A broader distribution network for Van Kampen Merritt's tax-exempt mutual funds should be the result of the merger of the Van Kampen Merritt Companies Inc. and American Capital Management and Research Inc., an official of the combined companies said Friday.

The bulk of Van Kampen's fund sales now occur through its retail broker network, but "we intend to do a better job of penetrating into the bank market," said Richard S. Braddock, a principal of Clayton Dubilier & Rice Inc., which owns Van Kampen.

Several banks that had scoffed at offering Van Kampen's products -- dominated by fixed-income mutual funds -- to their customers have indicated an interest in picking up the expanded product line, said Braddock. He will serve as chairman of the new company, Van Kampen/American Capital.

Clayton Dubilier's move to purchase Houston-based American Capital is in line with its intent to expand Van Kampen's product line and asset management services, stated when it acquired Van Kampen from Xerox Corp. in 1993.

A push toward banks is a strategy followed by most mutual fund companies: as the number of funds has increased and competition grown, banks have offered the greatest opportunities for fund providers to increase market share and tap new investors. Meanwhile, banks are enjoying their new sought-after status and are being selective about limiting fund offerings.

A 1994 survey by Bank Investing Marketing, a publication of Securities Data Publishing, indicates that banks prefer simplicity in their mutual fund offerings and are streamlining fund and provider lists. Preferences run toward offering strong performing funds from a limited number of providers with an array of products, according to the survey.

In addition, equity mutual funds have seen assets grow this year while assets have declined in fixed-income funds, according to the Investment Company Institute.

Once the merger is completed, the combined companies will have approximately $38.5 billion under management and will offer more than 50 open-end mutual funds. In addition, Van Kampen/American Capital will provide "deep research resources and money management capabilities in virtually all asset classes, a sizable marketing and sales staff, and outstanding shareholder servicing capabilities," according to a press release.

Braddock did not rule out future acquisitions.

American Capital has only four open-end municipal funds, comprised of three national funds and a small Texas fund. The funds have combined assets of approximately $1.1 billion. In total, American Capital has approximately $17 billion in assets under management and offers Close to 40 mutual funds, including equity and global asset management products.

In comparison, Van Kampen Merritt has approximately $14 billion in tax-exempt assets under management and offers approximately eight tax-exempt mutual funds, one money market fund, 32 municipal closed-end funds, and more than 2,600 series of tax-exempt unit investment trusts. The company has approximately $22 billion in assets under management.

Under the terms of the transaction, Van Kampen Merritt will acquire the stock of American Capital from Travelers Inc. for about $430 million in cash and further compensation of up to $10 million based on the achievement of certain performance criteria, the companies said in a press release.

An investment fund managed by Clayton Dubilier will provide the bulk of the equity financing for the transaction, and Travelers may receive an option to acquire up to 5% of additional equity.

Executives with Smith Barney Inc. say the Van Kampen/American Capital mix is a good fit because it will also expand broker distribution for American Capital. The firm had been hampered by its close association to Smith Barney once that company's parent acquired some operations of Shearson Lehman last year.

Although executives are touting the merger, which still must pass muster with regulators and fund shareholders, rating agencies are taking a cautious look at the proposed coupling.

Late Thursday, Moody's Investors Service Inc. placed its Ba2 rating on the Van Kampen Merritt Cos.' senior secured notes on review for possible downgrade following the announcement of the merger.

Moody's said its review will focus on the financial impact of the acquisition, including the additional debt and equity financing to be provided to Van Kampen Merritt, as well as the strategic implications for the firm's fund management franchise.

However, the merger has no negative repercussions for Travelers, said Lori Weeks, associate director of insurance rating services at Standard & Poor's Corp.

Since Travelers Insurance merged in 1993 with Primerica, the parent of Smith Barney, the new company has been focused on "streamlining operations, reducing expenses, and expanding channels of distribution with emphasis on cross-selling through affiliates," said Weeks.

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