and for other short-term needs. The Fund also may have cash on hand that has not yet been invested. The portion of the Fund's assets that is invested in cash equivalents does not fluctuate with security market prices, so that, in times of rising market prices, the Fund may underperform the market in proportion to the amount of cash equivalents in its portfolio. By purchasing futures contracts, however, the Fund can compensate for the cash portion of its assets and obtain equivalent performance to investing 100% of its assets in equity securities. If the Adviser forecasts a market decline, the Fund may take a defensive position, reducing its exposure to the securities markets by increasing its cash position. By selling futures contracts instead of portfolio securities, a similar result can be achieved to the extent that the performance of the stock index futures contracts correlates to the performance of the Fund's portfolio securities. Sale of futures contracts could frequently be accomplished more rapidly and at less cost than the actual sale of securities. Once the desired hedged position has been effected, the Fund could then liquidate securities in a more deliberate manner, reducing its futures position simultaneously to maintain the desired balance, or it could maintain the hedged position. As an alternative to selling stock index futures contracts, the Fund can purchase stock index puts, or stock index futures puts, to hedge the portfolio's risk in a declining market. Since the value of a put increases as the index declines below a specified level, the portfolio's value is protected against a market decline to the degree the performance of the index correlates with the performance of the Fund's investment portfolio. If the market remains stable or advances, the Fund can refrain from exercising the put and its portfolio will participate in the advance, having incurred only the premium cost for the put. 16 19 In many cases the Fund could achieve results similar to those available from options and futures contracts without investing in the options and futures markets. For example, instead of hedging portfolio securities it owned with options and futures contracts, the Fund could sell the securities and invest the proceeds in money market instruments. In other cases, however, the options and futures markets provide investment or risk management opportunities that are not available from direct investments in securities. In addition, some strategies can be performed with greater ease and at lower cost by utilizing the options and futures markets. POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The purchase and sale of options, futures contracts and related options involve risks different from those involved with direct investments in underlying securities. While utilization of options, futures contracts and similar instruments may be advantageous to the Fund, if the Adviser is not successful in employing such instruments in managing the Fund's investments, the Fund's performance will be worse than if the Fund did not make such investments. In addition, the Fund would pay commissions and other costs in connection with such investments, which may increase the Fund's expenses and reduce its return. Use of options and futures would be likely to increase the Fund's portfolio turnover rate and increase transaction costs. In order to prevent leverage in connection with the purchase of futures contracts by the Fund, an amount of cash, cash equivalents or liquid high grade debt securities equal to the market value of the obligation under the futures contracts, less any related margin deposits, will be maintained in a segregated account with the Custodian. Capital gains realized by the Fund from transactions in options and futures contracts may increase shareholders' tax liability if not offset by capital losses realized by the Fund. The Fund is authorized to purchase and sell over-the-counter options ("OTC Options"). OTC Options are purchased from or sold to securities dealers, financial institutions or other parties ("Counterparties") through direct bilateral agreement with the Counterparty. The Fund will sell only OTC Options (other than OTC currency options) that are subject to a buy-back provision permitting the Fund to require the Counterparty to sell the option back to the Fund at a formula price within seven days. The staff of the SEC currently takes the position that, in general, OTC Options on securities other than U.S. Government securities purchased by the Fund, and portfolio securities covering OTC Options sold by the Fund, are illiquid securities subject to the Fund's limitation on investing no more than 10% of its assets in illiquid securities. The Fund will not enter into a futures contract or related option (except for closing transactions) other than for bona fide hedging purposes if, immediately thereafter, the sum of the amount of its initial margin and premiums on open futures contracts and options, thereon would exceed 5% of the Funds total assets taken at current value. However, in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. 17 20 A more complete discussion of the potential risks involved in transactions in options or futures contracts and related options is contained 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 and the negotiation of brokerage commissions on such transactions. Brokerage firms are selected on the basis of their professional capability for the type of transaction and the value and quality of execution services rendered on a continuing basis. The Adviser is authorized to place portfolio transactions with brokerage firms participating in the distribution of shares of the Fund and other Van Kampen American Capital mutual funds if it reasonably believes that the quality of the execution and the commission are comparable to that available from other qualified brokerage firms. The Adviser is authorized to pay higher commissions to brokerage firms that provide it with investment and research information than to firms which do not provide such services if the Adviser determines that such commissions are reasonable in relation to the overall services provided. The information received may be used by the Adviser in managing the assets of other advisory accounts as well as in the management of the assets of the Fund. PORTFOLIO TURNOVER. The Fund may purchase and sell securities without regard to the length of time the security is anticipated to be or has been held. The Fund's annual portfolio turnover is shown in the table of "Financial Highlights." The rate may exceed 100%, which is higher than that of many other investment companies. A 100% turnover rate occurs, for example, if all the Fund's portfolio securities are replaced during one year. High portfolio activity increases the Fund's transaction costs, including brokerage commissions. To the extent short-term trading results in realization of gains on securities held for one year or less, shareholders are subject to taxes at ordinary income rates. INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions which, like the investment objective, may not be changed without approval by a majority vote (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) vote of the Fund's outstanding shares. See the Statement of Additional Information. One of these restrictions provides that the Fund may not invest more than 25% of its assets in securities issued by companies in any one industry. In addition to the foregoing, the Fund has adopted additional investment restrictions which may be changed by the Trustees without a vote of shareholders. One of these restrictions provides that the Fund may not invest more than 15% of the value of its assets in securities of foreign issuers. Foreign investments may be subject to special risks, including future political and economic developments, the possible imposition of additional withholding taxes on dividend or interest income payable on the securities, the seizure or nationalization of companies, establishment of exchange controls or adoption of other restrictions which might adversely affect 18 21 the investment. Another of these restrictions provides that the Fund may not invest more than 10% of its net assets, determined at the time of investment, in illiquid securities and repurchase agreements that have a maturity of longer than seven days. - ------------------------------------------------------------------------------ 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 more than $50 billion under management or supervision. Van Kampen American Capital's more than 40 open-end and 38 closed-end funds and more than 2,800 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 7% of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options, approximately an additional 13% of the common stock of VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such options, no officer or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC Holding, Inc. 19 22 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 a monthly fee computed on average daily net assets of the Fund as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM ---------------------------------------------- ---------------- First $350 million............................ 0.55% of 1.00% Next $350 million............................. 0.50% of 1.00% Next $350 million............................. 0.45% of 1.00% Over $1.05 billion............................ 0.40% of 1.00%
Under the Advisory Agreement, the Fund also reimburses the Adviser for the cost of the Fund's accounting services, which include maintaining its financial books and records and calculating its daily net asset value. Operating expenses paid by the Fund include shareholder service agency fees, distribution fees, service 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) fee and total operating expense ratios are shown under the caption "Annual Fund Operating Expenses and Example" herein. From time to time, as the Adviser or the Distributor may deem appropriate, they may voluntarily undertake to reduce the Fund's expenses by reducing the fees payable to them to the extent of, or bearing expenses in excess of, such limitations as they may establish. The Adviser may utilize, at its own expense, credit analysis, research and trading support services provided by its affiliate, Van Kampen American Capital Investment Advisory Corp. PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of Ethics designed to recognize the fiduciary relationship between the Fund and the Adviser and its employees. The Codes permit directors/trustees, officers and employees to buy and sell securities for their personal accounts subject to certain restrictions. Persons with access to certain sensitive information are subject to pre-clearance and other procedures designed to prevent conflicts of interest. PORTFOLIO MANAGEMENT. Mr. James H. Behrmann has been primarily responsible for managing the Fund's investment portfolio since October 1984. Mr. Behrmann has been Vice President of the Adviser since August 1985 and Vice President of Van Kampen American Capital Investment Advisory Corp. since June 1995. 20 23 - ------------------------------------------------------------------------------ ALTERNATIVE SALES ARRANGEMENTS - ------------------------------------------------------------------------------ The Alternative Sales Arrangements permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase and the length of time the investor expects to hold the shares. CLASS A SHARES. Class A shares are sold at net asset value plus an initial maximum sales charge of up to 5.75% of the offering price (6.10% of the net amount invested), reduced on investments of $50,000 or more. Investments of $1 million or more are not subject to any sales charge at the time of purchase, but a contingent deferred sales charge of 1.00% 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 a reduced initial sales charge. 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 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 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 automatically convert to Class A shares ten years after the end of the calendar month in which the 21 24 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 automatically convert to Class A shares six or ten years, respectively, after the end of the calendar month in which the shares were purchased and will no longer be subject to the distribution fee. Such conversion will be on the basis of the relative net asset values per share, without the imposition of any sales load, fee or other charge. The purpose of the conversion feature is to relieve the holders of 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, 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 shares, an equal pro rata portion of the Class B shares or Class C shares in the sub-account will also convert to Class A shares. 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 of 1986, 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, the shares might continue to be subject to the distribution fee for an indefinite period which may extend beyond the period ending six 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 22 25 Fund Operating Expenses and Example" sets forth examples of the charges applicable to each class of shares. In this regard, Class A shares may be more beneficial to the investor who qualifies for reduced initial sales charges or purchases shares at net asset value, as described herein under "Purchase of Shares -- Class A Shares." It is presently the policy of the Distributor not to accept any order in an amount of $500,000 or more for Class B shares or any order of $1 million or more for Class C shares. Class A shares are not subject to an ongoing distribution fee and, accordingly, receive correspondingly higher dividends per share. However, because initial sales charges are deducted at the time of purchase for accounts under $1 million, investors in Class A shares do not have all their funds invested initially and, therefore, initially own fewer shares. Other investors might determine that it is more advantageous to purchase either Class B shares or Class C shares and have all their funds invested initially, although remaining subject to ongoing distribution fees and, for a five-year or one-year period, respectively, being 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 shares 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 or have a longer-term investment horizon. Class B shares may be appropriate for investors who wish to avoid a front-end sales charge, put 100% of their investment dollars to work immediately, 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 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 23 26 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 shares, Class B shares 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 shares or Class C shares will be borne by the respective class. See "Distributions from the Fund." Shares of the Fund may be exchanged, subject to certain limitations, for shares of the same class of other mutual funds distributed by the Distributor. See "Shareholder Services -- Exchange Privilege." - ------------------------------------------------------------------------------ PURCHASE OF SHARES - ------------------------------------------------------------------------------ GENERAL The Fund offers three classes of shares to the 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." Initial investments must be at least $500 for each class of shares and subsequent investments must be at least $25 for each class of shares. Both minimums may be waived by the Distributor for plans 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 accompanying this Prospectus and forwarding the application, through the authorized dealer, to the shareholder service agent, ACCESS Investor Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital ("ACCESS") . When purchasing shares of the Fund, investors must specify whether the purchase is for Class A shares, Class B shares 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 class of shares chosen by the investor, as shown in the tables herein. Net asset value per share for each class is determined once daily as of the close of trading on the New York Stock 24 27 Exchange (the "Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open. Net asset value per share for each class is determined by dividing the value of the Fund's securities, cash and other assets (including accrued interest) attributable to such class, less all liabilities (including accrued expenses) attributable to such class by the total number of shares of the class outstanding. Securities and options listed or traded on a national securities exchange are valued at the last sale price. Unlisted securities and listed securities for which the last sale price is not available are valued at the most recent bid price, except unlisted convertible securities, which are valued at the higher of their bid price or the value of the securities issuable on conversion. Listed options for which the last sale price is not available are valued at the mean between the bid and asked prices. Short-term investments are valued in the manner described in the notes to the financial statements contained in the Statement of Additional Information. Generally, the net asset values per share of the Class A shares, Class B shares 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 shares, Class B shares 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 shares and Class C shares and the differential in the dividends paid on the classes of shares. The price paid for shares purchased is based on the next calculation of net asset value (plus sales charges, where applicable) after an order is received by an authorized dealer provided such order is transmitted to the Distributor prior to the Distributor's close of business on such day. Orders received by authorized 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 authorized 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 authorized 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, has the same rights and is identical in all respects, except that (i) Class B shares 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 or service fee is paid and (iii) Class B shares 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." The net income attributable to Class B shares and Class C shares and the dividends payable on Class B shares and Class C shares will be reduced by the amount of the distribution fee and incremental 25 28 transfer agency expenses associated with such class of shares. Sales personnel of authorized 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 shares, Class B shares or Class C shares. Agreements are in place which provide, among other things and subject to certain conditions, for certain favorable distribution arrangements for shares of the Fund with subsidiaries of The Travelers Inc. The Distributor may from time to time implement programs under which an authorized dealer's sales force may be eligible to win nominal awards for certain sales efforts or under which the Distributor will reallow to any authorized dealer 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 authorized dealers 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 authorized dealers 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 herein. 26 29 SALES CHARGE TABLE
REALLOWED TO DEALERS (AS AS % OF AS % OF % OF SIZE OF OFFERING NET AMOUNT OFFERING INVESTMENT PRICE INVESTED PRICE) - ---------------------------------------------------------------------------- Less than $50,000 5.75% 6.10% 5.00% $50,000 but less than $100,000 4.75% 4.99% 4.00% $100,000 but less than $250,000 3.75% 3.90% 3.00% $250,000 but less than $500,000 2.75% 2.83% 2.25% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more* * * * - ----------------------------------------------------------------------------
* 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 1.00% on redemptions within one year of the purchase. The contingent deferred sales charge incurred upon redemption is paid to the Distributor in reimbursement for distribution-related expenses. A commission will be paid to authorized dealers who initiate and are responsible for purchases of $1 million or more as follows: 1.00% 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 authorized dealers that sell shares of the Fund. 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 authorized dealers described herein. Such financial institutions, other industry professionals and authorized 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. 27 30 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 authorized dealers, 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 authorized dealers or the Distributor. A person eligible for a reduced sales charge includes an individual, their spouse and minor children and any corporation, partnership or sole proprietorship which is 100% owned, either alone or in combination, by any of the foregoing; a trustee or other fiduciary purchasing for a single fiduciary account, or a "company" as defined 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 sales charges applicable to the purchases made and the sales charges previously paid. The initial purchase must 28 31 be for an amount equal to at least 5% 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 adjustments in sales charge will be used to purchase additional shares for the shareholder at the applicable discount category. Additional information is contained in the application accompanying this Prospectus. OTHER PURCHASE PROGRAMS Purchasers of Class A shares may be entitled to reduced initial sales charges in connection with unit trust reinvestment programs and purchases by registered representatives of selling firms or purchases by persons affiliated with the Fund or the Distributor. The Fund reserves the right to modify or terminate these arrangements at any time. Unit Investment Trust Reinvestment Programs. The Fund permits unitholders of unit investment trusts to reinvest distributions from such trusts in Class A shares of the Fund at net asset value and with no minimum initial or subsequent investment requirement 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 other investments made from unit trust distributions will be 1.00% of the offering price (1.01% of net asset value). Of this amount, the Distributor will pay to the authorized dealer, 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 authorized 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' 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. 29 32 NAV Purchase Options. Class A shares of the Fund may be purchased at net asset value, upon written assurance that the purchase is made for investment purposes and that the shares will not be resold except through redemption by the Fund, by: (1) Current or retired Trustees/Directors of funds advised by the Adviser, Van Kampen American Capital Investment Advisory Corp. or John Govett & Co. Limited and such persons' families and their beneficial accounts. (2) Current or retired directors, officers and employees of VK/AC Holding, Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc., employees of an investment subadviser to any fund described in (1) above, or an affiliate of such subadviser; and such persons' families and their beneficial accounts. (3) Directors, officers, employees and registered representatives of financial institutions that have a selling group agreement with the Distributor and their spouses and minor children when purchasing for any accounts they beneficially own, or, in the case of any such financial institution, when purchasing for retirement plans for such institution's employees. (4) Registered investment advisers, trust companies and bank trust departments investing on their own behalf or on behalf of their clients provided that the aggregate amount invested in the Fund alone, or in any combination of shares of the Fund and shares of other Participating Funds as described herein under "Purchase of Shares -- Class A Shares -- Volume Discounts," during the 13-month period commencing with the first investment pursuant hereto equals at least $1 million. The Distributor may pay authorized dealers through which purchases are made an amount up to 0.50% of the amount invested, over a 12-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 1.00% 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) Full service participant directed profit sharing and money purchase plans, full service 401(k) plans, or similar full service recordkeeping programs made available through Van Kampen American Capital Trust Company with at least 50 eligible employees or investing at least $250,000 in 30 33 Participating Funds, Tax Free Money Fund or Reserve Fund. For such investments the Fund imposes a contingent deferred sales charge of 1.00% in the event of redemptions within one year of the purchase other than redemptions required to make payments to participants under the terms of the plan. The contingent deferred sales charge incurred upon redemptions is paid to the Distributor in reimbursement for distribution-related expenses. A commission will be paid to dealers who initiate and are responsible for such purchases as follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the excess over $10 million. (9) Participants with accounts in any 403(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 authorized dealers as follows: 1% 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 following acceptance of the order. An authorized dealer 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. Authorized dealers will be paid a service fee as described herein under "Distribution Plans" on purchases made as described in (3) through (9) 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. 31 34 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. - ------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------------------------------------------------------------------ First....................................... 5.00% Second...................................... 4.00% Third....................................... 3.00% Fourth...................................... 2.50% Fifth....................................... 1.50% Sixth....................................... None
- ------------------------------------------------------------------------------ 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. 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 10 additional shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 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 4.00% (the applicable rate in the second year after purchase). A commission or transaction fee of 4.00% of the purchase amount will be paid to authorized dealers 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 authorized dealers 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 1.00%. The charge is assessed on an amount equal to the 32 35 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 1.00% of the purchase amount will be paid to authorized dealers at the time of purchase. Authorized dealers 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 authorized dealers that sell Class C shares of the Fund. WAIVER OF CONTINGENT DEFERRED SALES CHARGE The contingent deferred sales charge is waived on redemptions of Class B shares and Class C shares (i) following the death or disability (as defined in the Code) of a shareholder, (ii) in connection with certain distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12% annually of the initial value of the account, and (iv) effected pursuant to the right of the Fund to liquidate a shareholder's account as described herein under "Redemption of Shares." The contingent deferred sales charge is also waived on redemptions of Class C shares 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. - ------------------------------------------------------------------------------ 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. The following is a description of those services. 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 may receive statements quarterly from ACCESS showing any reinvestments 33 36 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 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 2.00% of the net asset value of the issued shares, and bill the party to whom the certificate was mailed. REINVESTMENT PLAN. A convenient way for investors to accumulate additional shares is by accepting dividends and capital gains distributions in shares of the Fund. Such shares are acquired at net asset value, without sales charge, on the record date. Unless the shareholder instructs otherwise, the reinvestment plan is automatic. This instruction may be made by telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing impaired) or in writing to ACCESS. The investor may, on the initial application or prior to any declaration, instruct that dividends be paid in cash and capital gains distributions be reinvested at net asset value, or that both dividends and capital gains distributions be paid in cash. 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 predetermined amounts in the Fund. Additional information is available from the Distributor or authorized 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 34 37 redemption. Once enrolled in the ACH plan, a shareholder may terminate participation at any time by writing ACCESS. RETIREMENT PLANS. Eligible investors may establish individual retirement accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or Section 403(b)(7) plans in the case of employees of public school systems and certain non-profit organizations. Documents and forms containing detailed information regarding these plans are available from the Distributor. Van Kampen American Capital Trust Company serves as the custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as full plan administration for profit sharing, pension and 401(k) plans, are available from the Distributor. DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by completing the appropriate section of the application accompanying 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. Both accounts must be of the same type, either non-retirement or retirement. Any two non-retirement accounts can be used. If the accounts are retirement accounts, they must both be for the same class and of the same type of retirement plan (e.g., IRA, 403(b)(7), 401(k), Keogh) and for the benefit of the same individual. 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 in the investor's state. EXCHANGE PRIVILEGE. Shares of the Fund or of any Participating Fund, other than Van Kampen American Capital Government Target Fund ("Government Target"), may be exchanged for shares of the same class of shares of any other fund without sales charge, provided that shares of certain Van Kampen American Capital fixed-income funds are subject to a 30-day holding period requirement before exchange. 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 shares 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 shares 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; 35 38 however, during periods of suspension of sales, shares of a Participating Fund may be available for sale only to existing shareholders of a Participating Fund. Class B and Class C shareholders of the Fund have the ability to exchange their shares ("original shares") for the same class of shares of any other Van Kampen American Capital fund that offers such class of shares ("new shares") in an amount equal to the aggregate net asset value of the original shares, without the payment of any contingent deferred sales charge otherwise due upon redemption of the original shares. For purposes of computing the contingent deferred sales charge payable upon a disposition of the new shares, the holding period for the original shares is added to the holding period of the new shares. Class B and Class C shareholders would remain subject to the contingent deferred sales charge imposed by the original fund upon their redemption from the Van Kampen American Capital complex of funds. The contingent deferred sales charge is based on the holding period requirements of the original fund. 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 accompanying this Prospectus. Van Kampen American Capital and its subsidiaries, including ACCESS (collectively, "VKAC"), and the Fund employ procedures considered by them to be reasonable to confirm that instructions communicated by telephone are genuine. Such procedures include requiring certain personal identification information prior to acting upon telephone instructions, tape recording telephone communications, and providing written confirmation of instructions communicated by telephone. If reasonable procedures are employed, neither VKAC nor the Fund will be liable for following telephone instructions which it reasonably believes to be genuine. VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent instructions if reasonable procedures are not followed. Exchanges are effected at the net asset value per share next calculated after the request is received in good order with adjustment for any additional sales charge. See 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 authorized dealer of record as the account from which shares are exchanged, unless otherwise specified by the shareholder. In order to establish a 36 39 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 these mutual funds may be obtained from any authorized dealer or the Distributor. An investor considering an exchange to one of such funds should refer to the prospectus for additional information regarding such fund prior to investing. SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account total $10,000 or more at the offering price next computed after receipt of instructions may establish a monthly, quarterly, semi-annual or annual withdrawal plan. This plan provides for the orderly use of the entire account, not only the income but also the capital, if necessary. Each withdrawal constitutes a redemption of shares on which any capital gain or loss will be recognized. The planholder may arrange for monthly, quarterly, semi-annual, or annual checks in any amount not less than $25. Such a systematic withdrawal plan may also be maintained by an investor purchasing shares for a retirement plan established on a form made available by the Fund. See "Shareholder Services -- Retirement Plans." Class B and Class C shareholders who establish a withdrawal plan may redeem up to 12% annually of the shareholder's initial account balance without incurring a contingent deferred sales charge. Initial account balance means the amount of the shareholder's investment at the time the election to participate in the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of Additional Information. Under the plan, sufficient shares of the Fund are redeemed to provide the amount of the periodic withdrawal payment. Dividends and capital gains distributions on shares held under the plan are reinvested in additional shares at the next determined net asset value. If periodic withdrawals continuously exceed reinvested dividends and capital gains distributions, the shareholder's original investment will be correspondingly reduced and ultimately exhausted. Withdrawals made concurrently with the 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 redemption of shares. 37 40 - ------------------------------------------------------------------------------ REDEMPTION OF SHARES - ------------------------------------------------------------------------------ REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their shares of the Fund at any time. To do so, a written request in proper form must be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256. Shareholders may also place redemption requests through an authorized dealer. Orders received from authorized 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 an authorized 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 authorized 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 shares and Class C shares are subject to a contingent deferred sales charge. In addition, a contingent deferred sales charge of 1.00% may be imposed on certain redemptions of Class A shares made within one year of purchase for investments of $1 million or more and for certain qualified 401(k) retirement plans. The contingent deferred sales charge incurred upon redemption is paid to the Distributor in reimbursement for 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 38 41 redemption requests should be sent to the IRA custodian to be forwarded to ACCESS. Where Van Kampen American Capital Trust Company serves as custodian, special IRA, 403(b)(7), or Keogh distribution forms must be obtained from and be forwarded to Van Kampen American Capital Trust Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for information. In the case of redemption requests sent directly to ACCESS, the redemption price is the net asset value per share next determined after the request is received in proper form. Payment for shares redeemed will be made by check mailed within seven days after acceptance by ACCESS of the request and any other necessary documents in proper order. Such 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 it confirms 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 initial investment as specified herein. 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 accompanying this Prospectus or call the Fund at (800) 421-5666 to request that a copy of the Telephone Redemption Authorization form be sent to them for completion. To redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC and the Fund employ procedures considered by them to be reasonable to confirm that instructions communicated by telephone are genuine. Such procedures 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 39 42 reach ACCESS by telephone, whether because all telephone lines are busy or for any other reason; in such case, a shareholder would have to use the Fund's regular redemption procedure previously described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a regular business day will be processed at the net asset value per share determined that day. These privileges are available for all accounts other than retirement accounts. The telephone redemption privilege is not available for shares represented by certificates. If an account has multiple owners, ACCESS may rely on the instructions of any one owner. For redemptions authorized by telephone, amounts of $50,000 or less may be redeemed daily if the proceeds are to be paid by check and amounts of at least $1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by wire. The proceeds must be payable to the shareholder(s) of record and sent to the address of record for the account or wired directly to their predesignated bank account. This privilege is not available if the address of record has been changed within 30 days prior to a telephone redemption request. Proceeds from redemptions are expected to be wired on the next business day following the date of redemption. This service is also not available with respect to shares held in an individual retirement account (IRA) for which Van Kampen American Capital Trust Company acts as custodian. 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 shares and Class C shares. In cases of disability, the contingent deferred sales charge on Class B shares 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 shares 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. 40 43 REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed shares of the Fund may reinstate any portion or all of the net proceeds of such redemption in Class A shares of the Fund. A Class C shareholder who has redeemed shares of the Fund may reinstate any portion or all of the net proceeds of such redemption in Class C shares of the Fund with credit given for any contingent deferred sales charge paid upon such redemption. Such reinstatement is made at the net asset value (without sales charge except as described under "Shareholder Services -- Exchange Privilege") next determined after the order is received, which must be within 120 days after the date of the redemption. See "Purchase of Shares -- Waiver of Contingent Deferred Sales Charge" and the Statement of Additional Information. Reinstatement at net asset value is also offered to participants in those eligible retirement plans held or administered by Van Kampen American Capital Trust Company for repayment of principal, and interest, on their borrowings on such plans. - ------------------------------------------------------------------------------ DISTRIBUTION PLANS - ------------------------------------------------------------------------------ Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company to directly or indirectly pay expenses associated with the distribution of its shares ("distribution expenses") and servicing its shareholders in accordance with a plan adopted by the investment company's Board of Trustees and approved by its shareholders. Pursuant to Rule 12b-1, 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 regulate the distribution and service charges that a mutual fund may impose on a class of shares. The Distributor uses the Class A, Class B and Class C service fees to compensate authorized dealers for personal service or the maintenance of shareholder accounts. 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. Such payments to the Distributor under the Class A Plan are based on an annual percentage of the value of Class A shares held in shareholder accounts for which authorized dealers are responsible at the rates of 0.15% annually with respect to Class A shares in such accounts on September 29, 1989 and 0.25% annually with respect to Class A shares issued after that date. 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 also pays 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 41 44 service fees paid by it to authorized dealers and for its distribution costs. 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 upfront commissions and transaction fees of up to 4.00% of the purchase price of Class B shares purchased by the clients of authorized dealers, and other distribution expenses as described in the Statement of Additional Information. Under the Class C Plan, the Distributor receives additional payments from the Fund in the form of a distribution fee at the annual rate of up to 0.75% of the net assets of the Class C shares as reimbursements for upfront commissions and transaction fees of up to 0.75% of the purchase price of Class C shares purchased by the clients of authorized dealers ongoing commissions and transaction fees of up to 0.75% of the average daily net assets of the Fund's Class C shares and 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 periodically for their consideration in connection with their deliberations as to the continuance of such 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 authorized dealers 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 both cases such charges provide for the financing of the distribution of the Fund's shares. Actual distribution expenses paid by the Distributor with respect to Class B shares 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 42 45 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 the year ended December 31, 1995, the unreimbursed expenses incurred by the Distributor under the Class B Plan and carried forward were approximately $2.9 million or 3.77% of the Class B shares' net assets. For the year ended December 31, 1995, the unreimbursed expense incurred by the Distributor under the Class C Plan and carried forward were approximately $43,000 or 1.16% of the Class C shares' 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. - ------------------------------------------------------------------------------ DISTRIBUTIONS FROM THE FUND - ------------------------------------------------------------------------------ In addition to any increase in the value of shares which the Fund may achieve, shareholders may receive two kinds of return from the Fund: dividends and capital gains distributions. DIVIDENDS. Dividends from stocks and interest earned from other investments are the Fund's main source of income. Substantially all of this income, less expenses, is distributed quarterly as dividends to shareholders. Unless the shareholder instructs otherwise, dividends are automatically applied to purchase additional shares of the Fund at the next determined net asset value. See "Shareholder Services -- Reinvestment Plan." CAPITAL GAINS. The Fund may realize capital gains or losses when it sells securities, depending on whether the sales prices for the securities are higher or lower than their purchase prices. The Fund distributes to shareholders at least once a year the excess, if any, of its total profits on the sale of securities during the year over its total losses on the sale of securities, including capital losses carried forward from prior years under tax laws. As in the case of income dividends, capital gains distributions are automatically reinvested in additional shares of the Fund at net asset value unless the shareholder elects otherwise. See "Shareholders Services -- Reinvestment Plan." 43 46 - ------------------------------------------------------------------------------ TAX STATUS - ------------------------------------------------------------------------------ The Fund has qualified and intends to continue to qualify and be taxed as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). By qualifying as a regulated investment company, the Fund is not subject to federal income taxes to the extent it distributes its net investment income and net realized capital gains. The Fund intends to distribute substantially all of its taxable net investment income and net realized capital gains annually. Dividends from net investment income and distributions from any net realized short-term capital gains are taxable to shareholders as ordinary income. Long-term capital gains distributions constitute long-term capital gains for federal income tax purposes. All such dividends and distributions are taxable to the shareholder whether or not reinvested in shares. However, shareholders not subject to tax on their income generally will not be required to pay tax on amounts distributed to them. Shareholders are notified annually of the federal tax status of dividends and capital gains distributions, including information as to the portion (including short-term capital gains) taxable as ordinary income, and the portion taxable as long-term capital gains. To avoid being subject to a 31% federal backup withholding on dividends, distributions and redemption payments, shareholders must furnish the Fund with a certification of their correct taxpayer identification number. Dividends and distributions paid by the Fund have the effect of reducing net asset value per share on the record date by the amount of the payment. Therefore, a dividend or distribution paid shortly after the purchase of shares by an investor would represent, in substance, a return of capital to the shareholder (to the extent it is paid on the shares so purchased) even though subject to income taxes as discussed above. Gains or losses on the Fund's transactions in listed options (except certain equity options) on securities or indexes, futures and options on futures generally are treated as 60% long-term and 40% short-term, and positions held by the Fund at the end of its taxable year generally are required to be marked to market, with the result that unrealized gains and losses are treated as realized. Gains and losses realized by the Fund from writing over-the-counter options constitute short-term capital gains or losses unless the option is exercised, in which case the character of the gain or loss is determined by the holding period of the underlying security. The Code contains certain "straddle" rules which require deferral of losses incurred in certain transactions involving hedged positions to the extent the Fund has unrealized gains in offsetting positions and generally terminate the holding period of the subject 44 47 position. Additional information is set forth in the Statement of Additional Information. The foregoing is a brief summary of some of the federal income tax considerations affecting the Fund and its investors who are U.S. residents or U.S. corporations. Investors should consult their tax advisers for more detailed tax advice including state and local tax considerations. Foreign investors should consult their own counsel for further information as to the U.S. and their country of residence or citizenship tax consequences of receipt of dividends and distributions from the Fund. - ------------------------------------------------------------------------------ FUND PERFORMANCE - ------------------------------------------------------------------------------ From time to time, the Fund may advertise its total return for prior periods. Any such advertisement would include at least average annual total return quotations for one, five and ten year periods. 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 5.75% 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. Since shares of the Fund were offered at a maximum sales charge at 8.50% prior to June 12, 1989, actual Fund total return would have been less than that computed on the basis of the current maximum sales charge, all other things being equal. 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 or to reflect the fact no 12b-1 fees were incurred prior to October 1, 1989. 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. 45 48 Total return is calculated separately for Class A shares, Class B shares and Class C shares. Class A share total return figures include the maximum sales charge of 5.75%; Class B share and Class C share total return figures include any applicable contingent deferred sales charge. Because of the differences in sales charges and distribution fees, the total returns for each of the classes will differ. From time to time, the Fund may include in its sales literature and shareholder reports a quotation of the current "distribution rate" for each class of shares of the Fund. Distribution rate is a measure of the level of income and short-term capital gain dividends, if any, distributed for a specified period. It differs from yield, which is a measure of the income actually earned by the Fund's investments, and from total return, which is a measure of the income actually earned by the Fund's investments plus the effect of any realized and unrealized appreciation or depreciation of such investments during a stated period. Distribution rate is, therefore, not intended to be a complete measure of the Fund's performance. Distribution rate may sometimes be greater than yield since, for instance, it may not include the effect of amortization of bond premiums, and may include non-recurring short-term capital gains and premiums from futures transactions engaged in by the Fund. Distribution rates will be computed separately for each class of the Fund's shares. In reports or other communications to shareholders or in advertising material, the Fund may compare its performance with that of other mutual funds as listed in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA, Morningstar Mutual Funds or similar independent services which monitor the performance of mutual funds, with the Consumer Price Index, the Dow Jones Industrial Average Index, Standard & Poor's, NASDAQ, other appropriate indices of investment securities, or with investment or savings vehicles. The performance information may also include evaluations of the Fund published by nationally recognized ranking services and by nationally recognized financial publications. 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 each class of 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. 46 49 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 Delaware on July 16, 1956 and re- incorporated by merger into a Maryland corporation on December 29, 1978. The Fund was reorganized as of August 19, 1995 under the laws of the State of Delaware as a Delaware business trust. Shares issued by the Fund are fully paid, non-assessable and have no preemptive or conversion rights. The Fund is authorized to issue an unlimited number of shares of beneficial interest, par value $0.01 per share. The Fund currently offers three classes of shares, designated Class A shares, Class B shares and Class C shares. Other classes of shares may be established from time to time in accordance with provisions of the Fund's Declaration of Trust. 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." 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, preemptive or other subscription rights, except with respect to the conversion of Class B shares and Class C shares into Class A shares as described above. In the event of liquidation, each of the shares of the Fund is entitled to its portion of all of the Fund's net assets after all debt and expenses of the Fund have been paid. Since Class B shares and Class C shares pay higher distribution expenses, the liquidation proceeds to Class B shareholders and Class C shareholders are likely to be lower than to other shareholders. The Fund does not contemplate holding regular meetings of shareholders to elect Trustees or otherwise. More detailed information concerning the Fund is set forth in the Statement of Additional Information. The Fund's Declaration of Trust provides that no Trustee, officer or shareholder of the Fund shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or liability of the Fund but the assets of the Fund only shall be liable. 47 50 - ------------------------------------------------------------------------------ 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. 48 51 - ------------------------------------------------------------------------------ APPENDIX -- RATINGS OF SENIOR SECURITIES - ------------------------------------------------------------------------------ Description of Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") senior securities ratings. MOODY'S CORPORATE BOND RATINGS: 1. LONG-TERM DEBT AAA: Bonds 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: Bonds 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 fluctuations 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: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA: Bonds 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: Bonds 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: Bonds 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. 49 52 CAA: Bonds 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: Bonds 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: Bonds 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. Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from AA through B in its corporate 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 mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. ABSENCE OF RATING: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue. Should no rating be assigned, among other reasons, it may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities or companies that are not rated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed, in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. 2. SHORT-TERM DEBT Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. 50 53 Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issues: PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: --Leading market positions in well-established industries. --High rates of return on funds employed. -- Conservative capitalization structure with moderate reliance on debt and ample asset protection. -- Broad margins in earnings coverage of fixed financial charges and high internal cash generation. -- Well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment or senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes of the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories. 51 54 3. PREFERRED STOCK Preferred stock rating symbols and their definitions are as follows: AAA: An issue which is rated "AAA" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. AA: An issue which is rated "AA" is considered a high-grade preferred stock. This rating indicates that there is reasonable assurance the earnings and asset protection will remain relatively well maintained in the foreseeable future. A: An issue which is rated "A" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "AAA" and "AA" classifications, earnings and asset protections are, nevertheless, expected to be maintained at adequate levels. BAA: An issue which is rated "BAA" is considered to be a medium grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. BA: An issue which is rated "BA" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. B: An issue which is rated "B" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. CAA: An issue which is rated "CAA" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. CA: An issue which is rated "CA" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payment. C: This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from AA through B in its preferred stock rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. 52 55 S&P'S CORPORATE BOND RATINGS: STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as published by S&P) follows: 1. DEBT A Standard & Poor's corporate or 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 it 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 based on other circumstances. The ratings are based, in varying degrees, on the following considerations: 1. 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; 2. Nature of and provisions of the obligation; 3. 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 creditors' rights. INVESTMENT GRADE 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 degrees. 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 the higher rated categories.
53 56 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 in higher rated categories.
SPECULATIVE GRADE BB Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as B having predominantly speculative characteristics with CCC respect to capacity to pay interest and repay principal. CC 'BB' indicates the least degree of speculation and 'C' the C highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating. B Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC The rating 'CC' typically is applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' debt rating. C The rating 'C' typically is applied to debt subordinated to senior debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. CI The rating 'CI' is reserved for income bonds on which no interest is being paid.
54 57 D Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. PLUS (+) OR MINUS (-): The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR Not rated. Debt Obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties. BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories ('AAA', 'AA', 'A', 'BBB', commonly known as "investment grade" ratings) are generally regarded as eligible for bank investment. In addition, the laws of various states governing legal investments impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies and fiduciaries generally.
3. COMMERCIAL PAPER An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from 'A-1' for the highest quality obligations to 'D' for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated 'A-1.' A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
55 58 B Issues rated 'B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. A commercial paper 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 to S&P by the issuer or obtained by S&P from other sources it 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 based on other circumstances.
4. VARIABLE RATE DEMAND BONDS S&P assigns "dual" ratings to all debt issues that have a put or demand feature as part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols for the put option (for example 'AAA/A+'). With short-term demand debt, S&P's note rating symbols are used with the commercial paper rating symbols (for example, 'SP-1+/A-1+). 5. NOTES An S&P note rating reflects the liquidity factors and market access risks unique to notes. Notes maturing in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assignment: -- Amortization schedule (the longer the final maturity relative to other maturities the more likely the issue is to be treated as a note). -- Source of payment (the more the issue depends on the market for its refinancing, the more likely it is to be treated as a note). 56 59 Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics will be given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. 6. PREFERRED STOCK An S&P preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the bond rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer. The preferred stock ratings are based on the following considerations: 1. Likelihood of payment--capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation. 2. Nature of, and provisions of, the issue. 3. Relative position of the issue in the event of bankruptcy, reorganization, or other arrangements affecting creditors' rights. AAA This is the highest rating that may be assigned by S&P to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations. AA A preferred stock issue rated 'AA' also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated 'AAA'. A An issue rated 'A' is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB An issue rated 'BBB' is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for preferred stock in this category than for issues in the 'A' category.
57 60 BB Preferred stock rated 'BB', 'B' and 'CCC' are regarded, on B balance, as predominantly speculative with respect to the CCC issuer's capacity to pay preferred stock obligations. 'BB' indicates the lowest degree of speculation and 'CCC' the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CC The rating 'CC' is reserved for a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. C A preferred stock rated 'C' is a non-paying issue. D A preferred stock rated 'D' is a non-paying issue with the issuer in default on debt instruments. PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock quality, the ratings from 'AA' to 'CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR This indicates that no rating has been requested, that there is insufficient information on which to base a rating or that S&P does not rate a particular type of obligation as a matter of policy.
A preferred stock 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 to S&P by the Issuer, and obtained by S&P from other sources it 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. 58 61 EXISTING SHAREHOLDERS-- FOR INFORMATION ON YOUR EXISTING ACCOUNT PLEASE CALL THE FUND'S TOLL-FREE NUMBER--(800) 421-5666 PROSPECTIVE INVESTORS--CALL YOUR BROKER OR (800) 421-5666 DEALERS--FOR DEALER INFORMATION, SELLING AGREEMENTS, WIRE ORDERS, OR REDEMPTIONS CALL THE DISTRIBUTOR'S TOLL-FREE NUMBER--(800) 421-5666 FOR SHAREHOLDER AND DEALER INQUIRIES THROUGH TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD) DIAL (800) 772-8889 FOR TELEPHONE TRANSACTIONS DIAL (800) 421-5684 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND One Parkview Plaza Oakbrook Terrace, IL 60181 Investment Adviser VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. One Parkview Plaza Oakbrook Terrace, IL 60181 Distributor VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. One Parkview Plaza Oakbrook Terrace, IL 60181 Transfer Agent ACCESS INVESTOR SERVICES, INC. P.O. Box 418256 Kansas City, MO 64141-9256 Attn:Van Kampen American Capital Harbor Fund Custodian STATE STREET BANK AND TRUST COMPANY 225 Franklin Street, P.O. Box 1713 Boston, MA 02105-1713 Attn: Van Kampen American Capital Harbor Fund Legal Counsel SKADDEN, ARPS, SLATE, MEAGHER & FLOM 333 West Wacker Drive Chicago, IL 60606 Independent Accountants PRICE WATERHOUSE LLP 1201 Louisiana, Suite 2900 Houston, TX 77002 62 ------------------------------------------------------------------------------ HARBOR FUND ------------------------------------------------------------------------------ P R O S P E C T U S APRIL 29, 1996 ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------ VAN KAMPEN AMERICAN CAPITAL ------------------------------------------------------------------------------ 63 STATEMENT OF ADDITIONAL INFORMATION VAN KAMPEN AMERICAN CAPITAL HARBOR FUND 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 April 29, 1996. A Prospectus may be obtained without charge by calling or writing Van Kampen American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at (800) 421-5666. TABLE OF CONTENTS
PAGE ----- General Information................................................................... B-2 Risk Factors.......................................................................... B-3 Convertible Securities................................................................ B-4 Repurchase Agreements................................................................. B-5 Foreign Securities.................................................................... B-5 Options, Futures Contracts and Related Options........................................ B-5 Investment Restrictions............................................................... B-10 Trustees and Officers................................................................. B-11 Investment Advisory Agreement......................................................... B-19 Distributor........................................................................... B-20 Distribution Plans.................................................................... B-20 Transfer Agent........................................................................ B-22 Portfolio Turnover.................................................................... B-22 Portfolio Transactions and Brokerage.................................................. B-22 Determination of Net Asset Value...................................................... B-23 Purchase and Redemption of Shares..................................................... B-24 Exchange Privilege.................................................................... B-27 Dividends, Distributions and Federal Taxes............................................ B-28 Fund Performance...................................................................... B-30 Other Information..................................................................... B-31 Report of Independent Accountants..................................................... B-32 Financial Statements.................................................................. B-33 Notes to Financial Statements......................................................... B-44
This Statement of Additional Information is dated April 29, 1996. B-1 64 GENERAL INFORMATION Van Kampen American Capital Harbor Fund, formerly known as American Capital Harbor Fund, Inc. (the "Fund"), was originally incorporated in Delaware on July 16, 1956. The Fund was reincorporated by merger into a Maryland corporation on December 29, 1978. The Fund was again reorganized under the laws of the State of Delaware as a Delaware business trust and adopted its present name as of August 19, 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 7% of the common stock of VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options, approximately an additional 13% of the common stock of VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such options, no officer or trustee of the Fund owns or would own 5% or more of the common stock of 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 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 more than 80 analysts devoted to various specializations. VKAC uses a four-step investment process designed to attempt to produce consistently good short-term results, which should help lead to superior long-term performance. Fully Invested: Money invested in a VKAC stock fund will normally be fully invested in the market to attempt to maximize the potential for long-term returns. The importance of being fully invested can be illustrated by the following comparison. By missing fewer than 4% of the months during the past 69 years, the value of $1.00 invested in 1926 was $15.81 at the end of 1995, compared to $1,113.92 for $1.00 that was invested for the entire period (Source: Micropal, Inc.). During the most recent 5-year period (1991-1995), the average annual total return for stocks, as measured by the Standard and Poor's 500 Stock Index, a broad-based, unmanaged index, was 11.75%. However, the average annual return for the S&P 500 for the same period excluding the 20 best days for stock market performance, was just 1.93%. Of course, past performance is no guarantee of future results. Widely Varied: A widely varied portfolio usually reduces risk and increases relative stability. Since VKAC's goal is consistency, a widely varied portfolio across industries is emphasized. VKAC stock funds are varied both in terms of the number of industries and the number of stocks within each industry in which they invest. Generally, the stock funds invest in 12 broad economic sectors, and in many individual stocks within each sector. Clearly Defined: The basic characteristics of VKAC funds are determined by a pre-defined profile which remains constant over time. Blended Investment Style: Market conditions are constantly changing, which means the stocks that perform well should be expected to change. A rigid investment style might cause an investor to suffer when certain types of stocks lose favor with the market. The two most common investment styles are growth, which emphasizes companies that are projected to experience rapid growth in earnings, and value, which focuses on companies whose stock is selling for less than the company's trust worth. At VKAC, our style is blended between growth and value on a fund-specific basis. The results of our approach are constantly evaluated and B-2 65 compared to other similar funds. Although past performance is no guarantee of future results, VKAC remains committed to our belief that this approach should help maximize potential for long-term returns. As of April 23, 1996, no person was known by the Fund to own beneficially or to hold of record as much as 5% of the outstanding Class A shares, Class B shares or Class C shares of the Fund, except as follows:
AMOUNT OF PERCENTAGE NAME AND ADDRESS OWNERSHIP AT CLASS OF OF OF HOLDER APRIL 23, 1996 SHARES OWNERSHIP - -------------------------------------------------- -------------- -------- --------- Merrill Lynch Pierce Fenner & Smith, Inc. 295,447 B 5.69% Mutual Fund Operations 36,940 C 15.77% Attn Book Entry 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246-6484 Van Kampen American Capital Trust Company 7,659,755 A 30.64% 2800 Post Oak Blvd. 1,479,550 B 28.51% Houston, TX 77056 31,566 C 13.47% James F. Johnson, Jr. and Beverly G. Johnson Jt Ten 1203 River Oaks Dr. Kingston, TN 37763-2357 14,540 C 6.21%
- --------------- Van Kampen American Capital Trust Company acts as custodian for certain employee benefit plans and independent retirement accounts. RISK FACTORS The following special considerations are additional risk factors associated with the Fund's investments in lower rated debt securities. 1. Lower Rated Debt Securities Market. An economic downturn or increase in interest rates is likely to have a greater negative effect on the market for lower rated debt securities, the value of lower rated debt securities in the Fund's portfolio, the Fund's net asset value and the ability of the bonds' issuers to repay principal and interest, meet projected business goals and obtain additional financing than on higher rated securities. These circumstances also may result in a higher incidence of defaults than with respect to higher rated securities. An investment in this Fund may be considered more speculative than investment in shares of a fund which invests only in higher rated debt securities. 2. Sensitivity to Interest Rate and Economic Changes. Prices of lower rated debt securities may be more sensitive to adverse economic changes or corporate developments than higher rated investments. Debt securities with longer maturities, which may have higher yields, may increase or decrease in value more than debt securities with shorter maturities. Market prices of lower rated debt securities structured as zero coupon or pay-in-kind securities are affected to a greater extent by interest rate changes and may be more volatile than securities which pay interest periodically and in cash. Where it deems it appropriate and in the best interests of Fund shareholders, the Fund may incur additional expenses to seek recovery on a debt security on which the issuer has defaulted and to pursue litigation to protect the interests of security holders of its portfolio companies. 3. Liquidity and Valuation. Because the market for lower rated securities may be thinner and less active than for higher rated securities, there may be market price volatility for these securities and limited liquidity in the resale market. Nonrated securities are usually not as attractive to as many buyers as rated securities are, a factor which may make nonrated securities less marketable. These factors may have the effect of limiting the availability of the securities for purchase by the Fund and may also limit the ability of the Fund to sell such securities at their fair value either to meet redemption requests or in response to changes in the economy or the financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of B-3 66 lower rated debt securities, especially in a thinly traded market. To the extent the Fund owns or may acquire illiquid or restricted lower rated securities, these securities may involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Changes in values of debt securities which the Fund owns will affect its net asset value per share. If market quotations are not readily available for the Fund's lower rated or nonrated securities, these securities will be valued by a method that the Fund's Trustees believe accurately reflects fair value. Judgment plays a greater role in valuing lower rated debt securities than with respect to securities for which more external sources of quotations and last sale information are available. 4. Congressional Action. New and proposed laws may have an impact on the market for lower rated debt securities. The Adviser is unable at this time to predict what effect, if any, the legislation may have on the market for lower rated debt securities. 5. Taxation. Special tax considerations are associated with investing in lower rated debt securities structured as zero coupon or pay-in-kind securities. The Fund accrues income on these securities prior to the receipt of cash payments. The Fund must distribute substantially all of its income to its shareholders to qualify for pass-through treatment under the tax laws and may, therefore, have to dispose of its portfolio securities to satisfy distribution requirements. CONVERTIBLE SECURITIES A convertible security's position in a company's capital structure depends upon its particular provisions. In the case of subordinated convertible debentures, the holders' claims on assets and earnings are subordinated to the claims of other creditors, and are senior to the claims of preferred and common shareholders. In the case of convertible preferred stock, the holders' claims on assets and earnings are subordinated to the claims of all creditors and are senior to the claims of common shareholders. Every convertible security may be valued, on a theoretical basis, as if it did not have a conversion privilege. Such theoretical value is determined by the yield it provides in comparison with the yields of other securities of comparable character and quality which do not have a conversion privilege. This theoretical value, which will change with prevailing interest rates, the credit standing of the issuer and other pertinent factors, is often referred to as the "investment value," and represents the security's theoretical price support level. "Conversion value" is the amount a convertible security would be worth in market value if it were to be exchanged for the underlying equity security pursuant to its conversion privilege. Conversion value fluctuates directly with the price of the underlying equity security, usually common stock. If, because of low prices for the common stock, the conversion value is substantially below the investment value, the price of the convertible security is governed principally by the factors described in the preceding paragraph. If the conversion value rises near or above its investment value, the price of the convertible security generally will rise above its investment value and, in addition, will sell at some premium over its conversion value. This premium represents the price investors are willing to pay for the privilege of purchasing a fixed income security with a possibility of capital appreciation due to the conversion privilege. If this appreciation potential is not realized, this premium may not be recovered. If the common stock should continue to advance in price, the premium would become less significant and the convertible security would fluctuate at a rate comparable to that of the common stock. To the degree that the price of a convertible security rises above its investment value because of a rise in price of the common stock, it is influenced more by price fluctuations of the common stock and less by its investment value. The price of a convertible security that is supported principally by its conversion value will rise along with any increase in the common stock, and such price generally will decline along with any decline in the price of the common stock except that the security will receive additional support as its price approaches investment value. A convertible security purchased or held at a time when its price is influenced by its conversion value will produce a lower yield than nonconvertible senior securities with comparable investment B-4 67 values. Convertible securities may be purchased by the Fund at varying price levels above their investment values or their conversion values in keeping with the Fund's investment objectives. 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 will be required to maintain the value of the underlying securities marked to market daily at not less than the repurchase price. The underlying securities (securities of the U.S. Government, or its agencies and instrumentalities) may have maturity dates exceeding one year. The Fund does not bear the risk of a decline in value of the underlying security unless the seller defaults under its repurchase obligation. The Fund will not invest in repurchase agreements maturing in more than seven days if any such investments, together with any other illiquid security held by the Fund, exceeds 10% of the value of its net assets. See "Investment Practices -- Repurchase Agreements" in the Prospectus for further information. FOREIGN SECURITIES The Fund may invest up to 15% of the value of its assets in securities of foreign issuers. Such securities may be subject to foreign government taxes which would reduce the income yield on such securities. Foreign investments involve certain risks, such as political or economic instability of the issuer or of the country of issue, changes in currency exchange rates, the difficulty of predicting international trade patterns and the possibility of imposition of exchange controls. Such securities may also be subject to greater fluctuations in price than securities of domestic corporations or of the United States Government. In addition, there may be less publicly available information about a foreign company than about a domestic company. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting, standards comparable to those applicable to domestic companies. There is generally less government regulation of stock exchanges, brokers and listed companies abroad than in the United States, and, with respect to certain foreign countries, there is a possibility of expropriation or confiscatory taxation, or diplomatic developments which could affect investment in those countries. Finally, in the event of a default on any such foreign debt obligations, it may be more difficult for the Fund to obtain or to enforce a judgment against the issuers of such securities. OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS WRITING CALL AND PUT OPTIONS Purpose. The principal reason for writing options is to obtain, through receipt of premiums, a greater current return than would be realized on the underlying securities alone. Such current return could be expected to fluctuate because premiums earned from an option writing program and dividend or interest income yields on portfolio securities vary as economic and market conditions change. Writing options on portfolio securities is likely to result in a higher portfolio turnover rate. Writing Options. The purchaser of a call option pays a premium to the writer (i.e., the seller) for the right to buy the underlying security from the writer at a specified price during a certain period. The Fund would write call options only on a covered basis, which means that, at all times during the option period, the Fund would own or have the right to acquire securities of the type that it would be obligated to deliver if any outstanding option were exercised. The purchaser of a put option pays a premium to the writer (i.e., the seller) for the right to sell the underlying security to the writer at a specified price during a certain period. The Fund would write put options only on a secured basis, which means that, at all times during the option period, the Fund would maintain in a B-5 68 segregated account with its Custodian cash, cash equivalents or U.S. Government securities in an amount of not less than the exercise price of the option, or would hold a put on the same underlying security at an equal or greater exercise price. Closing Purchase Transactions and Offsetting Transactions. In order to terminate its position as a writer of a call or put option, the Fund could enter into a "closing purchase transaction," which is the purchase of a call (put) on the same underlying security and having the same exercise price and expiration date as the call (put) previously written by the Fund. The Fund would realize a gain (loss) if the premium plus commission paid in the closing purchase transaction is less (greater) than the premium it received on the sale of the option. The Fund would also realize a gain if an option it has written lapses unexercised. The Fund could write options that are listed on an exchange as well as options which are privately negotiated in over-the-counter transactions. A Fund could close out its position as a writer of an option only if a liquid secondary market exists for options of that series, but there is no assurance that such a market will exist, particularly in the case of over-the-counter options, since they can be closed out only with the other party to the transaction. Alternatively, the Fund could purchase an offsetting option, which would not close out its position as a writer, but would provide an asset of equal value to its obligation under the option written. If the Fund is not able to enter into a closing purchase transaction or to purchase an offsetting option with respect to an option it has written, it will be required to maintain the securities subject to the call or the collateral underlying the put until a closing purchase transaction can be entered into (or the option is exercised or expires) even though it might not be advantageous to do so. Risks of Writing Options. By writing a call option, the Fund loses the potential for gain on the underlying security above the exercise price while the option is outstanding; by writing a put option a Fund might become obligated to purchase the underlying security at an exercise price that exceeds the then current market price. Each of the exchanges has established limitations governing the maximum number of call or put options on the same underlying security (whether or not covered) that may be written by a single investor, whether acting alone or in concert with others, regardless of whether such options are written on one or more accounts or through one or more brokers. An exchange may order the liquidation of positions found to be in violation of those limits, and it may impose other sanctions or restrictions. These position limits may restrict the number of options the Fund may be able to write. PURCHASING CALL AND PUT OPTIONS The Fund could purchase call options to protect (i.e., hedge) against anticipated increases in the prices of securities it wishes to acquire. Alternatively, call options could be purchased for capital appreciation. Since the premium paid for a call option is typically a small fraction of the price of the underlying security, a given amount of funds will purchase call options covering a much larger quantity of such security than could be purchased directly. By purchasing call options, the Fund could benefit from any significant increase in the price of the underlying security to a greater extent than had it invested the same amount in the security directly. However, because of the very high volatility of option premiums, the Fund would bear a significant risk of losing the entire premium if the price of the underlying security did not rise sufficiently, or if it did not do so before the option expired. Conversely, put options could be purchased to protect (i.e., hedge) against anticipated declines in the market value of either specific portfolio securities or of the Fund's assets generally. Alternatively, put options could be purchased for capital appreciation in anticipation of a price decline in the underlying security and a corresponding increase in the value of the put option. The purchase of put options for capital appreciation involves the same significant risk of loss as described above for call options. In any case, the purchase of options for capital appreciation would increase the Fund's volatility by increasing the impact of changes in the market price of the underlying securities on the Fund's net asset value. OPTIONS ON STOCK INDEXES Options on stock indexes are similar to options on stock, but the delivery requirements are different. Instead of giving the right to take or make delivery of stock at a specified price, an option on a stock index B-6 69 gives the holder the right to receive an amount of cash upon exercise of the option. Receipt of this cash amount will depend upon the closing level of the stock index upon which the option is based being greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. The amount of cash received will be the difference between the closing price of the index and the exercise price of the option, multiplied by a specified dollar multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount. Some stock index options are based on a broad market index such as the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a narrower index such as the Standard & Poor's 100. Indexes are also based on an industry or market segment such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. A stock index fluctuates with changes in the market values of the stocks included in the index. Options are currently traded on The Chicago Board Options Exchange, the American Stock Exchange and other exchanges. Gain or loss to the Fund on transactions in stock index options will depend on price movements in the stock market generally (or in a particular industry or segment of the market) rather than price movements of individual securities. As with stock options, the Fund may offset its position in stock index options prior to expiration by entering into a closing transaction on an exchange, or it may let the option expire unexercised. FUTURES CONTRACTS The Fund may 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 is exempt from registration as a "commodity pool." A stock index futures contract is an agreement pursuant to which a party agrees to take or make delivery of cash equal to a specified dollar amount times the difference between the stock index value at a specified time and the price at which the futures contract is originally struck. No physical delivery of the underlying stocks in the index is made. 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 a percentage (which will normally range between 2% and 10%) 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 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 B-7 70 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 options, futures or related options, the Fund could experience delays or losses in liquidating open positions purchased 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. The Fund also may invest in foreign stock index futures traded outside the United States. Foreign stock index futures traded outside the United States include the Nikkei Index of 225 Japanese stocks traded on the Singapore International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto Stock Exchange. Futures and futures options on the Nikkei Index are traded on the Chicago Mercantile Exchange and United States commodity exchanges may develop futures and futures options on other indices of foreign securities. Futures and options on United States devised index of foreign stocks are also being developed. Investments in securities of foreign entities and securities denominated in foreign currencies involve risks not typically involved in domestic investment, including fluctuations in foreign exchange rates, future foreign political and economic developments, and the possible imposition of exchange controls or other foreign or United States governmental laws or restrictions applicable to such investments. 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 than the historical volatility of the securities underlying the futures contract. It is also possible that the value of futures contracts held by the Fund could decline at the same time as portfolio securities being hedged; if this occurred, the Fund would lose money on the futures contract in addition to suffering a decline in value in the portfolio securities being hedged. There is also the risk that the price of futures contracts may not correlate perfectly with movements in the securities 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 B-8 71 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. There is also the risk that futures markets may not be sufficiently liquid. Futures contracts may be closed out only on an exchange or board of trade that provides a market for such futures contracts. Although the Fund intends to purchase or sell futures only on exchanges and boards of trade where there appears to be an active secondary market, there can be no assurance that an active secondary market will exist for any particular contract or at any particular time. In the event of such illiquidity, it might not be possible to close a futures position and, in the event of adverse price movement, the Fund would continue to be required to make daily payments of variation margin. Since the securities being hedged would not be sold until the related futures contract is sold, an increase, if any, in the price of the securities may to some extent offset losses on the related futures contract. In such event, the Fund would lose the benefit of the appreciation in value of the securities. Successful use of futures is also subject to the Adviser's ability to correctly predict the direction of movements in the market. For example, if the Fund hedges against a decline in the market, and market prices instead advance, the Fund will lose part or all of the benefit of the increase in value of its securities holdings because it will have offsetting losses in futures contracts. In such cases, if the Fund has insufficient cash, it may have to sell portfolio securities at a time when it is disadvantageous to do so in order to meet the daily variation margin. CFTC regulations require, among other things, (i) that futures and related options be used solely for bona fide hedging purposes (or meet certain conditions as specified in CFTC regulations) and (ii) that the Fund not enter into futures and related options for which the aggregate initial margin and premiums exceed five percent of the fair market value of the Fund's assets. In order to prevent leverage in connection with the purchase of futures contracts by the Fund, an amount of cash, cash equivalents or liquid high grade debt securities equal to the market value of the obligation under the futures contracts (less any related margin deposits) will be maintained in a segregated account with the Custodian. OPTIONS ON FUTURES CONTRACTS The Fund may purchase and write options on futures contracts. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the option period. As a writer of an option on a futures contract, the Fund would be subject to initial margin and maintenance requirements similar to those applicable to futures contracts. In addition, net option premiums received by the Fund are required to be included as initial margin deposits. When an option on a futures contract is exercised, delivery of the futures position is accompanied by cash representing the difference between the current market price of the futures contract and the exercise price of the option. The Fund could purchase put options on futures contracts in lieu of, and for the same purpose as, it could sell a futures contract; at the same time, it could write put options at a lower strike price (a "put bear spread") to offset part of the cost of the strategy to the Fund. The purchase of call options on futures contracts would be intended to serve the same purpose as the actual purchase of the futures contracts. 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. B-9 72 ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS Each of the exchanges has established limitations governing the maximum number of call or put options on the same underlying security or futures contract (whether or not covered) which may be written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). Option positions of all investment companies advised by the Adviser are combined for purposes of 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 U.S. futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit. It is possible that futures contract prices would move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. In such event, and in the event of adverse price movements, the Fund would be required to make daily cash payments of variation margin. In such circumstances, an increase in the value of the portion of the portfolio being hedged, if any, may partially or completely offset losses on the futures contract. However, 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 vote of its outstanding shares. Such majority vote is defined by the 1940 Act as the lesser of (i) 67% or more of the voting securities present 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. The percentage limitations contained in the restrictions and policies set forth herein apply at the time of purchase of securities. These restrictions provide that the Fund shall not: 1. Sell short or buy on margin, but the Fund may engage in transactions in options, futures contracts and related options and may make margin deposits and payments in connection therewith; 2. Primarily engage in the underwriting or distribution of securities; 3. Make any investment in real estate, commodities or commodities contracts, or in any security about which information is not available with respect to history, management, assets, earnings, and income of the issuer; however, the Fund is not prohibited from investing in securities issued by a real estate investment trust, provided that such trust is not permitted to invest in real estate or interests in real estate other than mortgages or other security interests, and the Fund is not prohibited from entering into transactions in futures contracts or related options; 4. Make any investment which involves promotion or business management by the Fund or which would subject the Fund to unlimited liability; 5. Invest more than 5% of its assets in the securities of any one issuer (except the United States Government) or purchase more than 10% of the outstanding voting securities of any one issuer; 6. Invest more than 25% of its assets in securities issued by companies in any one industry; 7. Invest in companies for the purpose of exercising control; 8. Make loans except that the Fund may invest up to 25% of the Fund's total assets in repurchase agreements; B-10 73 9. Borrow in excess of 5% of its assets valued at market, or 10% of its assets valued at cost, and then only from banks as a temporary measure for extraordinary or emergency purposes; or pledge, encumber, transfer or assign its assets except in connection with any such borrowing and in amounts not in excess of the dollar amount borrowed. Notwithstanding the foregoing, the Fund may engage in transactions in options, futures contracts and related options, segregate or deposit assets to cover or secure options written, and make margin deposits or payments for futures contracts and related options; 10. Acquire securities of any other domestic or foreign investment company or investment fund except in connection with a plan of merger or consolidation with or acquisition of substantially all the assets of such other investment company; 11. Engage in the underwriting of securities of other issuers, except that the Fund may sell an investment position even though it may be deemed to be an underwriter as that term is defined under the Securities Act of 1933; or. 12. Issue senior securities, as defined in the 1940 Act, except that this restriction shall not be deemed to prohibit the Fund from (i) making and collateralizing any permitted borrowings, (ii) making any permitted loans of its portfolio securities, or (iii) entering into repurchase agreements, utilizing options, futures contracts, options on futures contracts and other investment strategies and instruments that would be considered "senior securities" but for the maintenance by the Fund of a segregated account with its custodian or some other form of "cover". The Fund is subject to the following policies, which may be amended by its Trustees. The Fund shall not: 1. Invest more than 5% of its total assets in securities of unseasoned issuers which have been in operation directly or through predecessors for less than three years; 2. Pledge, mortgage or hypothecate its portfolio securities to the extent that at any time the percentage of pledged securities plus the sales load will exceed 10% of the offering price of the Fund's shares. Notwithstanding the foregoing, the Fund may engage in transactions in options, futures contracts and related options, segregate or deposit assets to cover or secure options written, and make margin deposits or payments for futures contracts and related options; 3. Purchase any warrants or rights unless acquired in units or attached to other securities; 4. Invest in interests in oil, gas, or other mineral exploration or development programs, except that it may acquire securities of public companies which themselves are engaged in such activities; 5. Invest more than 15% of the value of its assets in securities of foreign issuers; or 6. Invest more than 10% of its net assets (determined at the time of investment) in illiquid securities and repurchase agreements that have a maturity of longer than seven days with respect to the 10% limit, the Fund may not acquire any private placement if it would cause more than 5% of the value of its net assets to be invested in private placements and other assets not having readily available market quotations, as determined at the time the Fund agrees to any such acquisition. TRUSTEES AND OFFICERS The tables below list the trustees and officers of the Fund and their principal occupations for the last five years and their affiliations, if any, with Van Kampen American Capital Asset Management, Inc. (the "AC Adviser" or "Adviser"), Van Kampen American Capital Investment Advisory Corp. (the "VK Adviser"), Van Kampen American Capital Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company, Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van Kampen American Capital, Inc. ("Van Kampen American Capital" or "VKAC") or VK/AC Holding, Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes each of the open-end investment companies advised by the VK Adviser (excluding The Explorer Institutional Trust) and each of the open-end investment companies advised by the AC Adviser (excluding the American Capital Exchange Fund and the Common Sense Trust). B-11 74 TRUSTEES
PRINCIPAL OCCUPATIONS OR NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS - ----------------------------------- --------------------------------------------------------- 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 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 11 Du Pont Circle, N.W. United States. Formerly, advisor to the Dennis Trading Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive Age: 44 Officer, Director and member of the Investment Committee of the Joyce Foundation, a private foundation. A Trustee of each of the Van Kampen American Capital Funds. Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American Oakbrook Terrace, IL 60181 Capital Management, Inc. Executive Vice President and a Age: 53 Director of VK/AC Holding, Inc. and Van Kampen American Capital. Chief Executive Officer of McCarthy, Crisanti & Maffei, Inc. Chairman and a Director of MCM Asia Pacific Company, Ltd. Executive Vice President and a Trustee of each of the Van Kampen American Capital Funds. President of the closed-end investment companies advised by the VK Adviser. Prior to December, 1991, Senior Vice President of Van Kampen Merritt Inc. 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: 76 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 the VK Adviser. 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: 60 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.
B-12 75
PRINCIPAL OCCUPATIONS OR NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS - ----------------------------------- --------------------------------------------------------- Don G. Powell*..................... President, Chief Executive Officer and a Director of 2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the Age: 56 Distributor, the Adviser, the VK Adviser, Van Kampen American Capital Management, Inc. and Van Kampen American Capital Advisors, Inc. Chairman, President and a Director of Van Kampen American Capital Exchange Corporation, American Capital Contractual Services, Inc. and American Capital Shareholders Corporation. Chairman and a Director of ACCESS Investor Services, Inc. ("ACCESS"), Van Kampen Merritt Equity Advisors Corp., Van Kampen Merritt Equity Holdings Corp., and VCJ Inc., McCarthy, Crisanti & Maffei, Inc., McCarthy, Crisanti & Maffei Acquisition, and Van Kampen American Capital Trust Company. Chairman, President and a Director of Van Kampen American Capital Services, Inc. President, Chief Executive Officer and a Trustee of each of the Van Kampen American Capital Funds. Director, Trustee or Managing General Partner of other open-end investment companies and closed-end investment companies advised by the Adviser or the VK Adviser. 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. 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 the Van Kampen American Capital Chicago, IL 60606 Funds. A Trustee of each of the Van Kampen American Age: 56 Capital Funds. He also is a Trustee of The Explorer Trust and closed-end investment companies advised by the VK Adviser. William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a 712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica 40th Floor Corporation (currently known as The Traveler's Inc.). New York, NY 10019 Formerly, Director of James River Corporation, a producer Age: 74 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.
- --------------- * Such Trustees are "interested persons" (within the meaning of Section 2(a)(19) of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the Adviser and the Fund by reason of their positions with the Adviser. Mr. Whalen is an interested person of the Fund by reason of his firm having acted as legal counsel to the Fund. B-13 76 Messrs. Powell and McDonnell own, or have the opportunity to purchase, an equity interest in VK/AC Holding, Inc., the parent company of VKAC and have entered into employment contracts (for a term of five years) with VKAC. The Fund's Officers other than Messrs. Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell and Hill are located at 2800 Post Oak Blvd., Houston, TX 77056. Messrs. Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL 60181. OFFICERS
POSITIONS AND PRINCIPAL OCCUPATIONS NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS - ------------------------- -------------------------- ------------------------------------------- William N. Brown......... Vice President Executive Vice President of the VK Adviser, Age: 42 AC Adviser, VK/AC Holding, Inc., VKAC, Van Kampen American Capital Advisors, Inc., American Capital Contractual Services, Inc., Van Kampen American Capital Exchange Corporation, ACCESS Investor Services, Inc., and Van Kampen American Capital Trust Company. Director of American Capital Shareholders Corporation. Vice President of each of the Van Kampen American Capital Funds. Peter W. Hegel........... Vice President Executive Vice President of the VK Adviser, Age: 39 AC Adviser, Van Kampen American Capital Advisors, Inc. Director of McCarthy, Crisanti & Maffei, Inc. and McCarthy, Crisanti & Maffei Acquisition Corporation. Vice President of each of the Van Kampen American Capital Funds. Vice President of the closed-end funds advised by the VK Adviser. Curtis W. Morell......... Vice President and Chief Vice President and Chief Accounting Officer Age: 49 Accounting Officer of most of the investment companies advised by the AC Adviser. Ronald A. Nyberg......... Vice President and Executive Vice President, General Counsel Age: 42 Secretary and Secretary of Van Kampen American Capital and VK/AC Holding, Inc. Executive Vice President, General Counsel and a Director of the Distributor. Executive Vice President and General Counsel of the VK Adviser and the AC Adviser, Van Kampen American Capital Management, Inc., VSM Inc. VCJ, Inc., Van Kampen Merritt Equity Advisors Corp., and Van Kampen Merritt Equity Holdings Corp. Executive Vice President, General Counsel and Assistant Secretary of Van Kampen American Capital Advisors, Inc., American Capital Contractual Services, Inc., Van Kampen American Capital Exchange Corporation, ACCESS Investor Services, Inc., American Capital Shareholders Corporation, and Van Kampen American Capital Trust Company. General Counsel of McCarthy, Crisanti & Maffei, Inc. and McCarthy, Crisanti & Maffei Acquisition Corp. Vice President and Secretary of each of the Van Kampen American Capital Funds. Secretary of the closed-end funds advised by the VK Adviser. Director of ICI Mutual Insurance Co., a provider of insurance to members of the Investment Company Institute.
B-14 77
POSITIONS AND PRINCIPAL OCCUPATIONS NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS - ------------------------- -------------------------- ------------------------------------------- Robert C. Peck, Jr....... Vice President Executive Vice President of the VK Adviser. Age: 49 Executive Vice President and Director of the AC Adviser. Vice President of each of the Van Kampen American Capital Funds. Alan T. Sachtleben....... Vice President Executive Vice President of the VK Adviser. Age: 54 Executive Vice President and a Director of the AC Adviser. Vice President of each of the Van Kampen American Capital Funds. Paul R. Wolkenberg....... Vice President Executive Vice President of the VK Adviser Age: 51 and the AC Adviser. President, Chief Executive Officer and a Director of Van Kampen American Capital Trust Company and ACCESS. Vice President of each of the Van Kampen American Capital Funds. Edward C. Wood III....... Vice President and Chief Senior Vice President of VK Adviser and the Age: 40 Financial Officer AC Adviser. Vice President and Chief Financial Officer of each of the Van Kampen American Capital Funds. Vice President, Treasurer and Chief Financial Officer of the closed-end funds advised by VK Adviser. John L. Sullivan......... Treasurer First Vice President of the VK Adviser and Age: 40 AC Adviser. Treasurer of each of the Van Kampen American Capital Funds. Controller of the closed-end funds advised by the VK Adviser. Formerly Controller of open-end funds advised by VK Adviser. Tanya M. Loden........... Controller Controller of most of the investment Age: 36 companies advised by the Adviser, formerly Tax Manager/Assistant Controller. Nicholas Dalmaso......... Assistant Secretary Assistant Vice President and Senior Age: 31 Attorney of VKAC. Assistant Vice President and Assistant Secretary of the Distributor, the VK Adviser, the AC Adviser, and Van Kampen American Capital Management, Inc. Assistant Vice President of Van Kampen American Capital Advisors, Inc. Assistant Secretary of each of the Van Kampen American Capital Funds, Assistant Secretary of the closed-end funds advised by the VK Adviser. Prior to May 1992, attorney for Cantwell & Cantwell, a Chicago law firm. Huey P. Falgout, Jr...... Assistant Secretary Assistant Vice President and Senior Age: 32 Attorney of VKAC. Assistant Vice President and Assistant Secretary of the Distributor, the VK Adviser, the AC Adviser, Van Kampen American Capital Management, Inc., Van Kampen American Capital Advisors, Inc., American Capital Contractual Services, Inc., Van Kampen American Capital Exchange Corporation, ACCESS, and American Capital Shareholders Corporation. Assistant Secretary of each of the Van Kampen American Capital Funds.
B-15 78
POSITIONS AND PRINCIPAL OCCUPATIONS NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS - ------------------------- -------------------------- ------------------------------------------- Scott E. Martin.......... Assistant Secretary Senior Vice President, Deputy General Age: 39 Counsel and Assistant Secretary of VKAC. Senior Vice President, Deputy General Counsel and Secretary of the VK Adviser, the AC Adviser and the Distributor, Van Kampen American Capital Management, Inc., Van Kampen American Capital Advisers, Inc., VSM Inc., VCJ Inc., American Capital Contractual Services, Inc., Van Kampen American Capital Exchange Corporation, ACCESS Investor Services, Inc., Van Kampen Merritt Equity Advisors Corp., Van Kampen Merritt Equity Holdings Corp., American Capital Shareholders Corporation. Secretary and Deputy General Counsel of McCarthy, Crisanti, & Maffei, Inc. and McCarthy, Crisanti & Maffei Acquisition. Chief Legal Officer of McCarthy, Crisanti & Maffei, S.A. Assistant Secretary of each of the Van Kampen American Capital Funds. Assistant Secretary of the closed-end funds advised by the VK Adviser. Weston B. Wetherell...... Assistant Secretary Vice President, Associate General Counsel Age: 39 and Assistant Secretary of VKAC, the VK Adviser, the AC Adviser and the Distributor, Van Kampen American Capital Management, Inc. Van Kampen American Capital Advisors, Inc. Assistant Secretary of each of the Van Kampen American Capital Funds. Assistant Secretary of closed-end funds advised by VK Adviser. Steven M. Hill........... Assistant Treasurer Assistant Vice President of the VK Adviser Age: 31 and AC Adviser. Assistant Treasurer of each of the Van Kampen American Capital Funds. Assistant Treasurer of the closed-end funds advised by the VK Adviser. Robert Sullivan.......... Assistant Controller Assistant Controller of each of the Van Age: 63 Kampen American Capital Funds.
Each of the foregoing trustees and officers holds the same position with each of 46 other Van Kampen American Capital mutual funds (the "Fund Complex"). Each trustee who is not an affiliated person of the Adviser, the Distributor or VKAC (each a "Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees for services to the funds in the Fund Complex. Each fund in the Fund Complex provides a deferred compensation plan to its Non-Affiliated Trustees that allows trustees to defer receipt of his or her compensation and earn a return on such deferred amounts based upon the return of the common shares of the funds in the Fund Complex as more fully described below. The compensation of each Non-Affiliated Trustee includes a retainer by the funds in the Fund Complex advised by the AC Adviser (the "AC Funds") in an amount equal to $35,000 per calendar year, due in four quarterly installments on the first business day of each calendar quarter. The AC Funds pay each Non- Affiliated Trustee a per meeting fee in the amount of $2,000 per regular quarterly meeting attended by the Non-Affiliated Trustee, due on the date of such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in connection with his or her services as a trustee. Payment of the annual retainer and the regular meeting fee is allocated among the AC Funds (i) 50% on the basis of the relative net assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii) 50% equally to each AC Fund, in each case as of the last business day of the preceding calendar quarter. Each AC Fund participating in any special meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting fee in the amount of $125 B-16 79 per special meeting attended by the Non-Affiliated Trustee, due on the date of such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in connection with his or her services as a trustee, provided that no compensation will be paid in connection with certain telephonic special meetings. The trustees have approved an aggregate compensation cap with respect to the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding any retirement benefits) for the period July 22, 1995 through December 31, 1996, subject to the net assets and the number of mutual funds in the Fund Complex as of July 21, 1995 and certain other exceptions. In addition, the Adviser has agreed to reimburse each fund in the Fund Complex through December 31, 1996 for any increase in the aggregate trustee's compensation over the aggregate compensation paid by such fund in its 1994 fiscal year, provided that if a fund did not exist for the entire 1994 fiscal year appropriate adjustments will be made. Each Non-Affiliated Trustee can elect to defer receipt of all or a portion of the compensation earned by such Non-Affiliated Trustee until retirement. Amounts deferred are retained by the Fund and earn a rate of return determined by reference to the return on the common shares of the Fund or other mutual funds in the Fund Complex as selected by the respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act, the Fund will invest in securities of those mutual funds selected by the Non-Affiliated Trustees in order to match the deferred compensation obligation. The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Fund. The Fund adopted a retirement plan on January 25, 1996. Under the Fund's retirement plan, a Non-Affiliated Trustee who is receiving trustee's fees from the Fund prior to such Non-Affiliated Trustee's retirement, has at least ten years of service and retires at or after attaining the age of 60, is eligible to receive a retirement benefit equal to $2,500 per year for each of the ten years following such trustee's retirement. Under certain conditions, reduced benefits are available for early retirement provided the trustee has served at least five years. As of the date hereof the retirement plan contains a Fund Complex retirement benefit cap of $60,000 per year. The Adviser will reimburse the Fund for expenses related to the retirement plan through December 31, 1996. Additional information regarding compensation before deferral paid by the Fund and other funds in the Fund Complex is set forth below. COMPENSATION TABLE(1)
TOTAL COMPENSATION AGGREGATE PENSION OR ESTIMATED BEFORE DEFERRAL COMPENSATION RETIREMENT ANNUAL FROM FUND BEFORE DEFERRAL BENEFITS ACCRUED BENEFITS AND FUND FROM AS PART OF FUND UPON COMPLEX PAID TO NAME(2) FUND(3) EXPENSES(4) RETIREMENT(5) TRUSTEE(6) - --------------------------------------- ---------------- ---------------- ----------- --------------- J. Miles Branagan...................... $1,845 $-0- $ 2,500 $84,250 Dr. Richard E. Caruso.................. 1,365 -0- -0- 57,250 Philip P. Gaughan...................... 600 -0- -0- 76,500 Linda Hutton Heagy..................... 575 -0- 2,500 38,417 Dr. Roger Hilsman...................... 1,915 -0- 1,500 91,250 R. Craig Kennedy....................... 740 -0- 2,500 92,625 Donald C. Miller....................... 670 -0- -0- 94,625 Jack E. Nelson......................... 740 -0- 2,500 93,625 David Rees............................. 1,845 -0- 1,250 83,250 Jerome L. Robinson..................... 740 -0- -0- 89,375 Lawrence J. Sheehan.................... 1,915 -0- -0- 91,250 Dr. Fernando Sisto..................... 2,185 -0- 2,500 98,750 Wayne W. Whalen........................ 740 -0- 2,500 93,375 William S. Woodside.................... 1,775 -0- 2,500 79,125
(See notes on following page) B-17 80 - --------------- (1) As indicated in the other explanatory notes, the amounts in the table relate to the applicable trustees during the Fund's last fiscal year ended December 31, 1995 or the Fund Complex' last calendar year ended December 31, 1995. (2) Messrs. Powell and McDonnell, trustees of the Fund, are affiliated persons of the Adviser and are not eligible for compensation or retirement benefits from the Registrant. Messrs. Gaughan, Kennedy, Miller, Nelson, Robinson and Whalen were elected by shareholders to the Board of Trustees on July 21, 1995. Ms. Heagy was appointed to the Board of Trustees on September 7, 1995. Mr. McDonnell was appointed to the Board of Trustees on January 29, 1996. Mr. Gaughan retired from the Board of Trustees on January 26, 1996. Messrs. Caruso, Rees, and Sheehan were removed from the Board of Trustees effective September 7, 1995, January 29, 1996 and January 29, 1996, respectively. (3) The amounts shown in this column are accumulated from the Aggregate Compensation before Deferral of the Fund during its fiscal year ended December 31, 1995. The following trustees deferred all or substantially all of their compensation from the Fund during the fiscal year ended December 31, 1995: Dr. Caruso, $1,365; Mr. Gaughan, $300; Ms. Heagy, $370; Mr. Kennedy, $370; Mr. Miller, $300; Mr. Nelson, $370; Mr. Robinson, $370; Dr. Sisto, $1,290 and Mr. Whalen, $370. For trustees who have served greater than one year and have deferred account balances, the cumulative deferred compensation (including interest) accrued with respect to each trustee from the Fund as of December 31, 1995 is as follows: Dr. Caruso, $8,983; Mr. Gaughan, $300; Ms. Heagy, $370; Mr. Kennedy, $370; Mr. Miller, $300; Mr. Nelson, $370; Mr. Rees, $22,428; Mr. Robinson, $370; Dr. Sisto, $11,640; and Mr. Whalen, $370. The deferred compensation plan is described above the Compensation Table. Amounts deferred are retained by the Fund and earn a rate of return determined by reference to either the return on the common shares of the Fund or other mutual funds in the Fund Complex as selected by the respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act, it is anticipated that the Fund will invest in securities of those mutual funds selected by the Non-Affiliated Trustees in order to match the deferred compensation obligation. (4) The amounts shown in this column are zero because the Fund did not adopt its retirement plan until after the end of its 1995 fiscal year. The amounts in this column will remain zero in the Fund's 1996 fiscal year because the Adviser has agreed to reimburse the Fund for expenses related to the retirement plan through December 31, 1996; absent such reimbursement, the aggregate expenses of the Fund for all trustees would be approximately $17,000 in its 1996 fiscal year. The retirement plan is described above the Compensation Table. (5) The amounts shown in this column are the annual benefits payable per year from the Fund for the 10-year period commencing in the year of such trustee's retirement. The amounts were computed based on each trustee's anticipated retirement date. The retirement plan is described above the Compensation Table. (6) The amounts shown in this column are accumulated from the Aggregate Compensation before Deferral of each of the 46 mutual funds in the Fund Complex as of December 31, 1995. The following trustees deferred compensation paid by the Fund and the Fund Complex during the calendar year ended December 31, 1995; Dr. Caruso, $41,750; Mr. Gaughan, $57,750; Ms. Heagy, $8,750; Mr. Kennedy, $65,875; Mr. Miller, $65,875; Mr. Nelson, $65,875; Mr. Rees, $8,375; Mr. Robinson, $62,375; Dr. Sisto, $30,260; and Mr. Whalen, $65,625. The deferred compensation earns a rate of return determined by reference to the return on the common shares of the Fund or other mutual funds in the Fund Complex as selected by the respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act, it is anticipated that the Fund will invest in securities of those mutual funds selected by the Non-Affiliated Trustees in order to match the deferred compensation obligation. The trustees' Fund Complex compensation cap commenced on July 22, 1995 and covered the period between July 22, 1995 and December 31, 1995. Compensation received prior to July 22, 1995 was not subject to the cap. For the calendar year ended December 31, 1995, while certain trustees received compensation over $84,000 in the aggregate, no trustee received compensation in excess of the pro rata amount of the Fund Complex cap for the period July 22, 1995 through December 31, 1995. In addition to the amounts set forth above, certain trustees received lump sum retirement benefit distributions not subject to the cap in 1995 related to three mutual funds that ceased investment operations during 1995 as follows: Mr. Gaughan, $22,136; Mr. Miller, $33,205; Mr. Nelson, $30,851; Mr. Robinson, $11,068; and Mr. Whalen, $27,332. The Adviser and its affiliates also B-18 81 serve as investment adviser for other investment companies; however, with the exception of Messrs. Powell, McDonnell and Whalen, the trustees were not trustees of such investment companies. Combining the Fund Complex with other investment companies advised by the Adviser and its affiliates, Mr. Whalen received Total Compensation of $268,857 during the calendar year ended December 31, 1995. As of April 23, 1996, the trustees and officers of the Fund as a group owned less than 1% of the shares of the Fund. As of April 23, 1996, no trustee or officer of the Fund owns or would be able to acquire 5% or more of the common stock of VK/AC Holding, Inc. 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 objective. 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 its daily net asset value. 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. Charges are allocated among the investment companies advised or subadvised by the Adviser. A portion of these amounts were paid to the Adviser or its parent in reimbursement of personnel, office space facilities and equipment costs attributable to the provision of accounting services to the Fund. The services provided by the Adviser are at cost. The Fund also pays shareholder service agency fees, distribution fees, service fees, custodian fees, legal and auditing fees, the costs of reports to shareholders and all other ordinary 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 of the Fund at an annual rate of: 0.55% on the first $350 million average net assets; 0.50% on the next $350 million of average net assets; 0.45% on the next $350 million of average net assets; and 0.40% on the excess over $1.05 billion of average net assets. The average net asset value for purposes of computing the advisory fee is determined by taking the average of all of the determinations of net asset value for each business day during a given calendar month. Such fee is payable for each calendar month as soon as practicable after the end of that month. The fee payable to the Adviser is 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 subsidiary of VK/AC Holding, Inc. in connection with obtaining such payments. The Adviser agrees to use its best efforts to recapture tender solicitation fees and exchange offer fees for the Fund's benefit, and to advise the Trustees of the Fund of any other commissions, fees, brokerage or similar payments which may be possible 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 compensation due the Adviser for such fiscal year shall 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 monthly an amount sufficient to make up the deficiency, subject to readjustment during the year. Ordinary business expenses include the investment advisory fee and other operating costs paid by the Fund B-19 82 except (1) interest and taxes, (2) brokerage commissions, (3) certain litigation and indemnification expenses as described in the Advisory Agreement and (4) payments made by the Fund pursuant to the distribution plans (described herein). The Advisory Agreement also 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. 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 provides that it shall terminate automatically if assigned and that it may be terminated without penalty by either party on not more than 60 days' nor less than 30 days' written notice. During the fiscal years ended December 31, 1993, 1994 and 1995, the Adviser received $2,471,555, $2,547,927 and $2,494,437, respectively, in advisory fees from the Fund. For such periods the Fund paid $118,584, $100,119 and $91,039, respectively, for accounting services. A substantial portion of these amounts was paid to the Adviser in reimbursement of personnel, facilities and equipment costs attributable to the provision of accounting services to the Fund. DISTRIBUTOR The Distributor acts as the principal underwriter of the Fund's shares pursuant to a written agreement (the "Underwriting Agreement"). The Distributor has the exclusive right to distribute shares of the Fund through 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 Distributor bears the cost of printing (but not typesetting) prospectuses used in connection with this offering and the cost and expense of supplemental sales literature, promotion and advertising. 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 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 December 31, 1993, 1994 and 1995, total underwriting commissions on the sale of shares of the Fund were $1,025,331, $672,812 and $259,825, respectively. Of such totals, the amount retained by the Distributor was $138,523, $83,923 and $35,406, respectively. The remainder was reallowed to dealers. Of such dealer reallowances, $157,705, $107,787 and $55,143, respectively, was received by Advantage Capital Corporation, a former affiliated dealer 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" or "Class C Plan," respectively) to permit the Fund directly or indirectly to pay expenses associated with servicing shareholders and in the case of the Class B Plan and Class C Plan the distribution of its shares (the Class A Plan, the Class B Plan and the Class C Plan are sometimes referred to herein collectively as "Plans" and individually as a "Plan"). The Trustees have authorized payments by the Fund under the Plans to reimburse the Distributor for its payments to certain financial institutions (which may include banks), securities dealers and other industry professionals (collectively, "authorized dealers") for administration, servicing Fund shareholders who are also their clients or distribution. Such payments are based on an annual percentage of the value of Fund shares held in shareholder accounts for which such authorized dealers are responsible. With respect to the Class A Plan, the Distributor intends to make payments thereunder only to compensate authorized dealers for personal service or the maintenance of shareholder accounts. With respect to the Class B Plan and Class C Plan, 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 B-20 83 include payments at an annual rate of 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 authorized dealers, (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 authorized dealers, (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 3-month LIBOR rate plus 1 1/2% compounded quarterly on the unreimbursed distribution expenses. With respect to the Class C Plan, authorized payments by the Fund also include payments at an annual rate of up to 0.75% of the net assets of the Class C shares to reimburse the Distributor for (1) upfront commissions and transaction fees of up to 0.75% of the purchase price of Class C shares purchased by the clients of authorized dealers and ongoing commissions and transaction fees paid to authorized dealers 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 authorized dealers, (5) advertising and promotion expenses, including seminars, marketing support salaries and bonuses, and travel-related expenses, and (6) interest expense at the 3-month Libor rate plus 1 1/2% compounded quarterly on the unreimbursed distribution expenses. Such reimbursements are subject to the maximum sales charge limits specified by the NASD for asset-based charges. Banks are currently prohibited under the Glass-Steagall Act from providing certain underwriting or distribution services. If banking firms were prohibited from acting in any capacity or providing any of the described services, the Distributor would consider what action, if any, would be appropriate. The Distributor does not believe that termination of a relationship with a bank would result in any material adverse consequences to the Fund. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law. As required by Rule 12b-1 under the 1940 Act, each plan and the form 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 Trustees at least quarterly with a written report of the amounts expended pursuant to each plan and the purposes for which such expenditures were made. Unless sooner terminated in accordance with its terms, the plans will continue in effect for a period of one year and thereafter will continue in effect so long as such continuance is specifically approved at least annually by the Trustees, including a majority of Independent Trustees. Each plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting shares of the respective class of the Fund. Any change in any of the plans that would materially increase the distribution or service expenses borne by the Fund requires shareholder approval, voting separately by class; otherwise, it may be amended by a majority of the Trustees, including a majority of the Independent Trustees, by vote cast in person at a meeting called for the purpose of voting upon such amendment. So long as the plans are in effect, the selection or nomination of the Independent Trustees is committed to the discretion of the Independent Trustees. For the fiscal year ended December 31, 1995, the Fund's aggregate expenses under the Class A Plan were $769,818 or 0.20% of the Class A shares' average net assets. Such expenses were paid to reimburse the Distributor for payments made to authorized dealers for servicing Fund shareholders and for administering the Class A Plan. For the fiscal year ended December 31, 1995, the Fund's aggregate expenses under the Class B Plan were $755,185 or 1.00% of the Class B shares' average net assets. Such expenses were paid to reimburse the Distributor for the following payments: $566,389 for commissions and transaction fees paid to authorized B-21 84 dealers in respect of sales of Class B shares of the Fund and $188,796 for fees paid to authorized dealers for servicing Class B shareholders and administering the Class B Plan. For the fiscal year ended December 31, 1995, the Fund's aggregate expenses under the Class C Plan were $34,598 or 1.00% of the Class C shares' average net assets. Such expenses were paid to reimburse the Distributor for the following payments: $25,949 for commissions and transaction fees paid to authorized dealers in respect of sales of Class C shares of the Fund and $8,649 for fees paid to authorized dealers for servicing Class C shareholders and administering the Class C Plan. TRANSFER AGENT During the fiscal year ended December 31, 1995, ACCESS, shareholder service agent and dividend disbursing agent for the Fund, received fees aggregating $776,543 for these services. These services are provided at cost plus a profit. PORTFOLIO TURNOVER The Fund's annual portfolio turnover rate is shown in the table of Financial Highlights in the Prospectus. 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 portfolio securities during such fiscal year. Securities maturing in one year or less at the time of acquisition are not included in this computation. The portfolio turnover rate may vary greatly from year to year and within a year. Greater portfolio activity increases the Fund's transaction costs, including brokerage commissions. To the extent turnover results in realization of gains on securities held less than six months, shareholders are subject to taxes at ordinary income rates. 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 the commissions, if any, on such transactions. It is the policy of the Adviser to seek the best security price available with respect to each transaction. In over-the-counter transactions, orders are placed directly with a principal market maker unless it is believed that a better price and execution can be obtained by using a broker. Except to the extent that the Fund may pay higher brokerage commissions for brokerage and research services, as described below, on a portion of its transactions executed on securities exchanges, the Adviser seeks the best security price at the most favorable commission rate. In selecting broker-dealers and in negotiating commissions, the Adviser considers the firm's reliability, the quality of its execution services on a continuing basis and its financial condition. When more than one firm is believed to meet these criteria, preference may be given to firms which also provide research services to the Fund or the Adviser. Consistent with the Rules of Fair Practice of the NASD and subject to seeking best execution and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund 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. Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits an investment adviser, under certain circumstances, to cause an account to pay a broker or dealer who supplies brokerage and research services, a commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction. Brokerage and research services include (a) furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, (b) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts, and (c) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement and custody). Pursuant to provisions of the investment advisory agreement, the Fund's Trustees have authorized the Adviser to cause the Fund to incur brokerage commissions in an amount higher than the lowest available rate in return for research services provided to the Adviser. The Adviser is of the opinion that the continued receipt of supplemental investment research services from dealers is essential to its provision of high quality portfolio B-22 85 management services to the Fund. The Adviser undertakes that such higher commissions will not be paid by the Fund unless (a) the Adviser determines in good faith that the amount is reasonable in relation to the services in terms of the particular transaction or in terms of the Adviser's overall responsibilities with respect to the accounts as to which it exercises investment discretion, (b) such payment is made in compliance with the provisions of Section 28(e) and other applicable state and federal laws, and (c) in the opinion of the Adviser, the total commissions paid by the Fund are reasonable in relation to the expected benefits to the Fund over the long term. The investment advisory fee paid by the Fund under the investment advisory agreement is not reduced as a result of the Adviser's receipt of research services. The Adviser places portfolio transactions for other advisory accounts including other investment companies. Research services furnished by firms through which the Fund effects its securities transactions may be used by the Adviser in servicing all of its accounts; not all of such services may be used by the Adviser in connection with the Fund. In the opinion of the Adviser, the benefits from research services to each of the accounts, including the Fund, managed by the Adviser cannot be measured separately. Because the volume and nature of the trading activities of the accounts are not uniform, the amount of commissions in excess of the lowest available rate paid by each account for brokerage and research services will vary. However, in the opinion of the Adviser, such costs to the Fund will not be disproportionate to the benefits received by the Fund on a continuing basis. The Adviser seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by the Fund and another advisory account. In some cases, this procedure could have an adverse effect on the price or the amount of securities available to the Fund. In making such allocations among the Fund and other advisory accounts, the main factors considered by the Adviser are the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and opinions of the persons responsible for recommending the investment. Brokerage commissions paid by the Fund on portfolio transactions for the fiscal years ended December 31, 1993, 1994 and 1995 totalled $672,660, $800,001 and $551,390, respectively. During the year ended December 31, 1995, the Fund paid $250,125 in brokerage commissions on transactions totalling $169,053,858 to brokers selected primarily on the basis of research services provided to the Adviser. Prior to December 20, 1994 the Fund placed brokerage transactions with brokers that were considered affiliated persons of the Adviser's former parent, The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December 20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the Adviser. The negotiated commission paid to an affiliated broker on any transaction would be comparable to that payable to a non-affiliated broker in a similar transaction. The Fund paid the following commissions to these brokers during the periods shown:
ROBINSON SMITH HUMPHREY BARNEY -------- ------- Commissions Paid: Fiscal 1993.............................................. -- $20,041 Fiscal 1994.............................................. $2,975 $56,373 Fiscal 1995.............................................. -- --
DETERMINATION OF NET ASSET VALUE The net asset value per share is determined as of the close of the New York Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each business day on which the Exchange is open. The net asset value of Fund shares is computed by dividing the value of all securities plus other assets, less liabilities by the number of shares outstanding, and adjusting to the nearest cent per share. Such computation is made by using prices as of the close of trading on the Exchange and (i) valuing securities traded on a national securities exchange at the last reported sale price, or if there has been no sale that day, at the last reported bid quotations (except options for which the last sale price is not available are B-23 86 valued at the mean between the bid and asked prices), (ii) valuing over-the-counter securities for which the last sale price is available from the National Association of Securities Dealers Automated Quotations ("NASDAQ") at that price, (iii) valuing all other over-the-counter securities for which market quotations are available at the most recently quoted bid price supplied by NASDAQ or broker-dealers (except unlisted convertible securities, which are valued at the higher of their bid price or the value of the securities issuable upon conversion), and (iv) valuing any securities for which market quotations are not readily available, and any other assets, at fair value as determined in good faith by the Trustees of the Fund. Short-term investments are valued in the manner described in the notes to the financial statements included in this Statement of Additional Information. 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. PURCHASE AND REDEMPTION OF SHARES The following information supplements the section in the Fund's Prospectus captioned "Purchase of Shares." PURCHASE OF SHARES Shares of the Fund are sold in a continuous offering and may be purchased on any business day through authorized dealers. ALTERNATIVE SALES ARRANGEMENTS The Fund issues three classes of shares: Class A shares,Class B shares and Class C shares. 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 shares 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. INVESTMENTS BY MAIL A shareholder investment account may be opened by completing the application accompanying the Prospectus and forwarding the application, through the authorized 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 at least $500 per class of shares, 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. Minimum subsequent investments of at least $25 per class of shares may be mailed directly to ACCESS. All such investments are made at the public offering price of Fund shares next computed following receipt of payment by ACCESS. Confirmations of the opening of an account and of all subsequent transactions in the account are forwarded by ACCESS to the investor's authorized dealer. In processing applications and investments, ACCESS acts as agent for the investor and for the authorized dealer named thereon, and also as agent for the Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to act as such, a successor company named by the Fund will act in the same capacities so long as the account remains open. CUMULATIVE PURCHASE DISCOUNT The reduced sales charges reflected in the sales charge table as shown in the Prospectus under "Sales Charge Table" apply to purchases of Class A shares of the Fund shares where the aggregate investment is $50,000 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 B-24 87 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. The same reduction is applicable to purchases under a Statement of Intention 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 representations concerning the investor's 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 the value of all shares of such funds previously purchased and still owned are also included in determining the applicable quantity discount. A Letter of Intent permits an investor to establish a total investment goal to be achieved by any number of investments over a 13-month period. Each investment made during the period will receive the reduced sales charge applicable to the amount represented by the goal as if it were a single investment. Escrowed shares totalling 5% of the dollar amount of the Letter of Intent are held by ACCESS in the name of the shareholder. A Letter of Intent may be back-dated up to 90 days in order that any investments made during this 90-day period, valued at the investor's cost, can become subject to the Letter of Intent. The Letter of Intent does not obligate the investor to purchase the indicated amount. In the event the Letter of Intent goal is not achieved within the 13-month period, the investor is required to pay the difference between sales charges otherwise applicable to the purchases made during this period and sales charges actually paid. Such payment may be made directly to the Distributor or, if not paid, the Distributor will liquidate sufficient escrowed shares to obtain such difference. If the goal is exceeded in an amount which qualifies for a lower sales charge, a price adjustment is made by refunding to the investor in shares of the Fund, the amount of excess sales charges, if any, paid during the 13-month period. CONTINGENT DEFERRED SALES CHARGE -- CLASS A For certain full service participant directed profit sharing and money purchase plans and qualified 401(k) retirement plans and for investments in the amount of $1,000,000 or more of Class A shares of the Fund ("Qualified Purchaser"), the front-end sales charge will be waived and a contingent deferred sales charge ("CDSC -- Class A") of 1.00% 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 1.00% of the net asset value of the shares at the time of purchase, or 1.00% 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 plan qualified under Section 401(a) of the Code and deferred compensation plans under Section 457 of the Code) required to obtain funds to pay distributions to beneficiaries pursuant to the terms of the plans. Such payments include, but are not limited to, death, disability, retirement, or separation from service. No CDSC -- Class A will be imposed on exchanges between funds. For purposes of the CDSC -- Class A, when shares of one fund are exchanged for shares of another fund, the purchase date for the shares of the fund exchanged into will be assumed to be the date on which shares were purchased in the fund from which the exchange was made. If the exchanged shares themselves are acquired through an exchange, the purchase date is assumed to carry over from the date of the original election to purchase shares subject to a CDSC -- Class A rather than a front-end load sales charge. In determining whether a CDSC -- Class A is payable, it is assumed that shares held the longest are the first to be redeemed. Cumulative Purchase Discounts and Letters of Intent 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 B-25 88 American Capital Reserve Fund and Van Kampen American Capital Tax Free Money Fund with shares of other participating funds described as "Participating Funds" in the Prospectus. WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B AND C") As described in the Prospectus under "Redemption of Shares," redemptions of Class B shares and Class C shares will be subject to a contingent deferred sales charge. The CDSC -- Class B and C may be waived on redemptions of Class B shares 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 Internal Revenue Code of 1986, as amended (the "Code"), which in pertinent part defines a person as disabled if such person "is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration." While the Fund does not specifically adopt the balance of the Code's definition which pertains to furnishing the Secretary of Treasury with such proof as he or she may require, the Distributor will require satisfactory proof of death or disability before it determines to waive the CDSC -- Class B and C. In cases of 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 the 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 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 will be waived on any minimum distribution required to be distributed in accordance with Code Section 401(a)(9). The Fund does not intend to waive the CDSC -- Class B and C for any distributions from IRAs or other Retirement Plans not specifically described above. (c) Redemption Pursuant to a Fund's Systematic Withdrawal Plan A shareholder may elect to participate in a systematic withdrawal plan (the "Plan") with respect to the shareholder's investment in the Fund. Under the Plan, a dollar amount of a participating shareholder's investment in the Fund will be redeemed systematically by the Fund on a periodic basis, and the proceeds mailed to the shareholder. The amount to be redeemed and frequency of the systematic withdrawals will be specified by the shareholder upon his or her election to participate in the Plan. The CDSC -- Class B and C will be waived on redemptions made under the Plan. The amount of the shareholder's investment in a Fund at the time the election to participate in the Plan is made with respect to the Fund is hereinafter referred to as the "initial account balance." The amount to be systematically redeemed from the Fund without the imposition of a CDSC -- Class B and C may not exceed B-26 89 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. 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, with credit for any CDSC -- Class C paid on the redeemed shares, any portion or all of his or her redemption proceeds (plus that amount necessary to acquire a fractional share to round off his or her purchase to the nearest full share) in shares of the Fund, provided that the reinvestment is effected within 120 days after such redemption and the shareholder has not previously exercised this reinvestment privilege with respect to Class C shares of the Fund. Shares acquired in this manner will be deemed to have the original cost and purchase date of the redeemed shares for purposes of applying the CDSC -- Class C to subsequent redemptions. (f) Redemption by Adviser The Fund may waive the CDSC -- Class B and C when a total or partial redemption is made by the Adviser with respect to its investments in the Fund. REDEMPTION OF SHARES Redemptions are not made on days during which the New York Stock Exchange is closed. 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 New York Stock Exchange is closed for other than customary weekends or holidays; (b) trading on the New York Stock 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. 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. Van Kampen American Capital and its subsidiaries, including ACCESS, 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, ACCESS, nor the Fund will be liable for following telephone instructions which it reasonably believes to be genuine. Van Kampen American Capital, ACCESS, 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 B-27 90 the dividend or distribution was paid. If a shareholder exchanges less than all of his securities, the security upon which the highest sale 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. DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES The Fund's policy is to distribute substantially all of its taxable net investment income in quarterly dividends to shareholders of Class A shares, Class B shares and Class C shares. The per share dividends on Class B shares and Class C shares will be lower than the per share dividends on Class A shares as a result of the distribution fees and higher transfer agency fees applicable to the Class B shares and Class C shares. The Fund intends to distribute to shareholders any taxable net realized capital gains for each class at least annually. Taxable net realized capital gains are the excess, if any, of the Fund's total profits on the sale of securities during the year over its total losses on the sale of securities, including capital losses carried forward from prior years in accordance with the tax laws. All income dividends and capital gains distributions are reinvested in shares of the Fund at net asset value without sales charge on the record date, except that any shareholder may otherwise instruct ACCESS in writing and receive cash. The Fund has elected to be taxed as a regulated investment company under Sections 851-855 of the Code. This means the Fund must pay all or substantially all its taxable net investment income and taxable net realized capital gains to shareholders of Class A shares, Class B shares and Class C shares and meet certain diversification and other requirements. 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). The Fund is subject to a 4% 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 gains net income for the twelve-months ended October 31 of such year. The Fund intends to distribute sufficient amounts to avoid liability for the excise tax. Dividends from net investment income and distributions from any short-term capital gains are taxable to shareholders as ordinary income. To the extent determined each year, a portion of the dividends paid from net investment income will qualify in the case of corporations for the dividends received deduction if, and to the extent, the Fund receives qualifying dividends during the year and if certain requirements are met. 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. Distributions from long-term capital gains are taxable to shareholders as long-term capital gains, regardless of how long the shareholder has held Fund shares. Such distributions and distributions from short-term capital gains are not eligible for the dividends received deduction referred to above. Any loss on the sale of Fund shares held for six months or less is treated as a long-term capital loss to the extent of any long-term capital gain distribution paid on such shares. All dividends and distributions are taxable to the shareholder whether or not reinvested in shares. Shareholders are notified annually by the Fund as to the federal tax status B-28 91 of dividends and distributions paid by the Fund unless such amount is less than $10.00, in which case no notice is provided. 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. Dividends to shareholders who are non-resident aliens may be subject to a United States withholding tax at a rate of up to 30% under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty laws. Non-resident shareholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and these Treasury Regulations are subject to change by legislative or administrative action either prospectively or retroactively. Dividends and capital gains distributions may also be subject to state and local taxes. Shareholders are urged to consult their attorneys or tax advisers regarding specific questions as to federal, state or local taxes. BACK-UP WITHHOLDING The Fund is required to withhold and remit to the United States Treasury 31% of (i) reportable taxable dividends and distributions and (ii) the proceeds of any redemptions of Fund shares with respect to any shareholder who is not exempt from withholding and who fails to furnish the Fund with a correct taxpayer identification number, who fails to report fully dividend or interest income to the Internal Revenue Service, 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 or her 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. TAXATION OF CERTAIN FUND INVESTMENT PRACTICES Some of the Fund's investment practices are subject to special provisions of the Code that, among other things, may defer the use of certain losses of the Fund and affect the holding period of the securities held by the Fund and the character of the gains or losses realized by the Fund. These provisions may also require the Fund to mark-to-market some of the positions in its portfolio (i.e., treat them as if they were sold at market value during the taxable year), which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy a 90% distribution requirement for qualifications as a regulated investment company distribution requirements for avoiding income and excise taxes. The Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these rules and prevent disqualification of the Fund as a regulated investment company. Investments of the Fund is securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect the amount, timing and character of distributions to shareholders. For example, with respect to securities issued at a discount, the Fund will be required to accrue as income each year a portion of the discount and to distribute such income each year in order to maintain its qualification as a regulated investment company and to avoid income and excise taxes. In order to generate sufficient cash to make distributions necessary to satisfy a 90% distribution requirement for qualification as a regulated investment company and to avoid income and excise taxes, the Fund may have to dispose of securities that it would otherwise have continued to hold. A portion of the discount relating to certain stripped tax-exempt obligations may constitute taxable income when distributed to shareholders. B-29 92 The Fund's ability to dispose of portfolio securities may be limited by the requirement for qualification as a regulated investment company that less than 30% of the Fund's gross income be derived from the disposition of securities held for less than three months. Income from investments in foreign securities may be subject to foreign taxation imposed by withholding. Shareholders of the Fund will not be able to claim any deduction or foreign tax credit with respect to such foreign taxes. FUND PERFORMANCE The Fund's average annual total return (computed in the manner described in the Prospectus) for Class A shares of the Fund for (i) the one year period ending December 31, 1995 was 15.40%; (ii) the five year period ending December 31, 1995 was 10.60%; and (iii) the ten year period ending December 31, 1995 was 9.68%. The average annual total return (computed in the manner described in the Prospectus) for Class B shares of the Fund for (i) the one year period ending December 31, 1995 was 16.46%; and (ii) the four year and one half month period ending December 31, 1995 was 9.13%. The average annual total return (computed in the manner described in the Prospectus) for Class C shares of the Fund for (i) the one year period ending December 31, 1995 was 20.52%; and (ii) the two year and two month period ending December 31, 1995 was 6.15%. These results are based on historical earnings and asset value fluctuations and are not intended to indicate future performance. Such information should be considered in light of the Fund's investment objective and policies as well as the risks incurred in the Fund's investment practices. Future results will be effected by changes in the general level of prices of securities available for purchase and sale by the Fund. The past one year, five year and ten year periods generally have been ones of rising common stock prices, subject to interim fluctuations. Total return is computed separately for Class A shares, Class B shares and Class C shares. From time to time, in reports or other communications, or in advertising or sales materials, the Adviser may announce the results of actual tests performed by DALBAR Financial Securities, Inc., an independent research firm, as they relate to the level of services for mutual fund investors and may refer to the Missouri Quality Award received by ACCESS, the Fund's transfer agent, in 1993. In addition, the Adviser may also refer to the Houston Awards for Quality received by Van Kampen American Capital in 1994. The Fund may, from time to time: (1) illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans; (2) illustrate in graph or chart form, or otherwise, the benefits of dollar cost averaging by comparing investments made pursuant to a systematic investment plan to investments made in a rising market; (3) illustrate allocations among different types of mutual funds for investors at different stages of their lives; and (4) in reports or other communications to shareholders or in advertising material, illustrate the benefits of compounding at various assumed rates of return. Such illustrations may be in the form of charts or graphs and will not be based on historical returns experienced by the Funds. The Fund seeks to provide current income, capital appreciation and conservation of capital by investing principally in senior securities, primarily convertible bonds and convertible preferred stocks of other corporations. The Fund attempts to remain fully invested and diversified across many industries to achieve consistent long-term performance. Convertible securities typically have offered a higher current yield than that offered by the underlying stock and less downside risk, which has helped the Fund achieve its investment objectives. The Fund may be an important complement to an existing portfolio for investors who want both the opportunity for capital appreciation, regular income and lower volatility of returns. Since the Fund's commencement of investment operations on November 15, 1956, the world has experienced a number of significant political and economic events. For example, in 1971, there were wage and price freezes to attempt to control inflation. In 1973 the dollar was devalued and the OPEC oil embargo was in effect. 1976 saw sweeping tax law changes, and in 1979 the CPI rose over 13%, its largest rise in 33 years. In 1982, the country was in a recession, in 1985, the U.S. deficit became the largest in the world and the U.S. was now a debtor nation. 1987 saw the stock market crash. The Persian Gulf War began in 1991, and the Dow Jones Industrial Average hit a record high of 4000 in 1995. B-30 93 From time to time marketing materials may provide a portfolio manager update, an adviser update or discuss general economic conditions and outlooks. The Fund's marketing materials may also show the Fund's asset class diversification, top five sector holdings and ten largest holdings. Materials may also mention how Van Kampen American Capital believes the Fund compares relative to other Van Kampen American Capital funds. Materials may also discuss the Dalbar Financial Services study from 1984 to 1994 which examined investor cash flow into and out of all types of mutual funds. The ten year study found that investors who bought mutual fund shares and held such shares outperformed investors who bought and sold. The Dalbar study conclusions were consistent regardless if shareholders purchased their funds in direct or sales force distribution channels. The study showed that investors working with a professional representative have tended over time to earn higher returns than those who invested directly. The Fund will also be marketed on the Internet. OTHER INFORMATION CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including proceeds from the sale of shares of the Fund and of securities in the Fund's investment portfolio, are held by State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as Custodian. SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and annually such statements are audited by the independent accountants. INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Houston, Texas 77002, the independent accountants for the Fund, performs an annual audit of the Fund's financial statements. B-31 94 REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF VAN KAMPEN AMERICAN CAPITAL HARBOR 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 Har- bor Fund (the "Fund") at December 31, 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 December 31, 1995 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Houston, Texas February 9, 1996 B-32 95 PORTFOLIO OF INVESTMENTS December 31, 1995 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------- DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS 50.6% CONSUMER DISTRIBUTION 5.0% $ 2,500 Baby Superstores, Inc................ 4.875% 10/01/00 $ 2,900,000 2,200 Danka Business System, PLC........... 6.750 04/01/02 3,107,500 4,500 Federated Department Stores, Inc..... 5.000 10/01/03 4,533,750 4,250 Office Depot, Inc., LYON............. ** 11/01/08 2,433,125 2,300 Pier 1 Imports, Inc.................. 6.875 04/01/02 2,472,500 4,250 Price Co............................. 6.750 03/01/01 4,303,125 4,285 Staples, Inc......................... 4.500 10/01/00 4,285,000 ------------ 24,035,000 ------------ CONSUMER DURABLES 4.2% 3,825 Continental Homes Holding Corp....... 6.875 11/01/02 4,523,062 5,100 Exide Corp........................... 2.900 12/15/05 3,659,250 5,150 Gencorp, Inc......................... 8.000 08/01/02 5,227,250 4,675 Pacific Dunlop....................... 6.750 07/02/97 4,675,000 2,600 Zenith Electronics Corp.............. 6.250 04/01/11 1,846,000 ------------ 19,930,562 ------------ CONSUMER NON-DURABLES 1.8% 4,900 American Brands, Inc................. 7.625 03/05/01 5,120,500 2,850 Far East Textiles.................... 4.000 10/07/06 3,249,000 ------------ 8,369,500 ------------ CONSUMER SERVICES 9.4% 7,800 ADT Operations, Inc., LYON........... ** 07/06/10 3,666,000 17,000 Discovery Zone, Inc. LYON............ ** 10/14/13 4,377,500 4,465 American Media....................... ** 05/15/97 3,683,625 4,038 Prime Hospitality Corp............... 7.000 04/15/02 4,179,330 1,000 Scholastic Corp...................... 5.000 08/15/05 1,165,000 6,307 Time Warner, Inc..................... 8.750 01/10/15 6,536,043 21,700 Time Warner, Inc., LYON.............. ** 12/17/12 7,378,000 Turner Broadcasting System, Inc., 15,150 LYON................................. ** 02/13/07 6,855,375 2,000 UBS Finance.......................... 2.000 12/15/00 1,990,000 2,820 Wendy's International, Inc........... 7.000 04/01/06 4,829,250 ------------ 44,660,123 ------------ ENERGY 4.7% 4,750 Ashland Oil, Inc..................... 6.750 07/01/14 4,726,250 6,850 Consolidated Natural Gas Co.......... 7.250 12/15/15 7,098,312 8,200 SFP Pipeline Holdings, Inc........... 11.163 08/15/10 10,545,581 ------------ 22,370,143 ------------
See Notes to Financial Statements B-33 96 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1995 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------- FINANCE 6.4% $ 760 American Travellers Corp.............. 6.500% 10/01/05 $ 1,048,800 2,000 Central International................. 10.000 08/07/96 980,000 4,250 Fifth Third Bancorp................... 4.250 01/15/98 4,940,625 7,420 Henderson Capital International....... 4.500 10/27/96 7,605,500 27 Merrill Lynch Mortgage, STRYPES....... 6.500 08/15/98 1,396,468 3,200 Statesman Group, Inc.................. 6.250 05/01/03 3,232,000 1,460 Trenwick Group, Inc................... 6.000 12/15/99 1,715,500 United Companies Financial Corp, 80 PRIDES................................ 6.750 07/01/00 4,053,276 9,575 USF&G Corp............................ ** 03/03/09 5,553,500 ------------ 30,525,669 ------------ HEALTH CARE 3.0% 11,750 Alza Corp., LYON...................... ** 07/14/14 4,773,437 2,500 Chiron Corp........................... 1.900 11/17/00 2,550,000 860 Genzyme Corp.......................... 6.750 10/01/01 1,044,900 4,500 United Technologies Corp., PEN........ ** 09/08/97 5,850,000 ------------ 14,218,337 ------------ PRODUCER MANUFACTURING 4.8% 4,438 Cooper Industries, Inc................ 7.050 01/01/15 4,571,140 5,000 Thermo Electron Corp.................. 4.250 01/01/03 5,425,000 3,150 Thermo Electron Corp.................. 5.000 04/15/01 5,299,875 1,000 US Filter Corp........................ 6.000 09/15/05 1,150,000 5,900 Valhi, Inc., LYON..................... ** 10/20/07 2,286,250 4,617 WMX Technologies, Inc................. 2.000 01/24/05 3,970,620 ------------ 22,702,885 ------------ RAW MATERIALS/PROCESSING INDUSTRIES 0.5% 2,600 Sappi Limited......................... 7.500 08/01/02 2,444,000 ------------ TECHNOLOGY 6.2% 3,825 Analog Devices, Inc................... 3.500 12/01/00 4,092,750 2,260 C-Cube Microsystems................... 5.875 11/01/05 4,700,800 3,500 First Financial Management............ 5.000 12/15/99 5,656,875 51 Salomon, Inc., ELKS................... 5.000 11/01/96 5,270,792 2,500 Sanmina Corp.......................... 5.500 08/15/02 2,737,500 1,700 Telxon Corp........................... 5.750 01/01/03 1,810,500 4,535 Unisys Corp........................... 8.250 08/01/00 4,036,150 1,500 VLSI Technology, Inc.................. 8.250 10/01/05 1,376,250 ------------ 29,681,617 ------------ TRANSPORTATION 0.5% 2,500 Delta Airlines, Inc................... 3.230% 06/15/03 2,400,000 ------------
See Notes to Financial Statements B-34 97 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1995 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------- UTILITIES 4.1% $3,435 LDDS Communications.................. 5.000 08/15/03 $ 3,623,925 7,375 Potomac Electric Power Co............ 5.000 09/01/02 6,858,750 43 Sprint Corp., DECKS.................. 8.250 03/30/01 1,614,694 21,000 U S Cellular Corp., LYON............. ** 06/15/15 7,350,000 ----------- 19,447,369 ----------- TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS (Cost $225,997,500)................................... 240,785,205 =========== FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS 6.7% 2,600 Amer Group........................... 6.250 06/15/03 2,366,000 3,000 HD Finance........................... 6.750 06/01/00 3,202,500 3,500 Magna International, Inc............. 5.000 10/15/02 3,517,500 14,750 Roche Holdings, Inc., LYON .......... ** 04/20/10 6,526,875 10,200 Rogers Communications, LYON.......... ** 05/20/13 3,697,500 5,350 S. A. B. Finance Corp................ 7.500 08/02/98 5,403,500 1,500 Samsung Heavy Industry Limited....... 0.500 12/31/09 1,665,000 1,410 Sandoz Limited....................... 2.000 10/06/02 1,332,450 3,400 Swiss Re Finance Bermuda Ltd......... 2.000 07/06/00 4,029,000 ----------- TOTAL FOREIGN CONVERTIBLE CORPORATE OBLIGATIONS (Cost $29,218,095).......................................... 31,740,325 =========== Number of Shares (000) - ----------- DOMESTIC COMMON STOCK 18.9% CONSUMER DISTRIBUTION 0.5% 100 Wal-Mart Stores, Inc.................................. 2,237,500 ----------- CONSUMER DURABLES 1.9% 160 Chrysler Corp......................................... 8,860,000 ----------- CONSUMER NON-DURABLES 2.0% 50 Philip Morris Companies, Inc.......................... 4,525,000 69 Quaker Oats Co........................................ 2,380,500 40 Ralston Purina Group.................................. 2,495,000 ----------- 9,400,500 ----------- CONSUMER SERVICES 0.3% 28 Disney (Walt) Co...................................... 1,652,000 ----------- ENERGY 3.1% 48 Amoco Corp............................................ 3,439,722 71 Enron Corp............................................ 2,706,875 55 Exxon Corp............................................ 4,406,875 55 Texaco, Inc........................................... 4,317,500 ----------- 14,870,972 ----------- FINANCE 1.0% 34 Aetna Life & Casualty Co.............................. 2,354,500 21 Cigna Corp............................................ 2,168,250 ----------- 4,522,750 -----------
See Notes to Financial Statements B-35 98 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1995 - --------------------------------------------------
Number of Shares (000) Description Market Value - -------------------------------------------------- HEALTH CARE 1.3% 96 Merck & Co, Inc........... $ 6,312,000 ------------ PRODUCER MANUFACTURING 1.0% Rockwell International 93 Corp...................... 4,917,375 ------------ RAW MATERIALS/PROCESSING INDUSTRIES 0.9% 29 Freeport-McMoran, Inc..... 1,061,604 Freeport-McMoran Inc., 121 Copper and Gold, Class B.. 3,397,697 ------------ 4,459,301 ------------ TECHNOLOGY 3.2% 50 Boeing Co................. 3,918,750 25 Intel Corp................ 1,390,375 International Business 54 Machines Corp............. 4,954,500 *17 Microsoft Corp............ 1,491,750 National Semiconductor *155 Corp...................... 3,453,222 ------------ 15,208,597 ------------ TRANSPORTATION 0.4% 25 Conrail, Inc.............. 1,750,000 ------------ UTILITIES 3.3% 45 AT&T Corp................. 2,913,750 70 Bellsouth Corp............ 3,045,000 105 GTE Corp.................. 4,620,000 115 MCI Communications Corp... 3,004,375 *60 WorldCom, Inc............. 2,115,000 ------------ 15,698,125 ------------ TOTAL DOMESTIC COMMON STOCK (Cost $79,620,819).. 89,889,120 ============ FOREIGN COMMON STOCK 1.5% 133 National Power, ADR....... 1,225,625 131 Powergen, PLC, ADR........ 1,706,900 Royal Dutch Petroleum 32 Co., ADR.................. 4,516,000 ------------ TOTAL FOREIGN COMMON STOCK (Cost $7,007,118)... 7,448,525 ============ CONVERTIBLE PREFERRED STOCK 18.0% CONSUMER DISTRIBUTION 0.8% Alco Standard, $5.04, 43 ACES...................... 3,633,750 ------------ CONSUMER SERVICES 2.9% Bally Entertainment, *340 PRIDES, 8.000%............ 4,632,500 SCI Finance, NV, Llc, 120 6.25%..................... 8,909,600 ------------ 13,542,100 ------------ ENERGY 2.6% Columbia Gas System, *43 Inc., DECS, 5.220%........ 1,864,688 Enron Corp., ACES, 47 6.250%.................... 1,122,000 Occidental Petroleum Co., 87 $7.75..................... 4,806,750 Williams Companies, 62 $3.50..................... 4,527,600 ------------ 12,321,038 ------------
See Notes to Financial Statements B-36 99 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1995 - --------------------------------------------------
Number of Shares (000) Description Market Value - -------------------------------------------------- FINANCE 6.8% 128 American General Corp., MIPS, 6.000%.............. $ 6,677,813 35 Citicorp, $5.375.......... 6,356,625 96 Conseco, Inc., $3.25...... 5,088,000 35 Jefferson-Pilot Corp., ACES, $7.25............... 2,559,375 85 Sovereign Bancorp, $3.125.................... 4,845,000 35 St. Paul Companies, MIPS, 6.000%.................... 1,940,625 40 SunAmerica, Series E, $3.10..................... 2,620,000 63 Union Planters Corp., $2.00..................... 2,496,375 ------------ 32,583,813 ------------ PRODUCER MANUFACTURING 0.5% 51 Corning Glass Works, MIPS, 6.00%............... 2,569,125 ------------ RAW MATERIALS/PROCESSING INDUSTRIES 2.7% 275 Freeport-McMoRan, Inc., Copper and Gold, $1.25.... 7,493,750 74 James River Corp, DECS, $1.55..................... 1,729,750 63 Owens Corning, $3.25...... 3,764,250 ------------ 12,987,750 ------------ TECHNOLOGY 1.7% 25 Ceridian Corp., $2.75..... 2,312,500 81 General Motors Corp., Series H, $3.25........... 5,933,250 ------------ 8,245,750 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (Cost $73,597,542).............. 85,883,326 ============ Par Amount (000) --------- SHORT-TERM INVESTMENTS 6.1% COMMERCIAL PAPER 4.4% Associates Corp. of North America, 6.000%, $20,985 01/02/96.................. 20,971,010 UNITED STATES GOVERNMENT AGENCY 1.7% Federal National Mortgage Association, 5.678%, 8,000 01/17/96.................. 7,979,146 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $28,950,156).............. 28,950,156 ============ TOTAL INVESTMENTS (Cost $444,391,230) 101.8% ............... 484,696,657 OTHER ASSETS AND LIABILITIES, NET (1.8%).......................... (8,474,505) ------------ NET ASSETS 100%..................... $476,222,152 ============
*Non income producing security **Zero coupon bond ACES--automatically convertible MIPS--monthly income paying security equity securities DECKS--debt exchangeable for common PEN--pharmaceutical exchange note stock, traded in shares DECS--divided enhanced convertible PRIDES--preferred redeemable stock increased dividend equity security, traded in shares ELKS--equity linked securities, trade STRYPES--structured yield product in shares exchangeable for stock, traded in shares LYON--liquid yield option note See Notes to Financial Statements B-37 100 STATEMENT OF ASSETS AND LIABILITIES December 31, 1995 - -------------------------------------------------------------------------------- ASSETS Investments, at market value (Cost $444,391,230).................. $484,696,657 Cash.............................................................. 15,152 Dividends and interest receivable................................. 4,077,033 Receivable for investments sold................................... 1,225,309 Receivable for Fund shares sold................................... 841,137 Other assets...................................................... 35,078 ------------ Total Assets..................................................... 490,890,366 ------------ LIABILITIES Payable for investments purchased................................. 11,318,557 Dividends payable................................................. 1,803,176 Payable for Fund shares redeemed.................................. 800,323 Due to Distributor................................................ 277,870 Due to Adviser.................................................... 212,522 Due to shareholder service agent.................................. 82,000 Deferred Trustees' compensation................................... 57,760 Accrued expenses and liabilities.................................. 116,006 ------------ Total Liabilities................................................ 14,668,214 ------------ Net assets, equivalent to $15.05 per share for Class A , $14.99 per share for Class B, and $15.07 per share for Class C shares... $476,222,152 ============ NET ASSETS WERE COMPRISED OF: Shares of beneficial interest, at par; 26,217,588 Class A, 5,207,479 Class B, and 243,491 Class C shares outstanding....................................... $ 316,686 Capital surplus................................................... 428,211,661 Undistributed net realized gain on securities..................... 6,673,982 Net unrealized appreciation of securities......................... 40,305,427 Undistributed net investment income............................... 714,396 ------------ NET ASSETS........................................................ $476,222,152 ============
See Notes to Financial Statements B-38 101 STATEMENT OF OPERATIONS Year Ended December 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest........................................................... $18,617,382 Dividends.......................................................... 7,446,667 ----------- Investment income................................................. 26,064,049 ----------- EXPENSES Management fees.................................................... 2,494,437 Shareholder service agent's fees and expenses...................... 901,829 Accounting services................................................ 91,039 Service fees--Class A.............................................. 769,818 Distribution and service fees--Class B............................. 755,185 Distribution and service fees--Class C............................. 34,598 Trustees' fees and expenses........................................ 23,059 Audit fees......................................................... 43,813 Custodian fees..................................................... 3,255 Legal fees......................................................... 8,162 Reports to shareholders............................................ 80,732 Registration and filing fees....................................... 58,737 Miscellaneous...................................................... 17,771 ----------- Total expenses.................................................... 5,282,435 ----------- NET INVESTMENT INCOME.............................................. 20,781,614 =========== REALIZED AND UNREALIZED GAIN ON SECURITIES Net realized gain on securities.................................... 21,378,933 Net unrealized appreciation of securities during the period........ 51,124,986 ----------- NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 72,503,919 =========== INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $93,285,533 ===========
See Notes to Financial Statements B-39 102 STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Ended December 31 -------------------------- 1995 1994 - ------------------------------------------------------------------------------- NET ASSETS, beginning of period................... $444,133,746 $493,332,696 ------------ ------------ OPERATIONS Net investment income............................ 20,781,614 20,268,466 Net realized gain on securities.................. 21,378,933 3,548,005 Net unrealized appreciation (depreciation) of se- curities during the period...................... 51,124,986 (55,725,504) ------------ ------------ Increase (decrease) in net assets resulting from operations...................................... 93,285,533 (31,909,033) ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A.......................................... (18,346,652) (17,430,212) Class B.......................................... (3,002,348) (2,534,008) Class C.......................................... (135,698) (108,062) ------------ ------------ (21,484,698) (20,072,282) ------------ ------------ Net realized gain on securities Class A.......................................... (10,616,133) (3,000,509) Class B.......................................... (2,113,555) (527,033) Class C.......................................... (97,782) (20,463) ------------ ------------ (12,827,470) (3,548,005) ------------ ------------ Excess of book-basis net realized gain on securi- ties (see Note 1F) Class A.......................................... -- (6,103,576) Class B.......................................... -- (1,072,081) Class C.......................................... -- (41,626) ------------ ------------ -- (7,217,283) ------------ ------------ Total distributions.............................. (34,312,168) (30,837,570) ------------ ------------ CAPITAL TRANSACTIONS Proceeds from shares sold Class A.......................................... 32,538,812 74,987,593 Class B.......................................... 9,004,646 30,149,379 Class C.......................................... 893,158 3,699,355 ------------ ------------ 42,436,616 108,836,327 ------------ ------------ Proceeds from shares issued for distributions re- invested Class A.......................................... 23,099,241 21,238,092 Class B.......................................... 4,226,608 3,463,734 Class C.......................................... 169,766 114,241 ------------ ------------ 27,495,615 24,816,067 ------------ ------------ Cost of shares redeemed Class A.......................................... (79,892,008) (105,939,736) Class B.......................................... (15,835,156) (12,924,220) Class C.......................................... (1,090,026) (1,240,785) ------------ ------------ (96,817,190) (120,104,741) ------------ ------------ Increase (decrease) in net assets resulting from capital transactions............................. (26,884,959) 13,547,653 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS................. 32,088,406 (49,198,950) ------------ ------------ NET ASSETS, end of period (including undistributed net investment income of $714,396 and $947,668, respectively).................................... $476,222,152 $444,133,746 ============ ============
See Notes to Financial Statements B-40 103 FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each of the periods indicated. - --------------------------------------------------------------------------------
Class A ----------------------------------------- Year Ended December 31 ----------------------------------------- 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of peri- od................................. $13.24 $15.12 $14.95 $14.92 $12.93 ------ ------- ------ ------- ------ INCOME FROM OPERATIONS Investment income.................. .83 .78 .85 .90 .955 Expenses........................... (.15) (.15) (.16) (.15) (.13) ------ ------- ------ ------- ------ Net investment income............... .68 .63 .69 .75 .825 Net realized and unrealized gain (loss) on securities............... 2.25 (1.5625) 1.365 .6275 2.085 ------ ------- ------ ------- ------ Total from investment operations.... 2.93 (.9325) 2.055 1.3775 2.91 ------ ------- ------ ------- ------ LESS DISTRIBUTIONS FROM Net investment income.............. (.7025) (.62) (.66) (.84) (.92) Net realized gain on securities.... (.4175) (.108) (1.225) (.5075) -- Excess of book-basis net realized gain on securities (see Note 1F)..................... -- (.2195) -- -- -- ------ ------- ------ ------- ------ Total distributions................. (1.12) (.9475) (1.885) (1.3475) (.92) ------ ------- ------ ------- ------ Net asset value, end of period...... $15.05 $13.24 $15.12 $14.95 $14.92 ====== ======= ====== ======= ====== TOTAL RETURN (/1/).................. 22.46% (6.43%) 13.56% 9.63% 23.08% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (mil- lions)............................. $394.5 $369.7 $432.3 $394.1 $385.5 Average net assets (millions)....... $384.9 $402.1 $419.1 $381.6 $356.4 Ratios to average net assets Expenses........................... 1.00% 1.04% 1.02% .99% .91% Net investment income.............. 4.62% 4.39% 4.37% 5.00% 5.86% Portfolio turnover rate............. 130% 105% 134% 85% 91%
(1) Total return does not consider the effect of sales charges. See Notes to Financial Statements B-41 104 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for a share of beneficial interest outstanding throughout each of the periods indicated. - --------------------------------------------------------------------------------
Class B(/1/) -------------------------------------- Year Ended December 31 -------------------------------------- 1995 1994 1993(/2/) 1992(/2/) - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period... $13.20 $15.07 $14.90 $14.91 ------ ------- ------ ------ INCOME FROM OPERATIONS Investment income..................... .83 .77 .83 .87 Expenses.............................. (.27) (.26) (.27) (.275) ------ ------- ------ ------ Net investment income.................. .56 .51 .56 .595 Net realized and unrealized gain (loss) on securities......................... 2.23 (1.5505) 1.375 .63 ------ ------- ------ ------ Total from investment operations....... 2.79 (1.0405) 1.935 1.225 ------ ------- ------ ------ LESS DISTRIBUTIONS FROM Net investment income................. (.5825) (.502) (.54) (.7275) Net realized gain on securities....... (.4175) (.108) (1.225) (.5077) Excess of book-basis net realized gain on securities (see Note 1F).......... -- (.2195) -- -- ------ ------- ------ ------ Total distributions.................... (1.00) (.8295) (1.765) (1.235) ------ ------- ------ ------ Net asset value, end of period......... $14.99 $13.20 $15.07 $14.90 ====== ======= ====== ====== TOTAL RETURN (/3/)..................... 21.46% (7.11%) 12.68% 8.56% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)... $78.1 $71.1 $60.1 $20.0 Average net assets (millions).......... $75.5 $69.7 $40.1 $7.9 Ratios to average net assets Expenses.............................. 1.81% 1.84% 1.73% 1.88% Net investment income................. 3.81% 3.63% 3.62% 4.08% Portfolio turnover rate................ 130% 105% 134% 85%
(1) Sales of Class B shares commenced on December 20, 1991 at a net asset value of $14.32 per share. At December 31, 1991, there were 15,738 Class B shares outstanding with a per share net asset value of $14.91. The increase in net asset value was due principally to unrealized appreciation; there were no dividends or distributions paid during the period. Other financial highlights for the Class B shares for this short period are not presented as they are not meaningful. (2) Based on average month-end shares outstanding. (3) Total return does not consider the effect of sales charges. See Notes to Financial Statements B-42 105 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for a share of beneficial interest outstanding throughout each of the periods indicated. - --------------------------------------------------------------------------------
Class C ------------------------------ October 26, Year Ended 1993(/1/) December 31 through --------------- December 31, 1995 1994 1993(/2/) - ------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period........... $13.25 $15.13 $16.14 ------ ------- ------- INCOME FROM OPERATIONS Investment income............................. .83 .78 .22 Expenses...................................... (.27) (.26) (.07) ------ ------- ------- Net investment income.......................... .56 .52 .15 Net realized and unrealized gain (loss) on securities.................................... 2.26 (1.5705) (.0325) ------ ------- ------- Total from investment operations............... 2.82 (1.0505) .1175 ------ ------- ------- LESS DISTRIBUTIONS FROM Net investment income......................... (.5825) (.502) (.125) Net realized gain on securities............... (.4175) (.108) (1.0025) Excess of book-basis net realized gain on se- curities (see Note 1F)....................... -- (.2195) -- ------ ------- ------- Total distributions............................ (1.00) (.8295) (1.1275) ------ ------- ------- Net asset value, end of period................. $15.07 $13.25 $15.13 ====== ======= ======= TOTAL RETURN (/3/)............................. 21.52% (7.14%) .93% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)........... $3.6 $3.3 $1.1 Average net assets (millions).................. $3.5 $2.8 $0.7 Ratios to average net assets (annualized) Expenses...................................... 1.80% 1.84% 1.90% Net investment income......................... 3.80% 3.72% 3.88% Portfolio turnover rate........................ 130% 105% 134%
(1) Commencement of offering of sales (2) Based on average month-end shares 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. See Notes to Financial Statements B-43 106 NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1--SIGNIFICANT ACCOUNTING POLICIES The Van Kampen American Capital Harbor Fund (the "Fund", formerly American Capital Harbor Fund, Inc.) is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company. The Fund seeks to provide income, capital appreciation, and conservation of capi- tal by investing primarily in convertible bonds and preferred stocks. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The prep- aration of financial statements in conformity with generally accepted account- ing principles requires management to make estimates and assumptions that affect the amounts reported. Actual amounts may differ from the estimates. A. INVESTMENT VALUATIONS-Securities listed or traded on a national securities exchange are valued at the last sale price. Unlisted securities and listed se- curities for which the last sale price is not available are valued at the most recent bid price, except unlisted convertible securities, which are valued at the higher of their bid price or the value of the securities issuable on con- version. 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. 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 exist as to an issuer's ability to meet principal and interest payments. Debt securities rated below investment grade and compa- rable unrated securities represented approximately 28% of the investment port- folio at the end of the period. B. FUTURES CONTRACTS-Transactions in futures contracts are utilized in strate- gies to manage the market risk of the Fund's investments. The purchase of a futures contract increases the impact on net asset value of changes in the market price of investments. There is also a risk that the market movement of such instruments may not be in the direction forecasted. Upon entering into futures contracts, the Fund maintains, in a segregated account with its custodian, securities with a value equal to its obligation under the futures contracts. A portion of these funds are held as collateral in an account in the name of the broker, the Fund's agent in acquiring the futures position. During the period the futures contract is open, changes in the B-44 107 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- value of the contract ("variation margin") are recognized by marking the con- tract to market on a daily basis. As unrealized gains or losses are incurred, variation margin payments are received from or made to the broker. Upon the closing or cash settlement of a contract, gains or losses are realized. The cost of securities acquired through delivery under a contract is adjusted by the unrealized gain or loss on the contract. C. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in which the Fund acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. The Fund may in- vest independently in repurchase agreements, or transfer uninvested cash bal- ances into a pooled cash account along with other investment companies advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate of which is invested in repurchase agreements. Repurchase agreements are collateralized by the underlying debt security. The Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the custodian bank. The seller is re- quired to maintain the value of the underlying security at not less than the repurchase proceeds due the Fund. D. FEDERAL INCOME TAXES-No provision for federal income taxes is required 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 gains to its shareholders. E. 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. Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. F. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are recorded on the record date. 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 or distributions may exceed financial statement earnings. B-45 108 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- G. DEBT DISCOUNT OR PREMIUM-The Fund accounts for discounts and premiums on the same basis as is used for federal income tax reporting. Accordingly, orig- inal issue debt discounts are amortized over the life of the security. Premi- ums on debt securities are not amortized. Market discounts are recognized at the time of sale as realized gains for book purposes and ordinary income for tax purposes. NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Adviser serves as investment manager of the Fund. Management fees are paid monthly, based on the average daily net assets of the Fund at an annual rate of .55% of the first $350 million, .50% of the next $350 million, .45% of the next $350 million, and .40% of the amount in excess of $1.05 billion. 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 $12,883 as the Fund's share of the employee costs attribut- able to the Fund's accounting officers. A portion of the accounting services expense was paid to the Adviser in reimbursement of personnel, facilities, and equipment costs attributable to the provision of accounting services to the Fund. The services provided by the Adviser are at cost. 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 these services aggregated $776,543. The Fund has been advised that Van Kampen American Capital Distributors, Inc. (the "Distributor") and Advantage Capital Corporation (the "Retail Deal- er"), both affiliates of the Adviser, received $35,406 and $55,143, respec- tively, 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 their average net assets to reimburse the Distributor for expenses and service fees incurred. The Class B and C shares pay an additional fee of up to .75% per annum of their average daily net assets to reimburse the Distributor for its distribution expenses. Actual distribution expenses incurred by the Distributor for Class B and C shares may exceed the amounts reimbursed to the Distributor by the Fund. At the end of the period, the unreimbursed expenses incurred by the Distributor under the Class B and C plans aggregated approxi- mately $2.9 million and $43,000, respectively, and may be carried forward and reimbursed through either the collection of the contingent deferred sales charges from share redemptions or, subject to the annual renewal of the plans, future Fund reimbursements of distribution fees. Legal fees during the period were for services rendered by former counsel of the Fund, O'Melveny & Myers. A former trustee was of counsel to that firm. B-46 109 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- Certain officers and trustees 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 $548,689,375 and $548,591,450, respectively. For federal income tax purposes, the identified cost of investments owned at the end of the period was $444,415,618. Net unrealized appreciation of invest- ments aggregated $40,281,039, gross unrealized appreciation of investments ag- gregated $50,387,541 and gross unrealized depreciation of investments aggregated $10,106,502. NOTE 4--TRUSTEE COMPENSATION Fund Trustees who are not affiliated with the Adviser are compensated by the Fund at the annual rate of $1,212 plus a fee of $35 per day for Board and Com- mittee meetings attended. During the period, such fees aggregated $21,349. 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 C shares). All classes of shares have the same rights, except that Class B and C shares bear the cost of distribution fees and cer- tain other class specific expenses. Class B and C shares automatically convert to Class A shares six years and ten years after purchase, respectively, sub- ject to certain conditions. Realized and unrealized gains or losses, invest- ment 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. B-47 110 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:
Year Ended December 31 ------------------------ 1995 1994 - -------------------------------------------------------------------------------- Shares sold Class A.............................................. 2,212,572 5,205,597 Class B.............................................. 623,004 2,088,330 Class C.............................................. 60,362 256,253 ----------- ----------- 2,895,938 7,550,180 ----------- ----------- Shares issued for distributions reinvested Class A.............................................. 1,573,866 1,510,729 Class B.............................................. 288,403 248,107 Class C.............................................. 11,512 8,217 ----------- ----------- 1,873,781 1,767,053 ----------- ----------- Shares redeemed Class A.............................................. (5,489,901) (7,381,835) Class B.............................................. (1,095,295) (919,838) Class C.............................................. (74,811) (89,612) ----------- ----------- (6,660,007) (8,391,285) ----------- ----------- Increase (decrease) in shares outstanding............. (1,890,288) 925,948 ----------- -----------
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 additional trustees. On August 19, 1995, the reorganization became effective. B-48 111 PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements Included in the Prospectus: Financial Highlights Included in the Statement of Additional Information: Report of Independent Accountants Financial Statements Notes to Financial Statements (b) Exhibits 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 Registrant's Registration No. 2-12685, Post-Effective Amendment No. 69 filed February 21, 1992). 6.3 -- Form of Selling Agreement for banks and bank affiliated broker/dealers incorporated herein by reference (Exhibit 6.3 to Form N-1A of Registrant's Registration No. 2-12685, Post-Effective Amendment No. 69 filed February 21, 1992). 7 -- Inapplicable. 8.1 -- Custodian Agreement dated December 20, 1994, incorporated herein by reference (Exhibit 8 to Form N-1A of Van Kampen American Capital Global Managed Assets Fund, Registration No. 33-74024, Post-Effective Amendment No. 2 filed May 6, 1994). 8.2 -- Transfer Agency and Service Agreement. 9 -- Data Access Services Agreement dated December 2, 1993 incorporated herein by reference (Exhibit 9.2 to Form N-1A of Van Kampen American Capital Utilities Income Fund, Registration No. 33-68452, Post-Effective Amendment No. 1, filed on May 19, 1994). 10 -- Opinion of counsel. 11 -- Consent of Independent Accountants. 12 -- Inapplicable. 13 -- Inapplicable. 14.1 -- Individual Retirement Account Brochure with Application 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. 31, filed September 24, 1993).
C-1 112 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 14.4 to Form N-1A of Van Kampen American Capital Government Securities Fund, Registration No. 2-90482, Post-Effective Amendment No. 18, filed February 25, 1994). 14.5 -- Prototype Profit Sharing/Money Purchase Plan and Trust incorporated herein by reference (Exhibit 14.5 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). 14.6 -- 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). 15.1 -- Class A Distribution Plan. 15.2 -- Class B Distribution Plan. 15.3 -- Class C Distribution Plan. 15.4 -- Form of Servicing Agreement incorporated herein by reference (Exhibit 15.4 to Form N-1A of Registrant's Registration No. 2-12685, Post-Effective Amendment No. 76, filed August 17, 1995). 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. 76, filed August 17, 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. 19 -- Powers of Attorney incorporated herein by reference (Exhibit 19 to Form N-1A of Registrant's Registration No. 2-12685, Post-Effective Amendment No. 76 filed August 17, 1995. 27 -- Financial Data Schedules.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. C-2 113 ITEM 26. NUMBER OF HOLDERS OF SECURITIES. AS OF APRIL 23, 1996
(2) NUMBER OF RECORD HOLDERS (1) ---------------------------------------- TITLE OF CLASS CLASS A CLASS B CLASS C - ----------------- ------- ---------------- ------- Common shares of 25,444 5,317 333 beneficial interest, par value $0.01 per share
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 trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office. Conditional advancing of indemnification monies may be made if the trustee or officer undertakes to repay the advance unless it is ultimately determined that he or she is entitled to the indemnification and only if the following conditions are met: (1) the trustee or officer provides a security for the undertaking; (2) the Registrant is insured against losses arising from lawful advances; or (3) a majority of a quorum of the Registrant's disinterested, non-party trustees, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that a recipient of the advance ultimately will be found entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by the trustee, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. C-3 114 ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. See "Investment Advisory Services" in the Prospectus and "Trustees and 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 Officers" in Part B of this Registration Statement, none of such persons has any position or office with Registrant. (c) Not applicable. ITEM 30. LOCATION OF BOOKS AND RECORDS. All accounts, books and other documents required by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by Registrant will be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be maintained at its offices located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. ITEM 31. MANAGEMENT SERVICES. There are no management related services contracts not discussed in Part A or Part B. ITEM 32. UNDERTAKINGS. Registrant hereby undertakes, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, to call a meeting of shareholders for the purpose of voting upon the question of removal of a director or directors and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. Registrant hereby undertakes to furnish to each person to whom a prospectus is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge. C-4 115 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL HARBOR FUND, certifies that it meets all of the requirements for effectiveness of this Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Oakbrook Terrace and the State of Illinois, on the 19th day of April, 1996. VAN KAMPEN AMERICAN CAPITAL HARBOR FUND By: /s/ RONALD A. NYBERG --------------------------------------- Ronald A. Nyberg, Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment to this Registration Statement has been signed on April 19, 1996 by the following persons in the capacities indicated:
SIGNATURES TITLE - --------------------------------------------- ---------------------------- Principal Executive Officer: /s/ DON G. POWELL* President and Trustee - --------------------------------------------- Don G. Powell Principal Financial Officer: /s/ EDWARD C. WOOD III Vice President and Chief - --------------------------------------------- Financial Officer Edward C. Wood III Trustees: /s/ J. MILES BRANAGAN* Trustee - --------------------------------------------- J. Miles Branagan Trustee - --------------------------------------------- Linda Hutton Heagy /s/ ROGER HILSMAN* Trustee - --------------------------------------------- Roger Hilsman /s/ R. CRAIG KENNEDY* Trustee - --------------------------------------------- R. Craig Kennedy /s/ DENNIS J. MCDONNELL* Trustee - --------------------------------------------- Dennis J. McDonnell /s/ DONALD C. MILLER* Trustee - --------------------------------------------- Donald C. Miller /s/ JACK E. NELSON* Trustee - --------------------------------------------- Jack E. Nelson /s/ JEROME L. ROBINSON* Trustee - --------------------------------------------- Jerome L. Robinson /s/ FERNANDO SISTO* Trustee - --------------------------------------------- Fernando Sisto /s/ WAYNE W. WHALEN* Trustee - --------------------------------------------- Wayne W. Whalen /s/ WILLIAM S. WOODSIDE* Trustee - --------------------------------------------- William S. Woodside - ------------ * Signed by Ronald A. Nyberg pursuant to a power of attorney. /s/ RONALD A. NYBERG April 19, 1996 - --------------------------------------------- Ronald A. Nyberg Attorney-in-Fact
116 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND INDEX TO EXHIBITS TO AMENDMENT NO. 77 TO FORM N-1A AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1996
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------------------------------------------------------------------------------- 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. 11.1 -- Consent of Independent Accountants. 15.1 -- Class A Distribution Plan. 15.2 -- Class B Distribution Plan. 15.3 -- Class C 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). 18 -- Multiple Class Plan. 27 -- Financial Data Schedules.
EX-99.B1.1 2 DECLARATION OF TRUST 1 EXHIBIT 1.1 FIRST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST OF VAN KAMPEN AMERICAN CAPITAL HARBOR FUND Dated: June 21, 1995 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 ................................ 8 (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 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 ......................................... 12 (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 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 .......................................................... 17 (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 ........................................................ 21 (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 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 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 7 AGREEMENT AND DECLARATION OF TRUST OF VAN KAMPEN AMERICAN CAPITAL HARBOR 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 Harbor 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 8 ARTICLE I THE TRUST SECTION 1.1 Name. The name of the Trust shall be "VAN KAMPEN AMERICAN CAPITAL HARBOR 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 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 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. 4 11 "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. 5 12 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 6 13 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; 7 14 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; 8 15 (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 9 16 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 10 17 (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. 11 18 (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. 12 19 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 13 20 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 14 21 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 15 22 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 16 23 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. 17 24 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. 18 25 (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, 19 26 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 20 27 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 21 28 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 22 29 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 23 30 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 24 31 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. 25 32 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 26 33 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 27 34 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 28 35 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, 29 36 partnerships, associations or other organizations and selling, conveying or transferring a portion of the Trust Property to such organizations or entities. SECTION 9.5. Amendments; etc. All rights granted to the Shareholders under this Declaration of Trust are granted subject to the reservation of the right to amend this Declaration of Trust as herein provided, except that no amendment shall repeal the limitations on personal liability of any Shareholder or Trustee or the prohibition of assessment upon the Shareholders (otherwise than as permitted under Section 6.1(l)) without the express consent of each Shareholder or Trustee involved. Subject to the foregoing, the provisions of this Declaration of Trust (whether or not related to the rights of Shareholders) may be amended at any time, so long as such amendment does not adversely affect the rights of any Shareholder with respect to which such amendment is or purports to be applicable and so long as such amendment is not in contravention of applicable law, including the 1940 Act, by an instrument in writing signed by a Majority of the Trustees (or by an officer of the Trust pursuant to the vote of a Majority of the Trustees). Any amendment to this Declaration of Trust that adversely affects the rights of all Shareholders may be adopted at any time by an instrument in writing signed by a Majority of the Trustees (or by an officer of the Trust pursuant to a vote of a Majority of the Trustees) when authorized to do so by the vote in accordance with Section 7.I hereof of Shareholders holding a majority of all the Shares outstanding and entitled to vote, without regard to Series, or if said amendment adversely affects the rights of the Shareholders of less than all of the Series, by the vote of the holders of a majority of all the Shares entitled to vote of each Series so affected. Notwithstanding any other provisions set forth in this Declaration of Trust, a provision in this Declaration of Trust requiring shareholder approval of any action may be amended only with like shareholder approval. SECTION 9.6. Filing of Copies of Declaration and Amendments. The original or a copy of this Declaration and of each amendment hereto (including each Certificate of Designation and Certificate of Termination) shall be kept at the office of the Trust where it may be inspected by any Shareholder. A restated Declaration, integrating into a single instrument all of the provisions of this Declaration which are then in effect and operative, may be executed from time to time by a Majority of the Trustees and shall, upon execution, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration and the various amendments thereto. A Certificate of Trust shall be filed in the office of the Secretary of State of the State of Delaware. ARTICLE 10 MISCELLANEOUS SECTION 10.1. Notices. Any and all notices to which any Shareholder hereunder may be entitled and any and all communications shall be deemed duly served or given if mailed, postage prepaid, addressed to any Shareholder of record at his last known address as recorded on the applicable register of the Trust. SECTION 10.2. Governing Law. This Declaration of Trust is, with reference to the laws thereof, and the rights of all parties and the construction and effect of every provision hereof shall be, subject to and construed according to the laws of said The State of Delaware. SECTION 10.3. Counterparts. This Declaration of Trust and any amendment thereto may be simultaneously executed in several counterparts, each of which so executed shall be deemed to be an 30 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 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 Harbor 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 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 EX-99.B1.2 3 CERT. OF AMENDMENT 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 Harbor 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) 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 EX-99.B1.3 4 CERT. OF DESIGNATION 1 EXHIBIT 1.3 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND Certificate of Designation of Van Kampen American Capital Harbor Fund The undersigned, being the Secretary of Van Kampen American Capital Harbor 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 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 NORI L. GABERT - ---------------------------- Nori L. Gabert, Secretary 2 EX-99.B2 5 BYLAWS 1 EXHIBIT 2 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND AMENDED AND RESTATED BYLAWS (AS AMENDED NOVEMBER 17, 1995) 2 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND Amended and Restated Bylaws (As Amended November 17, 1995) Index 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
3 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
4 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
5 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND AMENDED AND RESTATED BYLAWS (AS AMENDED NOVEMBER 17, 1995) These are the Bylaws of Van Kampen American Capital Harbor 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 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 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 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, the term of office of each Trustee shall end on December 31st of the year such Trustee reaches the age of seventy-two (72); provided that the term of office of each Trustee shall end on December 31, 1996 for each Trustee who had been elected before January 1, 1987 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.) if such Trustee reaches the age of seventy-two (72) or more by December 31, 1995; provided the term of office of each Trustee shall end on December 31st of the year such Trustee reaches the age of seventy-six (76) for each Trustee who had been elected before January 1, 1987 as a trustee or director of any open-end investment company managed by Van Kampen American Capital Asset Management, Inc. if such Trustee is less than the age of seventy-two (72) by December 31, 1995; provided that the term of office of each Trustee shall end on December 31st of the year such Trustee reaches the age of seventy-five (75) for each Trustee first elected on or after July 1, 1995 and prior to December 1, 1995 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 shall end on December 31st of the year such Trustee reaches the age of seventy-six (76) for each Trustee first elected on or after July 1, 1995 and prior to December 1, 1995 who was the age of seventy-five (75) or older at the time of such election. 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 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 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 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 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 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 EX-99.B4.1 6 SPECIMEN CLASS A CERT. 1 EXHIBIT 4.1 NUMBER SHARES __________ __________ VAN KAMPEN AMERICAN CAPITAL HARBOR 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 Harbor 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 HARBOR 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 HARBOR 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 ---------------------------------------- ---------------------------------------- ---------------------------------------- 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 EX-99.B4.2 7 SPECIMEN CLASS B CERT. 1 EXHIBIT 4.2 NUMBER SHARES __________ __________ VAN KAMPEN AMERICAN CAPITAL HARBOR 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 Harbor 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 HARBOR 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 HARBOR 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 ---------------------------------------- ---------------------------------------- ---------------------------------------- 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 EX-99.B4.3 8 SPECIMEN CLASS C CERT. 1 EXHIBIT 4.3 NUMBER SHARES __________ __________ VAN KAMPEN AMERICAN CAPITAL HARBOR 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 Harbor 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 HARBOR 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 HARBOR 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 ---------------------------------------- ---------------------------------------- ---------------------------------------- 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 EX-99.B5 9 ADVISORY AGREEMENT 1 EXHIBIT 5 INVESTMENT ADVISORY AGREEMENT AGREEMENT (herein so called) made this 19th day of August, 1995, by and between VAN KAMPEN AMERICAN CAPITAL HARBOR FUND, a Delaware business trust (hereinafter referred to as the "FUND"), and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the "ADVISER"). The FUND and the ADVISER agree as follows: (1) Services Rendered and Expenses Paid by ADVISER The ADVISER, subject to the control, direction and supervision of the FUND's Trustees and in conformity with applicable laws, the FUND's Agreement and Declaration of Trust ("Declaration of Trust"), By-laws, registration statements, prospectus and stated investment objectives, policies and restrictions, shall: a. manage the investment and reinvestment of the FUND's assets including, by way of illustration, the evaluation of pertinent economic, statistical, financial and other data, determination of the industries and companies to be represented in the FUND's portfolio, and formulation and implementation of investment programs; b. maintain a trading desk and place all orders for the purchase and sale of portfolio investments for the FUND's account with brokers or dealers selected by the ADVISER; c. conduct and manage the day-to-day operations of the FUND including, by way of illustration, the preparation of registration statements, prospectuses, reports, proxy solicitation materials and amendments thereto, the furnishing of routine legal services except for services provided by outside counsel to the FUND selected by the Trustees, and the supervision of the FUND's Treasurer and the personnel working under his direction; and d. furnish to the FUND office space, facilities, equipment and personnel adequate to provide the services described in paragraphs a., b., and c. above and pay the compensation of each FUND trustee and FUND officer who is an affiliated person of the ADVISER, except the compensation of the FUND's Treasurer and related expenses as provided below. In performing the services described in paragraph b. above, the ADVISER shall use its best efforts to obtain for the FUND the most favorable price and execution available and shall maintain records adequate to demonstrate compliance with this requirement. Subject to prior authorization by the FUND's Trustees of appropriate policies and procedures, the ADVISER may, to the extent authorized by law, cause the FUND to pay a broker or dealer that provides brokerage and research services to the ADVISER an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would 2 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 directors and officers other than those who are affiliated persons of the ADVISER; (iv) compensation of its Treasurer, compensation of personnel working under the Treasurer's direction, and expenses of office space, facilities, and equipment used by the Treasurer and such personnel in the performance of their normal duties for the FUND which consist of maintenance of the accounts, books and other documents which constitute the record forming the basis for the FUND's financial statements, preparation of such financial statements and other FUND documents and reports of a financial nature required by federal and state laws, and participation in the production of the FUND's registration statement, prospectuses, proxy solicitation materials and reports to shareholders; (v) fees of outside counsel to and of independent accountants of the FUND selected by the Trustees; (vi) custodian, registrar and shareholder service agent fees and expenses; (vii) expenses related to the repurchase or redemption of its shares including expenses related to a program of periodic repurchases or redemptions; (viii) expenses related to the issuance of its shares against payment therefor by or on behalf of the subscribers thereto; (ix) fees and related expenses of registering and qualifying the FUND and its shares for distribution under state and federal securities laws; (x) expenses of printing and mailing of registration statements, prospectuses, reports, notices and proxy solicitation materials of the FUND; (xi) all other expenses incidental to holding meetings of the FUND's shareholders including proxy solicitations therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage and errors and omissions insurance; (xiv) dues for the FUND's membership in trade associations approved by the Trustees; and (xv) such nonrecurring expenses as may arise, including those associated with actions, suits or proceedings to which the FUND is a party and the legal obligation which the FUND may have to indemnify its officers and trustees with respect thereto. To the extent that any of the foregoing expenses are allocated between the FUND and any other party, such allocations shall be pursuant to methods approved by the Trustees. (2) Role of ADVISER The ADVISER, and any person controlled by or under common control with the ADVISER, shall be free to render similar services to 2 3 others and engage in other activities, so long as the services rendered to the FUND are not impaired. Except as otherwise required by the Investment Company Act of 1940 (the "1940 Act"), any of the shareholders, trustees, officers and employees of the FUND may be a shareholder, trustee, director, officer or employee of, or be otherwise interested in, the ADVISER, and in any person controlled by or under common control with the ADVISER, and the ADVISER, and any person controlled by or under common control with the ADVISER, may have an interest in the FUND. Except as otherwise agreed, in the absence of willful misfeasance, bad faith, negligence or reckless disregard of obligations or duties hereunder on the part of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or to any shareholder of the FUND, for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. (3) Compensation Payable to ADVISER The FUND shall pay to the ADVISER, as compensation for the services rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee computed at the following annual rates: .55% on the first $350 million of the FUND's average daily net assets; .50% on the next $350 million of the FUND's average daily net assets; .45% on the next $350 million of the FUND's average daily net assets; and .40% of any excess over $1.05 billion. 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 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. 3 4 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 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 4 5 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 HARBOR 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 EX-99.B6.1 10 UNDERWRITING AGREEMENT 1 EXHIBIT 6.1 UNDERWRITING AGREEMENT between VAN KAMPEN AMERICAN CAPITAL HARBOR FUND and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. THIS AGREEMENT made this 19th day of August, 1995, by and between VAN KAMPEN AMERICAN CAPITAL HARBOR 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 1 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 2 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. 3 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 Articles of Incorporation 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 4 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 CAPITAL HARBOR FUND By: /s/ NORI L. GABERT ---------------------------------------- Name: Nori L. Gabert -------------------------------------- Its: Vice President --------------------------------------- 5 EX-99.B8.2 11 SERVICING AGREEMENT 1 EXHIBIT 8.2 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the 31st day of July, 1995 by and between each of the VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto, which are organized under the laws of the state and as the entities set forth in Schedule "A" hereto, having their principal office and place of business at Houston, Texas (collectively, the "Funds"), and ACCESS INVESTOR SERVICES, INC., a Delaware corporation, having its principal office at Houston, Texas, and its principal place of business at Kansas City, Missouri ("ACCESS"). R E C I T A L: WHEREAS, each of the Funds desires to appoint ACCESS as its transfer agent, dividend disbursing agent and shareholder service agent and ACCESS desires to accept such appointments; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF ACCESS. 1.01 Subject to the terms and conditions set forth in this Agreement, each of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend disbursing agent and shareholder service agent. 1.02 ACCESS hereby accepts such employment and appointments and agrees that on and after the effective date of this Agreement it will act as the transfer agent, dividend disbursing agent and shareholder service agent for each of the Funds on the terms and conditions set forth herein. 1.03 ACCESS agrees that its duties and obligations hereunder will be performed in a competent, efficient and workmanlike manner with due diligence in accordance with reasonable industry practice, and that the necessary facilities, equipment and personnel for such performance will be provided. 1.04 In order to assure compliance with section 1.03 and to implement a cooperative effort to improve the quality of transfer agency and shareholder services received by each of the Funds and its shareholders, 1 2 ACCESS agrees to provide and maintain quantitative performance objectives, including maximum target turn-around times and maximum target error rates, for the various services provided hereunder. ACCESS also agrees to provide a reporting system designed to provide the Board of Trustees or Board of Directors of each of the Funds (the "Board") on a quarterly basis with quantitative data comparing actual performance for the period with the performance objectives. The foregoing procedures are designed to provide a basis for continuing monitoring by the Board of the quality of services rendered hereunder. ARTICLE 2. FEES AND EXPENSES. 2.01 For the services to be performed by ACCESS pursuant to this Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee schedules agreed upon from time to time by each of the Funds and ACCESS. 2.02 In addition to the amounts paid under section 2.01 above, each of the Funds agrees to reimburse ACCESS promptly for such Fund's reasonable out-of-pocket expenses or advances paid on its behalf by ACCESS in connection with its performance under this Agreement for postage, freight, envelopes, checks, drafts, continuous forms, reports and statements, telephone, telegraph, costs of outside mailing firms, necessary outside record storage costs, media for storage of records (e.g., microfilm, microfiche and computer tapes) and printing costs incurred due to special requirements of such Fund. In addition, any other special out-of-pocket expenses paid by ACCESS at the specific request of any of the Funds will be promptly reimbursed by the requesting Fund. Postage for mailings of dividends, proxies, Fund reports and other mailings to all shareholder accounts shall be advanced to ACCESS by the concerned Fund three business days prior to the mailing date of such materials. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS. ACCESS represents and warrants to each of the Funds that: 3.01 It is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.02 It is duly qualified to carry on its business in the states of Texas and Missouri. 3.03 It is empowered under applicable laws and by its charter and bylaws to enter into and perform this Agreement. 2 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 3 4 reductions made during such year, but not exceeding the sum of that month's credit and credits arising in prior months during such year to the extent such prior credits have not previously been utilized as contemplated by this paragraph (c). Any portion of a credit to ACCESS not so used shall remain as a credit to be used as payment against the amount of any future negative cumulative net effects that would otherwise require a payment or fee reduction to such Fund pursuant to paragraph (b) above. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUNDS. Each of the Funds hereby represents and warrants on behalf of itself only and not any other Funds that are a party to this Agreement that: 4.01 It is duly organized and existing and in good standing under the laws of the commonwealth or state set forth in Schedule "A" hereto. 4.02 It is empowered under applicable laws and regulations and by its Declaration of Trust or Articles of Incorporation and by-laws to enter into and perform this Agreement. 4.03 All requisite proceedings have been taken by its Board to authorize it to enter into and perform this Agreement. 4.04 It is an open-end, diversified, management investment company registered under the Investment Company Act of 1940, as amended. 4.05 A registration statement under the Securities Act of 1933, as amended, is currently effective and will remain effective, and appropriate state securities laws filings have been made and will continue to be made, with respect to all of its shares being offered for sale. ARTICLE 5. INDEMNIFICATION. 5.01 ACCESS shall not be responsible for and each of the Funds shall indemnify and hold ACCESS harmless from and against any and all losses, damages, costs, charges, reasonable counsel fees, payments, expenses and liabilities arising out of or attributable to: 4 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 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 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 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 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 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 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 EX-99.B10 12 OPINION OF COUNSEL 1 EXHIBIT 10 April 24, 1996 Van Kampen American Capital Harbor Fund One Parkview Plaza Oakbrook Terrace, IL 60181 Re: Van Kampen American Capital Harbor Fund -- Registration Statement on Form N-1A (File Nos. 2-12685 and 811-734) Ladies and Gentlemen: We have acted as special counsel to Van Kampen American Capital Harbor Fund (the "Trust"), a Delaware business trust, which was formerly known as American Capital Harbor Fund, Inc. (the "Former Trust"), a Maryland corporation, in connection with the preparation of Post-Effective Amendment No. 77 to the Trust's Registration Statement on Form N-1A (as amended, the "Registration Statement") to be filed under the Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as amended (the "1940 Act"), with the Securities and Exchange Commission (the "Commission") on April 24, 1996. The Registration Statement relates to the registration under the 1933 Act and 1940 Act of 6,678,154 shares of beneficial interest, par value $.01 per share, of the Trust (collectively, the "Shares"). As of August 19, 1995, the Former Trust was reorganized from 2 Van Kampen American Capital Harbor Fund April 24, 1996 Page 2 a Maryland corporation into the Trust as a Delaware business trust, and the Trust has adopted and succeeded, pursuant to Rule 414 under the Securities Act of 1933, as amended (the "Securities Act"), to the registration statement and prior Rule 24f-2 notices of the Former Trust. This opinion is delivered in accordance with the requirements of Item 24(b)(10) of Form N-1A under the 1933 Act and the 1940 Act. In connection with this opinion, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of the following documents: (i) the First Amended and Restated Agreement and Declaration of Trust of the Trust dated June 21, 1995, as amended to the date hereof; (ii) the Certificate of Trust of the Trust dated May 10, 1995, as amended to the date hereof; (iii) the Certificate of Designation of Van Kampen American Capital Harbor Fund, currently the only series of the Trust, dated June 21, 1995, as amended to the date hereof; (iv) the By-laws of the Trust, as amended to the date hereof; 3 Van Kampen American Capital Harbor Fund April 24, 1996 Page 3 (v) the Agreement and Plan of Reorganization dated as of July 21, 1995 providing for the reorganization of the Former Trust into the Trust; (vi) copies of certain resolutions adopted by the Board of Trustees of the Trust relating to the authorization, issuance and sale of the Shares and furnished to us by the Trust; and (vii) such other agreements, documents, certificates and other records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In such examination, we have assumed the legal capacity of natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed, photostatic, or other copies and the authenticity of the originals of such latter documents. As to any facts material to such opinion which were not independently established, we have relied on statements or representations of officers and other representatives of the Trust or others. Members of this Firm are admitted to the practice of law in the State of Delaware and we express no opinion as to the law of any other jurisdiction. 4 Van Kampen American Capital Harbor Fund April 24, 1996 Page 4 Based upon and subject to the foregoing, we are of the opinion that the issuance and sale of Shares by the Trust have been validly authorized and, assuming certificates therefor have been duly executed and delivered or the shareholders' accounts have been duly credited and the Shares represented thereby have been fully paid for, such Shares were validly issued, fully paid and nonassessable. 5 Van Kampen American Capital Harbor Fund April 24, 1996 Page 5 We hereby consent to the filing of this opinion with the Commission as Exhibit 10 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Counsel" in the Registration Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the Commission. Very truly yours, /s/ Skadden, Arps, Slate, Meagher & Flom EX-99.B11.1 13 CONSENT 1 EXHIBIT 11.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Statement of Additional Information constituting part of this Post-Effective Amendment No. 77, Amendment No. 25 to the registration statement on Form N-1A (the "Registration Statement") of our report dated February 9, 1996, relating to the financial statements and financial highlights of Van Kampen American Capital Harbor 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 Houston, Texas April 19, 1996 EX-99.B15.1 14 CLASS A DISTRIBUTION PLAN 1 EXHIBIT 15.1 CLASS A DISTRIBUTION PLAN OF VAN KAMPEN AMERICAN CAPITAL HARBOR FUND Section 1. Van Kampen American Capital Harbor 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 average daily net assets of the Fund's Class A shares. Section 3. Amounts set forth in Section 2 may be expended when and if authorized in advance by the Fund's Trustees. Such amounts may be used to finance any activity which is primarily intended to result in the sale of the Fund's shares or the retention of shares by investors, including but not limited to, expenses of organizing and conducting sales seminars, printing of prospectuses and reports for other than existing shareholders, preparation and distribution of advertising material and sales literature, supplemental payments to dealers under a dealer incentive program to be established by Van Kampen American Capital Distributors, Inc. ("VKAC") as the Fund's Distributor in accordance with Section 4, and the costs of administering such a program. All amounts expended pursuant to the Plan shall be paid to VKAC. VKAC shall be required to use such amounts exclusively to finance those activities set forth in Sections 3 and 4 of the Plan. Section 4. (a) Amounts expended by the Fund under the Plan shall be used primarily for the implementation by VKAC of a dealer incentive program and to pay the cost of administering the calculation of payments under such program. (b) Pursuant to this program, VKAC may enter into agreements ("Servicing Agreements") with such broker/dealers ("Dealers") as may be selected from time to time by VKAC for the provision of distribution assistance in connection with the sale of shares of the Fund ("Shares") to the Dealers' clients and customers ("Customers") and for the provision of administrative support services to Customers who may from time to time directly or beneficially own Shares. The distribution assistance and administrative support services to be rendered by Dealers under the Servicing Agreements may include, but shall not be limited to, the following: distributing sales literature; answering routine Customer inquiries concerning the Fund; assisting Customers in changing dividend options, account designations and addresses, and 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. 2 3 Section 11. This Plan may not be amended to increase materially the amount of distribution expenses provided for in Section 2 hereof unless such amendment is approved in the manner provided in 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 HARBOR FUND By: /s/ NORI L. GABERT ------------------------- Name: Nori L. Gabert Its: Vice President Plan effective as of: August 19, 1995 3 EX-99.B15.2 15 CLASS B DISTRIBUTION PLAN 1 EXHIBIT 15.2 CLASS B DISTRIBUTION PLAN OF VAN KAMPEN AMERICAN CAPITAL HARBOR FUND WHEREAS, Van Kampen American Capital Harbor 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 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 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 Harbor Fund By: /s/ NORI L. GABERT ------------------------- Name: Nori L. Gabert Its: Vice President Plan effective as of: August 19, 1995 3 EX-99.B15.3 16 CLASS C DISTRIBUTION PLAN 1 EXHIBIT 15.3 CLASS C DISTRIBUTION PLAN OF VAN KAMPEN AMERICAN CAPITAL HARBOR FUND WHEREAS, Van Kampen American Capital Harbor 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 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 Funds' 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 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 Harbor Fund By: /s/ NORI L. GABERT ------------------------ Name: Nori L. Gabert Its: Vice President Plan effective as of: August 19, 1995 3 EX-99.B16 17 PERFORMANCE INFORMATION 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 Class A shares for the 1, 5 and 10 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: P(1+T)[n]=ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 and 10 year periods (or fractional portion thereof);
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 1, 5 and 10 year periods and the deduction of all nonrecurring charges, if any, deducted at the end of such period or periods. 2 COMPUTATION MEASURE FOR PERFORMANCE INFORMATION 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: P(1+T)[n]=ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the designated period or periods at the end of the designated period or periods (or fractional portion thereof);
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. 3 COMPUTATION MEASURE FOR PERFORMANCE INFORMATION 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: P(1+T)[n]=ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the designated period or periods at the end of the designated period or periods (or fractional portion thereof);
These calculations incorporate the following assumptions: 1. Assumes an initial $1,000 payment with a 1.00% 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. EX-99.B17.1 18 INVESTMENT COMPANIES 1 EXHIBIT 17.1 INVESTMENT COMPANIES FOR WHICH VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS INC. ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR MARCH 21, 1996 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 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 Internet Trust Michigan Real Estate Income and Growth Trust Van Kampen American Capital Insured Income Trust Strategic Ten Trust, United States Strategic Ten Trust, United Kingdom Strategic Ten Trust, Hong Kong Strategic Five Trust, United States Van Kampen American Capital Equity Opportunity Trust Principal Trust Princor Emerging Growth and Treasury International Assets Advisory Corporation Global Blue Chip Trust 3 Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . Series 1 Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 368 Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . Series 5 through 13 Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . Series 1 through 103 1000 Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . Series 5 through 86 Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . Series 9 through 83 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 93 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 18 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 150 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 79 Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . Series 1 through 18 Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . Series 1 through 29 Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . Series 1 Delaware Investors' 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 101 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 78 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 57 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 75 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 135 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 94 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
4 New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . Series 1 through 18 New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . Series 1 through 109 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 131 New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 New York Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 17 New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1 North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . Series 1 through 85 Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 101 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 215 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 Stepstone Growth Equity and Treasury Securities Trust . . . . . . . . . . . . . Series 1 Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-34 Texas Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 40 Texas Insured Municipals Income Trust (Intermediate Ladder) . . . . . . . . . . Series 1 Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . Series 1 through 69 Van Kampen American Capital Equity Opportunity Trust . . . . . . . . . . . . . . Series 1 through 28 Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . Series 1 through 6 Van Kampen American Capital Insured Income Trust . . . . . . . . . . . . . . . . Series 1 through 53 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 6 Principal Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . Series 1 Internet Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 Michigan Real Estate Income and Growth Trust . . . . . . . . . . . . . . . . . . Series 1 Strategic Ten Trust, United States . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7 Strategic Ten Trust, United Kingdom . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7 Strategic Ten Trust, Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7 Strategic Five Trust, United States . . . . . . . . . . . . . . . . . . . . . . Series 1 Equity Opportunity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 29 Emerging Growth and Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 Global Blue Chip Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
EX-99.B17.2 19 OFFICERS AND DIRECTORS 1 EXHIBIT 17.2 OFFICERS VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
NAME OFFICE LOCATION - ---- ------ -------- 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 Colette Saucedo Sr. Vice President Houston, TX 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 Dominic C. Martellaro 1st Vice President San Francisco, CA 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 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 James J. Boyne Vice President & Assistant Secretary 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
2 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 Nicholas Joseph Foxhoven Vice President Denver, CO 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 Susan J. Hill Vice President Oakbrook Terrace, IL 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 Jeffrey C. Shirk Vice President Boston, MA 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 Jeff Warland Vice President Oakbrook Terrace, IL Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL Secretary Steven T. West Vice President Wayne, PA Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL Counsel & Asst. Secretary James R. Yount Vice President Seattle, WA Richard P. Zgonina Vice President Oakbrook Terrace, IL Brian P. Arcara Asst. Vice President Philadelphia, PA Christopher M. Bisaillon Asst. Vice President Oakbrook Terrace, IL Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL Billie J. Bronaugh Asst. Vice President Houston, TX Robert C. Brooks Asst. Vice President Manchester, MA Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
3 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 Daniel R. DeJong 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 Hunter Knapp Asst. Vice President Laguna, CA Natalie N. Hurdle Asst. Vice President New York, NY Laurie L. Jones Asst. Vice President Houston, TX Jeffrey Scott Kinney Asst. Vice President Oakbrook Terrace, IL Patricia D. Lathrop Asst. Vice President Tampa, FL Tony E. Leal Asst. Vice President Houston, TX Linda S. MacAyeal Asst. Vice President Oakbrook Terrace, IL Ann Therese McGrath Asst. Vice President Oakbrook Terrace, IL 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 Jeffrey S. Rourke Asst. Vice President Oakbrook Terrace, IL Thomas J. Sauerborn Asst. Vice President New York, NY Bruce Saxon Asst. Vice President Oakbrook Terrace, IL 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 Robert A. Watson 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
4 DIRECTORS VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
NAME OFFICE LOCATION - ---- ------ -------- 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
EX-99.B18 20 MULTI-CLASS PLAN 1 Exhibit 18 MULTI-CLASS PLAN FOR VAN KAMPEN AMERICAN CAPITAL FAMILY OF FUNDS This Plan is adopted pursuant to Rule 18f-3 under the Act to provide for the issuance and distribution of multiple classes of shares by each of the Funds in accordance with the terms, procedures and conditions set forth below. A majority of the Trustees of the Funds, including a majority of the Trustees who are not interested persons of the Funds within the meaning of the Act, found this Multi-Class Plan, including the expense allocations, to be in the best interest of each Fund and each Class of Shares of each Fund and adopted this Plan on January 26, 1996. A. Definitions. As used herein, the terms set forth below shall have the meanings ascribed to them below. 1. The Act - Investment Company Act of 1940, as amended. 2. CDSC - contingent deferred sales charge. 3. CDSC Period - the period of years following acquisition during which Shares are assessed a CDSC upon redemption. 4. Class - a class of Shares of a Fund. 5. Class A Shares - shall have the meaning ascribed in Section B. 1. 6. Class B Shares - shall have the meaning ascribed in Section B. 1. 7. Class C Shares - shall have the meaning ascribed in Section B. 1. 8. Distribution Expenses - expenses incurred in activities which are primarily intended to result in the distribution and sale of Shares as defined in a Plan of Distribution and/or board resolutions. 9. Distribution Fee - a fee paid by a Fund to the Distributor in reimbursement of Distribution Expenses. 10. Distributor - Van Kampen American Capital Distributors, Inc. 11. Fund - an investment company listed on Exhibit A hereto and each series thereof. 2 12. Money Market Fund - Van Kampen American Capital Reserve Fund or Van Kampen American Capital Tax Free Money Market Fund. 13. Plan of Distribution - Any plan adopted under Rule 12b-1 under the Act with respect to payment of a Distribution Fee. 14. Service Fee - a fee paid to financial intermediaries for the ongoing provision of personal services to Fund shareholders and/or the maintenance of shareholder accounts. 15. Share - a share of beneficial interest in a Fund. 16. Trustees - the trustees of a Fund. B. Classes. Each Fund may offer three Classes as follows: 1. Class A Shares. Class A Shares shall be offered at net asset value plus a front-end sales charge as approved from time to time by the Trustees and set forth in the Funds' prospectus, which may be reduced or eliminated for Money Market Funds, larger purchases, under a combined purchase privilege, under a right of accumulation, under a letter of intent or for certain categories of purchasers as permitted by Rule 22(d) of the Act and as set forth in the Fund's prospectus. Class A Shares that are not subject to a front-end sales charge as a result of the foregoing, may be subject to a CDSC for the CDSC Period set forth in Section D.1. The offering price of Shares subject to a front-end sales charge shall be computed in accordance with Rule 22c-1 and Section 22(d) of the Act and the rules and regulations thereunder. Class A Shares shall be subject to ongoing Service Fees approved from time to time by the Trustees and set forth in the Funds' prospectus. Although shares of Van Kampen American Capital Tax Free Money Market Fund are not designated as "Class A" they are substantially similar to Class A Shares as defined herein and shall be treated as Class A shares for the purposes of this Plan. 2. Class B Shares. Class B Shares shall be (1) offered at net asset value, (2) subject to a CDSC for the CDSC Period set forth in Section D.1, (3) subject to ongoing Service Fees and Distribution Fees approved from time to time by the Trustees and set forth in the Funds' prospectus and (4) converted to Class A Shares three to ten years after the calendar month in which the shareholder's order to purchase was accepted, which number of years shall be as approved from time to time by the Trustees and set forth in the respective Fund's prospectus. 3. Class C Shares. Class C Shares shall be (1) offered at net asset value, (2) subject to a CDSC for the CDSC Period set forth in Section D.1., (3) subject 2 3 to ongoing Service Fees and Distribution Fees approved from time to time by the Trustees and set forth in the Funds' prospectus and (4) converted to Class A Shares eight to fifteen years after the calendar month in which the shareholder's order to purchase was accepted, which number of years shall be as approved from time to time by the Trustees and set forth in the respective Fund's prospectus. C. Rights and Privileges of Classes. Each Class of each Fund will represent an interest in the same portfolio of investments of that Fund and will have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, designations and terms and conditions except as described otherwise herein. D. CDSC. A CDSC may be imposed upon redemption of Class A Shares, Class B Shares and Class C Shares that do not incur a front end sales charge subject to the following conditions: 1. CDSC Period. The CDSC Period for Class A Shares and Class C Shares shall be one year. The CDSC Period for Class B Shares shall be at least three but not more than ten years as recommended by the Distributor and approved by the Trustees. 2. CDSC Rate. The CDSC rate shall be recommended by the Distributor and approved by the Trustees. If a CDSC is imposed for a period greater than one year the CDSC rate must decline during the CDSC Period such that (a) the CDSC rate is less in the last year of the CDSC Period than in the first and (b) in each succeeding year the CDSC rate shall be less than or equal to the CDSC rate in the preceding year. 3. Disclosure and Changes. The CDSC rates and CDSC Period shall be disclosed in a Fund's prospectus and may be decreased at the discretion of the Distributor but may not be increased unless approved as set forth in Section L. 4. Method of Calculation. The CDSC shall be assessed on an amount equal to the lesser of the then current market value or the cost of the Shares being redeemed. No sales charge shall be imposed on increases in the net asset value of the Shares being redeemed above the initial purchase price. No CDSC shall be assessed on Shares derived from reinvestment of dividends or capital gains distributions. The order in which Class B Shares and Class C Shares are to be redeemed when not all of such Shares would be subject to a CDSC shall be as determined by the Distributor in accordance with the provisions of Rule 6c-10 under the Act. 5. Waiver. The Distributor may in its discretion waive a CDSC otherwise due upon the redemption of Shares under circumstances previously approved by 3 4 the Trustees and disclosed in the Fund's prospectus or statement of additional information and as allowed under Rule 6c-10 under the Act. 6. Calculation of offering price. The offering price of Shares subject to a CDSC shall be computed in accordance with Rule 22c-1 and Section 22(d) of the Act and the rules and regulations thereunder. 7. Retention by Distributor. The CDSC paid with respect to Shares of a Fund may be retained by the Distributor to reimburse the Distributor for commissions paid by it in connection with the sale of Shares subject to a CDSC and Distribution Expenses to the extent of such commissions and Distribution Expenses eligible for reimbursement and approved by the Trustees. E. Service and Distribution Fees. Class A Shares shall be subject to a Service Fee and Class B and Class C Shares shall be subject to a Service Fee and a Distribution Fee. The Service Fee applicable to any class shall not exceed 0.25% per annum of the average daily net assets of the Class and the Distribution Fee shall not exceed 0.75% per annum of the average daily net assets of the Class. All other terms and conditions with respect to Service Fees and Distribution Fees shall be governed by the plans adopted by the Fund with respect to such fees and Rule 12b-1 of the Act. F. Conversion. Shares purchased through the reinvestment of dividends and distributions paid on Shares subject to conversion shall be treated as if held in a separate sub-account . Each time any Shares in a Shareholder's account (other than Shares held in the sub-account) convert to Class A Shares, a proportionate number of Shares held in the sub-account shall also convert to Class A Shares. All conversions shall be effected on the basis of the relative net asset values of the two Classes without the imposition of any sales load or other charge. So long as any Class of Shares converts into Class A Shares, the Distributor shall waive or reimburse each Fund, or take such other actions with the approval of the Trustees as may be reasonably necessary, to ensure the expenses, including payments authorized under a Plan of Distribution, applicable to the Class A Shares are not higher than the expenses, including payments authorized under the Plan of Distribution, applicable to the class of shares converting into Class A Shares. G. Allocation of Expenses, Income and Gains Among Classes. 1. Expenses applicable to a particular class. Each Class of each Fund shall pay any Service Fee, Distribution Fee and CDSC applicable to that Class. Other expenses applicable to a particular Class such as incremental transfer agency fees, but not including advisory or custodial fees or other expenses related to the management of the Fund's assets, shall be allocated between Classes in different amounts if they are actually incurred in different amounts by the 4 5 Classes or the Classes receive services of a different kind or to a different degree than other Classes. 2. Distribution Expenses. Distribution Expenses actually attributable to the sale of all Classes shall be allocated to each Class based upon the ratio which sales of each Class bears to the sales of all Shares of the Fund. For this purpose, Shares issued upon reinvestment of dividends or distributions, upon conversion from Class B Shares or Class C Shares to Class A Shares or upon stock splits will not be considered sales. 3. Income, capital gains and losses, and other expenses applicable to all Classes. Income, realized and unrealized capital gains and losses, and expenses such as advisory fees applicable to all Classes shall be allocated to each Class on the basis of the net asset value of that Class in relation to the net asset value of the Fund. 4. Determination of nature of expenses. The Trustees shall determine in their sole discretion whether any expense other than those listed herein is properly treated as attributed to a particular Class or all Classes. H. Exchange Privilege. Exchanges of Shares shall be permitted between Funds as follows. 1. General. Shares of one Fund may be exchanged for Shares of the same Class of another Fund at net asset value and without sales charge, provided that a. The Distributor may specify that certain Funds may not be exchanged within a designated period, which shall not exceed 90 days, after acquisition without prior Distributor approval. b. Class A Shares of a Money Market Fund that were not acquired in exchange for Class B or Class C Shares of a Fund may be exchanged for Class A Shares of another Fund only 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. c. Shares of a Money Market Fund acquired through an exchange of Class B Shares or Class C Shares may be exchanged only for the same Class of another Fund as the Class they were acquired in exchange for or any Class into which those shares were converted. 2. Target Fund. Shares of Van Kampen American Capital Government Target Fund may be exchanged for Class A Shares of a Fund. 5 6 3. CDSC Computation. The acquired Shares will remain subject to the CDSC rate schedule and CDSC Period for the original Fund upon the redemption of the Shares from the Van Kampen American Capital complex of funds. For purposes of computing the CDSC payable on a disposition of the new Shares, the holding period for the original Shares shall be added to the holding period of the new Shares. I. Voting Rights of Classes. 1. Shareholders of each Class shall have exclusive voting rights on any matter submitted to them that relates solely to the Plan of Distribution related to that Class, provided that a. If any amendment is proposed to the plan under which Service Fees are paid with respect to Class A Shares of a Fund that would increase materially the amount to be borne by Class A Shares under that plan, then no Class B Shares or Class C Shares shall convert into Class A Shares of that Fund until the holders of Class B Shares and Class C Shares of that Fund have also approved the proposed amendment. b. If the holders of either the Class B Shares and/or Class C Shares referred to in subparagraph a. do not approve the proposed amendment, the Trustees of the Fund and the Distributor shall take such action as is necessary to ensure that the Class voting against the amendment shall convert into another Class identical in all material respects to Class A Shares of the Fund as constituted prior to the amendment. 2. Shareholders shall have separate voting rights on any matter submitted to shareholders in which the interest of one Class differs from the interests of any other Class. J. Dividends. Dividends paid by a Fund with respect to each Class, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in substantially the same amount, except any Distribution Fees, Service Fees or incremental expenses relating to a particular Class will be borne exclusively by that Class. K. Reports to Trustees. The Distributor shall provide to the Trustees of each Fund quarterly and annual statements concerning distribution and Shareholder servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1 of the Act, as it may be amended from time to time. The Distributors also shall provide the Trustees such 6 7 information as the Trustees may from time to time deem to be reasonably necessary to evaluate this Plan. L. Amendment. Any material amendment to this Plan shall be approved by the affirmative vote of a majority of the Trustees of a Fund, including the affirmative vote of the trustees of the Fund who are not interested persons of the Fund, except that any amendment that increases the CDSC rate schedule or CDSC Period must also be approved by the affirmative vote of a majority of the Shares of the affected Class. The Distributor shall provide the Trustees such information as may be reasonably necessary to evaluate any amendment to this Plan. 7 8 EXHIBIT A VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES 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 LIMITED MATURITY GOVERNMENT FUND VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME 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 TAX-EXEMPT TRUST 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 U.S. GOVERNMENT TRUST VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST VAN KAMPEN AMERICAN CAPITAL TRUST EX-27.1A 21 FDS
6 0000045507 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND 001 CLASS A SHARES YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 444,391,230 484,696,657 6,143,479 35,078 15,152 490,890,366 11,318,557 0 3,349,657 14,668,214 316,686 428,211,661 26,217,588 27,921,051 714,396 0 6,673,982 0 40,305,427 476,222,152 7,446,667 18,617,382 0 (5,282,435) 20,781,614 21,378,933 51,124,986 93,285,533 0 (18,346,652) (10,616,133) 0 2,212,572 (5,489,901) 1,573,866 32,088,406 947,668 (1,407,669) 0 (6,103,576) 2,494,437 0 5,282,435 384,909,036 13.24 .68 2.25 (.703) (.417) 0 15.05 1.00 0 0
EX-27.1B 22 FDS
6 0000045507 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND 002 CLASS B SHARES YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 0 0 0 0 0 0 0 0 0 0 0 0 5,207,479 5,391,367 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (3,002,348) (2,113,555) 0 623,004 (1,095,295) 288,403 0 0 0 0 (1,072,081) 0 0 0 75,518,557 13.20 .56 2.23 (0.583) (0.417) 0 14.99 1.81 0 0
EX-27.1C 23 FDS
6 0000045507 VAN KAMPEN AMERICAN CAPITAL HARBOR FUND 003 CLASS C SHARES YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 0 0 0 0 0 0 0 0 0 0 0 0 243,491 246,428 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (135,698) (97,782) 0 60,362 (74,811) 11,512 0 0 (41,626) 0 0 0 0 0 3,459,777 13.25 .56 2.26 (0.583) (0.417) 0 15.07 1.80 0 0
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