<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
Van Kampen American Capital High Yield Municipal Fund (the "Fund") is a
diversified series of Van Kampen American Capital Tax-Exempt Trust (the
"Trust"), an open-end management investment company. This Statement of
Additional Information is not a prospectus. This Statement of Additional
Information should be read in conjunction with the Fund's prospectus (the
"Prospectus") dated as of the same date as this Statement of Additional
Information. This Statement of Additional Information does not include all the
information a prospective investor should consider before purchasing shares of
the Fund. Investors should obtain and read the Prospectus prior to purchasing
shares of the Fund. A Prospectus may be obtained without charge by writing or
calling Van Kampen American Capital Distributors, Inc. at One Parkview Plaza,
Oakbrook Terrace, IL 60181 at (800) 421-5666.
TABLE OF CONTENTS
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PAGE
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General Information......................................... B-2
Municipal Securities........................................ B-2
Temporary Investments....................................... B-4
Repurchase Agreements....................................... B-4
Futures Contracts and Related Options....................... B-5
Investment Restrictions..................................... B-8
Trustees and Officers....................................... B-9
Legal Counsel............................................... B-17
Investment Advisory Agreement............................... B-17
Distributor................................................. B-19
Distribution and Service Plans.............................. B-19
Transfer Agent.............................................. B-20
Portfolio Transactions and Brokerage........................ B-20
Determination of Net Asset Value............................ B-21
Purchase and Redemption of Shares........................... B-22
Exchange Privilege.......................................... B-25
Check Writing Privilege..................................... B-26
Tax Status of the Fund...................................... B-26
Fund Performance............................................ B-26
Other Information........................................... B-27
Ratings of Investments...................................... B-28
Report of Independent Accountants........................... B-32
Financial Statements........................................ B-33
Notes to Financial Statements............................... B-51
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MARCH 28, 1997.
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GENERAL INFORMATION
Van Kampen American Capital Tax-Exempt Trust (the "Trust") was originally
organized as a business trust under the laws of Massachusetts on December 5,
1984. As of July 31, 1995, the Trust was reorganized as a Delaware business
trust. The Trust currently is comprised of one series: the Van Kampen American
Capital High Yield Municipal Fund (the "Fund").
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 a wholly-owned subsidiary of MSAM Holdings
II, Inc. which, in turn, is a wholly-owned subsidiary of Morgan Stanley Group
Inc. The principal office of the Fund, the Adviser, the Distributor and VKAC is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover &
Co. announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Asset Management, Inc. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Dean Witter, Discover & Co. is a financial services company with three
major businesses; full service brokerage, credit services and asset management.
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 $57 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. Each of
our high yield analysts, based either in San Francisco, Chicago, Houston or
Boston, has the responsibility to cover a specific region of the country. This
regional focus enables each high yield analyst to provide more specialized
coverage of the market and alert the portfolio manager to issues of local
importance.
As of March 14, 1997, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding Class A shares, Class B
shares or Class C shares of the Fund, except as follows:
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AMOUNT AND NATURE
OF OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER MARCH 22, 1996 SHARES OWNERSHIP
-------------------------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith, Inc. 3,221,854 shares Class A 5.79%
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484 Class B 11.56%
3,406,845 shares
294,762 shares Class C 6.45%
</TABLE>
The term "Adviser" refers to both the Adviser, Van Kampen American Capital
Asset Management, Inc., and the Subadviser, Van Kampen American Capital
Advisors, Inc.
MUNICIPAL SECURITIES
Municipal Securities include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for
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general operating expenses and loans to other public institutions and
facilities. In addition, certain types of industrial development obligations are
issued by or on behalf of public authorities to finance various privately-
operated facilities. Such obligations are included within the term Municipal
Securities if the interest paid thereon is exempt from federal income tax.
Municipal Securities also include short-term tax-exempt municipal obligations
such as tax anticipation notes, bond anticipation notes, revenue anticipation
notes, and variable rate demand notes.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue" or "special obligations." General obligations are
secured by the issuer's pledge of faith, credit, and taxing power for the
payment of principal and interest. Revenue or special obligations are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or other specific
revenue source such as from the user of the facility being financed. Industrial
development bonds, including pollution control bonds, are revenue bonds and do
not constitute the pledge of the credit or taxing power of the issuer of such
bonds. The payment of the principal and interest on such industrial revenue
bonds depends solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment. The Fund may also
include "moral obligation" bonds which are normally issued by special purpose
public authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.
When a Fund engages in when-issued and delayed delivery transactions, the
Fund relies on the buyer or seller, as the case may be, to consummate the trade.
Failure of the buyer or seller to do so may result in the Fund missing the
opportunity of obtaining a price considered to be advantageous.
The Fund may invest in Municipal Notes which include demand notes and
short-term municipal obligations (such as tax anticipation notes, revenue
anticipation notes, construction loan notes and short-term discount notes) and
tax-exempt commercial paper provided that such obligations have the ratings
described in the Prospectus for the Fund or if unrated are of comparable quality
as determined by the Adviser. Demand notes are obligations which normally have a
stated maturity in excess of one year, but permit any holder to demand payment
of principal plus accrued interest upon a specified number of days' notice.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to prepay at its discretion the
outstanding principal of the note plus accrued interest upon a specified number
of days' notice to the noteholders. Demand notes may also include Municipal
Securities subject to a Stand-By Commitment as described in the Prospectus. The
interest rate on a demand note may be based on a known lending rate, such as a
bank's prime rate, and may be adjusted when such rate changes, or the interest
rate on a demand note may be a market rate that is adjusted at specified
intervals. Participation interests in variable rate demand notes will be
purchased only if in the opinion of counsel interest income on such interests
will be tax-exempt when distributed as dividends to shareholders.
Yields on Municipal Securities are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
Municipal Securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due. There are variations in the risks
involved in holding Municipal Securities, both within a particular
classification and between classifications, depending on numerous factors.
Furthermore, the rights of holders of Municipal Securities and the obligations
of the issuers of such Municipal Securities may be subject to applicable
bankruptcy, insolvency and similar laws and court decisions affecting the rights
of creditors generally, and such laws, if any, which may be enacted by Congress
or state legislatures imposing a moratorium on the payment of principal and
interest or imposing other constraints or conditions on the payments of
principal of and interest on Municipal Securities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. It may be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the ability of the
Fund to
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pay "exempt interest" dividends may be adversely affected and the Fund would
re-evaluate its investment objective and policies and consider changes in its
structure.
ADDITIONAL RISKS OF LOWER RATED MUNICIPAL SECURITIES
Additional risks of lower rated Municipal Securities include limited
liquidity and secondary market support. As a result, the prices of lower rated
Municipal Securities may decline rapidly in the event a significant number of
holders decide to sell. Changes in expectations regarding an individual issuer,
an industry or lower rated Municipal Securities generally could reduce market
liquidity for such securities and make their sale by the Fund more difficult, at
least in the absence of price concessions. Reduced liquidity could also create
difficulties in accurately valuing such securities at certain times. The high
yield, high risk bond market (these securities are commonly referred to as "junk
bonds") has grown primarily during a period of long economic expansion and it is
uncertain how it would perform during an economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for high
yield, high risk bonds and adversely affect the value of outstanding bonds and
the ability of the issuers to repay principal and interest. The Fund will take
such actions as it considers appropriate in the event of anticipated financial
difficulties, default or bankruptcy of either the issuer or any Municipal
Security owned by the Fund or the underlying source of funds for debt service.
Such action may include retaining the services of various persons and firms to
evaluate or protect any real estate, facilities or other assets securing any
such obligation or acquired by the Fund as a result of any such event. The Fund
incurs additional expenditures in taking protective action with respect to Fund
obligations in default and assets securing such obligations. Investment in lower
rated Municipal Securities are not generally meant for short-term investment.
TEMPORARY INVESTMENTS
The taxable securities in which the Funds may invest as temporary
investments include United States Government securities, corporate bonds and
debentures, domestic bank certificates of deposit and bankers' acceptances of
domestic banks with assets of $500 million or more and having deposits insured
by the Federal Deposit Insurance Corporation, commercial paper and repurchase
agreements. The taxable securities are subject to the same rating requirements
applicable to the Municipal Securities in which the Fund invests, including, in
the case of unrated securities, that such obligations be in the opinion of the
Adviser of comparable quality.
United States Government securities include obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies and instrumentalities which are supported by any of the following: (a)
the full faith and credit of the United States Government, (b) the right of the
issuer to borrow an amount limited to a specific line of credit from the United
States Government, (c) discretionary authority of the United States Government
agency or instrumentality or (d) the credit of the instrumentality. Such
agencies or instrumentalities include, but are not limited to, the Federal
National Mortgage Association, the Government National Mortgage Association,
Federal Land Banks, and the Farmer's Home Administration. The Fund may not
invest in any security issued by a commercial bank unless the bank is organized
and operating in the United States and has total assets of at least $500 million
and is a member of the Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement is required to maintain the value of the underlying
securities marked to market daily at not less than the repurchase price. The
underlying securities (securities of the U.S. Government, or its agencies and
instrumentalities) may have maturity dates exceeding
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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.
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) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto, (b) possible lack of access to income on the underlying security during
this period and (c) expenses of enforcing its rights. The Fund will not invest
in repurchase agreements maturing in more than seven days if any such
investment, together with any other illiquid security owned by the Fund, exceeds
10% of the value of its net assets. See "Investment Practices -- Repurchase
Agreements" in the Prospectus for further information.
FUTURES CONTRACTS AND RELATED OPTIONS
FUTURES CONTRACTS
A municipal bond futures contract is an agreement pursuant to which two
parties agree to take and make delivery of an amount of cash equal to a
specified dollar amount times the differences between The Bond Buyer Municipal
Bond Index (the "Index") value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. The
Index is a price-weighted measure of the market value of 40 large sized, recent
issues of tax-exempt bonds.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash or liquid securities equal to not
more than 5% 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 a 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 is otherwise
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.
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In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or related options, the Fund could experience delays
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.
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 contact.
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
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movements, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in 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.
The Fund could engage in transactions involving futures contracts and
related options in accordance with the rules and interpretations of the
Commodity Futures Trading Commission ("CFTC") under which the
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Fund would be exempt from registration as a "commodity pool." CFTC regulations
require, among other things, (i) that futures and related options be used solely
for bona fide hedging purposes (or meet certain conditions as specified in CFTC
regulations) and (ii) that the Fund not enter into futures and related options
for which the aggregate initial margin and premiums exceed 5% of the fair market
value of the Fund's assets. In order to minimize leverage in connection with the
purchase of futures contracts by the Fund, an amount of cash or liquid
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchase the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included in initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purpose as it could sell, a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the level of the index or in the price of the underlying
security, when the use of an option on a future would result in a loss to the
Fund when the use of a future would not.
ADDITIONAL RISKS OF FUTURES CONTRACTS AND RELATED OPTIONS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most 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.
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INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which, along with its
investment objective, may not be changed without approval by the vote of a
majority of its outstanding voting shares, which is defined by the 1940 Act as
the lesser of (i) 67% or more of the voting securities present in person or by
proxy at the meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities. In addition to the fundamental investment
limitations set forth in the Prospectus, a Fund shall not:
1. Purchase or hold securities of any issuer if any of the Fund's officers
or trustees, or officers or directors of its investment adviser, who
beneficially owns more than 1/2% of the securities of that issuer,
together own beneficially more than 5% of the securities of such
issuer;
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Fund of an
initial or maintenance margin in connection with futures contracts or
related option transactions is not considered the purchase of a
security on margin;
3. Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional
cost securities identical to those sold short;
4. Make loans of money or securities to other persons except that the Fund
may purchase or hold debt instruments and enter into repurchase
agreements in accordance with its investment objective and policies;
5. Invest in real estate or mortgage loans (but this shall not prevent the
Fund from investing in Municipal Securities or Temporary Investments
secured by real estate or interests therein); or in interests in oil,
gas, or other mineral exploration or development programs; or in any
security not payable in United States currency;
6. Invest more than 10% of the value of its net assets in securities which
are illiquid, including securities restricted as to disposition under
the Securities Act of 1933 (except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the Securities and Exchange Commission (the
"SEC") under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act) and
including repurchase agreements maturing in more than 7 days;
7. Invest in securities of any one issuer with a record of less than 3
years of continuous operation, including predecessors, except
obligations issued or guaranteed by the United States Government or its
agencies or Municipal Securities (except that in the case of industrial
revenue bonds, this restriction shall apply to the entity supplying the
revenues from which the issue is to be paid), if such investments by
the Fund would exceed 5% of the value of its total assets (taken at
market value), except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act;
8. Underwrite the securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 by virtue
of disposing of portfolio securities;
9. Invest in securities other than Municipal Securities, Temporary
Investments (as defined herein), stand-by commitments, futures
contracts described in the next paragraph and options on such contracts
or securities issued by other investment companies except as part of a
merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act;
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10. Purchase or sell commodities or commodity contracts except that the
Fund may purchase, hold and sell listed futures contracts related to
U.S. Government securities, Municipal Securities or to an index of
Municipal Securities;
11. Invest more than 5% of its total assets at market value at the time of
purchase in the securities of any one issuer (other than obligations of
the United States Government or any agency or instrumentality thereof)
except that the Fund may purchase securities of other investment
companies to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act;
12. Borrow money, except that the Fund may borrow from banks to meet
redemptions or for other temporary or emergency purposes, with such
borrowing not to exceed 5% of the total assets of the Fund at market
value at the time of borrowing. Any such borrowing may be secured
provided that not more than 10% of the total assets of the Fund at
market value at the time of pledging may be used as security for such
borrowings;
13. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall
not apply to Municipal Securities or governmental guarantees of
Municipal Securities; and provided, further, that for the purpose of
this limitation only, industrial development bonds that are considered
to be issued by non-governmental users shall not be deemed to be
Municipal Securities; and provided, further, that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act; or
14. 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".
Because of the nature of the securities in which the Fund may invest, the
Fund may not invest in voting securities or invest for the purpose of exercising
control or management. If a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in value will not constitute a violation of such restriction.
TRUSTEES AND OFFICERS
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser"), Van Kampen American Capital Asset
Management, Inc. (the "Adviser" or the "AC Adviser"), Van Kampen American
Capital Distributors, Inc. (the "Distributor"), Van Kampen American Capital,
Inc. ("Van Kampen American Capital"), VK/AC Holding, Inc. or ACCESS Investor
Services, Inc. ("ACCESS"). For purposes hereof, the terms "Van Kampen American
Capital Funds" or "Fund Complex" includes each of the open-end investment
companies advised
B-9
<PAGE> 10
by the VK Adviser and each of the open-end investment companies advised by the
AC Adviser (excluding the Van Kampen American Capital Exchange Fund and the
Common Sense Trust).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Co-founder, Chairman, Chief Executive Officer and
1632 Morning Mountain Road President of MDT Corporation, a company which develops
Raleigh, NC 27614 manufactures, markets and services medical and scientific
Date of Birth: 07/14/32 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Linda Hutton Heagy........................ Managing Partner, Paul Ray Berndtson, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Date of Birth: 06/03/48 of La Salle National Bank. Trustee of each of the Van
Kampen American Capital Funds.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*...................... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser, Van Kampen American Capital
Oakbrook Terrace, IL 60181 Advisors, Inc. and Van Kampen American Capital
Date of Birth: 05/20/42 Management, Inc. Executive Vice President and a Director
of VK/AC Holding, Inc. and Van Kampen American Capital.
President and Director of Van Kampen Merritt Equity
Advisors Corp. Director of Van Kampen Merritt Equity
Holdings Corp. Director of McCarthy, Crisanti & Maffei,
Inc. Prior to September 1996, Chief Executive Officer of
McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited. Prior to
July 1996, President, Chief Operating Officer and Trustee
of VSM Inc. and VCJ Inc. President, Chief Executive
Officer and Trustee of each of the Van Kampen American
Capital Funds. President and Trustee of each of the Van
Kampen American Capital Funds. President, Chairman of the
Board and Trustee of other investment companies advised
by the VK Adviser. Executive Vice President of other
investment companies advised by the AC Adviser.
Jack E. Nelson............................ President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Date of Birth: 02/13/36 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). Trustee of each of
the Van Kampen American Capital Funds.
Jerome L. Robinson........................ President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Date of Birth: 10/10/22 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
</TABLE>
B-10
<PAGE> 11
<TABLE>
<S> <C>
Fernando Sisto............................ George M. Bond Chaired Professor and, prior to 1995, Dean of Graduate
155 Hickory Lane School and Chairman, Department of Mechanical Engineering, Stevens
Closter, NJ 07624-2322 Institute of Technology. Director of Dynalysis of Princeton, a firm
Date of Birth: 08/02/24 engaged in engineering research. Trustee of each of the Van Kampen
American Capital Funds.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive (Illinois), legal counsel to the Van Kampen American Capital Funds, The
Chicago, IL 60606 Explorer Institutional Trust and the closed-end investment companies
Date of Birth: 08/22/39 advised by the VK Adviser. Trustee of each of the Van Kampen American
Capital Funds, The Explorer Institutional Trust and the closed-end
investment companies advised by the VK Adviser.
</TABLE>
- ---------------
* Such trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act).
B-11
<PAGE> 12
OFFICERS
The address for Curtis W. Morell, Alan T. Sachtleben, Paul R. Wolkenberg,
Tanya M. Loden, Huey P. Falgout, Jr. and Robert Sullivan is 2800 Post Oak Blvd.,
Houston, TX 77056. The address for Peter W. Hegel, Ronald A. Nyberg, Edward C.
Wood III, John L. Sullivan, Nicholas Dalmaso, Scott E. Martin, Weston B.
Wetherell and Steven M. Hill is One Parkview Plaza, Oakbrook Terrace, IL 60181.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Peter W. Hegel.............. Vice President Executive Vice President of the VK Adviser,
Date of Birth: 06/25/56 AC Adviser, Van Kampen American Capital
Management, Inc. and Van Kampen American
Capital Advisors, Inc. Prior to September
1996, Director of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996, Director
of VSM Inc. Vice President of each of the
Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the VK Adviser and
Date of Birth: 08/04/46 Accounting Officer the AC Adviser. Vice President and Chief
Accounting Officer of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel
Date of Birth: 07/29/53 and Secretary of Van Kampen American
Capital and VK/AC Holding, Inc. Executive
Vice President, General Counsel and a
Director of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen Merritt Equity Advisors Corp. and
Van Kampen Merritt Equity Holdings Corp.
Executive Vice President, General Counsel
and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American
Capital Contractual Services, Inc., Van
Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc. and ACCESS. Executive Vice
President, General Counsel, Assistant
Secretary and Director of Van Kampen
American Capital Trust Company. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to September 1996,
General Counsel of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996, Executive
Vice President and General Counsel of VSM
Inc. and VCJ Inc. Vice President and
Secretary of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
</TABLE>
B-12
<PAGE> 13
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Alan T. Sachtleben.......... Vice President Executive Vice President of the VK Adviser
Date of Birth: 04/20/42 and Van Kampen American Capital Management,
Inc. Executive Vice President and a
Director of the AC Adviser and Van Kampen
American Capital Advisors, Inc. Vice
President of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
Paul R. Wolkenberg.......... Vice President Executive Vice President of VK/AC Holding,
Date of Birth: 11/10/44 Inc., Van Kampen American Capital, the
Distributor and the AC Adviser. President,
Chief Executive Officer and a Director of
Van Kampen American Capital Trust Company
and ACCESS. Director of American Capital
Contractual Services, Inc. Vice President
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the VK Adviser,
Date of Birth: 01/11/56 Financial Officer the AC Adviser and Van Kampen American
Capital Management, Inc. Vice President and
Chief Financial Officer of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
John L. Sullivan............ Treasurer First Vice President of the VK Adviser and
Date of Birth: 08/20/55 the AC Adviser. Treasurer of each of the
Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Tanya M. Loden.............. Controller Vice President of the VK Adviser and the AC
Date of Birth: 11/19/59 Adviser. Controller of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Nicholas Dalmaso............ Assistant Secretary Assistant Vice President and Senior
Date of Birth: 03/01/65 Attorney of Van Kampen American Capital.
Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
</TABLE>
B-13
<PAGE> 14
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Huey P. Falgout, Jr......... Assistant Secretary Assistant Vice President and Senior
Date of Birth: 11/15/63 Attorney of Van Kampen American Capital.
Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of Van
Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the AC Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of Van Kampen
American Capital, the VK Adviser, the AC
Adviser, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Steven M. Hill.............. Assistant Treasurer Assistant Vice President of the VK Adviser
Date of Birth: 10/16/64 and AC Adviser. Assistant Treasurer of each
of the Van Kampen American Capital Funds
and other investment companies advised by
the VK Adviser and the AC Adviser.
</TABLE>
B-14
<PAGE> 15
<TABLE>
<S> <C> <C>
Robert Sullivan.............. Assistant Controller Assistant Vice President of the VK Adviser and the AC
Date of Birth: 03/30/33 Adviser. Assistant Controller of each of the Van
Kampen American Capital Funds and other investment
companies advised by the VK Adviser and the AC
Adviser.
</TABLE>
Each of the foregoing trustees and officers holds the same position with
each of the funds in the Fund Complex. As of December 31, 1996, there were 51
funds in the Fund Complex. Each trustee who is not an affiliated person of the
VK Adviser, the AC Adviser, the Distributor or Van Kampen American Capital (each
a "Non-Affiliated Trustee") is compensated by an annual retainer and meeting
fees for services to the funds in the Fund Complex. Each fund in the Fund
Complex provides a deferred compensation plan to its Non-Affiliated Trustees
that allows trustees to defer receipt of his or her compensation and earn a
return on such deferred amounts based upon the return of the common shares of
the funds in the Fund Complex as more fully described below. Each fund in the
Fund Complex also provides a retirement plan to its Non-Affiliated Trustees that
provides Non-Affiliated Trustees with compensation after retirement, provided
that certain eligibility requirements are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes a retainer by the
funds in the Fund Complex advised by the AC Adviser (the "AC Funds") in an
amount equal to $35,000 per calendar year, due in four quarterly installments on
the first business day of each calendar quarter. The AC Funds pay each Non-
Affiliated Trustee a per meeting fee in the amount of $2,000 per regular
quarterly meeting attended by the Non-Affiliated Trustee, due on the date of
such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee in
connection with his or her services as a trustee. Payment of the annual retainer
and the regular meeting fee is allocated among the AC Funds (i) 50% on the basis
of the relative net assets of each AC Fund to the aggregate net assets of all
the AC Funds and (ii) 50% equally to each AC Fund, in each case as of the last
business day of the preceding calendar quarter. Each AC Fund participating in
any special meeting of the trustees generally pays each Non-Affiliated Trustee a
per meeting fee in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.
The trustees approved an aggregate compensation cap with respect to funds
in the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding
any retirement benefits) for the period July 22, 1995 through December 31, 1996,
subject to the net assets and the number of funds in the Fund Complex as of July
21, 1995 and certain other exceptions. In addition, each of the VK Adviser or
the AC Adviser, as the case may be, agreed to reimburse each fund in the Fund
Complex through December 31, 1996 for any increase in the aggregate trustee's
compensation over the aggregate compensation paid by such fund in its 1994
fiscal year, provided that if a fund did not exist for the entire 1994 fiscal
year appropriate adjustments will be made.
Each Non-Affiliated Trustee can elect to defer receipt of all or a portion
of the compensation earned by such Non-Affiliated Trustee until retirement.
Amounts deferred are retained by the Fund and earn a rate of return determined
by reference to the return on the common shares of the Fund or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee. To the
extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
The Fund adopted a retirement plan on January 25, 1996. Under the Fund's
retirement plan, a Non-Affiliated Trustee who is receiving trustee's fees from
the Fund prior to such Non-Affiliated Trustee's retirement, has at least ten
years of service and retires at or after attaining the age of 60, is eligible to
receive a retirement benefit equal to $2,500 per year for each of the ten years
following such trustee's retirement. Trustees retiring prior to the age of 60 or
with fewer than 10 years but more than 5 years of service may receive reduced
retirement benefits from a series. The retirement plan contains a Fund Complex
retirement benefit
B-15
<PAGE> 16
cap of $60,000 per year. The AC Adviser is reimbursing the Fund for expenses
related to the retirement plan through December 31, 1996.
Additional information regarding compensation and benefits for trustees is
set forth below. The "Registrant" is the Trust, which currently consists of one
operating series. As indicated in the notes accompanying the table, the amounts
relate to either the Registrant's last fiscal year ended November 30, 1996 or
the Fund Complex' last calendar year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
ESTIMATED TOTAL
PENSION OR ANNUAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS BEFORE DEFERRAL
COMPENSATION BENEFITS ACCRUED FROM FROM REGISTRANT
BEFORE DEFERRAL AS PART OF REGISTRANT AND FUND
FROM REGISTRANT UPON COMPLEX PAID TO
NAME(1) REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TRUSTEE(5)
------- --------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan...................... 2,555 $-0- $2,500 $104,875
Philip P. Gaughan...................... 780 -0- -0- 16,875
Linda Hutton Heagy..................... 2,555 -0- 2,500 104,875
Dr. Roger Hilsman...................... 2,555 -0- 2,500 103,750
R. Craig Kennedy....................... 2,555 -0- 2,500 104,875
Donald C. Miller....................... 2,555 -0- -0- 104,875
Jack E. Nelson......................... 2,555 -0- 2,500 97,875
David Rees............................. 960 -0- 2,500 22,000
Jerome L. Robinson..................... 2,555 -0- -0- 101,625
Lawrence J. Sheehan.................... 960 -0- -0- 22,000
Dr. Fernando Sisto..................... 2,555 -0- 2,500 104,875
Wayne W. Whalen........................ 2,555 -0- 2,500 104,875
William S. Woodside.................... 2,555 -0- 2,500 104,875
</TABLE>
- ---------------
(1) Mr. McDonnell, a trustee of the Trust, is an affiliated person of the VK
Adviser and AC Adviser and is not eligible for compensation or retirement
benefits from the Registrant. Mr. McDonnell was appointed to the Board of
Trustees on January 30, 1996. Mr. Don G. Powell resigned from the Board of
Trustees on August 15, 1996, and did not receive any compensation or
benefits from the Fund while a trustee because he was an affiliated person
of the VK Adviser and AC Adviser. Messrs. Gaughan and Rees retired from the
Board of Trustees on January 26, 1996 and January 29, 1996, respectively.
Mr. Sheehan was removed from the Board of Trustees effective January 29,
1996. Messrs. Hilsman, Miller and Woodside retired from the Board of
Trustees on December 31, 1996.
(2) The amounts shown in this column are aggregated from the compensation paid
by each series in operation during the Registrant's fiscal year ended
November 30, 1996 before deferral by the trustees under the deferred
compensation plan. The following trustees deferred all or a portion of their
compensation from the Registrant during the fiscal year ended November 30,
1996: Mr. Branagan, $635; Mr. Gaughan, $780; Ms. Heagy, $2,105; Mr. Kennedy,
$1,440; Mr. Miller, $2,555; Mr. Nelson, $2,555; Mr. Robinson, $2,555; and
Mr. Whalen, $2,555. The cumulative deferred compensation (including
interest) accrued with respect to each trustee from the Registrant as of
November 30, 1996 is as follows: Mr. Branagan, $612; Mr. Gaughan, $751; Ms.
Heagy, $2,212; Mr. Kennedy, $1,541; Mr. Miller, $2,737; Mr. Nelson, $2,838;
Mr. Robinson, $2,676; Dr. Sisto, $1,828; and Mr. Whalen, $2,837. The
deferred compensation plan is described above the Compensation Table.
Amounts deferred are retained by the Fund and earn a rate of return
determined by reference to either the return on the common shares of the
Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee. To the extent permitted by the 1940 Act, the Fund
may invest in securities of those funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation.
(3) The amounts shown in this column are zero in the Fund's fiscal year ended
November 30, 1996 because the Adviser agreed to reimburse the Fund for
expenses related to the retirement plan through December 31, 1996. Absent
such reimbursement, the aggregate expenses of the Fund for all trustees
would have been approximately $17,000 in its fiscal year ended November 30,
1996. The Retirement Plan is described above the Compensation Table.
(4) The amounts shown in this column are the estimated annual benefits payable
by the Registrant in each year of the 10-year period commencing in the year
of such trustee's retirement from the Registrant (based
B-16
<PAGE> 17
on $2,500 per series for each series of the Registrant in operation)
assuming: the trustee has 10 or more years of service on the Board of the
respective series and retires at or after attaining the age of 60. The
actual annual benefit may be less if the trustee is subject to the Fund
Complex retirement benefit cap or if the trustee is not fully vested at the
time of retirement.
(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 1996, before
deferral by the trustees under the deferred compensation plan. The following
trustees deferred compensation paid by the Registrant and the Fund Complex
during the calendar year ended December 31, 1996: Mr. Gaughan, $15,625; Ms.
Heagy, $68,750; Mr. Kennedy, $44,000; Mr. Miller, $97,375; Mr. Nelson,
$97,375; Mr. Rees, $15,070; Mr. Robinson, $94,250; and Mr. Whalen, $97,375.
The deferred compensation earns a rate of return determined by reference to
the return on the common shares of the Fund or other funds in the Fund
Complex as selected by the respective Non-Affiliated Trustee. To the extent
permitted by the 1940 Act, the Fund may invest in securities of those funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The trustees' Fund Complex compensation cap covered
the period July 22, 1995 through December 31, 1996. For the calendar year
ended December 31, 1996, certain trustees received compensation over $84,000
in the aggregate due to compensation received but not subject to the cap,
including compensation from new funds added to the Fund Complex after July
22, 1995 and certain special meetings in December 1995 and 1996. The VK
Adviser, AC Adviser and their affiliates also serve as investment adviser
for other investment companies; however, with the exception of Messrs.
McDonnell and Whalen, the trustees were not trustees of such investment
companies. Combining the Fund Complex with other investment companies
advised by the VK Adviser, AC Adviser and their affiliates, Mr. Whalen
received Total Compensation of $243,375 during the calendar year ended
December 31, 1996.
As of March 14, 1997, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund. As of March 14, 1997, no trustee
or officer of the Fund owns or would be able to acquire 5% or more of the common
stock of VK/AC Holding, Inc. Mr. McDonnell owns, or has the opportunity to
purchase, an equity interest in VK/AC Holding, Inc., the parent company of Van
Kampen American Capital, and has entered into an employment contract (for a term
until February 17, 1998) with Van Kampen American Capital.
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois).
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of the Fund's
investment objectives. The Adviser also furnishes at no cost to the Fund (except
as noted herein) the services of sufficient executive and clerical personnel for
the Fund as are necessary to prepare registration statements, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In addition,
the Adviser furnishes at no cost to the Fund the services of a President of the
Fund, one or more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreement, the Fund bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of the Fund. The costs of such accounting
services include the salaries and overhead expenses of a Treasurer or other
principal financial officer and the personnel operating under his direction. The
services are provided at cost which is allocated among the investment companies
advised by the Adviser. The Fund also pays transfer agency fees, distribution
fees, service fees, custodian fees, legal fees, the costs of reports to
shareholders and all other ordinary expenses not specifically assumed by the
Adviser.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered, facilities furnished, and expenses paid by it a fee
payable monthly computed on average daily net assets of the Fund at an annual
rate of 0.60% of the first $300 million of aggregate average net assets, 0.55%
of the next $300 million of aggregate average net assets and 0.50% of aggregate
average net assets in excess of $600 million.
B-17
<PAGE> 18
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with the Subadviser to assist it in performing its investment
advisory function with respect to the Fund. Pursuant to the Subadvisory
Agreement, the Subadviser receives a fee payable monthly computed on average
daily net assets of the Fund at an annual rate of 0.40% of the first $20 million
of average daily net assets, 0.25% of the next $30 million of average daily net
assets and 0.15% of the excess over $50 million.
The average daily net assets are determined by taking the average of all of
the determinations of the net assets for each business day during a given
calendar month. Such fees are payable for each calendar month as soon as
practicable after the end of that month. The 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 shall use its best efforts to recapture all available
tender solicitation fees and exchange offer fees in connection with each of the
Fund's transactions and shall advise the Trustees of the Fund of any other
commissions, fees, brokerage or similar payments which may be possible under
applicable laws for the Adviser or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with the Fund's
portfolio transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed 0.95% of the average
daily net assets, the compensation due the Adviser will be reduced by the amount
of such excess and that, if a reduction in and refund of the advisory fee is
insufficient, the Adviser will pay the Fund monthly an amount sufficient to make
up the deficiency, subject to readjustment during the year. Ordinary business
expenses do not include (1) interest and taxes, (2) brokerage commissions, (3)
payments made pursuant to Distribution Plan (described herein), (4) certain
litigation and indemnification expenses as described in the Advisory Agreement,
and (5) insurance premiums paid by the Fund to insure the timely payment of
principal and interest on its portfolio obligations. 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.
For the period ended December 1, 1987 to March 31, 1990, in addition to the
contractual expense limitation, the Adviser elected to reimburse the Fund for
all ordinary business expenses, exclusive of taxes and interest, in excess of
0.85% of the average daily net assets.
B-18
<PAGE> 19
The following table shows expenses payable under the Advisory Agreement
during the fiscal years ending November 30, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
11/30/94:
------------------
<S> <C>
Gross Advisory Fees $3,172,407
Accounting Services $ 163,929
Contractual Expense Reimbursement $ -0-
FISCAL YEAR ENDING
11/30/95:
------------------
Gross Advisory Fees $3,906,255
Accounting Services $ 158,098
Contractual Expense Reimbursement $ 8,371
FISCAL YEAR ENDING
11/30/96:
------------------
Gross Advisory Fees $4,757,392
Accounting Services $ 208,513
Voluntary Expense Reimbursement $ 17,000
</TABLE>
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Trust's Trustees or (ii) by vote of a
majority of the Trust'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 30 days' written notice.
DISTRIBUTOR
The Distributor acts as the principal underwriter of the shares of the Fund
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
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 certain
other costs, including the cost of sales literature and advertising. The
Distribution and Service 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 Distribution and Service Agreement or interested persons
of any party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 60 days'
written notice.
For the fiscal years ending November 30, 1994, 1995 and 1996, total
underwriting commissions on the sale of shares of the Fund were $2,667,572,
$3,369,458 and $5,191,191, respectively. Of such totals, the amount retained by
the Distributor was $27,152, $399,162 and $587,095, respectively. The remainder
was reallowed to dealers. For the fiscal years ended November 30, 1994 and 1995,
dealer reallowances of $81,508 and $173,684, respectively, were received by
Advantage Capital Corporation. During the fiscal year ended November 30, 1996,
Advantage Capital Corporation ceased to be an affiliated dealer of the Fund.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of
B-19
<PAGE> 20
shares and in connection with the provision of ongoing services to shareholders
of such class, respectively. The Distribution Plan and the Service Plan are
being implemented through an agreement (the "Distribution and Service
Agreement") with the Distributor of each class of the Fund's shares,
sub-agreements between the Distributor and members of the NASD who are acting as
securities dealers and NASD members or eligible non-members who are acting as
brokers or agents and similar agreements between the Fund and financial
intermediaries who are acting as brokers (collectively, "Selling Agreements")
that may provide for their customers or clients certain services or assistance,
which may include, but not be limited to, processing purchase and redemption
transactions, establishing and maintaining shareholder accounts regarding the
Fund, and such other services as may be agreed to from time to time and as may
be permitted by applicable statute, rule or regulation. Brokers, dealers and
financial intermediaries that have entered into sub-agreements with the
Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
For the fiscal year ending November 30, 1996, gross aggregate expenses
under the Class A Plan were $1,380,920, or 0.25% of the Class A shares' average
daily net assets. Such expenses were paid to reimburse the Distributor for
payments made to authorized dealers for servicing Fund shareholders and
administering the Class A Plan.
For the fiscal year ended November 30, 1996, the aggregate expenses under
the Class B Plan were $2,708,233, or 1.00%, of the Class B shares' average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $2,031,175 for commissions and transaction fees paid to
authorized dealers in respect of sales of Class B shares of the Fund and
$677,058 for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.
For the fiscal year ended November 30, 1996, the aggregate expenses under
the Class C Plan were $389,696, or $1.00% of the Class C shares' average daily
net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $389,676 for the commissions and transactions fees paid to
authorized dealers in respect of sales of Class C shares of the Fund and $0 for
fees paid to authorized dealers for servicing Class C shareholders and
administering the Class C Plan.
TRANSFER AGENT
During the fiscal years ended November 30, 1994, 1995 and 1996, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees of $561,481, $648,335 and $728,605, respectively, for these services. These
services are provided at cost plus a profit.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Fund and for the placement of its portfolio business and the negotiation of
any commissions, if any, paid on such transactions. As most transactions made by
the Fund are principal transactions at net prices, the Fund incurs little or no
brokerage costs except for commissions paid with respect to transactions in
future contracts and options. Fund securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to
B-20
<PAGE> 21
the underwriter and purchases from dealers serving as market makers include the
spread between the bid and asked price. Sales to dealers are effected at bid
prices.
The Advisers are responsible for placing portfolio transactions and do so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating commissions, the Advisers consider
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, consideration may be given to firms which also provide research
services to the Fund or the Advisers. No specific value can be assigned to such
research services which are furnished without cost to the Advisers. The
investment advisory fee is not reduced as a result of the Advisers' receipt of
such research services. Services provided may include (a) furnishing advice as
to the value of the securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of the accounts, and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody). Research services furnished by firms through which the Fund effects
its securities transactions may be used by the Advisers in servicing all of
their advisory accounts; not all of such services may be used by the Advisers in
connection with the Fund.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution of such other
policies as the Trustees may determine, the Advisers may consider sales of
shares of the Fund as a factor in the selection of firms to execute portfolio
transactions for the Fund.
The Advisers place portfolio transactions for other advisory accounts
including other investment companies. The Advisers seek 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 Advisers 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.
During the fiscal years ended November 30, 1994, 1995 and 1996, the Fund
paid $79,957, $38,053 and $0, respectively, in brokerage commissions on
portfolio transactions. 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 conducted no affiliated brokerage transactions through affiliated
brokers during the last three fiscal years.
During the year ended November 30, 1996, the Fund paid $0 in brokerage
commissions on transactions totalling $0 to brokers selected primarily on the
basis of research services provided to the Adviser.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is computed by dividing the
value of all securities held by the Fund plus other assets, less liabilities
(including accrued expenses), by the number of shares outstanding. Such
computation is made as of the close of the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) on each business day on which
the Exchange is open.
Each Fund's investments in bonds are valued by an independent pricing
service ("Service"). When, in the judgment of the Service, quoted bid prices for
bonds are readily available and are representative of the bid side of the
market, these bonds are valued at such quoted bid prices (as obtained by the
Service from dealers in such securities). Other bonds are carried at fair value
as determined by the Service, based on methods which include consideration of:
yields or prices of municipal bonds of comparable quality, coupon, maturity
B-21
<PAGE> 22
and type; indications as to values from dealers; and general market conditions.
The Service may employ electronic data processing techniques and/or a matrix
system to determine valuations. Options are valued at the last sale price or, if
no sales are reported, at the mean between the bid and asked prices. Any bonds
which are not valued by the independent pricing service would be valued at fair
value using methods determined in good faith by the Trustees. Expenses and fees,
including the investment advisory fee are accrued daily and taken into account
for the purpose of determining the net asset value of shares of each Fund.
Short-term instruments having remaining maturities of 60 days or less are valued
at amortized cost.
The assets belonging to the Class A shares, the Class B shares and the
Class C shares of the Fund 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.
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 except
that each class has exclusive voting rights with respect to the Rule 12b-1
distribution plan pursuant to which its distribution fees are 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 the Fund's shares next computed following receipt of payment
by ACCESS. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by ACCESS to the investor's 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 capacity
so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charges reflected in the sales charge table as shown in
the Prospectus under "Sales Charge Table" apply to purchases of Class A shares
of the Fund where the aggregate investment is $100,000 or more. For purposes of
determining eligibility for volume discounts, spouses and their children under
21 years of age are treated as a single purchaser, as is a trustee or other
fiduciary of a single trust estate or a single fiduciary account. An aggregate
investment includes all shares of the Fund and all shares of certain other
participating Van Kampen American Capital mutual funds described in the
Prospectus (the "Participating
B-22
<PAGE> 23
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
Letter of Intent as described in the next paragraph. THE DEALER MUST NOTIFY THE
DISTRIBUTOR AT THE TIME AN ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY
FOR THE REDUCED CHARGE ON THE BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION
MUST BE MADE IN WRITING WHEN SUCH AN ORDER IS PLACED BY MAIL. The reduced sales
charge will not be applied if such notification is not furnished at the time of
the order. The reduced sales charge will also not be applied should a review of
the records of the Distributor or ACCESS fail to confirm the investor's
representations concerning his holdings.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount" made pursuant to the Letter of Intent and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totaling 5% of the dollar amount of the Letter of Intent are held by
ACCESS in the name of the shareholder. The effective date of a Letter of Intent
may be back-dated up to 90 days in order that any investments made during this
90-day period, valued at the investor's cost, can become subject to the Letter
of Intent. The Letter of Intent does not obligate the investor to purchase the
indicated amount. 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.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practical for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For investments 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 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 be imposed only 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. 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.
B-23
<PAGE> 24
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 the Participating Funds described 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 "Purchase of Shares," redemption of
Class B shares and Class C shares will be subject to a CDSC. 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 shareholder or 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 or C will be waived
where the descendent 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 or 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 may be waived upon the tax-free rollover or transfer of assets
to another Retirement Plan invested in one or more of Van Kampen American
Capital funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held on to the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any CDSC -- Class B and C is applicable in the event that such acquired shares
are redeemed following the transfer or rollover. The charge also will be waived
on any redemption which results from the return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge 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-24
<PAGE> 25
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 Trust 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 Trust will waive the CDSC -- Class B and C
upon such involuntary redemption.
(e) Reinvestment of Redemption Proceeds in Shares of the Same Trust Within
120 Days After Redemption
A shareholder who has redeemed Class C shares of a Trust may reinvest at
net asset value, with credit for any CDSC -- Class C paid on the redeemed
shares, any portion or all of his or her redemption proceeds (plus that amount
necessary to acquire a fractional share to round off his or her purchase to the
nearest full share) in Class C shares of the Fund, provided that the
reinvestment is effected within 120 days after such redemption and the
shareholder has not previously exercised this reinvestment privilege with
respect to Class C shares of the Fund. Shares acquired in this manner will be
deemed to have the original cost and purchase date of the redeemed shares for
purposes of applying the CDSC -- Class C to subsequent redemptions.
(f) Redemption by Adviser
The Fund may waive the CDSC -- Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. 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 the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
B-25
<PAGE> 26
A prospectus of any of these mutual funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form and return both documents to ACCESS before checks will be
issued. All signatures on the authorization card must be guaranteed if any of
the signators are persons not referenced in the account registration or if more
than 30 days have elapsed since ACCESS established the account on its records.
Moreover, if the shareholder is a corporation, partnership, trust, fiduciary,
executor or administrator, the appropriate documents appointing authorized
signers (corporate resolutions, partnership or trust agreements) must accompany
the authorization card. The documents must be certified in original form, and
the certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
TAX STATUS OF THE FUND
The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund intends to
qualify each year and to elect to be treated as a regulated investment company
under the Code. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income (including tax-exempt
interest, taxable income and net short-term capital gain, but not net capital
gains, which are the excess of net long-term capital gains over net short-term
capital losses) in each year, it will not be required to pay federal income
taxes on any income distributed to shareholders. The Fund intends to distribute
at least the minimum amount of net investment income necessary to satisfy the
90% distribution requirement. The Fund will not be subject to federal income tax
on any net capital gains distributed to shareholders.
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 ended
November 30, 1996 was 1.39%, (ii) the five year period ended November 30, 1996
was 6.97%, and (iii) the ten year period ended November 30, 1996 was 6.56%.
Results from inception through April 1, 1990, reflect expense reimbursement
described under "Investment Advisory Agreement." 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 ended November 30, 1996 was 1.68% and (ii) the
four year, four month period ended November 30, 1996 was 6.26%. 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 ended November 30, 1996
was 4.68% and (ii) the two year, 11 1/2 month period ended November 30, 1996 was
5.74%. 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 objectives
and policies as well as the risks incurred in the Fund's investment practices.
The following chart lists the Fund's yield and tax equivalent yield for the
30-day period ending November 30, 1996.
<TABLE>
<CAPTION>
HIGH YIELD MUNICIPAL FUND
-----------------------------
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SEC yield 5.59% 5.11% 5.11%
Tax-equivalent yield 8.73% 7.98% 7.98%
</TABLE>
B-26
<PAGE> 27
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, Fund maturity and the Fund's
expenses.
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.
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 portfolios, 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, Suite
2900, Houston, Texas 77002, the independent accountants for the Fund, performs
an annual audit of the Fund's financial statements.
B-27
<PAGE> 28
RATINGS OF INVESTMENTS
RATINGS OF MUNICIPAL BONDS
DESCRIPTIONS OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND
RATINGS:
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 fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa -- 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.
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.
Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a midrange ranking;
and a modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Short-term Notes: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality...but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection...and not
distinctly or predominantly speculative."
B-28
<PAGE> 29
Beginning in 1985, Moody's started new rating categories for variable rate
demand obligations ("VRDO's"). VRDO's receive two ratings. The first rating,
depending on the maturity of the VRDO, is assigned either a bond or MIG rating
which represents an evaluation of the risk associated with scheduled principal
and interest payments. The second rating, designated as "VMIG," represents an
evaluation of the degree of risk associated with the demand feature. The new
VRDO's demand feature ratings and symbols are:
VMIG 1: strong protection by established cash flows, superior liquidity
support, demonstrated access to the market for refinancing.
VMIG 2: ample margins of protection, high quality.
VMIG 3: favorable quality, liquidity and cash flow protection may be
narrow, market access for refinancing may be less well established.
VMIG 4: adequate quality, not predominantly speculative but there is risk.
DESCRIPTIONS OF MOODY'S COMMERCIAL PAPER RATINGS:
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL ("S&P") DEBT RATINGS:
A S&P's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources S&P considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditor's rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
B-29
<PAGE> 30
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB-B-CCC-CC-C
Debt rated "BB", "B", "CCC", "CC" or "C" is regarded, 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. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CI This rating is reserved for income bonds on which no interest is
being paid.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
A S&P Commercial Paper Rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Ratings are applicable to both
taxable and tax-exempt commercial paper. The four categories are as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designation 1, 2 and 3 to indicate the relative degree of
safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming
as for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
B Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer and obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information.
B-30
<PAGE> 31
S&P ratings of certain municipal note issues with a maturity of less than
three years are:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be given
a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
S&P may continue to rate note issues with a maturity greater than three years in
accordance with the same rating scale currently employed for municipal bond
ratings.
S&P assigns dual ratings to all long-term debt issues that have a demand or
put feature. The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses the demand feature alone.
Long-term debt rating symbols are used for the long-term maturity and commercial
paper rating symbols are used for the put option (for example, AAA/A-1+). For
demand notes, S&P's note rating symbols are used with the commercial paper
symbols (for example, SP-1+/a-1+).
Rating criteria described in the Prospectus are applied on the basis of the
highest rating applicable to the Municipal Security. This applies to split rated
securities (i.e. different ratings by Moody's and S&P) and dual rated securities
as described above.
B-31
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all mate-
rial respects, the financial position of Van Kampen American Capital High Yield
Municipal Fund (the "Fund"), a series of the Van Kampen American Capital Tax-
Exempt Trust, at November 30, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Fund's management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
November 30, 1996 by correspondence with the custodian and brokers and the ap-
plication 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
January 15, 1997
B-32
<PAGE> 33
PORTFOLIO OF INVESTMENTS
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 0.3%
$ 1,540 Gulf Shores, AL Rev Quality Inn
Beachside Proj Ser 1986............... 11.000% 06/01/16 $ 1,583,243
400 Selma, AL Spl Care Fac Fin Auth Hosp
Rev Vaughan Regl Med Cent Proj Rfdg
(Prerefunded @ 06/01/97).............. 9.500 06/01/14 423,212
750 Vincent, AL Indl Dev Brd Shelby Motel
Group Inc Proj........................ 10.500 09/01/16 763,943
------------
2,770,398
------------
ALASKA 0.2%
2,250 Seward, AK Rev AK Sealife Cent Proj... 7.650 10/01/16 2,312,640
------------
ARIZONA 1.2%
500 Casa Grande, AZ Indl Dev Auth Rfdg.... 8.250 12/01/15 525,165
2,915 Chandler, AZ Indl Dev Auth Rev
Chandler Financial Cent Proj Ser 1986
(d)................................... 9.875 12/01/16 2,681,800
985 Peoria, AZ Indl Dev Auth Sierra Winds
Life Care Cmnty Proj (Var Rate Cpn)... 6.500 11/01/17 895,296
1,025 Pinal Cnty, AZ Indl Dev Auth Casa
Grande Reg Med Cent Proj Ser A........ 8.125 12/01/22 1,124,989
475 Pinal Cnty, AZ Indl Dev Auth Casa
Grande Reg Med Cent Proj Ser B........ 8.125 12/01/22 521,336
2,540 Scottsdale, AZ Indl Dev Auth Rev First
Mtg Westminster Village Proj
(Prerefunded @ 06/01/97).............. 10.000 06/01/17 2,691,892
1,035 Scottsdale, AZ Indl Dev Auth Rev First
Mtg Westminster Village Ser A Rfdg.... 8.000 06/01/11 1,096,707
2,000 Scottsdale, AZ Indl Dev Auth Rev First
Mtg Westminster Village Ser A Rfdg.... 8.250 06/01/15 2,132,880
------------
11,670,065
------------
ARKANSAS 0.0%
500 Fayetteville, AR Pub Fac Brd Rev
Butterfield Trail Village Proj B Rfdg. 9.500 09/01/14 542,125
------------
CALIFORNIA 5.2%
2,415 California Edl Fac Auth Rev Pacific
Graduate Sch of Psychology............ 8.000 11/01/21 2,456,127
3,000 California Hlth Fac Auth Rev Vly
Presbytern Hosp Proj Ser A Rfdg....... 9.000 05/01/12 3,090,000
5,440 California St Veterans Bonds Ser AY... 7.375 04/01/19 5,482,976
1,500 Colton, CA Pub Fin Auth Rev Elec Sys
Impts................................. 7.500 10/01/20 1,584,675
2,500 Corona, CA Ctfs Partn Vista Hosp Sys
Inc Ser C............................. 8.375 07/01/11 2,536,100
1,300 Emeryville, CA Impt Bond Act 1915
Assessment Dist 93-1 East Baybridge... 7.300 09/02/21 1,332,461
1,500 Folsom, CA Spl Tax Cmnty Fac Dist No 7
Rfdg.................................. 7.250 09/01/21 1,542,495
2,855 Fresno, CA Ctfs Partn Bldg Proj Fresno
Exec Plaza Inc........................ 8.500 05/01/16 3,028,498
900 Fresno, CA Jt Pwrs Fin Auth Local Agy
Ser B Rfdg............................ 7.350 09/02/12 969,003
1,500 Glendale, CA Hosp Rev Glendale Mem
Hosp & Hlth Ser A Rfdg (Prerefunded @
11/01/97)............................. 9.000 11/01/17 1,600,380
1,500 Huntington Park, CA Pub Fin Auth Loc
Agy Rev Sub Ser C..................... 7.600 09/01/18 1,615,890
1,000 Moreno Vly, CA Spl Tax Towngate Cmnty
Fac Dist 87-1......................... 7.125 10/01/23 1,044,310
1,530 Norco, CA Swr & Wtr Rev Rfdg.......... 7.200 10/01/19 1,643,006
2,000 Perris, CA Pub Fin Auth Loc Agy Rev
Ser D................................. 7.875 09/01/25 2,159,440
1,500 Rancho Cucamonga, CA Cmnty Fac Dist
Spl Tax No 88-2....................... 8.250 09/01/19 1,638,090
100 Rancho Cucamonga, CA Cmnty Fac Dist
Spl Tax No 88-2....................... 8.000 09/01/20 107,868
3,000 Reedley, CA Ctfs Partn................ 7.500 10/01/26 3,081,300
1,250 Richmond, CA Jt Pwrs Fin Auth Impt
Dists No 851 & 853 Ser A.............. 7.400 09/02/19 1,288,688
3,105 Richmond, CA Redev Agy Multi-Family
Rev Hsg Bridge Affordable Summit Ser
A..................................... 7.500 09/01/23 3,105,000
4,000 Riverside Cnty, CA Air Force Village
West Inc Ser A Rfdg................... 8.125 06/15/20 4,199,960
1,000 Riverside Cnty, CA Impt Bond Act 1915. 7.625 09/02/14 1,031,620
3,000 San Bernardino, CA Hosp Rev San
Bernardino Cmnty Hosp Rfdg............ 7.875 12/01/19 3,043,740
3,000 Santa Ana, CA Cmnty Redev Agy Tax Ser
B Rfdg................................ 7.500 09/01/16 3,079,170
1,000 Santa Rosa, CA Impt Bond Act 1915
Fountaingrove Prkwy Extension......... 7.625 09/02/19 1,031,350
------------
51,692,147
------------
COLORADO 4.7%
1,000 Arrowhead Metro Dist CO............... 8.125 12/01/11 1,071,840
1,060 Berry Creek Metro Dist CO Rfdg........ 7.300 12/01/12 1,151,669
2,400 Bowles Metro Dist CO.................. 7.750 12/01/15 2,385,864
1,500 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj.................... 9.000 01/01/25 1,629,435
400 Colorado Hlth Fac Auth Rev Mile High
Transplant Bank Proj (Prerefunded @
06/01/97)............................. 8.500 06/01/07 429,152
</TABLE>
B-33
See Notes to Financial Statements
<PAGE> 34
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
Colorado Hlth Fac Auth Rev Shalom Park
$ 2,000 Proj Rfdg & Impt........................ 7.250% 12/15/25 $ 2,024,000
2,000 Colorado Hsg Fin Auth Single Family Pgm
Sr Ser C1.............................. 7.550 11/01/27 2,212,120
1,250 Cordillera Metro Dist CO Eagle Cnty..... 8.250 12/01/13 1,393,838
3,000 Cottonwood Wtr & Santn Dist CO Ser A
Rfdg.................................... 7.750 12/01/20 3,050,340
Denver, CO City & Cnty Indl Dev Rev
1,055 Jewish Cmnty Cent Proj.................. 7.375 03/01/09 1,175,048
815 Denver, CO City & Cnty Indl Dev Rev
Jewish Cmnty Cent Proj.................. 7.875 03/01/19 903,892
Denver, CO City & Cnty Rev Indl Dev
1,130 Jewish Cmnty Cent Proj.................. 7.500 03/01/14 1,243,452
2,860 Denver, CO City & Cnty Single Family Mtg
Rev Ser A............................... 8.125 12/01/20 2,990,216
1,930 Denver, CO Urban Renewal Auth Tax
Increment Rev........................... 8.500 05/01/16 2,052,304
2,000 Eagle Cnty, CO Air Terminal Corp Rev
Arpt Proj............................... 7.500 05/01/21 2,050,060
4,000 Fairlake Metro Dist City & Cnty of
Denver, CO.............................. 9.625 12/01/10 4,493,160
2,500 Hyland Hills, CO Metro Park & Recreation
Dist CO Spl Rev Ser A................... 8.625 12/15/12 2,834,175
1,000 Landmark Metro Dist CO (Prerefunded @
06/01/00)............................... 8.750 12/01/05 1,059,930
3,000 Mountain Village Metro Dist San Miguel
Cnty, CO Rfdg (Prerefunded @ 12/01/98)
(c)..................................... 11.000 12/01/07 3,457,800
500 Panorama Metro Dist CO Ser B Rfdg....... 9.000 12/01/09 541,805
147 Skyland Metro Dist Gunnison Cnty CO Rfdg
(Var Rate Cpn).......................... 4.000 12/01/08 104,835
750 Snowmass Village, CO Multi-Family Hsg
Rev Ser A Rfdg.......................... 8.000 09/01/14 786,330
2,175 Southtech Metro Dist CO Rfdg
(Prerefunded @ 12/01/97)................ 9.500 12/01/11 2,316,593
660 Superior, CO Metro Dist No 2 Ser A Rfdg. 7.250 12/01/02 684,057
840 Superior, CO Metro Dist No 2 Ser A Rfdg. 7.750 12/01/13 892,979
1,500 Telluride, CO Hsg Auth Hsg Rev.......... 9.100 06/01/01 1,627,725
2,000 Telluride, CO Hsg Auth Hsg Rev Shandoka
Apts Proj Rfdg.......................... 7.875 06/01/17 2,096,560
------------
46,659,179
------------
CONNECTICUT 1.3%
2,391 Connecticut St Dev Auth 1st Mtg Gross
Rev Hlthcare Proj CT Baptist Homes Inc
Proj.................................... 8.750 09/01/12 2,565,041
1,500 Connecticut St Dev Auth 1st Mtg Gross
Rev Hlthcare Proj CT Baptist Homes Inc
Proj.................................... 9.000 09/01/22 1,637,295
1,225 Connecticut St Dev Auth Hlthcare Rev
Indpt Living Proj Ser B................. 8.000 07/01/17 1,274,772
1,920 Connecticut St Dev Auth Hlthcare Rev
Jerome Home Proj........................ 8.000 11/01/19 2,011,450
2,500 Connecticut St Hlth & Edl Fac Auth Rev
Tolland Cnty Hlthcare Inc Ser A......... 9.200 07/01/21 2,718,500
1,520 Manchester, CT Redev Agy Multi-Family
Mtg Rev Bennet Hsg Dev Rfdg............. 7.200 12/01/18 1,604,527
1,365 New Haven, CT Fac Rev Easter Seal
Goodwill Rehab Proj..................... 8.875 04/01/16 1,451,882
------------
13,263,467
------------
DELAWARE 0.8%
2,670 Delaware St Econ Dev Auth Indl Dev Rev
1st Mtg Dover Hlthcare Rfdg............. 7.875 04/01/08 2,785,878
400 Delaware St Econ Dev Auth Rev 1st Mtg
Gilpin Hall Proj........................ 7.375 07/01/15 410,688
2,800 Delaware St Econ Dev Auth Rev 1st Mtg
Gilpin Hall Proj........................ 7.625 07/01/25 2,873,920
975 Delaware St Econ Dev Auth Rev
Osteopathic Hosp Assn of DE Ser A
(Prerefunded @ 07/01/04)................ 9.500 01/01/22 1,207,292
300 Wilmington, DE Hosp Rev Osteopathic Hosp
Assn of DE/Riverside Hosp Ser A
(Prerefunded @ 10/01/98)................ 10.000 10/01/03 334,377
500 Wilmington, DE Hosp Rev Osteopathic Hosp
Assn of DE/Riverside Hosp Ser A
(Prerefunded @ 10/01/98)................ 10.200 10/01/18 561,235
------------
8,173,390
------------
DISTRICT OF COLUMBIA 0.6%
2,090 District of Columbia Hosp Rev Metlantic
WA Hosp Cent Ser A Rfdg................. 7.125 08/15/19 2,187,018
3,500 District of Columbia Rev Natl Pub Radio
Ser A................................... 7.700 01/01/23 3,735,515
------------
5,922,533
------------
FLORIDA 7.1%
2,085 Atlantic Beach, FL Rev Fleet Landing
Proj Ser A Rfdg & Impt.................. 7.875 10/01/08 2,323,899
1,160 Atlantic Beach, FL Rev Fleet Landing
Proj Ser A Rfdg & Impt.................. 7.500 10/01/02 1,236,885
1,500 Bay Cnty, FL Hosp Sys Rev Bay Med Cent
Proj Rfdg (Prerefunded @ 10/01/04)........ 8.000 10/01/12 1,797,705
500 Bay Cnty, FL Hosp Sys Rev Bay Med Cent
Proj Rfdg (Prerefunded @ 10/01/04)........ 8.000 10/01/19 616,095
</TABLE>
B-34
See Notes to Financial Statements
<PAGE> 35
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,470 Brevard Cnty, FL Hlth Fac Auth Rev
Courtenay Springs Village Rfdg........ 7.375% 11/15/04 $ 1,562,492
2,200 Brevard Cnty, FL Hlth Fac Auth Rev
Courtenay Springs Village Rfdg........ 7.750 11/15/17 2,352,966
180 Charlotte Cnty, FL Indl Dev Auth Rev
Beverly Enterprises Rfdg.............. 10.000 06/01/11 203,758
1,650 Collier Cnty, FL Indl Dev Auth
Retirement Rental Hsg Rev............. 10.750 03/01/03 1,870,044
4,000 Escambia Cnty, FL Pollutn Ctl Rev
Champion Intl Corp Proj............... 6.900 08/01/22 4,265,360
850 Fort Walton Beach, FL Indl Dev Rev 1st
Mtg Fort Walton Beach Venton Proj..... 10.500 12/01/16 906,780
1,130 Hernando Cnty, FL Indl Dev Rev Beverly
Enterprises Rfdg...................... 10.000 09/01/11 1,284,302
3,000 Hialeah Gardens, FL Indl Dev Rev
Waterford Convalescent Ser A Rfdg..... 8.250 12/01/14 3,209,550
1,500 Homestead, FL Indl Dev Rev Brookwood
Gardens Cent Proj Ser A Rfdg.......... 8.250 12/01/14 1,604,775
1,330 Lake Bernadette, FL Cmnty Dev Dist Spl
Assmt Rev Ser A....................... 8.000 05/01/17 1,340,866
2,500 Lake Saint Charles, FL Cmnty Dev Dist
Spl Assmt Rev......................... 7.875 05/01/17 2,500,475
750 Lee Cnty, FL Indl Dev Auth Econ Rev
Encore Nursing Cent Partner Rfdg...... 8.125 12/01/07 813,308
1,300 Marion Cnty, FL Indl Dev Auth Rev
Midland Ross Corp Proj................ 11.875 08/01/11 1,313,689
2,570 North Miami, FL Hlthcare Fac Rev
Imperial Club Proj Ser A.............. 10.000 01/01/13 2,828,619
3,000 Northern Palm Beach Cnty, FL Impt Dist
Wtr Ctl & Impt Unit Dev............... 7.200 08/01/16 3,113,580
2,500 Northern Palm Beach Cnty, FL Impt Dist
Wtr Ctl & Impt Unit Dev............... 7.300 08/01/27 2,598,450
1,000 Orange Cnty, FL Hlth Fac Auth Rev 1st
Mtg Orlando Lutheran Tower............ 8.750 07/01/26 1,006,610
840 Orange Cnty, FL Hlth Fac Auth Rev 1st
Mtg Orlando Lutheran Tower Rfdg....... 8.125 07/01/06 837,967
2,035 Orange Cnty, FL Hlth Fac Auth Rev 1st
Mtg Orlando Lutheran Tower Rfdg....... 8.400 07/01/14 2,051,728
1,325 Orange Cnty, FL Hlth Fac Auth Rev 1st
Mtg Orlando Lutheran Tower Rfdg....... 8.625 07/01/20 1,337,482
2,870 Orange Cnty, FL Hlth Fac Auth Rev Aces
Pooled Hosp Ln Ser A Rfdg (FGIC Insd)
(c)................................... 7.875 12/01/25 2,982,045
2,645 Orange Cnty, FL Hsg Fin Auth Multi-
Family Rev Mtg Hands Inc Proj Ser A... 7.875 10/01/15 2,683,987
2,035 Orange Cnty, FL Hsg Fin Auth Multi-
Family Rev Mtg Hands Inc Proj Ser A... 8.000 10/01/25 2,070,022
450 Orange Cnty, FL Indl Dev Auth Rev
Beverly Enterprises Proj Rfdg......... 9.250 08/01/10 497,529
3,000 Overoaks, FL Cmnty Dev Dist Cap Impt
Rev................................... 8.250 05/01/17 3,064,170
3,400 Palm Beach Cnty, FL Hlth Fac Auth Rev
Waterford Proj Rfdg................... 7.750 10/01/15 3,456,134
750 Plantation, FL Hlth Fac Auth Rev Hlth
Fac Auth Rev Covenant Retirement
Cmntys Inc............................ 7.750 12/01/22 804,668
1,370 Plantation, FL Hlth Fac Auth Rev Hlth
Fac Auth Rev Covenant Retirement
Cmntys Inc............................ 7.625 12/01/12 1,464,996
250 Santa Rosa Cnty, FL Indl Dev Auth Rev
1st Mtg Sandy Ridge Care Cent......... 10.500 04/01/16 252,068
2,000 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Manatee Jewish Rfdg.......... 7.000 07/01/16 2,007,380
1,920 Tampa Palms, FL Open Space & Transn
Cmnty Dev Dist Rev Cap Impt Area 7
Proj.................................. 8.500 05/01/17 1,916,986
710 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg (b).................... 7.125 11/01/06 712,492
2,000 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg (b).................... 7.500 11/01/16 2,007,780
2,000 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg (b).................... 7.625 11/01/26 2,007,740
1,775 Westchase East Cmnty, FL Dev Dist Cap
Impt Rev.............................. 7.500 05/01/17 1,772,941
------------
70,678,323
------------
GEORGIA 1.0%
3,000 Class A Ctfs relating to Atlanta, GA
Urban Residential Fin Auth Multi-
Family Hsg Rev Renaissance on
Peachtree Apts Proj Ser 85............ 8.500 04/01/26 2,850,000
375 Coweta Cnty, GA Residential Care Fac
For The Elderly Auth Rev 1st Lien
Wesley Woods Ser A.................... 7.625 10/01/06 379,879
1,500 Coweta Cnty, GA Residential Care Fac
For The Elderly Auth Rev 1st Lien
Wesley Woods Ser A.................... 8.200 10/01/16 1,521,390
1,500 Coweta Cnty, GA Residential Care Fac
For The Elderly Auth Rev 1st Lien
Wesley Woods Ser A.................... 8.250 10/01/26 1,521,330
300 Richmond Cnty, GA Dev Auth Nursing
Home Rev Beverly Enterprises GA Proj
Rfdg.................................. 8.750 06/01/11 326,898
3,000 Rockdale Cnty, GA Dev Auth Solid Waste
Disposal Rev.......................... 7.500 01/01/26 3,123,660
------------
9,723,157
------------
HAWAII 0.1%
900 Hawaii Cnty, HI Impt Dist No 17 Spl
Assessment Kaloko Subdivision......... 9.500 08/01/11 951,993
------------
ILLINOIS 7.8%
1,500 Bedford Park, IL Tax Increment Rev
Mark IV Proj.......................... 9.750 03/01/12 1,731,420
1,000 Bedford Park, IL Tax Increment Rev Sr
Lien Bedford City Proj................ 9.250 02/01/12 1,129,230
3,000 Broadview, IL Tax Increment Rev Sr
Lien.................................. 8.250 07/01/13 3,272,100
1,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Rfdg...... 8.200 12/01/24 1,185,910
</TABLE>
B-35
See Notes to Financial Statements
<PAGE> 36
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 540 Chicago, IL O'Hare Intl
Arpt Spl Fac Rev American
Airls Inc Proj Ser A...... 7.875% 11/01/25 $ 587,439
3,500 Chicago, IL O'Hare Intl
Arpt Spl Fac Rev United
Airls Inc................. 8.500 05/01/18 3,880,240
1,500 Chicago, IL Tax Increment
(b)......................... 7.250 01/01/14 1,500,000
3,000 Crestwood, IL Tax
Increment Rev Rfdg........ 7.250 12/01/08 3,052,710
1,350 Hanover Park, IL Rev 1st
Mtg Windsor Park Manor
Proj...................... 9.500 12/01/14 1,444,919
500 Hodgkins, IL Tax
Increment................. 9.500 12/01/09 584,385
4,000 Hodgkins, IL Tax Increment
Rev Ser A Rfdg............ 7.625 12/01/13 4,118,480
3,500 Huntley, IL Increment
Alloc Rev Huntley Redev
Proj Ser A................ 8.500 12/01/15 3,563,105
2,470 Illinois Dev Fin Auth Hlth
Fac Rev Cmnty Living
Options................... 7.125 03/01/10 2,587,646
1,500 Illinois Dev Fin Auth
Pollutn Ctl Rev IL Pwr Co
Proj Ser A Rfdg........... 8.300 04/01/17 1,584,315
650 Illinois Dev Fin Auth Rev
Cmnty Fac Clinic Altgeld
Proj...................... 8.000 11/15/06 652,529
1,405 Illinois Dev Fin Auth Rev
Cmnty Fac Clinic Altgeld
Proj...................... 8.000 11/15/16 1,410,662
2,000 Illinois Dev Fin Auth Rev
Debt Restructure East
Saint Louis............... 7.375 11/15/11 2,215,100
4,000 Illinois Edl Fac Auth Rev
Peace Mem Ministries Proj. 7.500 08/15/26 4,090,840
1,475 Illinois Hlth Fac Auth Rev
Covenant Retirement Cmntys
Ser A..................... 7.600 12/01/12 1,595,360
3,000 Illinois Hlth Fac Auth Rev
Fairview Oblig Group Ser A
Rfdg...................... 7.400 08/15/23 3,048,360
510 Illinois Hlth Fac Auth Rev
Hinsdale Ser C............ 9.500 11/15/19 582,833
1,700 Illinois Hlth Fac Auth Rev
Lifelink Corp Oblig Group
Ser B..................... 8.000 02/15/25 1,792,939
4,000 Illinois Hlth Fac Auth Rev
Lutheran Home & Svcs Proj
Ser A..................... 7.500 08/15/26 4,035,000
1,250 Illinois Hlth Fac Auth Rev
Saint Elizabeth's Hosp
Chicago Rfdg.............. 7.625 07/01/10 1,373,763
1,500 Illinois Hlth Fac Auth Rev
Saint Elizabeth's Hosp
Chicago Rfdg.............. 7.750 07/01/16 1,659,735
1,500 Jackson Park Hosp Fndtn
Chicago, IL Jackson Park
Hosp (d).................. 9.000 03/01/05 1,365,000
3,270 Loves Park, IL 1st Mtg Rev
Hoosier Care Proj Ser A... 9.750 08/01/19 3,496,186
2,500 Mill Creek Wtr Reclamation
Dist IL Swr Rev........... 8.000 03/01/10 2,571,775
1,500 Mill Creek Wtr Reclamation
Dist IL Wtrwks Rev........ 8.000 03/01/10 1,543,065
3,100 Robbins, IL Res Recovery
Rev....................... 8.375 10/15/16 3,193,000
1,695 Round Lake Beach, IL Tax
Increment Rev Rfdg........ 7.200 12/01/04 1,761,834
2,500 Round Lake Beach, IL Tax
Increment Rev Rfdg........ 7.500 12/01/13 2,589,200
3,035 Saint Charles, IL Indl Dev
Rev Tri-City Proj......... 7.500 11/01/13 3,112,969
3,965 Saint Charles, IL Multi-
Family Hsg Rev Bonds
Wessel Court Proj......... 7.600 04/01/24 4,078,597
500 Sherman, IL Rev 1st Mtg
Villa Hlthcare Ser A...... 8.250 10/01/14 516,865
500 Sherman, IL Rev 1st Mtg
Villa Hlthcare Ser A...... 8.500 10/01/24 523,160
------------
77,430,671
------------
INDIANA 2.6%
500 Carmel, IN Retirement
Rental Hsg Rev Beverly
Enterprises Proj Rfdg..... 8.750 12/01/08 554,000
1,500 Indiana Hlth Fac Fin Auth
Rev Saint Anthony Home
Oblig Group............... 7.000 05/15/17 1,500,930
1,000 Indiana Hlth Fac Fin Auth
Rev Saint Anthony Home
Oblig Group............... 7.250 05/15/24 1,005,880
1,000 Indiana St Dev Fin Auth
Envir USX Corp Proj Rfdg &
Impt (b).................. 6.250 07/15/30 1,017,700
3,000 Indiana St Dev Fin Auth
Indl Dev Rev UNR Rohn Inc
Proj...................... 7.500 03/01/11 3,061,980
5,000 Indiana St Dev Fin Auth
Pollutn Ctl Rev Inland
Steel Co Proj No 13 Rfdg.. 7.250 11/01/11 5,175,200
560 Valparaiso, IN Econ Dev
Rev 1st Mtg Whispering
Pines Cent................ 7.300 01/01/02 534,626
980 Valparaiso, IN Econ Dev
Rev 1st Mtg Whispering
Pines Cent................ 7.500 01/01/07 938,262
1,405 Valparaiso, IN Econ Dev
Rev 1st Mtg Whispering
Pines Cent................ 7.750 01/01/12 1,347,634
2,045 Valparaiso, IN Econ Dev
Rev 1st Mtg Whispering
Pines Cent................ 8.000 01/01/17 1,963,732
3,675 Valparaiso, IN Econ Dev
Rev 1st Mtg Whispering
Pines Cent Rfdg
(Prerefunded @ 01/01/00).. 9.500 01/01/07 4,281,779
400 Wells Cnty, IN Hosp Auth
Rev Caylor Nickel Med Cent
Inc Rfdg.................. 8.500 04/15/03 450,684
3,600 Wells Cnty, IN Hosp Auth
Rev Caylor Nickel Med Cent
Inc Rfdg.................. 8.750 04/15/12 4,115,304
------------
25,947,711
------------
IOWA 0.3%
2,770 Iowa Fin Auth Multi-Family
Rev Hsg Park West Proj
Rfdg...................... 8.000 10/01/23 2,853,045
------------
KANSAS 0.3%
1,500 Newton, KS Hosp Rev Newton
Hlthcare Corp Ser A....... 7.375 11/15/14 1,587,750
1,000 Newton, KS Hosp Rev Newton
Hlthcare Corp Ser A....... 7.750 11/15/24 1,084,160
------------
2,671,910
------------
</TABLE>
B-36
See Notes to Financial Statements
<PAGE> 37
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KENTUCKY 0.3%
$ 1,250 Erlanger, KY Assessment Rev Pub Impt
Proj.................................... 7.500% 08/01/18 $ 1,324,400
1,195 Kenton Cnty, KY Arpt Brd Arpt Rev Spl
Fac Delta Airls Proj Ser A.............. 8.100 12/01/15 1,289,943
------------
2,614,343
------------
LOUISIANA 3.2%
3,510 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Ser A (GNMA Collateralized)
(c)..................................... 7.600 02/01/20 3,637,694
4,700 Hodge, LA Util Rev...................... 9.000 03/01/10 5,101,615
1,400 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev................................ 7.500 05/26/06 1,417,962
2,000 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev................................ 8.000 05/26/16 2,024,840
4,000 Lake Charles, LA Harbor & Terminal Dist
Port Fac Rev Trunkline Lng Rfdg......... 7.750 08/15/22 4,574,600
665 Louisiana Pub Fac Auth Rev Indl Dev
Beverly Enterprises Rfdg................ 8.250 09/01/08 722,363
2,000 Port New Orleans, LA Indl Dev Rev
Avondale Inds Inc Proj Rfdg............. 8.250 06/01/04 2,171,940
2,000 Port New Orleans, LA Indl Dev Rev
Continental Grain Co Proj............... 14.500 01/01/02 2,014,580
3,000 Port New Orleans, LA Indl Dev Rev
Continental Grain Co Proj Rfdg.......... 7.500 07/01/13 3,239,760
2,500 Port New Orleans, LA Indl Dev Rev
Continental Grain Co Proj Ser A......... 14.500 02/01/02 2,535,925
2,500 Saint James Parish, LA Solid Waste
Disposal Rev Kaiser Aluminum Proj....... 7.750 08/01/22 2,660,050
500 West Feliciana Parish, LA Pollutn Ctl
Rev Gulf States Util Co Proj Ser A...... 7.500 05/01/15 537,565
1,000 West Feliciana Parish, LA Pollutn Ctl
Rev Gulf States Util Co Proj Ser B...... 9.000 05/01/15 1,118,810
------------
31,757,704
------------
MAINE 0.6%
3,200 Maine Fin Auth Solid Waste Disposal Rev
Boise Cascade Corp Proj................. 7.900 06/01/15 3,493,696
450 Maine Hlth & Higher Edl Fac Auth Rev
Waterville Osteopathic Hosp Ser A
(Prerefunded @ 07/01/97)................ 9.875 07/01/13 479,309
1,500 Maine Vets Homes Rev.................... 7.750 10/01/20 1,587,765
------------
5,560,770
------------
MARYLAND 1.1%
2,000 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser A Rfdg.... 7.550 06/01/17 2,133,020
2,500 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser B Rfdg.... 7.500 06/01/15 2,657,550
2,000 Calvert Cnty, MD Econ Dev Rev Asbury
Solomons Island Fac Proj................ 8.375 01/01/15 2,190,400
4,000 Maryland St Energy Fin Admin Ltd Oblig
Rev Cogeneration AES Warrior Run........ 7.400 09/01/19 4,239,920
------------
11,220,890
------------
MASSACHUSETTS 9.0%
1,490 Massachusetts St Hlth & Edl Fac Auth Rev
Indpt Living Ser A...................... 8.100 07/01/18 1,544,564
3,000 Massachusetts St Hlth & Edl Fac Auth Rev
Milford-Whitinsville Regl Hosp Ser B.... 7.750 07/15/17 3,167,100
1,000 Massachusetts St Hlth & Edl Fac Auth Rev
Norwood Hosp Ser E...................... 8.000 07/01/12 1,015,750
745 Massachusetts St Hlth & Edl Fac Auth Rev
Saint Annes Hosp Ser A.................. 9.250 07/01/05 753,627
2,000 Massachusetts St Hlth & Edl Fac Auth Rev
Saint Annes Hosp Ser A.................. 9.375 07/01/14 2,023,380
2,750 Massachusetts St Indl Fin Agy Hillcrest
Edl Cent Inc Proj....................... 8.450 07/01/18 2,820,758
1,000 Massachusetts St Indl Fin Agy Indl Rev
1st Hlthcare Corp Proj Ser A Rfdg....... 7.625 04/01/13 1,023,570
800 Massachusetts St Indl Fin Agy Indl Rev
Beverly Enterprises Rfdg................ 8.375 05/01/09 871,376
1,075 Massachusetts St Indl Fin Agy Indl Rev
Beverly Enterprises/Gloucester &
Lexington Projs Rfdg.................... 8.000 05/01/02 1,133,491
500 Massachusetts St Indl Fin Agy Rev 1st
Mtg Brookhaven Cmnty (Prerefunded @
01/01/98)............................... 10.250 01/01/18 546,585
1,005 Massachusetts St Indl Fin Agy Rev 1st
Mtg Evanswood Bethzatha Ser A Rfdg...... 7.400 01/15/09 1,031,351
2,000 Massachusetts St Indl Fin Agy Rev 1st
Mtg Evanswood Bethzatha Ser A Rfdg...... 7.625 01/15/14 2,051,900
2,000 Massachusetts St Indl Fin Agy Rev 1st
Mtg Evanswood Bethzatha Ser A Rfdg...... 7.875 01/15/20 2,080,320
690 Massachusetts St Indl Fin Agy Rev 1st
Mtg Loomis House & Village Proj......... 7.250 07/01/07 724,155
1,410 Massachusetts St Indl Fin Agy Rev 1st
Mtg Loomis House & Village Proj......... 7.400 07/01/12 1,474,945
1,530 Massachusetts St Indl Fin Agy Rev 1st
Mtg Loomis House & Village Proj......... 7.500 07/01/17 1,610,723
30 Massachusetts St Indl Fin Agy Rev 1st
Mtg Pioneer Vly......................... 7.000 10/01/01 28,044
500 Massachusetts St Indl Fin Agy Rev 1st
Mtg Pioneer Vly Amended................. 7.000 10/01/20 417,350
1,000 Massachusetts St Indl Fin Agy Rev 1st
Mtg Reeds Landing Proj.................. 7.750 10/01/00 1,024,870
4,300 Massachusetts St Indl Fin Agy Rev 1st
Mtg Reeds Landing Proj.................. 8.625 10/01/23 4,631,057
</TABLE>
B-37
See Notes to Financial Statements
<PAGE> 38
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 1,700 Massachusetts St Indl Fin Agy Rev 1st
Mtg Stone Institute & Newton.......... 7.700% 01/01/14 $ 1,778,285
500 Massachusetts St Indl Fin Agy Rev
Atlantic Med Cent Ser B............... 10.125 11/01/14 504,550
3,545 Massachusetts St Indl Fin Agy Rev
Boston Architectural Cent Proj........ 8.500 09/01/19 3,842,284
500 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............... 8.000 12/01/06 530,665
1,000 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............... 8.375 12/01/13 1,078,880
3,000 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............... 8.500 12/01/20 3,249,210
2,555 Massachusetts St Indl Fin Agy Rev East
Boston Neighborhood Proj.............. 7.500 07/01/16 2,587,091
2,560 Massachusetts St Indl Fin Agy Rev East
Boston Neighborhood Proj.............. 7.625 07/01/26 2,575,360
785 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc.................... 8.000 11/01/06 829,941
1,230 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc.................... 8.375 11/01/13 1,359,470
2,165 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc.................... 8.500 11/01/20 2,411,031
1,760 Massachusetts St Indl Fin Agy Rev
Glenmeadow Retirement Cmnty Ser C..... 8.250 02/15/08 1,804,000
500 Massachusetts St Indl Fin Agy Rev
Glenmeadow Retirement Cmnty Ser C..... 8.625 02/15/26 510,070
3,745 Massachusetts St Indl Fin Agy Rev Gtr
Lynn Mental Hlth Assn Proj............ 8.800 06/01/14 4,132,832
420 Massachusetts St Indl Fin Agy Rev
Hillcrest Edl Cent Inc Proj........... 7.500 07/01/00 428,093
740 Massachusetts St Indl Fin Agy Rev
Hillcrest Edl Cent Inc Proj........... 8.000 07/01/05 766,255
3,380 Massachusetts St Indl Fin Agy Rev JRC
Assisted Living....................... 7.500 07/01/26 3,456,320
2,555 Massachusetts St Indl Fin Agy Rev N E
Cent For Autism....................... 9.000 11/01/05 2,766,401
4,910 Massachusetts St Indl Fin Agy Rev N E
Cent For Autism....................... 9.500 11/01/17 5,395,648
1,100 Massachusetts St Indl Fin Agy Rev N E
Cent For Autism....................... 7.000 11/01/19 1,060,840
5,000 Massachusetts St Indl Fin Agy Rev
Orchard Cove Issue.................... 9.000 05/01/22 5,463,950
7,000 Massachusetts St Indl Fin Agy Rev Rev
Emerson College Issue Ser A........... 8.900 01/01/18 7,792,610
1,190 Massachusetts St Indl Fin Agy Rev
Vinfen Corp Issue..................... 7.100 11/15/18 1,170,125
1,020 Massachusetts St Indl Fin Agy Rev
Waarc Inc Proj........................ 7.300 09/01/10 1,033,087
915 Massachusetts St Indl Fin Agy Rev
Waarc Inc Proj........................ 7.600 09/01/17 923,866
1,820 Massachusetts St Indl Fin Agy Rev
Waarc Inc Proj........................ 7.750 09/01/25 1,838,819
------------
89,264,599
------------
MICHIGAN 2.8%
440 Detroit, MI Local Dev Fin Auth Tax
Increment Ser A....................... 9.500 05/01/21 519,046
1,000 Dickinson Cnty, MI Mem Hosp Sys Hosp
Rev................................... 8.000 11/01/14 1,069,110
2,390 Meridian, MI Econ Dev Corp 1st Mtg
Burcham Hills Ser A Rfdg.............. 7.500 07/01/13 2,439,449
3,430 Meridian, MI Econ Dev Corp 1st Mtg
Burcham Hills Ser A Rfdg.............. 7.750 07/01/19 3,502,202
4,020 Michigan St Hosp Fin Auth Rev Detroit
Macomb Hosp Corp Ser A Rfdg........... 7.300 06/01/01 4,059,356
2,400 Michigan St Hosp Fin Auth Rev Gratiot
Cmnty Hosp Ser A Rfdg (Prerefunded @
10/01/98)............................. 8.750 10/01/07 2,590,464
500 Michigan St Hosp Fin Auth Rev Hosp
Genesys Hlth Sys Ser A Rfdg........... 7.500 10/01/07 545,375
1,500 Michigan St Hosp Fin Auth Rev Hosp
Genesys Hlth Sys Ser A Rfdg........... 8.100 10/01/13 1,690,365
5,790 Michigan St Hosp Fin Auth Rev Saratoga
Cmnty Hosp Rfdg....................... 8.750 06/01/10 6,526,546
1,500 Michigan St Strategic Fd Ltd Oblig Rev
Great Lakes Pulp & Fibre Proj (e)..... 10.250 12/01/16 901,830
3,500 Michigan St Strategic Fd Solid Waste
Disp Rev Genesee Pwr.................. 7.500 01/01/21 3,521,595
500 Oakland Cnty, MI Econ Dev Corp Ltd
Oblig Rev Pontiac Osteopathic Hosp
Proj.................................. 9.625 01/01/20 584,280
------------
27,949,618
------------
MINNESOTA 2.8%
1,020 Austin, MN Multi-Family Rev Hsg Cedars
of Austin Proj Rfdg................... 7.500 04/01/17 1,054,394
2,000 Austin, MN Multi-Family Rev Hsg Cedars
of Austin Proj Rfdg................... 7.500 04/01/18 2,067,440
1,955 Brooklyn Cent MN Multi-Family Hsg Rev
Four Courts Apts Proj Ser A Rfdg...... 7.400 12/01/15 1,982,878
1,220 Brooklyn Cent MN Multi-Family Hsg Rev
Four Courts Apts Proj Ser A Rfdg...... 7.500 06/01/25 1,237,312
750 Chisago City, MN Hlth Fac Rev Part
Pleasant Heights Proj Ser A Rfdg...... 7.300 07/01/25 760,853
1,200 Maplewood, MN Hlthcare Fac Rev VOA
Care Cent Proj........................ 7.450 10/01/16 1,271,736
650 Minneapolis, MN Cmnty Dev Agy
Commercial Dev Rev Std Mill Hotel Proj
(e)................................... 8.000 04/01/10 260,000
800 Minneapolis, MN Commercial Dev Rev
Holiday Inn Metrodome Proj Rfdg....... 10.500 06/01/03 815,584
</TABLE>
B-38
See Notes to Financial Statements
<PAGE> 39
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINNESOTA (CONTINUED)
$ 1,950 Minneapolis, MN Hlthcare Fac Rev
Ebenezer Society Proj Ser A........... 7.200% 07/01/23 $ 1,994,616
1,000 Minneapolis, MN Hlthcare Fac Rev Saint
Olaf Residence Inc Proj............... 7.100 10/01/23 1,014,790
350 Minneapolis, MN Multi-Family Rev Hsg
Belmont Apts Proj..................... 7.250 11/01/16 351,911
1,320 Minneapolis, MN Multi-Family Rev Hsg
Belmont Apts Proj..................... 7.625 11/01/27 1,327,062
3,040 New Brighton, MN Rental Hsg Rev
Polynesian Village Apts Proj Ser A
Rfdg.................................. 7.500 10/01/17 3,080,949
865 New Hope Minnesota Multi-Family Rev
Hsg Broadway Lanel Proj............... 7.750 09/01/07 895,362
2,320 New Hope Minnesota Multi-Family Rev
Hsg Broadway Lanel Proj Rfdg.......... 7.750 09/01/07 2,391,572
920 North Saint Paul, MN Multi-Family Rev
Hsg Cottages North Saint Paul Rfdg.... 9.000 02/01/09 988,430
2,220 North Saint Paul, MN Multi-Family Rev
Hsg Cottages North Saint Paul Rfdg.... 9.250 02/01/22 2,383,570
1,695 Saint Paul, MN Hsg & Redev Auth
Commercial Dev Rev Beverly Enterprises
Rfdg.................................. 7.750 11/01/02 1,739,731
500 Shoreview, MN Sr Hsg Rev Shoreview Sr
Residence Proj........................ 7.250 02/01/26 499,325
2,000 Spring Lake Park, MN Multi-Family Hsg
Cottages Spring Lake Rfdg............. 8.375 01/01/22 2,037,860
------------
28,155,375
------------
MISSISSIPPI 1.9%
5,500 Claiborne Cnty, MS Pollutn Ctl Rev
Middle South Energy Inc Ser B......... 8.250 06/01/14 5,949,680
7,575 Claiborne Cnty, MS Pollutn Ctl Rev
Middle South Energy Inc Ser C......... 9.875 12/01/14 8,434,687
1,000 Lowndes Cnty, MS Hosp Rev Golden
Triangle Med Cent Rfdg................ 8.500 02/01/10 1,114,890
3,000 Ridgeland, MS Urban Renewal Rev the
Orchard Ltd Proj Ser A Rfdg........... 7.750 12/01/15 3,133,170
------------
18,632,427
------------
MISSOURI 1.8%
1,500 Chesterfield, MO Indl Dev Auth Rev
Saint Andrews Episcopal-Presbyterian
Ser A................................. 8.500 12/01/19 1,596,285
1,000 Good Shepherd Nursing Home Dist MO
Nursing Home Fac Rev.................. 7.625 08/15/15 1,027,660
3,000 Good Shepherd Nursing Home Dist MO
Nursing Home Fac Rev.................. 7.750 08/15/25 3,093,690
2,840 Jefferson Cnty, MO Indl Dev Auth Indl
Rev Cedars Hlthcare Cent Proj Ser A
Rfdg.................................. 8.250 12/01/15 2,845,652
1,115 Madison Cnty, MO Hosp Rev Ser A....... 7.700 10/01/18 1,124,299
1,490 Madison Cnty, MO Hosp Rev Ser A....... 7.900 10/01/26 1,504,572
1,075 Missouri St Hlth & Edl Fac Bethesda
Hlth Group Inc Proj A Rfdg............ 7.500 08/15/12 1,105,240
785 Perry Cnty, MO Nursing Home Rev Ser A. 7.650 03/01/16 799,562
1,745 Perry Cnty, MO Nursing Home Rev Ser A. 7.750 03/01/26 1,777,195
500 Saint Louis Cnty, MO Indl Dev Auth Rev
1st Mtg Deaconess Manor Assn.......... 7.500 06/01/16 508,810
500 Saint Louis Cnty, MO Indl Dev Auth Rev
1st Mtg Deaconess Manor Assn.......... 7.500 06/01/23 503,920
1,830 Saint Louis, MO Tax Increment Rev
Scullin Redev Area Ser A.............. 10.000 08/01/10 2,205,406
------------
18,092,291
------------
MONTANA 0.2%
2,000 Montana St Hlth Fac Auth Rev Mission
Ridge Proj Ser A...................... 7.000 08/15/26 2,006,060
------------
NEVADA 0.9%
2,000 Clark Cnty, NV Indl Dev Rev Southwest
Gas Corp Ser A........................ 6.500 12/01/33 2,019,780
1,500 Henderson, NV Local Impt Dist No T-10. 7.500 08/01/15 1,545,075
1,425 Henderson, NV Local Impt Dist No T-4
Ser B................................. 7.300 11/01/12 1,469,489
945 Las Vegas, NV Local Impt Bonds Spl
Impt Dist No 404...................... 7.300 11/01/09 972,074
985 Las Vegas, NV Spl Impt Dist No 505
Elkhorn Springs....................... 8.000 09/15/13 1,021,268
1,975 Nevada St Dept Commerce Hlth Fac Rev
Washoe Convalescent Cent Proj Rfdg.... 8.125 06/01/03 2,029,648
------------
9,057,334
------------
NEW HAMPSHIRE 4.9%
1,490 New Hampshire Higher Edl & Hlth Fac
Auth Rev 1st Mtg Odd Fellows Home
Rfdg.................................. 8.000 06/01/04 1,574,781
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev 1st Mtg Odd Fellows Home
Rfdg.................................. 9.000 06/01/14 2,253,500
435 New Hampshire Higher Edl & Hlth Fac
Auth Rev Colby-Sawyer College Issue... 7.200 06/01/12 439,385
2,565 New Hampshire Higher Edl & Hlth Fac
Auth Rev Colby-Sawyer College Issue... 7.500 06/01/26 2,640,744
5,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Daniel Webster College Issue. 7.625 07/01/16 5,346,600
1,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage Heights... 7.350 01/01/18 1,016,420
4,825 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage Heights... 7.450 01/01/25 4,900,125
</TABLE>
B-39
See Notes to Financial Statements
<PAGE> 40
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE (CONTINUED)
$ 2,425 New Hampshire Higher Edl & Hlth Fac
Auth Rev Hlthcare Visiting Nurse....... 7.250% 09/01/23 $ 2,362,678
1,425 New Hampshire Higher Edl & Hlth Fac
Auth Rev Monadock Cmnty Hosp Issue..... 9.125 10/01/20 1,554,846
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev New London Hosp Assn Proj..... 7.500 06/01/05 2,204,580
3,500 New Hampshire Higher Edl & Hlth Fac
Auth Rev Vly Regl Hosp................. 7.350 04/01/23 3,361,365
4,110 New Hampshire St Bus Fin Auth Elec Fac
Rev Plymouth Cogeneration.............. 7.750 06/01/14 4,247,438
1,500 New Hampshire St Bus Fin Auth Swr &
Solid Waste Disp Rev Crown Paper Co
Proj................................... 7.875 07/01/26 1,550,640
4,435 New Hampshire St Hsg Fin Auth Single
Family Residential..................... 8.500 07/01/14 4,669,390
3,420 New Hampshire St Indl Dev Auth Rev
Pollutn Ctl Pub Svcs Co of NH Proj Ser
A...................................... 7.650 05/01/21 3,537,648
2,300 New Hampshire St Indl Dev Auth Rev
Pollutn Ctl Pub Svcs Co of NH Proj Ser
C...................................... 7.650 05/01/21 2,379,120
4,000 New Hampshire St Indl Dev Auth Rev
Pollutn Ctl Ser B...................... 10.750 10/01/12 4,281,840
------------
48,321,100
------------
NEW JERSEY 4.0%
1,000 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrigerated.................. 8.400 04/01/24 1,020,980
750 New Jersey Econ Dev Auth 1st Mtg
Delaire Nursing Ser A Rfdg (Prerefunded
@ 11/01/99)............................ 8.750 11/01/10 868,028
500 New Jersey Econ Dev Auth 1st Mtg Gross
Rev Burnt Tavrn Convalescent Ser A
Rfdg................................... 9.000 11/15/13 537,895
1,240 New Jersey Econ Dev Auth 1st Mtg Gross
Rev Dover Residential Hlthcare Fac (e). 13.375 11/01/14 682,000
2,250 New Jersey Econ Dev Auth 1st Mtg Gross
Rev Franciscan Oaks Proj Ser A......... 8.500 10/01/23 2,401,110
840 New Jersey Econ Dev Auth 1st Mtg Gross
Rev Stone Arch Nursing Home Proj Rfdg.. 8.750 12/01/10 896,876
1,000 New Jersey Econ Dev Auth 1st Mtg Gross
Rev The Evergreens..................... 9.250 10/01/22 1,092,770
1,000 New Jersey Econ Dev Auth Econ Dev Rev
Borg Warner Corp....................... 11.200 08/01/04 1,039,920
500 New Jersey Econ Dev Auth Econ Dev Rev
Green Acres Manor Inc Ser A Rfdg....... 8.000 01/01/09 515,870
1,000 New Jersey Econ Dev Auth Econ Dev Rev
Green Acres Manor Inc Ser A Rfdg....... 8.250 01/01/17 1,032,480
4,000 New Jersey Econ Dev Auth Econ Dev Rev
Sr Mtg Holt Hauling Ser D.............. 10.250 09/15/14 4,158,440
4,365 New Jersey Econ Dev Auth Econ Dev Rev
United Methodist Homes................. 7.500 07/01/20 4,437,197
420 New Jersey Econ Dev Auth Econ Dev Rev
United Methodist Homes................. 7.500 07/01/24 426,489
500 New Jersey Econ Dev Auth Econ Dev Rev
Zirbser Greenbriar Inc Ser A Rfdg...... 7.375 07/15/03 525,395
915 New Jersey Econ Dev Auth Econ Dev Rev
Zirbser Greenbriar Inc Ser A Rfdg...... 7.750 07/15/08 959,679
1,000 New Jersey Econ Dev Auth Holt Hauling &
Warehsg Rev Ser G Rfdg................. 8.400 12/15/15 1,050,590
500 New Jersey Econ Dev Auth Rev 1st Mtg
Fellowship Village Proj Ser A.......... 8.500 01/01/10 532,270
1,000 New Jersey Econ Dev Auth Rev 1st Mtg
Fellowship Village Proj Ser A.......... 9.250 01/01/25 1,138,530
975 New Jersey Econ Dev Auth Rev 1st Mtg
Millhouse Proj Ser A................... 8.250 04/01/10 1,000,438
2,060 New Jersey Econ Dev Auth Rev 1st Mtg
Millhouse Proj Ser A................... 8.500 04/01/16 2,123,716
1,860 New Jersey Econ Dev Auth Rev 1st Mtg
Winchester Gardens Ser A............... 7.500 11/01/05 1,861,990
1,000 New Jersey Econ Dev Auth Rev 1st Mtg
Winchester Gardens Ser A............... 8.500 11/01/16 1,021,520
1,500 New Jersey Econ Dev Auth Rev 1st Mtg
Winchester Gardens Ser A............... 8.625 11/01/25 1,544,985
855 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A.................. 8.000 05/15/02 875,358
750 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A.................. 8.000 05/15/04 768,518
2,000 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A.................. 8.000 05/15/12 2,038,640
2,000 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A.................. 8.750 05/15/26 2,078,200
2,500 New Jersey Hlth Care Fac Fin Auth Rev
Raritan Bay Med Cent Issue Rfdg........ 7.250 07/01/14 2,639,350
1,000 New Jersey St Edl Fac Auth Rev Caldwell
College Ser A.......................... 7.250 07/01/25 1,057,860
------------
40,327,094
------------
NEW MEXICO 0.8%
695 Albuquerque, NM Nursing Home Rev
Albuquerque Hlthcare Rfdg.............. 9.750 12/01/14 744,849
4,555 Albuquerque, NM Retirement Fac Rev LA
Vida Llena Proj Ser A Rfdg............. 8.850 02/01/23 4,908,605
1,500 Farmington, NM Pollutn Ctl Rev San Juan
Proj Ser A Rfdg........................ 6.400 08/15/23 1,516,860
715 Santa Fe, NM Indl Rev Casa Real Nursing
Home Rfdg.............................. 9.750 01/01/13 753,052
455 Truth or Consequences, NM Nursing Home
Rev Sierra Hlthcare Rfdg & Impt........ 9.750 12/01/14 487,432
------------
8,410,798
------------
</TABLE>
B-40
See Notes to Financial Statements
<PAGE> 41
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 2.6%
$ 1,210 Clifton Springs, NY Hosp & Clinic Ser
A Rfdg & Impt......................... 7.650% 01/01/12 $ 1,238,435
4,800 Islip, NY Cmnty Dev Agy Cmnty Dev Rev
NY Institute of Technology Rfdg....... 7.500 03/01/26 4,985,952
2,500 New York City Indl Dev Agy Civic Fac
Rev................................... 7.500 08/01/26 2,515,625
4,170 New York City Indl Dev Agy Civic Fac
Rev Our Lady of Mercy Med Cent Pkg
Corp Proj............................. 8.500 12/30/22 4,477,579
2,500 New York City Indl Dev Agy Rev Solid
Waste Disposal Visy Paper Proj........ 7.800 01/01/16 2,656,600
5,000 New York St Energy Resh & Dev Auth
Elec Fac Rev Long Island Ltg Ser A.... 7.150 12/01/20 5,168,650
2,905 Newark Wayne Cmnty Hosp NY Rev Ser A.. 7.600 09/01/15 2,790,921
2,000 North Syracuse, NY Hsg Auth Rev Janus
Park Proj............................. 8.000 06/01/14 2,041,800
------------
25,875,562
------------
OHIO 5.2%
1,500 Athens Cnty, OH Hosp Fac Rev O'Bleness
Mem Hosp Proj......................... 7.100 11/15/23 1,487,130
3,000 Cleveland, OH Pkg Fac Rev (Prerefunded
@ 09/15/02)........................... 8.000 09/15/12 3,582,360
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev
Jennings Hall......................... 7.200 11/15/14 1,034,270
1,500 Cuyahoga Cnty, OH Hlthcare Fac Rev
Jennings Hall......................... 7.300 11/15/23 1,542,990
2,500 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty Ser A Rfdg.... 7.250 11/15/13 2,536,825
3,000 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty............... 7.250 11/15/18 3,025,860
2,555 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty (Prerefunded @
11/15/99)............................. 8.875 11/15/19 2,946,273
7,625 Dayton, OH Spl Fac Rev Emery Air
Freight Corp Ser A Rfdg............... 12.500 10/01/09 8,522,005
500 Fairfield, OH Econ Dev Rev Beverly
Enterprises Proj Rfdg................. 8.500 01/01/03 539,515
1,945 Harrison, OH Harrison Ave Kmart Proj
Ser A................................. 8.125 12/01/02 2,024,278
2,000 Lorain Cnty, OH Hosp Rev Mtg Elyria
United Methodist Rfdg................. 6.875 06/01/22 2,015,640
2,500 Mount Vernon, OH Hosp Rev Knox Cmnty
Hosp Rfdg............................. 7.875 06/01/12 2,577,675
1,000 North Canton, OH Hlthcare Fac Rev
Waterford at Saint Luke Proj.......... 8.625 11/15/21 1,075,010
4,930 Ohio St Air Quality Dev Auth Rev
Pollutn Ctl Toledo Edison Ser B....... 9.875 11/01/22 5,119,164
1,036 Ohio St Indl Dev Rev 1st Mtg Swifton
Commons Proj Rfdg (e)................. 8.125 12/01/15 909,431
2,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj........................... 8.250 10/01/14 2,062,760
4,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj........................... 9.000 06/01/21 4,298,120
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac
Rev Collateral Toledo Edison Ser A
Rfdg.................................. 8.000 10/01/23 2,173,740
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac
Rev Collateral Cleveland Elec Ser A
Rfdg.................................. 8.000 10/01/23 2,173,740
2,250 Sandusky Cnty, OH Hosp Fac Rev Mem
Hosp Proj Rfdg........................ 7.750 12/01/09 2,266,155
------------
51,912,941
------------
OKLAHOMA 0.3%
1,000 Jackson Cnty, OK Mem Hosp Auth Rev
Jackson Mem (Prerefunded @ 08/01/97).. 9.000 08/01/15 1,054,780
500 Leflore Cnty, OK Hosp Auth Impt Rev... 9.400 05/01/06 538,410
555 Oklahoma Hsg Fin Agy Single Family
Class A (GNMA Collateralized)......... 7.997 08/01/18 592,923
500 Woodward, OK Muni Auth Hosp Rev....... 8.250 11/01/09 543,525
500 Woodward, OK Muni Auth Hosp Rev
(Prerefunded @ 11/01/00).............. 9.250 11/01/14 595,650
------------
3,325,288
------------
OREGON 0.2%
1,500 Salem, OR Hosp Fac Auth Rev Capital
Manor Inc............................. 7.500 12/01/24 1,568,445
------------
PENNSYLVANIA 12.1%
1,945 Allegheny Cnty, PA Hosp Dev Auth Rev
Hlth Fac Allegheny Vly Sch............ 7.500 02/01/10 1,988,821
3,120 Allegheny Cnty, PA Hosp Dev Auth Rev
Hlth Fac Allegheny Vly Sch............ 7.875 02/01/20 3,230,448
1,800 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Collateral Cleveland Elec Proj
Rfdg.................................. 7.625 05/01/25 1,955,520
7,550 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Collateral Toledo Edison Co
Proj Rfdg............................. 7.625 05/01/20 8,202,320
4,000 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Collateral Toledo Edison Ser A
Rfdg.................................. 7.750 05/01/20 4,390,840
1,100 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev OH Edison Proj Ser A Rfdg..... 7.750 09/01/24 1,162,161
1,860 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Village Inc Proj Rfdg........... 7.500 05/15/13 1,911,280
1,860 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Village Inc Proj Rfdg........... 7.700 05/15/22 1,880,776
2,500 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Village Inc Proj Rfdg........... 8.250 05/15/22 2,655,900
1,000 Chartiers Vly, PA Indl & Commercial
Dev Auth 1st Mtg Rev.................. 7.250 12/01/11 1,023,400
</TABLE>
B-41
See Notes to Financial Statements
<PAGE> 42
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 Chartiers Vly, PA Indl & Commercial
Dev Auth 1st Mtg Rev.................. 7.400% 12/01/15 $ 2,058,020
1,000 Chartiers Vly, PA Indl & Commercial
Dev Auth 1st Mtg Rev (Prerefunded @
12/01/98)............................. 9.500 12/01/15 1,123,540
4,480 Clarion Cnty, PA Hosp Auth Hosp Rev
Clarion Hosp Proj..................... 8.100 07/01/12 4,762,822
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev
Clarion Hosp Proj..................... 8.500 07/01/21 1,106,510
825 Columbia Cnty, PA Indl Dev Auth 1st
Mtg Rev 1st Str Assoc Proj Rfdg....... 9.000 05/01/14 881,323
Delaware Cnty, PA Auth Rev 1st Mtg
870 Riddle Village Proj (Prerefunded @
06/01/02)............................. 8.750 06/01/10 1,056,302
2,800 Delaware Cnty, PA Auth Rev 1st Mtg
Riddle Village Proj (Prerefunded @
06/01/02)............................. 9.250 06/01/22 3,465,420
3,645 Delaware Cnty, PA Auth Rev 1st Mtg
Riddle Village Proj Rfdg.............. 7.000 06/01/26 3,631,441
2,100 Delaware Cnty, PA Auth Rev White Horse
Village Ser A Rfdg.................... 7.500 07/01/18 2,166,234
1,350 Doylestown, PA Hosp Auth Hosp Rev Pine
Run Ser A............................. 7.200 07/01/23 1,389,434
1,250 Lebanon Cnty, PA Hlth Fac Auth Hlth
Cent Rev United Church of Christ Homes
Rfdg.................................. 7.250 10/01/19 1,256,100
250 Lehigh Cnty, PA Genl Purp Auth Rev 1st
Mtg Bible Fellowship Proj............. 7.150 12/15/08 258,073
2,315 Lehigh Cnty, PA Genl Purp Auth Rev 1st
Mtg Bible Fellowship Proj............. 8.000 12/15/23 2,388,756
4,785 Lehigh Cnty, PA Indl Dev Auth Rev
Rfdg.................................. 8.000 08/01/12 5,009,991
2,000 Luzerne Cnty, PA Indl Dev Auth 1st Mtg
Gross Rev Rfdg........................ 7.875 12/01/13 2,102,920
3,000 Luzerne Cnty, PA Indl Dev Auth Exmpt
Fac Rev PA Gas & Wtr Co Proj Ser A
Rfdg.................................. 7.200 10/01/17 3,226,500
500 Montgomery Cnty, PA Higher Ed & Hlth
Auth Rev Retirement Cmnty GDL Farms A. 9.500 01/01/20 582,240
Montgomery Cnty, PA Indl Dev Auth Rev
1,550 1st Mtg The Meadowood Corp Proj Ser A. 9.250 12/01/00 1,815,128
2,025 Montgomery Cnty, PA Indl Dev Auth Rev
1st Mtg The Meadowood Corp Proj Ser A
(Prerefunded @ 12/01/00).............. 10.000 12/01/19 2,458,370
2,500 Montgomery Cnty, PA Indl Dev Auth Rev
1st Mtg The Meadowood Corp Proj Ser A
Rfdg.................................. 10.250 12/01/20 2,769,325
500 Montgomery Cnty, PA Indl Dev Auth Rev
1st Mtg The Meadowood Corp Rfdg....... 7.000 12/01/10 508,740
1,500 Montgomery Cnty, PA Indl Dev Auth Rev
1st Mtg The Meadowood Corp Rfdg....... 7.250 12/01/15 1,505,400
4,000 Montgomery Cnty, PA Indl Dev Auth Rev
1st Mtg The Meadowood Corp Rfdg....... 7.400 12/01/20 3,999,080
3,780 Montgomery Cnty, PA Indl Dev Auth Rev
Assisted Living Ser A................. 8.250 05/01/23 3,978,601
3,595 Montgomery Cnty, PA Indl Dev Auth Rev
Hlthcare Adv Geriatric Ser A.......... 8.375 07/01/23 3,803,977
805 Montgomery Cnty, PA Indl Dev Auth Rev
Pennsburg Nursing & Rehab Cent........ 7.625 07/01/18 835,654
2,660 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy.................... 7.750 09/01/14 2,761,772
750 Northampton Cnty, PA Indl Dev Auth Rev
1st Mtg Kirkland Village Proj......... 7.375 12/15/18 751,125
750 Northampton Cnty, PA Indl Dev Auth Rev
1st Mtg Kirkland Village Proj......... 7.500 12/15/23 751,470
1,000 Pennsylvania Econ Dev Fin Auth Exempt
Fac Rev MacMillan Ltd Partnership
Proj.................................. 7.600 12/01/20 1,123,460
1,500 Pennsylvania Econ Dev Fin Auth
Recycling Rev Ponderosa Fibres Proj
Ser A................................. 9.250 01/01/22 1,412,610
2,000 Philadelphia, PA Auth for Indl Dev
Coml Philadelphia Arpt Rev Rfdg....... 7.750 12/01/17 2,158,940
1,170 Philadelphia, PA Auth for Indl Dev Rev
1st Mtg RHA/Care Pavilion Proj........ 10.250 02/01/18 1,208,598
1,500 Philadelphia, PA Auth for Indl Dev Rev
Cathedral Village..................... 7.250 04/01/15 1,513,305
5,835 Philadelphia, PA Auth for Indl Dev Rev
Long-Term Care Maplewood.............. 8.000 01/01/24 6,048,444
2,000 Philadelphia, PA Auth for Indl Dev Rev
Long-Term Care Maplewood.............. 8.000 01/01/14 2,076,120
1,000 Philadelphia, PA Auth for Indl Dev Rev
Lutheran Retire Ser B (Var Rate Cpn).. 5.000 01/01/17 730,060
1,875 Philadelphia, PA Hosps & Higher Ed Fac
Auth Hosp Rev......................... 7.250 03/01/24 1,836,563
500 Philadelphia, PA Pkg Auth Rev East
Market................................ 8.750 03/01/05 503,010
1,785 Philadelphia, PA Pkg Auth Rev East
Market................................ 8.875 03/01/10 1,795,371
3,000 Scranton-Lackawanna, PA Hlth & Welfare
Allied Auth Rev Svcs Rehab Hosp Proj
Ser A................................. 7.375 07/15/08 3,132,570
3,000 Somerset Cnty, PA Hosp Auth Rev
Somerset Cmnty Hosp Proj.............. 7.500 03/01/17 3,173,610
250 Warren Cnty, PA Indl Dev Auth Beverly
Enterprises Rfdg...................... 9.000 11/01/12 274,718
2,300 Washington Cnty, PA Hosp Auth Rev
Canonsburg Genl Hosp Rfdg............. 7.350 06/01/13 2,242,615
------------
120,035,728
------------
SOUTH CAROLINA 1.0%
750 Charleston Cnty, SC Hlth Fac Rev 1st
Mtg Episcopal Proj Rfdg (Prerefunded @
04/01/01)............................. 9.750 04/01/16 919,028
1,500 Charleston Cnty, SC Hlth Fac Rev 1st
Mtg Roper Geriatric Cent Inc Proj Rfdg
(Prerefunded @ 05/01/99).............. 7.750 05/01/17 1,646,220
390 McCormick Cnty, SC Hosp Fac Rev
McCormick Hlthcare Cent Proj.......... 10.500 03/01/18 399,984
</TABLE>
B-42
See Notes to Financial Statements
<PAGE> 43
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 3,000 Piedmont Muni Pwr Agy South Carolina
Elec Rev Rfdg......................... 6.550% 01/01/16 $ 3,021,750
3,000 Piedmont Muni Pwr Agy South Carolina
Elec Rev Rfdg......................... 6.600 01/01/21 3,016,650
750 South Carolina Jobs Econ Dev Auth Hlth
Fac Rev 1st Mtg Lutheran Homes SC
Proj.................................. 8.000 10/01/22 778,598
250 South Carolina Jobs Econ Dev Auth Hlth
Fac Rev 1st Mtg Lutheran Homes SC
Proj.................................. 7.750 10/01/12 259,303
------------
10,041,533
------------
SOUTH DAKOTA 0.1%
1,000 South Dakota St Hlth & Edl Fac Auth
Rev Huron Regl Med Cent............... 7.250 04/01/20 1,058,940
------------
TENNESSEE 0.4%
500 Smith Cnty, TN Hlth & Edl Fac 1st
Hlthcare Corp Proj Rfdg............... 7.400 04/01/13 508,945
3,000 Springfield, TN Hlth & Edl Fac Brd
Hosp Rev Jesse Holman Jones Hosp Proj. 8.250 04/01/12 3,228,300
------------
3,737,245
------------
TEXAS 5.1%
4,850 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc Proj............... 7.500 12/01/29 5,218,988
11,150 Alliance Arpt Auth Inc TX Spl Fac Rev
Fed Express Corp Proj................. 6.375 04/01/21 11,316,024
1,380 Amarillo, TX Hlth Fac Corp Rev
Panhandle Retirement Ser B............ 7.000 08/15/15 1,382,650
3,000 Amarillo, TX Hlth Fac Corp Rev
Panhandle Retirement Ser B............ 7.750 08/15/18 3,037,400
1,035 Bell Cnty, TX Hlth Fac Dev Corp Rev
Hosp Proj............................. 9.250 07/01/08 1,139,732
500 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev American Airls Inc...... 7.500 11/01/25 537,945
1,500 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev American Airls Inc...... 7.250 11/01/30 1,625,220
1,250 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev Delta Airls Inc......... 7.625 11/01/21 1,365,263
2,665 De Soto, TX Hlth Fac Dev Corp Rev Park
Manor Sr Care......................... 7.750 12/01/16 2,622,760
210 Harris Cnty, TX Hsg Fin Corp Single
Family Hsg Rev........................ 9.875 03/15/14 210,714
245 Harris Cnty, TX Hsg Fin Corp Single
Family Hsg Rev Ser 1983 Ser A......... 10.125 07/15/03 245,245
1,455 Harris Cnty, TX Hsg Fin Corp Single
Family Hsg Rev Ser 1983 Ser A......... 10.375 07/15/14 1,450,638
3,075 Houston, TX Hsg Fin Corp Single Family
Mtg Rev Ser B......................... 10.375 12/15/13 3,083,795
790 Montgomery Cnty, TX Hlth Fac Dev Corp
Hosp Mtg Rev Woodlands Med Cent Proj
Rfdg.................................. 8.850 08/15/14 853,089
1,250 Northeast Hosp Auth TX Rev Northeast
Med Cent Hosp Ser B................... 7.250 07/01/22 1,333,225
4,505 Port Corpus Christi, TX Indl Dev Corp
Rev Valero Refining & Mktg Co Ser A... 10.250 06/01/17 4,760,704
500 Port Corpus Christi, TX Indl Dev Corp
Rev Valero Refining & Mktg Co Ser B... 10.625 06/01/08 530,565
3,255 Rusk Cnty, TX Hlth Fac Corp Hosp Rev
Henderson Mem Hosp Proj............... 7.750 04/01/13 3,424,618
500 San Antonio, TX Hlth Fac Dev Corp Rev
Encore Nursing Cent Partner........... 8.250 12/01/19 539,320
2,000 San Antonio, TX Hsg Fin Corp Multi-
Family Hsg Rev Marbach Manor Apts Proj
Ser A................................. 8.125 06/01/27 2,046,480
1,500 Tarrant Cnty, TX Hlth Fac Dev Corp Rev
Mtg Cumberland Rest Ser A Rfdg........ 7.000 08/15/19 1,501,500
1,401 Texas Genl Svcs Comm Partn Interests
Office Bldg & Land Aquisition Proj.... 7.000 08/01/24 1,442,991
790 Weslaco, TX Hlth Fac Dev Corp Hosp Rev
Welasco Hlth Fac Proj Ser B
(Prerefunded @ 06/01/98).............. 10.375 06/01/16 870,209
------------
50,539,075
------------
UTAH 0.4%
500 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.............................. 7.600 09/01/06 509,035
1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.............................. 7.800 09/01/15 1,000,520
2,345 Utah St Hsg Fin Agy Single Family Mtg
Ser C2 (FHA Gtd)...................... 7.950 07/01/20 2,413,755
------------
3,923,310
------------
VERMONT 0.1%
700 Vermont Edl & Hlth Bldgs Fin Agy Rev
Northwestern Med Cent Ser A
(Prerefunded @ 09/01/98).............. 9.750 09/01/18 780,451
------------
VIRGINIA 1.6%
2,955 Alexandria, VA Indl Dev Auth Rev Saint
Coletta Sch Proj...................... 7.750 10/15/26 2,979,674
870 Covington-Alleghany Cnty, VA Indl Dev
Beverly Enterprises Proj Rfdg......... 9.375 09/01/01 966,118
3,000 Fairfax Cnty, VA Redev & Hsg Auth
Multi-Family Hsg Rev.................. 7.600 10/01/36 3,000,000
1,500 Hopewell, VA Indl Dev Auth Res
Recovery Rev Stone Container Corp Proj
Rfdg.................................. 8.250 06/01/16 1,635,075
1,000 Pittsylvania Cnty, VA Indl Dev Auth
Rev Exempt Fac Ser A.................. 7.450 01/01/09 1,051,800
6,000 Richmond, VA Redev & Hsg Auth Multi-
Family Rev Ser A Rfdg (Var Rate Cpn).. 8.000 12/15/21 5,977,440
------------
15,610,107
------------
</TABLE>
B-43
See Notes to Financial Statements
<PAGE> 44
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WASHINGTON 0.1%
$ 1,500 Port Walla Walla, WA Pub Corp Solid
Waste Recycling Rev Ponderosa Fibres
Proj.................................. 9.125% 01/01/26 $ 1,392,060
------------
WEST VIRGINIA 0.2%
500 Randolph Cnty, WV Bldg Commission
Davis Mem Hosp Proj Ser A Rfdg & Impt. 7.650 11/01/21 537,235
1,040 Weirton, WV Pollutn Ctl Rev Weirton
Steel Proj Rfdg....................... 8.625 11/01/14 1,091,605
------------
1,628,840
------------
WISCONSIN 0.8%
795 Wisconsin St Hlth & Edl Fac Auth Rev
Hess Mem Hosp Assn.................... 7.200 11/01/05 794,833
2,000 Wisconsin St Hlth & Edl Fac Auth Rev
Hess Mem Hosp Assn.................... 7.875 11/01/22 2,013,320
2,500 Wisconsin St Hlth & Edl Fac Auth Rev
Natl Regency of New Berlin Proj....... 8.000 08/15/25 2,548,600
3,000 Wisconsin St Hlth & Edl Milwaukee
Catholic Home Proj.................... 7.500 07/01/26 3,076,890
------------
8,433,643
------------
U. S. VIRGIN ISLANDS 0.3%
1,210 University of Virgin Islands Pub Fin
Auth Ser A............................ 7.500 10/01/09 1,337,667
1,965 University of Virgin Islands Pub Fin
Auth Ser A............................ 7.650 10/01/14 2,181,405
------------
3,519,072
------------
TOTAL LONG-TERM INVESTMENTS 98.3%
(Cost $945,075,401)........................................... 978,015,397
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.1%.................. 700,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%..................... 16,017,108
------------
NET ASSETS 100.0%.............................................. $994,732,505
------------
</TABLE>
(a) At November 30, 1996, for federal income tax purposes, cost is
$945,080,571; the aggregate gross unrealized appreciation is $39,681,346
and the aggregate gross unrealized depreciation is $6,746,520, resulting
in net unrealized appreciation of $32,934,826.
(b) Securities purchased on a when-issued or delayed-delivery basis.
(c) Assets segregated as collateral for when-issued or delayed-delivery
purchase commitments.
(d) Interest is accruing for this security at less than the stated coupon.
(e) Non-Income producing security.
B-44
See Notes to Financial Statements
<PAGE> 45
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $945,075,401)
(Note 1)....................................................... $ 978,015,397
Short-Term Investments (Note 1)................................ 700,000
Cash........................................................... 82,152
Receivables:
Interest...................................................... 23,057,606
Securities Sold............................................... 4,515,866
Fund Shares Sold.............................................. 1,451,676
Other.......................................................... 4,131
--------------
Total Assets.................................................. 1,007,826,828
--------------
LIABILITIES:
Payables:
Securities Purchased.......................................... 7,248,217
Income Distributions.......................................... 3,031,741
Fund Shares Repurchased....................................... 1,571,081
Distributor and Affiliates (Note 2)........................... 609,253
Investment Advisory Fee (Note 2).............................. 452,766
Accrued Expenses............................................... 142,607
Deferred Compensation and Retirement Plans (Note 2)............ 38,658
--------------
Total Liabilities............................................. 13,094,323
--------------
NET ASSETS..................................................... $ 994,732,505
--------------
NET ASSETS CONSIST OF:
Capital (Note 3)............................................... $ 986,396,208
Net Unrealized Appreciation on Securities...................... 32,939,996
Accumulated Undistributed Net Investment Income................ 113,411
Accumulated Net Realized Loss on Securities.................... (24,717,110)
--------------
NET ASSETS..................................................... $ 994,732,505
--------------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $620,960,577 and 55,746,099 shares of beneficial
interest issued and outstanding).............................. $ 11.14
Maximum sales charge (4.75%* of offering price)............... .56
--------------
Maximum offering price to public.............................. $ 11.70
--------------
Class B Shares:
Net asset value and offering price per share (Based on net
assets of $323,811,217 and 29,077,037 shares of beneficial
interest issued and outstanding).............................. $ 11.14
--------------
Class C Shares:
Net asset value and offering price per share (Based on net
assets of $49,960,711 and 4,490,533 shares of beneficial
interest issued and outstanding).............................. $ 11.13
--------------
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
B-45
See Notes to Financial Statements
<PAGE> 46
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $65,971,253
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 4,757,392
Distribution (12b-1) and Service Fees (Attributed to Classes A, B
and C of
$1,380,920, $2,708,233 and $389,676, respectively) (Note 5)....... 4,478,829
Shareholder Services (Note 2)...................................... 888,765
Accounting Services (Note 2)....................................... 208,513
Legal (Note 2)..................................................... 46,103
Trustees Fees and Expenses (Note 2)................................ 41,035
Other.............................................................. 670,060
-----------
Total Expenses.................................................... 11,090,697
Less Expenses Reimbursed (Note 2)................................. 17,000
-----------
Net Expenses...................................................... 11,073,697
-----------
NET INVESTMENT INCOME.............................................. $54,897,556
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments................................... $ 2,092,011
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 36,755,483
End of the Period:
Investments..................................................... 32,939,996
-----------
Net Unrealized Depreciation on Securities During the Period........ (3,815,487)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES..................... $(1,723,476)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $53,174,080
-----------
</TABLE>
B-46
See Notes to Financial Statements
<PAGE> 47
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended November 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, 1996 November 30, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 54,897,556 $ 45,949,732
Net Realized Gain/Loss on Securities..... 2,092,011 (11,171,506)
Net Unrealized Appreciation/Depreciation
on Securities............................ (3,815,487) 56,699,702
------------ ------------
Change in Net Assets from Operations..... 53,174,080 91,477,928
------------ ------------
Distributions from Net Investment Income:
Class A Shares.......................... (36,684,070) (32,309,178)
Class B Shares.......................... (15,919,679) (12,327,837)
Class C Shares.......................... (2,289,094) (1,507,847)
------------ ------------
Total Distributions..................... (54,892,843) (46,144,862)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... (1,718,763) 45,333,066
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................ 301,612,850 222,380,164
Net Asset Value of Shares Issued Through
Dividend Reinvestment.................... 23,613,873 19,652,888
Cost of Shares Repurchased............... (110,086,181) (91,773,703)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................. 215,140,542 150,259,349
------------ ------------
TOTAL INCREASE IN NET ASSETS............. 213,421,779 195,592,415
NET ASSETS:
Beginning of the Period.................. 781,310,726 585,718,311
------------ ------------
End of the Period (Including
undistributed net investment income of
$113,411 and $26,781, respectively)..... $994,732,505 $781,310,726
------------ ------------
</TABLE>
See Notes to Financial Statements
B-47
<PAGE> 48
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Fundoutstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------
Class A Shares 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period. $11.18 $10.44 $11.19 $10.95 $10.78
------- ------ ------ ------ ------
Net Investment Income................... .735 .74 .76 .8132 .815
Net Realized and Unrealized Gain/Loss on
Securities............................. (.041) .7475 (.744) .2303 .195
------- ------ ------ ------ ------
Total from Investment Operations......... .694 1.4875 .016 1.0435 1.01
Less Distributions from Net Investment
Income................................... .735 .7475 .766 .8035 .84
------- ------ ------ ------ ------
Net Asset Value, End of the Period ...... $11.139 $11.18 $10.44 $11.19 $10.95
------- ------ ------ ------ ------
Total Return (a)......................... 6.47% 14.65% .10% 9.65% 9.77%
Net Assets at End of the Period (In
millions)................................ $621.0 $516.3 $411.1 $408.0 $309.5
Ratio of Expenses to Average Net Assets
(b)...................................... 1.01% .98% 1.02% 1.03% 1.07%
Ratio of Net Investment Income to Average
Net Assets (b)........................... 6.64% 6.81% 6.98% 7.13% 7.45%
Portfolio Turnover....................... 23% 26% 33% 27% 24%
</TABLE>
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
B-48
See Notes to Financial Statements
<PAGE> 49
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 20, 1992
Year Ended November 30, (Commencement
-------------------------------- of Distribution) to
Class B Shares 1996 1995 1994 1993(a) November 30, 1992(a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $ 11.18 $ 10.43 $11.18 $10.96 $11.08
------- ------- ------ ------ ------
Net Investment Income.. .653 .66 .68 .6919 .27
Net Realized and
Unrealized Gain/Loss
on Securities......... (.046) .7535 (.748) .2476 (.1122)
------- ------- ------ ------ ------
Total from Investment
Operations.............. .607 1.4135 (.068) .9395 .1578
Less Distributions from
Net Investment Income.. .651 .6635 .682 .7195 .2778
------- ------- ------ ------ ------
Net Asset Value, End of
the Period.............. $11.136 $11.18 $10.43 $11.18 $10.96
------- ------- ------ ------ ------
Total Return (b) ....... 5.67% 13.89% (.76%) 8.84% 1.45%*
Net Assets at End of the
Period (In millions)... $323.8 $233.9 $159.3 $104.8 $21.0
Ratio of Expenses to
Average Net Assets (c).. 1.77% 1.73% 1.77% 1.77% 1.71%
Ratio of Net Investment
Income to Average Net
Assets (c)............. 5.88% 6.03% 6.19% 6.15% 5.88%
Portfolio Turnover...... 23% 26% 33% 27% 24%
</TABLE>
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
B-49
See Notes to Financial Statements
<PAGE> 50
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the
Fundoutstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 10, 1993
(Commencement
Year Ended Year Ended of Distribution) to
Class C Shares November 30, 1996 November 30, 1995 November 30, 1994(a)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $ 11.17 $ 10.42 $ 11.29
------- ------- -------
Net Investment Income.. .652 .66 .63
Net Realized and
Unrealized Gain/Loss
on Investments........ (.045) .7535 (.8363)
------- ------- -------
Total from Investment
Operations.............. .607 1.4135 (.2063)
Less Distributions from
Net Investment Income... .651 .6635 .6637
------- ------- -------
Net Asset Value, End of
the Period.............. $11.126 $ 11.17 $ 10.42
------- ------- -------
Total Return (b) ....... 5.68% 13.79% (1.80%)*
Net Assets at End of the
Period (In millions).... $50.0 $31.1 $15.3
Ratio of Expenses to
Average Net Assets (c).. 1.77% 1.72% 1.75%
Ratio of Net Investment
Income to Average Net
Assets (c)............. 5.86% 5.98% 6.07%
Portfolio Turnover...... 23% 26% 33%
</TABLE>
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
B-50
See Notes to Financial Statements
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
November 30, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital High Yield Municipal Fund (the "Fund") is organized
as a series of the Van Kampen American Capital Tax-Exempt Trust, a Delaware
business trust, and is registered as a diversified open-end management invest-
ment company under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to provide as high a level of interest income exempt
from federal income tax as is consistent with investing in medium- to lower-
rated high yielding municipal securities. The Fund commenced investment opera-
tions on January 2, 1986. The distribution of the Fund's Class B and Class C
shares commenced on July 20, 1992 and December 10, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATIONS-Municipal bonds are valued at the most recently quoted
bid prices furnished by an independent pricing service or dealers. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by the Board of Trustees of the Fund. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
The Fund's investments include lower-rated and unrated debt securities which
may be more susceptible to adverse economic conditions than 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. Securities rated below investment grade and
comparable unrated securities represented approximately 86% of the Fund's
investment portfolio at the end of the period.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date ba-
sis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggre-
gate value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
The Fund invests in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees
to repurchase the security at a future time and specified price. The Fund may
invest 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") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are collateralized by the underlying debt securities. The
Fund will make payment for such securities only upon physical delivery or evi-
dence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INVESTMENT INCOME-Interest income is recorded on an accrual basis. Bond pre-
mium and original issue discount are amortized over the life of each applicable
security. Market discounts are recognized at the time of sale as realized gains
for book purposes and ordinary income for tax purposes.
D. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At
B-51
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
November 30, 1996, the Fund had an accumulated capital loss carryforward for
tax purposes of $24,474,967 which expires between November 30, 1997 and Novem-
ber 30, 2003. Of this amount, $2,674,127 will expire in 1997. Net realized loss
differs for financial reporting and tax purposes primarily as a result of the
deferral of post October 31 losses which are not recognized for tax purposes
until the first day of the following fiscal year.
E. DISTRIBUTION OF INCOME AND GAINS-The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are distrib-
uted annually. Permanent book and tax basis differences relating to the expira-
tion of a portion of the capital loss carryforward totaling $4,412,954 were
reclassified from net realized gain/loss on securities to capital. Permanent
differences relating to the recognition of expenses associated with the consol-
idation of the VKAC open-end fund complex totaling $76,482 were reclassified
from accumulated undistributed net investment income to capital. Additionally,
permanent differences relating to the recognition of market discount on bonds
totaling $5,435 were reclassified from net realized gain/loss on securities to
accumulated undistributed net investment income.
For the year ended November 30, 1996, 99.96% of the income distributions made
by the Fund were exempt from federal income taxes. In January, 1997, the Fund
will provide tax information to shareholders for the 1996 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------------
<S> <C>
First $300 million.................................................. .60 of 1%
Next $300 million................................................... .55 of 1%
Over $600 million................................................... .50 of 1%
</TABLE>
The Adviser has agreed to reimburse the Fund for certain trustees' compensa-
tion in connection with the July, 1995 increase in the number of trustees of
the Fund. This reimbursement is expected to continue through December 31, 1996.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended November 30, 1996, the Fund recognized expenses of approx-
imately $208,500 representing Van Kampen American Capital Distributors, Inc.'s
or its affiliates' (collectively "VKAC") cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
shareholder servicing agent for the Fund. For the year ended November 30, 1996,
the Fund recognized expenses of approximately $728,600, representing ACCESS'
cost of providing transfer agency and shareholder services plus a profit.
Additionally, for the year ended November 30, 1996, the Fund reimbursed VKAC
approximately $76,500 related to the direct cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the Fund
of cost efficiencies in shareholder services resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Clas-
ses A, B and C each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
B-52
<PAGE> 53
Notes to Financial Statements (Continued)
November 30, 1996
------------------------------------------------------------------------------
A November 30, 1996, capital aggregated $618,328,415, $319,327,477, and
$48,740,316 for Classes A, B, and C, respectively. For the year ended November
30, 1996, transactions were as follows:
Shares Value
------------------------------------------------------------------------------
Sales:
Class A .................................... 15,132,127 $ 157,632,504
Class B .................................... 9,807,767 108,566,918
Class C .................................... 2,297,440 25,413,428
---------- -------------
Total Sales .................................... 27,237,334 $ 301,612,850
========== =============
Dividend Reinvestment:
Class A .................................... 1,410,020 $ 15,593,441
Class B .................................... 607,360 6,714,015
Class C .................................... 118,310 1,306,417
---------- -------------
Total Dividend Reinvestments ................... 2,135,690 $ 23,613,873
========== =============
Repurchases:
Class A .................................... (6,981,065) $ (77,174,763)
Class B .................................... (2,265,184) (25,018,771)
Class C .................................... (714,617) (7,892,647)
---------- -------------
Total Repurchases .............................. (9,960,866) $(110,086,181)
========== =============
At November 30, 1995, capital aggregated $515,153,525, $230,475,547 and
$30,116,030 for Classes A, B, and C, respectively. For the year ended November
30, 1995, transactions were as follows:
Shares Value
------------------------------------------------------------------------------
Sales:
Class A .................................... 11,754,020 $ 128,111,398
Class B .................................... 7,098,582 77,416,914
Class C .................................... 1,551,140 16,851,852
---------- -------------
Total Sales .................................... 20,403,742 $ 222,380,164
========== =============
Dividend Reinvestment:
Class A .................................... 1,242,463 $ 13,570,942
Class B .................................... 481,085 5,256,068
Class C .................................... 75,559 825,878
---------- -------------
Total Dividend Reinvestment .................... 1,799,107 $ 19,652,888
========== =============
Repurchases:
Class A .................................... (6,209,642) $ (67,504,220)
Class B .................................... (1,925,903) (20,990,727)
Class C .................................... (303,107) (3,278,756)
---------- -------------
Total Repurchases .............................. (8,438,652) $ (91,773,703)
========== =============
B-53
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1996
- --------------------------------------------------------------------------------
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales ar-
rangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
First....................................................... 4.00% 1.00%
Second...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and Thereafter........................................ None None
</TABLE>
For the year ended November 30, 1996, VKAC, as distributor for the Fund, re-
ceived net commissions on sales of the Fund's Class A shares of approximately
$588,200 and CDSC on the redeemed shares of Classes B and C of approximately
$558,400. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments and reorganization and restructuring
costs, were $420,555,572 and $198,036,929, respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended November 30, 1996, are payments to VKAC of approxi-
mately $2,430,000.
B-54
