<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1998
REGISTRATION NOS. 2-96030
811-4746
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF [X]
1940
AMENDMENT NO. 23 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICES)
---------------------
COPIES TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share
================================================================================
<PAGE> 2
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM CAPTION
-------------- -------
PART A LOCATION IN PROSPECTUS
------ ----------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Fund; Investment Objective and
Policies; Municipal Securities; Investment
Practices; Description of Shares of the
Fund
5. Management of the Fund..................... Annual Fund Operating Expenses and Example;
The Fund; Investment Practices;
Investment Advisory Services; Inside Back
Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Shareholder Services; Distribution and
Service Plans; Redemption of Shares;
Distributions from the Fund; Tax Status;
Description of Shares of the Fund;
Additional Information; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services;
Distribution and Service Plans
8. Redemption or Repurchase................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
------ -----------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Municipal Securities; Temporary
Investments; Repurchase Agreements; Future
Contracts and Related Options; Investment
Restrictions
14. Management of the Fund..................... General Information; Trustees and Officers;
Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... General Information; Trustees and Officers;
Investment Advisory Agreement
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Distribution and Service Plans; Transfer
Agent; Portfolio Transactions and
Brokerage; Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Exchange
Privilege
20. Tax Status................................. Tax Status of the Fund
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Report of Independent Accountants;
Financial Statements; Notes to Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE> 3
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD MUNICIPAL FUND
- --------------------------------------------------------------------------------
Van Kampen American Capital High Yield Municipal Fund (the "Fund") is a
diversified series of the Van Kampen American Capital Tax-Exempt Trust (the
"Trust"), an open-end management investment company, commonly known as a mutual
fund. The Fund's investment objective is to seek to provide investors as high a
level of interest income exempt from federal income tax as is consistent with
the investment policies of the Fund. The Fund seeks to achieve its investment
objective by investing principally in medium to lower rated tax-exempt debt
securities. LOWER RATED SECURITIES ARE REGARDED BY THE RATING AGENCIES AS
PREDOMINANTLY SPECULATIVE WITH RESPECT TO THE ISSUER'S CONTINUING ABILITY TO
MEET PRINCIPAL AND INTEREST PAYMENTS. The Fund is designed for investors willing
to assume additional risk in return for above average income. Investors should
assess carefully the risks associated with an investment in the Fund. There is
no assurance that the Fund will achieve its investment objective.
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. (the "Adviser"). This Prospectus sets forth certain information
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE COMMISSION OR ANY STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated March 30, 1998, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Statement of Additional Information
may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device For the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http.//www.sec.gov).
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED MARCH 30, 1998.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 11
Investment Objective and Policies........................... 11
Municipal Securities........................................ 16
Investment Practices........................................ 18
Investment Advisory Services................................ 23
Alternative Sales Arrangements.............................. 25
Purchase of Shares.......................................... 28
Shareholder Services........................................ 37
Redemption of Shares........................................ 42
Distribution and Service Plans.............................. 45
Distributions from the Fund................................. 47
Tax Status.................................................. 48
Fund Performance............................................ 53
Description of Shares of the Fund........................... 56
Additional Information...................................... 57
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital 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 organized as a Delaware
business trust.
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek to provide
as high a level of interest income exempt from federal income tax as is
consistent with the investment policies of the Fund. There is no assurance that
the Fund will achieve its investment objective. See "Investment Objective and
Policies."
INVESTMENT POLICY. Under normal market conditions, the Fund invests at least 80%
of its net assets in obligations issued by states, territories or possessions of
the United States and the District of Columbia and their political subdivisions,
the interest from which is exempt from federal income tax ("Municipal
Securities"). The Fund may acquire stand-by commitments. See "Investment
Practices -- Stand-By Commitments." The Fund may seek to hedge investments
through transactions in futures contracts and related options. Any net gains
from futures and options transactions are subject to federal income tax. See
"Investment Practices -- Futures Contracts and Related Options."
The Fund invests principally in medium to lower rated Municipal Securities.
See "Risk Factors" below.
INVESTMENT RESULTS. The investment results of the Fund are shown in the table of
"Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
public, each with its own sales charge structure: Class A shares, Class B shares
and Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. Each class of shares represents an
interest in the same portfolio of investments of the Fund. See "Alternative
Sales Arrangements." For information on redeeming shares see "Redemption of
Shares."
Investment opportunities for lower rated securities may be more limited than
those in other sectors of the market. In order to facilitate the management of
the Fund's portfolio, the Fund may from time to time suspend the continuous
offering of its shares to investors. As market conditions permit, the Fund may
reopen sales of the Fund's shares to investors. Any such limited offerings of
the Fund may commence and terminate without any prior notice.
3
<PAGE> 6
Class A Shares. Class A shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge ("CDSC") of 1.00% may be imposed on
redemptions made within one year of purchase. Class A shares are subject to an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares -- Class A Shares" and
"Distribution and Service Plans."
Class B Shares. Class B shares are offered at net asset value per share and
are subject to a maximum CDSC of 4.00% on redemptions made within the first or
second year after purchase and declining thereafter to 0.00% after the fifth
year. See "Redemption of Shares." Class B shares are subject to a combined
annual distribution fee and service fee of up to 1.00% of the Fund's average
daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution and Service Plans." Class B shares
convert automatically to Class A shares eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted. See
"Alternative Sales Arrangements -- Conversion Feature."
Class C Shares. Class C shares are offered at net asset value per share and
are subject to a CDSC of 1.00% on redemptions made within one year of purchase.
See "Redemption of Shares." Class C shares are subject to a combined annual
distribution fee and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class C
Shares" and "Distribution and Service Plans."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the Fund's investment adviser. Van Kampen American Capital
Advisors, Inc. (the "Subadviser") provides advisory services to the Adviser. The
Adviser and the Subadviser are sometimes referred to as the "Advisers."
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.
RISK FACTORS. Generally, Municipal Securities with longer maturities tend to
produce higher yields and are subject to greater market fluctuations as a result
of changes in interest rates ("market risk") than are Municipal Securities with
shorter maturities and lower yields. Lower rated Municipal Securities generally
provide a higher yield than higher rated Municipal Securities of similar
maturity but are subject to greater market risk and are also subject to a
greater degree of risk with respect to the ability of the issuer to meet its
principal and interest obligations ("financial risk"). Use of futures, options
on futures, and other instruments involves certain risks. See "Investment
Practices -- Repurchase Agreements, Stand-By Commitments, and Futures Contracts
and Related Options." The Fund may
4
<PAGE> 7
experience high portfolio turnover which involves higher transaction costs and
may result in short-term gains taxable as ordinary income. See "Investment
Practices -- Portfolio Turnover."
The lower rated Municipal Securities in which the Fund invests are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in lower rated
Municipal Securities (commonly referred to as junk bonds) involves greater
investment risk, achievement of the Fund's investment objectives may be more
dependent on the Advisers' credit analysis than would be the case if the Fund
were investing in higher rated Municipal Securities. Lower rated Municipal
Securities may be more susceptible to real or perceived adverse economic and
competitive industry conditions than investment grade Municipal Securities and
thus be subject to higher risk. A projection of an economic downturn, for
example, could cause a decline in lower rated Municipal Securities prices
because the advent of a recession could lessen the ability of the issuer to make
principal and interest payments on its debt securities. In addition, the
secondary trading market for lower rated Municipal Securities may be less liquid
than the market for higher grade Municipal Securities. The market prices of all
Municipal Securities generally fluctuate with changes in interest rates so that
the Fund's net asset value can be expected to decrease as long-term rates rise
and to increase as long-term interest rates fall.
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are declared
daily and distributed monthly. Any short-term or long-term capital gains are
distributed at least annually. All dividends and distributions are automatically
reinvested in shares of the Fund at net asset value (without sales charge)
unless payment in cash is requested. See "Distributions from the Fund."
The foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
5
<PAGE> 8
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
the original purchase price or Year
redemption proceeds).......... None(2) Year 1--4.00% 1--1.00%
Year 2--4.00% After--None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fee.................... None None None
</TABLE>
- ------------------------------------------------------------------------------
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Class A Shares."
6
<PAGE> 9
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage
of average daily net assets)... 0.54% 0.54% 0.54%
12b-1 Fees (as a percentage of
average daily net assets)(1)... 0.25% 1.00%(2) 1.00%(2)
Other Expenses (as a percentage
of average daily net assets)... 0.16% 0.17% 0.16%
Total Fund Operating Expenses (as
a percentage of average daily
net assets).................... 0.95% 1.71% 1.70%
</TABLE>
- ------------------------------------------------------------------------------
(1) Class A shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
shares and Class C shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Distribution and Service Plans."
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a Fund-level expense by NASD
Rules.
7
<PAGE> 10
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
EXAMPLE: ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment assuming (i) an
operating expense ratio of 0.95% for
Class A shares, 1.71% for Class B
shares and 1.70% for Class C shares,
(ii) a 5.00% annual return and (iii)
redemption at the end of each time
period:
Class A............................. $57 $76 $ 98 $159
Class B............................. $57 $84 $108 $182*
Class C............................. $27 $54 $ 92 $201
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A............................. $57 $76 $ 98 $159
Class B............................. $17 $54 $ 93 $182*
Class C............................. $17 $54 $ 92 $201
</TABLE>
- ------------------------------------------------------------------------------
* Based on conversion to Class A shares after eight years.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. The ten year amount with respect to Class B shares of the
Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A shares. Class B shares acquired through the
exchange privilege are subject to the CDSC schedule relating to the Class B
shares of the fund from which the purchase of Class B shares was originally
made. Accordingly, future expenses as projected could be higher than those
determined in the above table if the investor's Class B shares were exchanged
from a fund with a higher CDSC. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "Redemption of Shares" and "Distribution and Service Plans."
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest
outstanding throughout each of the periods indicated)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. The most recent
annual report (which contains the financial highlights for the last five years)
is included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the cover of this
Prospectus. This information should be read in conjunction with the financial
statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $11.139 $11.18 $10.44 $11.19 $10.95 $10.78 $10.72 $10.91 $10.72 $10.85
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Investment Income....... .729 .735 .74 .76 .8132 .815 .77 .90 .94 .96
Net Realized and Unrealized
Gain/Loss................. .312 (.041) .7475 (.744) .2303 .195 .13 (.23) .1418 (.105)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations.................. 1.041 .694 1.4875 .016 1.0435 1.01 .90 .67 1.0818 .855
Less Distributions from Net
Investment Income........... .726 .735 .7475 .766 .8035 .84 .84 .86 .8918 .985
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period...................... $11.454 $11.139 $11.18 $10.44 $11.19 $10.95 $10.78 $10.72 $10.91 $10.72
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Total Return*(b)............. 9.63% 6.47% 14.65% .10% 9.65% 9.77% 8.73% 6.43% 10.39% 8.12%
Net Assets at End of the
Period (In millions)........ $779.9 $621.0 $516.3 $411.1 $408.0 $309.5 $225.3 $222.3 $233.3 $206.3
Ratio of Expenses to Average
Net Assets*................. .95% 1.01% .98% 1.02% 1.03% 1.07% 1.06% .97% .85% .85%
Ratio of Net Investment
Income to Average Net
Assets*..................... 6.50% 6.64% 6.81% 6.98% 7.13% 7.45% 7.20% 8.34% 8.86% 8.84%
Portfolio Turnover........... 29% 23% 26% 33% 27% 24% 20% 29% 19% 36%
* If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios would have been as
follows:
Ratio of expenses to average
net assets.................. .95% 1.01% .98% 1.02% 1.03% 1.07% 1.06% 1.06% 1.04% 1.07%
Ratio of net investment
income to average net
assets...................... 6.50% 6.64% 6.81% 6.98% 7.13% 7.45% 7.20% 8.27% 8.65% 8.62%
</TABLE>
(Table and footnotes continued on following page)
9
<PAGE> 12
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
JULY 20, 1992
(COMMENCEMENT
YEAR ENDED NOVEMBER 30 OF DISTRIBUTION) TO
------------------------------------------------- NOVEMBER 30,
1996 1995 1994 1993(A) 1992(A)
1997 -- ------- ------ ------ ------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $11.136 $11.18 $10.43 $11.18 $10.96 $11.08
------- ------- ------ ------ ------ ------
Net Investment Income............ .645 .653 .66 .68 .6919 .27
Net Realized and Unrealized
Gain/Loss...................... .313 (.046) .7535 (.748) .2476 (.1122)
------- ------- ------ ------ ------ ------
Total from Investment
Operations....................... .958 .607 1.4135 (.068) .9395 .1578
Less Distributions from Net
Investment Income................ .642 .651 .6635 .682 .7195 .2778
------- ------- ------ ------ ------ ------
Net Asset Value, end of the
Period........................... $11.452 $11.136 $11.18 $10.43 $11.18 $10.96
======= ======= ====== ====== ====== ======
Total Return(b)................... 8.82% 5.67% 13.89% (.76%) 8.84% 1.45%**
Net Assets at End of the Period
(In millions).................... $425.6 $323.8 $233.9 $159.3 $104.8 $21.0
Ratio of Expenses to Average Net
Assets(c)........................ 1.71% 1.77% 1.73% 1.77% 1.77% 1.71%
Ratio of Net Investment Income to
Average Net Assets(c)............ 5.74% 5.88% 6.03% 6.19% 6.15% 5.88%
Portfolio Turnover................ 29% 23% 26% 33% 27% 24%
<CAPTION>
CLASS C
---------------------------------------------------
DECEMBER 10,
1993
(COMMENCEMENT
YEAR ENDED NOVEMBER 30 OF DISTRIBUTION) TO
---------------------------- NOVEMBER 30,
1997 1996 1995 1994(A)
------- ------- ------ -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $11.126 $11.17 $10.42 $11.29
------- ------- ------ ------
Net Investment Income............ .644 .652 .66 .63
Net Realized and Unrealized
Gain/Loss...................... .312 (.045) .7535 (.8363)
------- ------- ------ ------
Total from Investment
Operations....................... .956 .607 1.4135 (.2063)
Less Distributions from Net
Investment Income................ .642 .651 .6635 .6637
------- ------- ------ ------
Net Asset Value, end of the
Period........................... $11.440 $11.126 $11.17 $10.42
======= ======= ====== ======
Total Return(b)................... 8.82% 5.68% 13.79% (1.80%)**
Net Assets at End of the Period
(In millions).................... $91.3 $50.0 $31.1 $15.3
Ratio of Expenses to Average Net
Assets(c)........................ 1.70% 1.77% 1.72% 1.75%
Ratio of Net Investment Income to
Average Net Assets(c)............ 5.69% 5.86% 5.98% 6.07%
Portfolio Turnover................ 29% 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 the Adviser's reimbursement of certain expenses was less than
0.01%.
10
<PAGE> 13
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is a diversified series of the Trust, an open-end management
investment company, commonly known as a mutual fund. A mutual fund provides, for
those who have similar investment goals, a practical and convenient way to
invest in a diversified portfolio of securities by combining their resources in
an effort to achieve such goals.
Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.
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INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------
The Fund's investment objective is to seek to provide as high a level of
interest income exempt from federal income tax as is consistent with the
investment policies of the Fund. There is, however, no assurance that the
investment objective of the Fund will be achieved. The Fund seeks to achieve its
investment objective by investing principally in medium or lower rated Municipal
Securities.
Among the various types of Municipal Securities are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes. General obligations are backed by
the taxing power of the issuing municipality. Revenue obligations are backed by
the revenues of a project or facility -- tolls from a toll-bridge, for example.
Industrial development revenue obligations are a specific type of revenue
obligation backed by the credit and security of a private user. Variable rate
demand notes are described under "Investment Practices -- Variable Rate Demand
Notes."
The Fund maintains at least 80% of its net assets invested in Municipal
Securities except as a temporary defensive measure during periods of adverse
market conditions. This is a fundamental policy and may not be changed without
the approval by a vote of at least a majority of the outstanding voting shares
of the Fund as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund generally does not invest in any securities
except Municipal Securities and Temporary Investments (as defined below). The
Fund may seek to hedge against changes in interest rates through transactions in
listed futures contracts related to U.S. Government securities or based upon the
Bond Buyers Municipal Bond Index and options thereon. See "Investment
Practices -- Futures Contracts and Related Options."
11
<PAGE> 14
On a temporary basis, to provide cash reserves or pending investment in
Municipal Securities, the Fund may invest up to 20% of its net assets in taxable
securities of at least comparable quality to the Municipal Securities in which
the Fund invests ("Temporary Investments"). The Fund also may invest temporarily
a portion or all of its assets in Temporary Investments for defensive purposes,
when, in the judgment of the Adviser(s), market conditions warrant. Temporary
Investments include but are not limited to securities issued or guaranteed by
the United States Government, its agencies or instrumentalities; corporate bonds
and debentures; certificates of deposit and bankers' acceptances of domestic
banks with assets of $500 million or more and having deposits insured by the
Federal Deposit Insurance Corporation; commercial paper; and repurchase
agreements.
The Fund may invest up to 10% of its net assets in illiquid securities which
include Municipal Securities issued in limited placements under which the Fund
represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Securities acquired in
limited placements generally may be resold only in a privately negotiated
transaction to one or more other institutional investors. Such limitation could
result in the Fund's inability to realize a favorable price upon disposition,
and in some cases might make disposition of such securities at the time desired
by the Fund impossible. The 10% limitation applies at the time the purchase
commitments are made. See also "Investment Practices -- Repurchase Agreements."
Generally Municipal Securities with longer maturities tend to produce higher
yields and are subject to greater market fluctuations as a result of changes in
interest rates than Municipal Securities with shorter maturities and lower
yields. In general, market prices of Municipal Securities vary inversely with
interest rates. Lower rated Municipal Securities generally provide a higher
yield than higher rated Municipal Securities of similar maturity but are subject
to greater market and financial risk. The Fund may purchase short-term or
long-term Municipal Securities (with remaining maturities of up to 30 years or
more). There is no limitation on the average maturity of the Municipal
Securities in the Fund, and such average maturity is likely to change from time
to time based on the view of market conditions held by the Advisers. At November
30, 1997, the Fund's average maturity was 21 years.
The Fund invests, under normal market conditions, at least 75% of its net
assets in medium to lower rated high yielding Municipal Securities which are
subject to high risk as described below. Municipal Securities ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard and Poor's Ratings Group
("S&P") are described in the Statement of Additional Information. See also
"Municipal Securities" herein. Because an investment in the Fund entails
relatively greater risks, it may not be an appropriate investment for all
investors.
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<PAGE> 15
The investment policies of the Fund are not governed by specific rating
categories. The Advisers generally seek medium and lower rated Municipal
Securities (commonly referred to as junk bonds) for the Fund. Generally, the
Fund invests at least 75% of its assets in Municipal Securities rated, at the
time of purchase, in the following quality grades as determined by either
Moody's (Baa or lower for bonds, and MIG 3 or VMIG 3 or lower for notes) or by
S&P (BBB or lower for bonds and SP-2 or lower for notes), or non-rated Municipal
Securities considered by the Advisers to be of comparable quality. Lower rated
obligations generally are more speculative with respect to the capacity of the
issuer to make interest and principal payments. For example, Municipal
Securities rated BB by S&P or Ba by Moody's or lower are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Municipal Securities
rated CC by S&P or Ca by Moody's are considered speculative in a high degree.
The Fund does not purchase obligations which are in default or rated C (lowest
grade by Moody's) or rated C or D by S&P or non-rated bonds, notes and other
obligations considered by the Advisers to be of comparable quality, although the
Fund may retain obligations assigned such ratings after a purchase is made. The
Fund may also invest under normal market conditions up to 20% of its assets in
Municipal Securities rated A, SP-1 or higher by S&P or A, MIG 2, VMIG 2 or
higher by Moody's, and in tax-exempt commercial paper rated Prime-3 or higher by
Moody's or A-3 or higher by S&P.
While the Fund normally will invest at least 75% of its assets in medium and
lower rated Municipal Securities, it may invest in higher rated issues,
particularly when the difference in returns between quality classifications is
very narrow or when the Advisers expect interest rates to increase. These
investments may lessen the decline in net asset value but may also affect the
amount of current income, since high rated yields are usually lower than medium
rated yields.
While the Fund may invest in both general obligations and revenue obligations,
a substantial portion of the Fund generally is invested in revenue obligations,
which may include public utility, housing, industrial development, pollution
control, hospital and health care issues. The Fund's ability to achieve its
objective depends to a great extent on the ability of these various issuers to
meet their scheduled payments of principal and interest.
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<PAGE> 16
The table below sets forth the percentages of the Fund's assets invested
during the fiscal year ended November 30, 1997 in the various Moody's and S&P
rating categories and in unrated securities determined by the Adviser to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all Municipal Securities held by the Fund during the 1997
fiscal year, computed on a monthly basis.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1997
-------------------------------------------
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING AS A PERCENTAGE OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE
-------- ------------------ ---------------------
<S> <C> <C>
AAA/Aaa................................... 2.75% 3.14%
AA/Aa..................................... 2.27% 0.17%
A/A....................................... 1.56% 1.55%
BBB/Baa................................... 9.15% 25.14%
BB/Ba..................................... 7.63% 38.51%
B/B....................................... 0.40% 7.50%
CCC/Caa................................... 0.04% 0.09%
CC/Ca..................................... 0.00% 0.03%
C/C....................................... 0.00% 0.07%
D......................................... 0.00% 0.00%
----- -----
Percentage of Rated and Unrated
Securities.............................. 23.80% 76.20%
===== =====
</TABLE>
The portfolio composition shown in the table above reflects the allocation of
assets by the Fund during the period indicated. The percentage of the Fund's
assets invested in securities of various grades may from time to time vary
substantially from those set forth above.
RISK FACTORS OF INVESTING IN LOWER RATED MUNICIPAL SECURITIES. The market for
lower rated Municipal Securities is relatively new and its growth has paralleled
a long economic expansion. Past experience may not, therefore, provide an
accurate indication of future performance of this market, particularly during
periods of economic recession. An economic downturn or increase in interest
rates is likely to have a greater negative effect on this market, the value of
lower rated Municipal Securities in the Fund, the Fund's net asset value and the
ability of the bonds' issuers to repay principal and interest, meet projected
business goals and obtain additional financing than on higher rated securities.
These circumstances also may result in a higher incidence of defaults than with
respect to higher rated securities. An investment in this Fund may be considered
more speculative than investment in shares of a fund which invests primarily in
higher rated Municipal Securities.
Prices of lower rated Municipal Securities may be more sensitive to adverse
economic changes or individual issuer developments than higher rated
investments. Municipal Securities with longer maturities, which may have higher
yields, may
14
<PAGE> 17
increase or decrease in value more than Municipal Securities with shorter
maturities. Market prices of lower rated Municipal Securities structured as zero
coupon or pay-in-kind securities are affected to a greater extent by interest
rate changes and may be more volatile than securities which pay interest
periodically and in cash. When deemed appropriate and in the best interests of
shareholders, the Fund may incur additional expenses to seek recovery on a
Municipal Security on which the issuer has defaulted and to pursue litigation to
protect its interests as a debtholder.
Because the market for lower rated securities may be thinner and less active
than for higher rated securities, there may be market price volatility for these
securities and limited liquidity in the resale market. Nonrated securities are
usually not as attractive to as many buyers as are rated securities, a factor
which may make nonrated securities less marketable. These factors may have the
effect of limiting the availability of the securities for purchase by the Fund
and may also limit the ability of the Fund to sell such securities at their fair
value either to meet redemption requests or in response to changes in the
economy or the financial markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of lower rated Municipal Securities, especially in a thinly traded
market. To the extent the Fund owns or may acquire illiquid or restricted lower
rated Municipal Securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties. Changes in values of Municipal Securities which the Fund owns will
affect its net asset value per share. If market quotations are not readily
available for the Fund's lower rated or nonrated securities, these securities
will be valued by a method that the Trustees believe accurately reflects fair
value. See "Purchase of Shares -- General" herein and "Determination of Net
Asset Value" in the Statement of Additional Information. Judgment plays a
greater role in valuing lower rated Municipal Securities than with respect to
securities for which more external sources of quotations and last sale
information are available.
Special tax considerations are associated with investing in lower rated
Municipal Securities structured as zero coupon or pay-in-kind securities. The
Fund accrues income on these securities prior to the receipt of cash payments.
The Fund must distribute substantially all of its income to its shareholders to
qualify for pass-through treatment under the tax laws and may, therefore, have
to dispose of portfolio securities to satisfy cash distribution requirements for
shareholders who do not reinvest dividends.
While credit ratings are only one factor the Advisers rely on in evaluating
lower rated Municipal Securities, certain risks are associated with using credit
ratings. Credit ratings evaluate the safety of principal and interest payments,
not market value risk. Credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events; however, the Advisers continuously
monitor the issuers of lower rated Municipal Securities in its portfolio in an
attempt to determine if the
15
<PAGE> 18
issuers will have a sufficient cash flow and profits to meet required principal
and interest payments. Achievement of the Fund's investment objective may be
more dependent upon the Advisers' credit analysis than is the case for higher
quality Municipal Securities. Credit ratings for individual securities may
change from time to time and the Fund may retain a portfolio security whose
rating has been changed.
Investors should consider carefully the additional risks associated with
investment in Municipal Securities which carry lower ratings.
An investment in the Fund may not be appropriate for all investors. The Fund
is not intended to be a complete investment program, and investors should
consider their long-term investment goals and financial needs when making an
investment decision with respect to the Fund. An investment in the Fund is
intended to be a long-term investment, and should not be used as a trading
vehicle.
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's Advisers and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Advisers are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Fund's other major service
providers. At this time, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------
Municipal Securities include debt obligations of a state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which Municipal Securities may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to lend to other public institutions and facilities. Certain types of Municipal
Securities are issued to obtain funding for privately operated facilities.
Many new issues of Municipal Securities are sold on a "when-issued" basis.
While the Fund has ownership rights to such Municipal Securities, the Fund does
not have to pay for them until they are delivered, normally 15 to 45 days later.
To meet that payment obligation, the Fund sets aside with the custodian
sufficient cash or liquid securities equal to the amount that will be due. See
"Investment Practices -- Delayed Delivery and When-Issued Securities."
16
<PAGE> 19
The yields of Municipal Securities depend on, among other things, general
money market conditions, general conditions of the Municipal Securities market,
size of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P and Moody's represent their opinions of the quality of
the Municipal Securities they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon and rating may
have different yields while Municipal Securities of the same maturity and coupon
with different ratings may have the same yield. A description of the ratings is
included in the Statement of Additional Information.
The Fund considers investments in tax-exempt Municipal Securities not to be
subject to concentration policies and may invest a relatively high percentage of
the assets of the Fund in Municipal Securities issued by entities having similar
characteristics. The issuers may be located in the same geographic area or may
pay their interest obligations from revenue of similar projects such as
hospitals, utility systems and housing finance agencies. This may make the
Fund's investments more susceptible to similar economic, political or regulatory
occurrences. As the similarity in issuers increases, the potential for
fluctuation in the Fund's per share net asset value also increases. The Fund may
invest more than 25% of its total assets in Municipal Securities with similar
characteristics, such as industrial development revenue bonds, including
pollution control revenue bonds, housing finance agency bonds, or hospital
bonds. The Fund may not, however, invest more than 25% of its total assets in
industrial development revenue bonds, including pollution control bonds, issued
for companies in the same industry. See "Investment Practices -- Investment
Restrictions." Sizeable investments in such obligations could involve an
increased risk to the Fund should any of such issuers or any such related
projects or facilities experience financial difficulties.
The Fund has no fundamental policy limiting its investments in securities
whose issuers are located in the same state. However, it is not the present
intention of the Fund to invest more than 25% of the value of its total assets
in securities whose issuers are located in the same state.
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 any such proposal were to be enacted, the
ability of the Fund to pay "exempt-interest" dividends may be adversely affected
and the Fund would re-evaluate its investment objective and policies and
consider changes in its structure.
17
<PAGE> 20
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INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks or broker-dealers in order to earn a return on temporarily available cash.
A repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Fund) acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the holding period. Repurchase agreements involve certain risks
in the event of default by the other party. The Fund will not invest in
repurchase agreements maturing in more than seven days if any such investment,
together with any other illiquid securities held by the Fund, exceeds 10% of the
value of its net assets. In the event of the bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities, and the Fund could incur losses
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible lack
of access to income on the underlying security during this period; and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair administration of the joint account
and to protect the amounts in that account.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate adjustment
formula and which are subject to an unconditional right of demand to receive
payment of the principal balance plus accrued interest either at any time or at
specified intervals not exceeding one year and in either case upon no more than
seven days' notice. The interest rates are adjustable ("floating rate") at
intervals ranging from daily to up to one year to some prevailing market rate
for similar investments, such adjustment formula being calculated to maintain
the market value of the VRDN at approximately the par value of the VRDN upon the
adjustment date. The adjustments are typically based upon the prime rate of a
bank or some other appropriate interest rate adjustment index.
18
<PAGE> 21
Investments by the Fund in VRDNs may also be made in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with respect
to Municipal Securities held by it. Under a stand-by commitment, a bank or
dealer from which Municipal Securities are acquired agrees to purchase from the
Fund, at the Fund's option, the Municipal Securities at a specified price. Such
commitments are sometimes called "liquidity puts."
The amount payable to the Fund upon its exercise of a stand-by commitment is
normally (i) the Fund's acquisition cost of the Municipal Securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
Stand-by commitments generally can be acquired when the remaining maturity of
the underlying Municipal Securities is not greater than one year, and are
exercisable by the Fund at any time before the maturity of such obligations.
The Fund's right to exercise stand-by commitments is unconditional and
unqualified. A stand-by commitment generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Securities to a third party
at any time.
The Fund expects that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund will not exceed 1/2 of 1% of the value of
the Fund's total assets calculated immediately after each stand-by commitment is
acquired. The Fund intends to enter into stand-by commitments only with banks
and dealers which, in the Adviser's opinion, present minimal credit risks.
The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
19
<PAGE> 22
The acquisition of a stand-by commitment would not affect the valuation of the
underlying Municipal Securities which would continue to be valued in accordance
with the method of valuation employed for the Fund in which they are held.
Stand-by commitments acquired by the Fund would be valued at zero in determining
net asset value. Where the Fund paid any consideration directly or indirectly
for a stand-by commitment, its costs would be reflected as unrealized
depreciation for the period during which the commitment was held by the Fund.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. Municipal Securities may at times
be purchased or sold on a delayed delivery or a when-issued basis. These
transactions arise when securities are purchased or sold by a Fund with payment
and delivery taking place in the future, often a month or more after the
purchase. The payment obligation and the interest rate are each fixed at the
time the Fund enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities prior to settlement date if
it is deemed advisable. Purchasing Municipal Securities on a when-issued basis
involves the risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself; if yields so increase, the value of the when-issued obligation will
generally decrease. The Fund maintains a separate account at its custodian bank
consisting of cash or liquid securities (valued on a daily basis) equal at all
times to the amount of any when-issued commitment.
FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may engage in transactions in
listed futures contracts and related options. Such transactions may be in listed
futures contracts based upon The Bond Buyer Municipal Bond Index (the "Index"),
a price weighted measure of the market value of 40 large sized, recent issues of
tax-exempt bonds or in listed contracts based on U.S. Government securities.
Futures contracts and options thereon may be used for defensive hedging or
anticipatory hedging purposes, depending upon the composition of the Fund and
the Adviser's expectations concerning the securities markets. See the Statement
of Additional Information for discussion of futures contracts and related
options.
Potential Risks of Futures Contracts and Related Options. In certain cases,
the options and futures markets provide investment or risk management
opportunities that are not available from direct investments in securities. In
addition, some strategies can be performed with greater case and at lower cost
by utilizing the options and futures markets rather than purchasing or selling
portfolio securities. However, the purchase and sale of futures contracts and
related options involve risks different from those involved with direct
investments in underlying securities. While utilization of futures contracts and
related options may be advantageous to the Fund, if the Adviser is not
successful in employing such instruments in managing the Fund's investments, the
Fund's performance will be worse than if the
20
<PAGE> 23
Fund did not make such investments. In addition, the Fund would pay commissions
and other costs in connection with such investments, which may increase the
Fund's expenses and reduce its return. The Fund may not purchase or sell futures
contracts or related options for which the aggregate initial margin and premiums
exceed 5% of the fair market value of the Fund's assets.
In order to prevent leverage in connection with the purchase of futures
contracts thereon by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contract or option (less
any related margin deposits) will be maintained in a segregated account with the
custodian.
PORTFOLIO TURNOVER. The Fund may purchase or sell securities without regard to
the length of time the security has been held to take advantage of short-term
differentials in bond yields consistent with its objective of seeking tax-exempt
interest income. The Fund may engage in short-term trading if the anticipated
benefits are expected by the Adviser to exceed the transaction costs. The annual
turnover rate for the Fund is expected to vary from year to year depending on
market conditions. A 100% turnover rate would occur, for example, if all the
securities in the Fund were replaced in a period of one year. Municipal
Securities with remaining maturities of less than one year are excluded in the
computation of the portfolio turnover rate. Higher portfolio turnover involves
higher transaction costs and may result in realization of short-term capital
gains if securities are held for one year or less. Such gains are taxable to
shareholders as ordinary income except to the extent such gains are offset by
any capital losses. Portfolio turnover is not a limiting factor in making
portfolio decisions.
PORTFOLIO TRANSACTIONS AND BROKERAGE. The Adviser is responsible for the
placement of orders for the purchase and sale of portfolio securities for the
Fund. The Municipal Securities and other obligations in which the Fund invests
are generally traded in the over-the-counter market. Such securities are
generally traded on a net basis with dealers acting as principal for their own
accounts without a stated commission, although the prices of the securities
usually include a profit to the dealers. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
It is the policy of the Fund to obtain the best net results taking into account
such factors as price (including the applicable dealer spread), the size, type
and difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved and the provision of supplemental investment research by the firm.
While the Fund generally seeks reasonably competitive spreads or commissions,
the Fund will not necessarily be paying the lowest spread or commission
available. Brokerage commissions are paid on transactions in futures contracts
and options thereon. The
21
<PAGE> 24
Adviser is authorized to place portfolio transactions with broker-dealers
participating in the distribution of shares of the Fund and other funds
distributed by the Distributor if it reasonably believes that the quality of the
execution and any commission are comparable to that available from other
qualified firms. The Adviser is authorized to pay higher commissions to
brokerage firms that provide them with investment and research information than
to firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. The
information received may be used by the Adviser in managing the assets of other
advisory accounts as well as in the management of the assets of the Fund.
INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental investment
restrictions which, like the investment objective, may not be changed without
approval by a vote of a majority of the outstanding voting shares of the Fund
(as defined in the 1940 Act). These restrictions provide, among other things,
that the Fund may not:
1. Invest in securities other than Municipal Securities, Temporary Investments
(as defined herein), stand-by commitments, futures contracts described in
the next paragraph and options on such contracts 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;
2. Purchase or sell commodities or commodity contracts except that the Fund
may purchase, hold and sell listed futures contracts related to U.S.
Government securities, Municipal Securities or to an index of Municipal
Securities;
3. 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;
4. Borrow money, except that the Fund may borrow from banks to meet
redemptions or for other temporary or emergency purposes, with such
borrowing not to exceed 5% of the total assets of the Fund at market value
at the time of 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; or
22
<PAGE> 25
5. 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.
Each state and each political subdivision, agency or instrumentality of such
state, and each multi-state agency of which a state is a member is a separate
"issuer" as that term is used in this Prospectus. The non-government user of
facilities financed by industrial development or pollution control bonds is also
considered as a separate issuer. In certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee.
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $60 billion under management or supervision. Van Kampen American Capital's
more than 50 open-end and 38 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen American Capital Distributors, Inc., the Distributor of
the Trust and the sponsor of the funds mentioned above, is also a wholly-owned
subsidiary of Van Kampen American Capital. Van Kampen American Capital is an
indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management, Inc., an
investment adviser, 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; credit services; asset management;
trading of futures, options, foreign
23
<PAGE> 26
exchange, commodities and swaps (involving foreign exchange, commodities,
indices and interest rates); real estate advice, financial and investing; and
global custody, securities clearance services and securities lending.
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. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed on average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS % PER ANNUM
----------------- -------------
<S> <C>
First $300 million.............................. 0.60 of 1.00%
Next $300 million............................... 0.55 of 1.00%
Over $600 million............................... 0.50 of 1.00%
</TABLE>
Under the Advisory Agreement, the Fund also reimburses the Adviser for the
costs of the Fund's accounting services, which include maintaining its financial
books and records and calculating its daily net asset value. Operating expenses
paid by the Fund include service fees, distribution fees, custodian fees, legal
and accounting fees, the costs of reports and proxies to shareholders, trustees'
fee (other than those who are affiliated persons, as defined in the 1940 Act, of
the Advisers, Distributor, ACCESS, Van Kampen American Capital or Morgan Stanley
Dean Witter & Co.), and all other business expenses not specifically assumed by
the Adviser. Advisory (management) fee and total operating expense ratios are
shown under the caption "Annual Fund Operating Expenses and Example" herein.
THE SUBADVISER. The subadviser is a wholly-owned subsidiary of Van Kampen
American Capital and an affiliate of the Adviser. Van Kampen American Capital is
an indirect wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
address of the Subadviser is 40 Broad Street, Suite 915, Boston, Massachusetts
02109.
SUBADVISORY AGREMENT. 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. The Subadviser has acted
as subadviser for the Fund since September 14, 1993. Pursuant to the Subadvisory
Agreement, the Subadviser receives a monthly fee computed on average daily net
assets of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS % PER ANNUM
----------------- -------------
<S> <C>
First $20 million............................... 0.40 of 1.00%
Next $30 million................................ 0.25 of 1.00%
Over $50 million................................ 0.15 of 1.00%
</TABLE>
24
<PAGE> 27
From time to time the Adviser or the Distributor may voluntarily undertake to
reduce the Trust's expenses by reducing the fees payable to them to the extent
of, or bearing expenses in excess of, such limitations as they may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Investment Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund and the Advisers have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Advisers and its employees. The Codes permit directors, trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. Mr. Wayne D. Godlin has been primarily responsible for
the day-to-day management of the Fund's investment portfolio since March 1990.
Mr. Godlin has been Vice President of the Adviser since March 1990 and has been
Vice President of Van Kampen American Capital Investment Advisory Corp. since
June 1995. Mr. Godlin has been Vice President of the Subadviser since September
1993.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permits an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a CDSC of 1.00% may be imposed on certain redemptions made within one year of
the purchase. Class A shares are subject to an ongoing service fee at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to the Class A shares. Certain purchases of Class A shares qualify
for reduced initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is
25
<PAGE> 28
made. The ongoing distribution fee paid by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares. Class B shares convert automatically to Class A shares eight
years after the end of the calendar month in which the shareholder's order to
purchase was accepted. See "Purchase of Shares -- Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares."
CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares eight years after the end of the calendar month in which the
shares were purchased. Class B shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares six years after the end of the calendar month in which the shares
were purchased. Class C shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a share acquired through the
exchange privilege is determined by reference to the Participating Fund (defined
below) from which such share was originally purchased. The conversion of such
shares to Class A shares is subject to the continuing availability of an opinion
of counsel to the effect that (i) the assessment of the higher distribution fee
and transfer agency costs with respect to such shares does not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986, as amended (the "Code") and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher
26
<PAGE> 29
aggregate fees and CDSC on Class B shares and Class C shares would be less than
the initial sales charge on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher dividends per share
on Class A shares. To assist investors in making this determination, the table
under the caption "Annual Fund Operating Expenses and Example" sets forth
examples of the charges applicable to each class of shares. In this regard,
Class A shares may be more beneficial to the investor who qualifies for reduced
initial sales charges or purchases at net asset value. It is presently the
policy of the Distributor not to accept any order of $500,000 or more for Class
B shares or any order of $1 million or more for Class C shares as it ordinarily
would be more beneficial for such investor to purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A shares or Class B
shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges or have a longer-term investment horizon.
In addition, the check writing privilege is only available for Class A shares
(see "Shareholder Services -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately or have a longer-term investment
horizon. Class C shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon or desire a short CDSC
schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Sales personnel of broker-dealers distributing the Fund's shares and
other persons entitled to receive
27
<PAGE> 30
compensation for selling such shares may receive differing compensation for
selling such shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION
OF THE CDSC AND ONGOING DISTRIBUTION FEE WITH RESPECT TO THE CLASS B SHARES AND
CLASS C SHARES ARE THE SAME AS THOSE OF THE INITIAL SALES CHARGE WITH RESPECT TO
CLASS A SHARES. See "Distribution and Service Plans."
GENERAL. Dividends paid by the Fund with respect to Class A shares, Class B
shares and Class C shares will be calculated in the same manner at the same time
on the same day except that the higher distribution fees and transfer agency
costs relating to Class B shares or Class C shares will be borne by the
respective class. See "Distributions from the Fund." Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class of
certain other mutual funds advised by the Adviser and its affiliates and
distributed by the Distributor. See "Shareholder Services -- Exchange
Privilege."
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers three classes of shares to the public on a continuous basis
through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares also are offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
who are acting as securities dealers ("dealers") and NASD members or eligible
non-NASD members who are acting as brokers or agents for investors ("brokers").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers."
Investment opportunities for lower rated securities may be more limited than
those in other sectors of the market. In order to facilitate the management of
the Fund's portfolio, the Fund may from time to time suspend the continuous
offering of its shares to investors. As market conditions permit, the Fund may
reopen sales of the Fund's shares to investors. Any such limited offerings of
the Fund may commence and terminate without any prior notice.
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for shares involving periodic
investments. Shares of the Fund may be sold in foreign countries where
permissible. The Fund and the Distributor reserve the right to refuse any order
for the purchase of shares. The Fund also reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Shares of the Fund may be purchased on any business day through authorized
dealers. Shares also may be purchased by completing the application accompanying
this Prospectus and forwarding the application, through the authorized dealer,
to the shareholder service agent, ACCESS Investor Services, Inc. ("ACCESS"), a
28
<PAGE> 31
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or deferred sales charge depending on the class of shares chosen by
the investor, as shown in the tables herein. Net asset value per share for each
class is computed as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open.
Net asset value per share for each class is determined by dividing the value of
the Fund's securities, cash and other assets (including accrued interest)
attributable to such class, less all liabilities (including accrued expenses)
attributable to such class, by the total number of shares of the class
outstanding. The Fund's investments are valued by an independent pricing
service.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fee and
transfer agency costs applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. Orders received by authorized
dealers after the close of the Exchange are priced based on the next close,
provided they are received by the Distributor prior to the Distributor's close
of business on such day. It is the responsibility of authorized dealers to
transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the authorized dealer
and processed at the offering price next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights except that (i) Class B shares
and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher distribution fee and transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class has exclusive
voting rights with respect to approvals of the Rule 12b-1 distribution plan
pursuant to which its distribution fee or service fee is paid, (iii) each class
of shares has different exchange privileges, (iv) certain classes of shares are
subject to a conversion feature and (v) certain classes of shares have different
shareholder service options available. The net income attributable to Class B
shares and Class C shares and the dividends payable on Class B shares and Class
C shares will be reduced by the amount of the distribution fee and other
expenses associated with such shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to
29
<PAGE> 32
receive compensation for selling such shares may receive differing compensation
for selling Class A shares, Class B shares or Class C shares.
The Distributor may from time to time implement programs under which an
authorized dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
authorized dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the authorized dealer at the
public offering price during such programs. Other programs provide, among other
things and subject to certain conditions, for certain favorable distribution
arrangements for shares of the Fund. Also, the Distributor in its discretion may
from time to time, pursuant to objective criteria established by the
Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Fund. Fees may include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. In some instances, additional compensation or promotional incentives may
be offered to brokers, dealers or financial intermediaries that have sold or may
sell significant amounts of shares during specified periods of time. The
Distributor is sponsoring a sales incentive program for A.G. Edwards & Sons,
Inc. ("A.G. Edwards"). The Distributor will reallow its portion of the Fund's
sales concession to A.G. Edwards on sales of Class A shares of the Fund relating
to the "rollover" of any savings into an Individual Retirement Account ("IRA"),
the transfer of assets into an IRA and contributions to an IRA, commencing on
January 1, 1998 and terminating on April 15, 1998. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. All of the foregoing payments are made by the Distributor out of its
own assets. Such fees paid for such services and activities with respect to the
Fund will not exceed in the aggregate 1.25% of the average total daily net
assets of the Fund on an annual basis. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
sale.
30
<PAGE> 33
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
DEALERS (AS
AS % OF AS % OF A %
SIZE OF OFFERING NET AMOUNT OF OFFERING
INVESTMENT PRICE INVESTED PRICE)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Less than $100,000.............. 4.75% 4.99% 4.25%
$100,000 but less than
$250,000...................... 3.75% 3.90% 3.25%
$250,000 but less than
$500,000...................... 2.75% 2.83% 2.25%
$500,000 but less than
$1,000,000.................... 2.00% 2.04% 1.75%
$1,000,000 or more*............. * * *
</TABLE>
- ------------------------------------------------------------------------------
* No sales charge is payable at the time of purchase on investments of
$1 million or more, although for such investments the Fund imposes a
CDSC of 1.00% on redemptions made within one year of the purchase. A
commission will be paid to authorized dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on
sales to $2 million, plus 0.80% on the next $1 million and 0.50% on
the excess over $3 million.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are reallowed all or substantially all of the sales charges may be
deemed to be underwriters for purposes of the Securities Act of 1933, as
amended.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited under the Glass-Steagall Act from providing certain underwriting or
distribution services. If banking firms were prohibited from acting in any
capacity or providing any of the described services, the Distributor would
consider what action, if any, would be appropriate. The Distributor does not
believe that termination of a relationship with a bank would result in any
material adverse consequences to the Fund. State securities laws regarding
registration of banks and other financial institutions may differ from the
interpretations of federal law expressed herein, and banks and other financial
institutions may be required to register as dealers pursuant to certain state
laws.
31
<PAGE> 34
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their authorized dealers, must notify the Fund at the time of
the purchase order whenever a quantity discount is applicable to purchases. Upon
such notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their authorized
dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or
her spouse and children under 21 years of age and any corporation, partnership
or sole proprietorship which is 100% owned, either alone or in combination, by
any of the foregoing; a trustee or other fiduciary purchasing for a single trust
or for a single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by the Adviser or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
Volume Discounts. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person in shares
of the Fund, or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
Cumulative Purchase Discount. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
Letter of Intent. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding sales charge
table. The size of investment shown in the preceding sales charge table also
includes purchases of shares of the Participating Funds over a 13-month period
based on the total amount of intended purchases plus the value of all shares of
the Participating Funds previously purchased and still owned. An investor may
elect to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the sales charge applicable to the purchases made and the
sales charges previously paid. The initial purchase must be for an amount equal
to at least 5% of the minimum total purchased amount of the level selected. If
trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be
32
<PAGE> 35
made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application accompanying by this Prospectus.
OTHER PURCHASE PROGRAMS
Purchases of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.
Unit Investment Trust Reinvestment Programs. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
shares of the Fund at net asset value with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information with respect to this program, including the applicable
terms and conditions thereof, should contact their authorized dealer or the
Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV Purchase Options. Class A shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment
33
<PAGE> 36
purposes and that the shares will not be resold except through redemption by
such Fund, by:
(1) Current or retired trustees or directors of funds advised by the Adviser
or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. and any of its subsidiaries, employees of an investment
subadviser to any fund, described in (1) above, or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and children under 21 years of age when purchasing for any
accounts they beneficially own, or, in the case of any such financial
institution, when purchasing for retirement plans for such institution's
employees; provided that such purchases are otherwise permitted by such
institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers
through which purchases are made an amount up to 0.50% of the amount
invested over a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans
which invest in multiple fund families through broker-dealer retirement
plan alliance programs that have entered into agreements with the
Distributor and which are subject to certain minimum size and operational
requirements. Trustees and other fiduciaries should refer to the Statement
of Additional Information for further detail with respect to such
programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement
plan or held in a tax-advantaged retirement account who purchase shares of
the Fund with proceeds from distributions from such a plan or retirement
account other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economics of scale
34
<PAGE> 37
in distributing such shares. A qualified group does not include one whose
sole organizational nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an
insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each
group's participants account in connection with this privilege will be
subject to a CDSC of 1.00% in the event of redemption within one year of
purchase, and a commission will be paid to authorized dealers who initiate
and are responsible for such sales to each individual as follows: 1.00% on
sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution and Service Plans"
on purchases made as described in (3) through (8) above. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a CDSC at the rates set
forth in the following table charged as a percentage of the dollar amount
subject thereto. The charge is assessed on an amount equal to the lesser of the
then current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions. It is presently the
policy of the Distributor not to accept any order for Class B shares in an
amount of $500,000 or more because it ordinarily will be more advantageous for
an investor making such an investment to purchase Class A shares.
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<PAGE> 38
The amount of the CDSC, if any, varies depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month are aggregated and deemed to have been made on the last day of
the month.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ----------------------------------------------------------------------------------
<S> <C>
First........................................ 4.00%
Second....................................... 4.00%
Third........................................ 3.00%
Fourth....................................... 2.50%
Fifth........................................ 1.50%
Sixth and After.............................. None
</TABLE>
- ------------------------------------------------------------------------------
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC, second of shares held for over five years and
third of shares held longest during the five-year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives in the form of
cash or other compensation to authorized dealers that sell Class B shares of the
Fund.
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
charge is assessed on an amount equal to the lesser of the then current market
value or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price. In
addition, no charge is
36
<PAGE> 39
assessed on shares derived from reinvestment of dividends or capital gains
distributions. It is presently the policy of the Distributor not to accept any
order in an amount of $1 million or more for Class C shares because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A shares.
In determining whether a CDSC is applicable to a redemption, it is assumed
that the redemption is first of any shares in the shareholder's Fund account
that are not subject to a CDSC and second of shares held for more than one year.
A commission or transaction fee of up to 1.00% of the purchase amount will
generally be paid to authorized dealers at the time of purchase. Authorized
dealers also will be paid ongoing commissions and transaction fees of up to
0.75% of the average daily net assets of the Fund's Class C shares generally
annually commencing in the second year after purchase. Additionally, the
Distributor may, from time to time, pay additional promotional incentives, in
the form of cash or other compensation to authorized dealers that sell Class C
shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemptions of Class B shares and Class C shares (i)
following the death or disability (as defined in the Code) of a shareholder;
(ii) in connection with required minimum distributions from an IRA or other
retirement plan; (iii) pursuant to the Fund's systematic withdrawal plan but
limited to 12% annually of the initial value of the account; (iv) in
circumstances under which no commission or transaction fee is paid to authorized
dealers at the time of purchase of such shares; and (v) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The CDSC is also waived on redemptions of Class C shares
as it relates to the reinvestment of redemption proceeds in shares of the same
class of the Fund within 180 days after redemption. See the Statement of
Additional Information for further discussion of waiver provisions.
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. The
following is a description of such services.
INVESTMENT ACCOUNT. Each shareholder has an investment account under which the
investor's shares of the Fund are held by ACCESS, the Fund's transfer agent.
ACCESS performs bookkeeping, data processing and administrative services related
to the maintenance of shareholder accounts. Except as described in this
Prospectus, after each share transaction in an account, the shareholder receives
a
37
<PAGE> 40
statement showing the activity in the account. Each shareholder who has an
account in any of the Participating Funds will receive statements quarterly from
ACCESS showing any reinvestments of dividends and capital gains distributions
and any other activity in the account since the preceding statement. Such
shareholders also will receive separate confirmations for each purchase or sale
transaction other than reinvestment of dividends and capital gains distributions
and systematic purchases or redemptions. Additions to an investment account may
be made at any time by purchasing shares through authorized dealers or by
mailing a check directly to ACCESS.
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received,
ACCESS will calculate a fee for replacing the lost certificate equal to no more
than 2.00% of the net asset value of the issued shares, and bill the party to
whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date. Unless the shareholder instructs otherwise, the reinvestment
privilege is automatic. This instruction may be made by telephone by calling
(800) 341-2911 ((800) 421-2833 for the hearing impaired) or in writing to
ACCESS. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to debit a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized dealers.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together
38
<PAGE> 41
with the completed application. Once ACCESS has received the application and the
voided check or deposit slip, such shareholder's designated bank account,
following any redemption, will be credited with the proceeds of such redemption.
Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 341-2911 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any
Participating Fund so long as the shareholder has a pre-existing account for
such class of shares of the other fund. Both accounts must be of the same type,
either non-retirement or retirement. If the accounts are retirement accounts,
they must both be for the same class and of the same type of retirement plan
(e.g., IRA, 403(b)(7), 401(k), Keogh) and for the benefit of the same
individual. If a qualified, pre-existing account does not exist, the shareholder
must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset values of
each fund after requesting the exchange without any sales charge, subject to
certain limitations. Shares of the Fund may be exchanged for shares of any
Participating Fund only if shares of that Participating Fund are available for
sale; however, during periods of suspension of sales, shares of a Participating
Fund may be available for sale only to existing shareholders of a Participating
Fund. Shareholders seeking an exchange into a Participating Fund should obtain
and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.
When Class B shares and Class C shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund (the
"original fund"). Upon redemption from the Participating Funds' complex of
funds, Class B shares and Class C share are subject to the CDSC schedule imposed
by the original fund.
39
<PAGE> 42
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. If the exchanging
shareholder does not have an account in the fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gains options (except dividend diversification) and authorized
dealer of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, however, an exchanging shareholder must file a specific
written request. The Fund reserves the right to reject any order to acquire
shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any authorized
dealer or the Distributor. An investor considering an exchange to one of such
funds should refer to the prospectus for additional information regarding such
fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which any capital gain or loss will
40
<PAGE> 43
be recognized. The planholder may arrange for monthly, quarterly, semi-annual,
or annual checks in any amount not less than $25.
Class B shareholders and Class C shareholders who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss realized by the shareholder upon the redemption of
shares is a taxable event.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to ACCESS, a supply of checks drawn on State Street Bank and Trust
Company (the "Bank") will be sent to the Class A shareholder. These checks may
be made payable by the Class A shareholder to the order of any person in any
amount of $100 or more.
When a check is presented to the Bank for payment, full and fractional Class A
shares required to cover the amount of the check are redeemed from the
shareholder's Class A account by ACCESS at the next determined net asset value.
Check writing redemptions represent the sale of Class A shares. Any gain or loss
realized on the sale of shares is a taxable event. See "Redemption of Shares."
Checks will not be honored for redemption of Class A shares held less than 15
calendar days, unless such Class A shares have been paid for by bank wire. Any
Class A shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the value of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or the
Bank. Accounts that are subject to backup withholding are not eligible for the
privilege. A "stop payment" system is not available on these checks. See the
Statement of Additional Information for further information regarding the
establishment of the privilege.
41
<PAGE> 44
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the Internet. Please refer to our web site @ www.vkac.com
for further instruction. VKAC and the Fund employ procedures considered by them
to be reasonable to confirm that instructions communicated through the Internet
are genuine. Such procedures include requiring use of a personal identification
number prior to acting upon Internet instructions and providing written
confirmation of instructions communicated through the Internet. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
instructions through the Internet which it reasonably believes to be genuine. If
an account has multiple owners, ACCESS may rely on the instructions of any one
owner.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from authorized dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order is received by an authorized dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of authorized dealers to
transmit redemption requests received by them to the Distributor so they will be
received prior to such time.
As described herein under "Purchase of Shares," redemptions of Class B shares
and Class C shares are subject to a CDSC. In addition, a CDSC of 1.00% may be
imposed on certain redemptions of Class A shares made within one year of
purchase for investments of $1 million or more. The CDSC incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
expenses.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents
42
<PAGE> 45
may be necessary. For example, although the Fund normally does not issue
certificates for shares, it will do so if a special request has been made to
ACCESS. In the case of shareholders holding certificates, the certificates for
the shares being redeemed must accompany the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown in the account registration, a copy of
the corporate resolution or other legal documentation appointing the authorized
signer and certified within the prior 120 days must accompany the redemption
request.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received. Payment for shares redeemed will be made by check mailed within seven
days after acceptance by ACCESS of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, ACCESS may delay mailing a redemption check
until the purchase check has cleared, which may take up to 15 days. A taxable
gain or loss will be recognized by the shareholder upon redemption of shares.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures set
forth above, the Fund permits redemption of shares by telephone and for
redemption proceeds to be sent to the address of record of the account or to the
bank account of record as described herein. To establish such privilege, a
shareholder must complete the appropriate section of the application form
accompanying this Prospectus or call the Fund at (800) 341-2911 to request that
a copy of the Telephone Redemption Authorization form be sent to them for
completion. To redeem shares, contact the telephone transaction line at (800)
421-5684. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, neither VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. Telephone redemptions may not be available if the shareholder cannot
reach ACCESS by telephone, whether because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the Fund's
regular redemption procedure described herein. Requests received by ACCESS prior
to 4:00 p.m., New York time, on a regular business day will be processed at the
net asset value per share determined that day. These privileges are available
for all accounts other than retirement accounts. The telephone redemption
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<PAGE> 46
privilege is not available for shares represented by certificates. If an account
has multiple owners, ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of redemption. The Fund reserves the right at any time to terminate, limit or
otherwise modify this redemption privilege.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum initial investment as specified in this Prospectus. At least 60 days
advance written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
involuntary redemption may only occur if the shareholder account is less than
the minimum initial investment due to shareholder redemptions.
REDEMPTION UPON DEATH OR DISABILITY. The Fund will waive the CDSC 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 Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
CDSC on Class B shares and Class C shares.
In cases of death or disability, the CDSC on Class B shares and Class C shares
will be waived where the decedent or disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of survivorship or
is the beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the death or initial determination of
disability. This waiver of the CDSC on Class B shares and Class C shares applies
to a total or partial redemption, but only to redemptions of shares held at the
time of the death or initial determination of disability.
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<PAGE> 47
REINSTATEMENT PRIVILEGE. A Class A shareholder or Class B shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A shares of the Fund. A Class C shareholder who has
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of the Fund with credit given for any CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption.
- ------------------------------------------------------------------------------
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 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 shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers or financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year of
the average daily net assets attributable to the Class A shares of the Fund
pursuant to the Distribution Plan and Service Plan. From such amount, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution-related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
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<PAGE> 48
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C shares up to 0.75% of the Fund's average daily
net assets attributable to Class C shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of shares, any unreimbursed expenses will be carried forward and paid
by the Fund (up to the amount of the actual expenses incurred) in future years
so long as such Distribution Plan is in effect. Except as mandated by applicable
law, the Fund does not impose any limit with respect to the number of years into
the future that such unreimbursed expenses may be carried forward (on a Fund
level basis). Because such expenses are accounted on a Fund level basis, in
periods of extreme net asset value fluctuation such amounts with respect to a
particular Class B share or Class C share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor
with respect to such share. In such circumstances, a shareholder of a share may
be deemed to incur expenses attributable to other shareholders of such class. As
of November 30, 1997, there were $19,206,280 and $1,115,299 of unreimbursed
distribution-related expenses with respect to Class B shares and Class C shares,
respectively, representing 4.51% and 1.22% of the Fund's net assets attributable
to Class B shares and Class C shares, respectively. If the Distribution Plan was
terminated or not continued, the Fund would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through CDSCs.
46
<PAGE> 49
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of shares. Various federal and state laws prohibit national
banks and some state-chartered commercial banks from underwriting or dealing in
the Fund's shares. In addition, state securities laws on this issue may differ
from the interpretations of federal law, and banks and financial institutions
may be required to register as dealers pursuant to state law. In the unlikely
event that a court were to find that these laws prevent such banks from
providing such services described above, the Fund would seek alternate providers
and expects that shareholders would not experience any disadvantage.
- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------
DIVIDEND POLICY. Income dividends are declared each business day and
distributed monthly. The Fund intends to distribute after the end of a fiscal
year the net capital gains, if any, realized during the fiscal year by the Fund
except to the extent that such gains are offset by capital loss carryovers. The
daily dividend is a fixed amount determined for each class at least monthly
which is not expected to exceed the net income of the Fund for the month divided
by the number of business days during the month.
Shares (other than shares acquired through an exchange) become entitled to
dividends on the day ACCESS receives payment for the shares. With respect to
shares acquired through an exchange, such shares become entitled to dividends on
the day after ACCESS receives payment for the shares. If a dealer delays
forwarding to ACCESS payment for shares which an investor has made to the
dealer, this will in effect cost the investor money because it will delay the
date upon which such investor becomes entitled to dividends. Shares (other than
shares sold through an exchange) remain entitled to dividends through the day
before such shares are priced for redemption purposes, which occurs when a valid
redemption request with respect to such shares is received by ACCESS. With
respect to shares sold through an exchange, such shares remain entitled to
dividends through and including the day such shares are priced for redemption.
The per share dividends on Class B shares and Class C shares may be lower than
the per share dividends on Class A shares of the Fund as a result of the higher
distribution fees and transfer agency costs applicable to such classes of
shares.
Unless the shareholder instructs otherwise, dividends and capital gains
distributions are automatically applied to purchase additional shares of the
Fund at the next determined net asset value. See "Shareholder
Services -- Reinvestment Plan."
Dividends and distributions paid by the Fund have the effect of reducing the
net asset value per share on the record date by the amount of the dividend or
47
<PAGE> 50
distribution. Therefore, a dividend or distribution paid shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed below.
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
FEDERAL INCOME TAXATION. The Fund has qualified and intends to continue to
qualify each year to be treated as a regulated investment company under
Subchapter M of the Code. To qualify as a regulated investment company, the Fund
must comply with certain requirements of the Code relating to, among other
things, the source of its income and diversification of its assets.
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), 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.
In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including
48
<PAGE> 51
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.
Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
DISTRIBUTIONS. The Fund intends to invest in sufficient Municipal Securities
to permit payment of "exempt-interest dividends" (as defined in the Code).
Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of Municipal Securities.
Certain limitations on the use and investment of the proceeds of state and
local governmental bonds and other funds must be satisfied in order to maintain
the exclusion from gross income for interest on such bonds. These limitations
generally apply to bonds issued after August 15, 1986. In light of these
requirements, bond counsel qualify their opinions as to the federal tax status
of bonds issued after August 15, 1986 by making them contingent on the issuer's
future compliance with these limitations. Any failure on the part of an issuer
to comply could cause the interest on its bonds to become taxable to investors
retroactive to the date the bonds were issued.
Except as provided below, exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax
49
<PAGE> 52
purposes. For each of the last three fiscal years of the Fund, over 99% of the
dividends paid by the Fund were exempt-interest dividends. The percentage of the
total dividends paid by the Fund during any taxable year that qualify as exempt-
interest dividends will be the same for all shareholders of the Fund receiving
dividends during such year.
Interest on certain "private-activity bonds" is an item of tax preference
subject to the alternative minimum tax on individuals and corporations. The Fund
invests a portion of its assets in Municipal Securities subject to this
provision so that a portion of its exempt-interest dividends is an item of tax
preference to the extent such dividends represent interest received from these
private-activity bonds. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax. Furthermore, per capita volume limitations on certain
private-activity bonds could limit the amount of such bonds available for
investment by the Fund.
The Fund is subject to the requirement that at least 80% of its assets be
invested in securities, the income from which is exempt from both regular
federal income tax and the federal alternative minimum tax. For the fiscal year
ended November 30, 1997, approximately 12.76% of the interest income earned by
the Fund consisted of interest on private-activity bonds, which is an item of
tax preference.
Exempt-interest dividends are included in determining what portion, if any, of
a person's social security and railroad retirement benefits will be includable
in gross income subject to federal income tax.
Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the purchaser would be
treated as a "substantial user" (or a "related person" of a substantial user) of
the facilities financed with respect to any of the tax-exempt obligations held
by the Fund, or by the Trust if it is required to qualify as a regulated
investment company as described below. "Substantial user" is defined under U.S.
Treasury regulations to include a non-exempt person who regularly uses in his
trade or business a part of any facilities financed with the exempt obligations
and whose gross revenues derived from such facilities exceed 5% of the total
revenues derived from the facilities by all users, or who occupies more than 5%
of the usable area of the facilities or for whom the facilities or a part
thereof were specifically constructed, reconstructed or acquired. Examples of
"related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
Gains on dispositions of tax-exempt securities purchased at a market discount
must be treated as ordinary income to the extent of the accrued market discount,
if the securities were acquired after April 30, 1993. Interest on indebtedness
incurred
50
<PAGE> 53
or continued by a shareholder to purchase or carry shares of the Fund is not
deductible for federal income tax purposes if the Fund distributes
exempt-interest dividends during the shareholder's taxable year. If a
shareholder receives an exempt-interest dividend with respect to any shares and
such shares are held for six months or less, any short-term capital loss on the
sale or exchange of the shares will be disallowed to the extent of the amount of
such exempt-interest dividend.
While the Fund expects that a major portion of its net investment income will
constitute tax-exempt interest, a significant portion may consist of investment
company taxable income. Distributions of the Fund's net investment company
taxable income are taxable to shareholders as ordinary income to the extent of
the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains ("capital gain
dividends"), if any, are taxable to shareholders as long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Interest on indebtedness which is incurred to purchase or carry
shares of a mutual fund which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). For a summary of the tax rates applicable to capital gains
(including capital gain dividends), see "Capital Gains Rates Under the 1997 Tax
Act" below. Tax-exempt shareholders not subject to federal income tax on their
income generally will not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The aggregate
amount of dividends so designated cannot exceed, however, the amount of interest
exempt from tax under Section 103 of the Code received by the Fund during the
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. Since the percentage of dividends which are "exempt-interest"
dividends is determined on an average annual method for the fiscal year, the
percentage of income designated as tax-exempt for any particular dividend may be
substantially different from the percentage of the Fund's income that was tax
exempt during the period covered by the dividend. Fund distributions will not
qualify for the dividends received deduction for corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on
51
<PAGE> 54
a specified date in such month and paid during January of the following year
will be treated as having been distributed by the Fund and received by the
shareholders on the December 31 prior to the date of payment. In addition,
certain other distributions made after the close of a taxable year of the Fund
may be "spilled back" and treated as paid by the Fund (except for purposes of
the 4% excise tax) during such taxable year. In such case, shareholders will be
treated as having received such dividends in the taxable year in which the
distribution was actually made.
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss. For a summary of the tax rates
applicable to capital gains, see "Capital Gains Rates Under the 1997 Tax Act"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains dividends received with respect to such shares. For purposes of
determining whether shares have been held for six months or less, the holding
period is suspended for any periods during which the shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less, (ii) 28% for capital assets held for more than one year but not more than
18 months and (iii) 20% for capital assets held for more than 18 months. The
1997 Tax Act did not affect the maximum net capital gains rate for corporations
which remains at 35%. The new tax rates for capital gains under the 1997 Tax Act
described above apply to distributions of capital dividends by regulated
investment companies such as the Fund as well as to sales and exchanges of
shares in regulated investment companies such as the Fund. With respect to
capital losses recognized on dispositions of shares held six months or less
where such losses are treated as long-term capital losses to the extent of prior
capital dividends received on such shares (see "Sale of Shares" above), it is
unclear how such capital losses offset the capital gains
52
<PAGE> 55
referred to above. Shareholders should consult their own tax advisors as to the
application of the new capital gains rates to their particular circumstances.
STATE AND LOCAL TAXES. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that investors consult their tax advisers for information in this
regard. The Fund will report annually to its shareholders the percentage and
source, on a state-by-state basis, of interest income earned on Municipal
Securities received by the Fund during the preceding calendar year. Dividends
and distributions paid by the Fund from sources other than tax-exempt interest
are generally subject to taxation at the state and local levels.
GENERAL. The federal, state and local income tax discussion set forth above
is for general information only. Prospective investors should consult their own
tax advisors regarding the specific federal tax consequences of purchasing,
holding and disposing of shares, as well as the effects of state, local and
foreign tax law and any proposed tax law changes.
- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------
From time to time the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one year, five year and ten year periods. Other total return
quotations, aggregate or average, over other time periods may also be included.
The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes a maximum sales charge of 4.75% for Class A shares); that all
income dividends or capital gains distributions during the period are reinvested
in Fund shares at net asset value; and that any applicable CDSC has been paid.
The Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund.
53
<PAGE> 56
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one month) period (which period
will be stated in the advertisement) and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding. The Fund's "tax-equivalent
yield" is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment to produce the after-tax equivalent of
the Fund's yield, assuming certain tax brackets for a Fund shareholder.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of a Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
To increase the Fund's yield, the Adviser may, from time to time, reimburse a
certain amount of the expenses of the Fund. The Adviser may stop reimbursing
these expenses at any time without prior notice. A yield quotation which
reflects an expense reimbursement or subsidization by the Adviser will be
accompanied by a hypothetical yield quotation excluding such reimbursement.
Yield and total return are calculated separately for Class A shares, Class B
shares and Class C shares. Total return figures for Class A shares include the
maximum sales charge of 4.75%; total return figures for Class B shares and Class
C shares include any applicable CDSC. Because of the differences in sales
charges and distribution fees, the total returns for each of the classes will
differ.
54
<PAGE> 57
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
In reports or other communications to shareholders or in advertising material,
the Trust may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds; or with municipal bond indices, such as Lehman
Brothers Municipal Bond Index or Bond Buyer's Index of 25 Revenue Bonds, or with
investment or savings vehicles. The performance information may also include
evaluations of the Fund published by nationally recognized ranking services and
by nationally recognized financial publications. Such comparative performance
information will be stated in the same terms in which the comparative data or
indices are stated. Such advertisements and sales material may also include a
yield quotation as of a current period. In each case, such total return and
yield information, if any, will be calculated pursuant to rules established by
the SEC and will be computed separately for each class of the Fund's shares. For
these purposes, the performance of the Fund, as well as the performance of other
mutual funds or indices, do not reflect sales charges, the inclusion of which
would reduce Fund's performance. The Fund will include performance data for each
class of shares of any Fund in any advertisement or information including
performance data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.
55
<PAGE> 58
The Fund's Annual Report and Semi-Annual Report contain additional performance
information. A copy of the Annual Report or Semi-Annual Report may be obtained
without charge by calling or writing the Fund at the telephone number and
address printed on the cover of this Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Trust was originally organized as the American Capital Tax-Exempt Trust on
December 5, 1984, under the laws of the Commonwealth of Massachusetts as a
business entity commonly known as a "Massachusetts business trust". The Trust
was reorganized as a Delaware business trust as of July 31, 1995 and adopted its
current name at that time. It is a diversified, open-end investment company. The
Fund is a diversified series of the Trust. The Fund, formerly known as American
Capital High Yield Municipal Fund, adopted its current name as of July 31, 1995.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
The Fund currently offers three classes of shares, designated Class A shares,
Class B shares and Class C shares. Other classes may be established from time to
time in accordance with provisions of the Trust's Declaration of Trust.
Each class of shares represents an interest in the same assets of the Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee. Except as described herein, there are no conversion,
preemptive or other subscription rights. In the event of liquidation, each of
the shares of the Fund is entitled to its portion of all of the Fund's net
assets after all debt and expenses of the Fund have been paid. Since Class B
shares and Class C shares pay higher distribution fees and transfer agency
costs, the liquidation proceeds to Class B shareholders and Class C shareholders
are likely to be lower than to other shareholders.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed information concerning the Fund is set forth in the
Statement of Additional Information.
The Trust's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
56
<PAGE> 59
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The fiscal year end of the Fund is November 30. The Fund sends to its
shareholders at least semi-annually reports showing the Fund's portfolio and
other information. An Annual Report, containing financial statements audited by
the Fund's independent accountants, is sent to shareholders each year. After the
end of each year, shareholders will receive federal income tax information
regarding dividends and capital gains distributions.
57
<PAGE> 60
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE TRUST'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
FOR AUTOMATED TELEPHONE
SERVICES DIAL (800) 847-2424
VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD MUNICIPAL FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Subadviser
VAN KAMPEN AMERICAN CAPITAL
ADVISORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
High Yield Municipal Fund
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
High Yield Municipal Fund
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (Illinois)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 61
- ------------------------------------------------------------------------------
HIGH YIELD
MUNICIPAL FUND
------------------------------------------------------------------------------
P R O S P E C T U S
MARCH 30, 1998
- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 62
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Municipal Securities........................................ B-2
Temporary Investments....................................... B-4
Repurchase Agreements....................................... B-4
Futures Contracts and Related Options....................... B-4
Investment Restrictions..................................... B-7
Trustees and Officers....................................... B-9
Legal Counsel............................................... B-19
Investment Advisory Agreement............................... B-19
Distributor................................................. B-21
Distribution and Service Plans.............................. B-21
Transfer Agent.............................................. B-22
Portfolio Transactions and Brokerage........................ B-22
Determination of Net Asset Value............................ B-23
Purchase and Redemption of Shares........................... B-24
Exchange Privilege.......................................... B-26
Check Writing Privilege..................................... B-26
Tax Status of the Fund...................................... B-27
Fund Performance............................................ B-27
Other Information........................................... B-28
Ratings of Investments...................................... B-29
Report of Independent Accountants........................... B-34
Financial Statements........................................ B-35
Notes to Financial Statements............................... B-62
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MARCH 30, 1998.
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GENERAL INFORMATION
Van Kampen American Capital Tax-Exempt Trust, formerly known as American
Capital Tax-Exempt Trust (the "Trust"), was originally organized as a business
trust under the laws of Massachusetts on December 5, 1984. The Trust was
reorganized under the laws of the State of Delaware as a Delaware business trust
and adopted its present name as of July 31, 1995. 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 an indirect wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and VKAC is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management, Inc., an
investment adviser, 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; credit 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.
As of March 6, 1998, 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:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER MARCH 6, 1998 SHARES OWNERSHIP
-------------------------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith, Inc. 3,697,928 shares Class A 5.23%
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484 Class B 11.59%
4,440,615 shares
1,231,106 shares Class C 14.53%
</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 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
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<PAGE> 64
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 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
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<PAGE> 65
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 Fund may invest as temporary
investments include United States Government securities, corporate bonds and
debentures, domestic bank certificates of deposit and bankers' acceptances of
domestic banks with assets of $500 million or more and having deposits insured
by the Federal Deposit Insurance Corporation, commercial paper and repurchase
agreements. The 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 banks or broker-dealers
deemed to be creditworthy by the Adviser under guidelines approved by the
Trustees. 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 fully
collateralized by the underlying debt securities and are considered to be loans
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
pays 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 (normally securities of the U.S. Government, or its
agencies and instrumentalities) may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. 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.
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<PAGE> 66
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.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or related options, the Fund could experience delays
and/or losses in liquidating open positions purchased 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
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<PAGE> 67
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.
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.
The Fund will not enter into futures or options (except for closing
transactions) for other than bona fide hedging purposes if immediately
thereafter, the sum of its initial margin and premiums on open futures contracts
and options exceed 5% of the current fair market value of the Fund's assets;
however, in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5% limitation. 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.
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<PAGE> 68
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 purposes as the sale of 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.
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;
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<PAGE> 69
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;
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
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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 Fund and other
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with VK/AC
Holding, Inc. ("VKAC Holding"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital" or "VKAC"), Van Kampen American Capital Investment Advisory
Corp. ("Advisory Corp."), Van Kampen American Capital Asset Management, Inc.
("Asset Management"), Van Kampen American Capital Distributors, Inc., the
distributor of the Fund's shares (the "Distributor"), Van Kampen American
Capital Advisors Corp., Van Kampen Merritt Equity Advisors Corp., Van Kampen
American Capital Insurance Agency of Illinois, Inc., VK/AC System, Inc., Van
Kampen American Capital Record Keeping Services, Inc., American Capital
Contractual Services, Inc., Van Kampen American Capital Trust Company, Van
Kampen American Capital Exchange Corporation, and ACCESS Investors Services
Inc., the Fund's transfer agent ("ACCESS"). Advisory Corp. and Asset Management
sometimes are referred to herein collectively as the "Advisers". For purposes
hereof, the term "Fund Complex" includes each of the open-end investment
companies advised by the Advisers (excluding the Van Kampen American Capital
Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>
B-9
<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley Dean
66th Floor Witter & Co. Mr. DeMartini is a Director of InterCapital
New York, NY 10048 Funds, Dean Witter Distributors, Inc. and Dean Witter
Date of Birth: 10/12/52 Trust Company. Trustee of the TCW/DW Funds. Director of
the National Healthcare Resources, Inc. Formerly Vice
Chairman of the Board of the National Association of
Securities Dealers, Inc. and Chairman of the Board of the
Nasdaq Stock Market, Inc. Trustee/Director of each of the
funds in the Fund Complex.
Linda Hutton Heagy........................ Co-Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
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/Director of each of the funds in the Fund
Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
</TABLE>
B-10
<PAGE> 72
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management
Inc. Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen American Capital
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex, and other open-end and closed-end funds
advised by the Advisers or Van Kampen American Capital
Management, Inc.
</TABLE>
- ---------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Mr. DeMartini is an
interested person of the Fund and the Advisers by reason of his position with
Morgan Stanley Dean Witter & Co. and its affiliates.
B-11
<PAGE> 73
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President Executive Vice President and a Director of
Date of Birth: 05/20/42 VKAC and VK/AC Holding, Inc. President,
Chief Operating Officer and a Director of
the Advisers, Van Kampen American Capital
Advisors, Inc., and Van Kampen American
Capital Management, Inc. President and a
Director of Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, he
was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer
and Director of MCM Group, Inc., McCarthy,
Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to
November 1996, Executive Vice President and
a Director of VKAC Holding. Prior to July
of 1996, Mr. McDonnell was President, Chief
Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds
in the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers,
Date of Birth: 06/25/56 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Prior to July of 1996, Mr.
Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of
McCarthy, Crisanti & Maffei, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
</TABLE>
B-12
<PAGE> 74
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel,
Date of Birth: 07/29/53 Secretary and Director of VKAC and VK/AC
Holding, Inc. Mr. Nyberg is also Executive
Vice President, General Counsel and a
Director of Van Kampen Merritt Equity
Holdings Corp. Executive Vice President,
General Counsel, Assistant Secretary and a
Director of the Advisers and the
Distributor, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Management, Inc., Van Kampen American
Capital Exchange Corporation, American
Capital Contractual Services, Inc. and Van
Kampen American Capital Trust Company.
Executive Vice President, General Counsel
and Assistant Secretary of ACCESS. Director
or officer of certain other subsidiaries of
VKAC. Prior to June of 1997, Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to April of 1997,
he was Executive Vice President, General
Counsel and Director of Van Kampen Merritt
Equity Advisors Corp. Prior to July of
1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc.
and Executive Vice President and General
Counsel of VCJ Inc. Prior to September of
1996, he was General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers,
Date of Birth: 04/20/42 Van Kampen American Capital Management,
Inc. and Van Kampen American Capital
Advisors, Inc. Vice President of each of
the funds in the Fund Complex and certain
other investment companies advised by the
Advisers or their affiliates.
Paul R. Wolkenberg.......... Vice President Executive Vice President and Director of
Date of Birth: 11/10/44 VKAC, and VK/AC Holding Inc. Executive Vice
President of the AC Adviser and the
Distributor. President and a Director of
ACCESS. President and Chief Operating
Officer of Van Kampen American Capital
Record Keeping Services, Inc. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>
B-13
<PAGE> 75
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers and
Date of Birth: 01/11/56 Financial Officer Van Kampen American Capital Management,
Inc. Vice President and Chief Financial
Officer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
Nicholas Dalmaso............ Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 03/01/65 and Assistant Secretary of VKAC. Vice
President, Associate General Counsel and
Assistant Secretary of the Advisers, the
Distributor, Van Kampen American Capital
Advisors, Inc. and Van Kampen American
Capital Management, Inc. Assistant
Secretary of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.
Huey P. Falgout, Jr......... Assistant Secretary Vice President and a Senior Attorney of
Date of Birth: 11/15/63 VKAC. Vice President and Assistant
Secretary of the Advisers, the Distributor,
ACCESS, Van Kampen American Capital
Management, Inc., American Capital
Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation and
Van Kampen American Capital Advisors, Inc.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>
B-14
<PAGE> 76
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC and
VKAC Holding, Inc. Senior Vice President,
Deputy General Counsel and Secretary of the
Advisers, the Distributor, ACCESS American
Capital Contractual Services, Inc., Van
Kampen American Capital Management, Inc.,
Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Advisors, Inc., Van Kampen American Capital
Insurance Agency of Illinois, Inc., VKAC
System, Inc., Van Kampen American Capital
Record Keeping Services, Inc. and Van
Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Senior Vice President,
Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and
Van Kampen Merritt Holdings Corp. Prior to
September of 1996, Mr. Martin was Deputy
General Counsel and Secretary of McCarthy,
Crisanti & Maffei, Inc., and prior to July
of 1996, he was Senior Vice President,
Deputy General Counsel and Secretary of VSM
Inc. and VCJ Inc. Assistant Secretary of
each of the funds in the Fund Complex and
other investment companies advised by the
Advisers or the affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers, the Distributor, Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy,
Crisanti & Maffei, Inc. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
Steven M. Hill.............. Assistant Treasurer Vice President of the Advisers. Assistant
Date of Birth: 10/16/64 Treasurer of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.
Michael Robert Sullivan..... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 64 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each
B-15
<PAGE> 77
trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley Dean Witter & Co. (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 (except the money
market series of the MS Funds) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows trustees/directors to defer receipt of their
compensation and earn a return on such deferred amounts. Deferring compensation
has the economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex (except the money
market series of the MS Funds) 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 trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the 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.
For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer 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 which is the subject of a 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.
For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 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. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund 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.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
B-16
<PAGE> 78
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
The trustees/directors were subject to a voluntary 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. For
the calendar year ended December 31, 1996, certain trustees/directors received
aggregate compensation from the funds in the Fund Complex over $84,000 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 1996. In addition, each of Advisory Corp. or Asset Management, as
the case may be, agreed to reimburse each fund in the Fund Complex through
December 31, 1996 for any increase in the aggregate 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.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
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 such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. 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.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) 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 retirement from such Fund. Non-Affiliated 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 such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year. Asset Management had reimbursed each AC Fund for the expenses related to
the retirement plan through December 31, 1996.
B-17
<PAGE> 79
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1991 $1,960 $30,328 $60,000 $111,197
Linda Hutton Heagy* 1995 1,960 3,141 60,000 111,197
Dr. Roger Hilsman 1984 0 52,273 49,250 0
R. Craig Kennedy* 1995 1,960 2,229 60,000 111,197
Donald C. Miller 1995 0 24,620 21,000 0
Jack E. Nelson* 1995 1,960 15,820 60,000 104,322
Jerome L. Robinson 1995 1,960 32,020 15,750 107,947
Phillip B. Rooney* 1997 1,470 0 60,000 74,697
Dr. Fernando Sisto* 1984 1,960 60,208 60,000 111,197
Wayne W. Whalen* 1995 1,960 10,788 60,000 111,197
William S. Woodside 1986 0 61,936 49,250 0
</TABLE>
- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.
(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Fund's
most recently completed fiscal year. Mr. Robinson retired from the Board of
Trustees on December 31, 1997. Messrs. Hilsman, Miller and Woodside retired
from the Board of Trustees on December 31, 1996. Messrs. DeMartini and
McDonnell, also trustees of the Fund during all or a portion of the Fund's
last fiscal year, are not included in the compensation table because they
are not eligible for compensation or retirement benefits from the Fund.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended November 30, 1997. The
following trustees deferred compensation from the Fund during the fiscal
year ended November 30, 1997: Mr. Branagan, $1,960; Ms. Heagy, $1,960; Mr.
Kennedy, $980; Mr. Nelson, $1,960; Mr. Robinson, $1,960; Mr. Rooney, $980;
Dr. Sisto, $980; and Mr. Whalen, $1,960. 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, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each Fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of November 30, 1997 is
as follows: Mr. Branagan, $2,825; Dr. Caruso, $6,437; Mr. Gaughan, $615; Ms.
Heagy, $4,663; Mr. Kennedy, $2,958; Mr. Lipshie, $508; Mr. Miller, $2,913;
Mr. Nelson, $5,438; Mr. Robinson, $5,376; Mr. Rooney, $975; Dr. Sisto,
$3,214; Mr. Vernon, $837; and Mr. Whalen, $5,461. The deferred compensation
plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for their respective fiscal years ended in 1997. The retirement
plan is described above the Compensation Table.
(4) For Messrs. Hilsman, Miller, Robinson and Woodside, this is the sum of the
actual annual benefits payable by the operating investment companies in the
Fund Complex as of the date of their retirement for each year of the 10-year
period since such trustee's retirement. For the remaining trustees, this is
the sum of the estimated maximum annual benefits payable by the operating
investment companies in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
Retirement Plan is described above the Compensation Table.
B-18
<PAGE> 80
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1997 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1997. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
trustees were not trustees of such investment companies. Combining the Fund
Complex with other investment companies advised by the Advisers and their
affiliates, Mr. Whalen received Total Compensation of $268,447 during the
calendar year ended December 31, 1997.
As of March 6, 1998, 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.
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 obtains and evaluates
economic, statistical and financial information to formulate and implement the
Fund's investment programs. 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 the
Fund's President, one or more Vice Presidents as needed, and a Secretary. Under
the Advisory Agreement, the Fund bears the cost of its accounting services,
which includes maintaining its financial books and records and calculating its
daily net asset value. The costs of such accounting services include the
salaries and overhead expenses of a Treasurer or other principal financial
officer and the personnel operating under his direction. Charges are allocated
among the investment companies advised or sub-advised by the Adviser. A portion
of these amounts will be paid to the Adviser or its parent in reimbursement of
personnel, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The services provided by the Adviser are at
cost. The Fund also pays service fees, distribution fees, custodian fees, legal
and auditing fees, the costs of reports to shareholders and all other ordinary
expenses not specifically assumed by the Adviser. The 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.
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.
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.
B-19
<PAGE> 81
The Fund's 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)
certain litigation and indemnification expenses as described in the Advisory
Agreement, (4) payments made by the Fund pursuant to the distribution plans, and
(5) insurance premiums paid by the Fund to insure the timely payment of
principal and interest on its portfolio obligations.
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.
The following table shows expenses payable under the Advisory Agreement
during the fiscal years ending November 30, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
11/30/95:
------------------
<S> <C>
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
FISCAL YEAR ENDING
11/30/97:
- ------------------------------------------------------------
Gross Advisory Fees $5,728,036
Accounting Services $ 240,529
Voluntary Expense Reimbursement $ 1,500
</TABLE>
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the 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 60 days' written notice.
B-20
<PAGE> 82
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
authorized 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 supplemental 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 90 days' written notice. Total underwriting
commissions on the sale of shares of the Fund for the last three fiscal periods
are shown in the chart below. Advantage Capital Corporation is a former
affiliated dealer of the Fund.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
AMOUNTS RECEIVED BY
TOTAL UNDERWRITING RETAINED ADVANTAGE CAPITAL
COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------ -------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended November 30, 1995.......... $3,369,458 $399,162 $173,684
Fiscal Year Ended November 30, 1996.......... $5,191,191 $ 87,095 $ N/A
Fiscal Year Ended November 30, 1997.......... $5,273,143 $659,053 N/A
</TABLE>
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 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
B-21
<PAGE> 83
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, 1997, the Fund's aggregate expenses
under the Class A Plan were $1,608,424, or 0.25% of the Class A shares' average
net assets. For the fiscal year ended November 30, 1997, the Fund's aggregate
expenses under the Class B Plan were $3,474,149, or 1.00%, of the Class B
shares' average net assets. Such expenses were paid to reimburse the Distributor
for the following payments: $2,605,812 for commissions and transaction fees paid
to financial intermediaries in respect of sales of Class B shares of the Fund
and $854,404 for fees paid to financial intermediaries for servicing Class B
shareholders and administering the Class B Plan. For the fiscal year ended
November 30, 1997, the Fund's aggregate expenses under the Class C Plan were
$591,365, or 1.00% of the Class C shares' average net assets. Such expenses were
paid to reimburse the Distributor for the following payments: $289,757 for the
commissions and transactions fees paid to financial intermediaries in respect of
sales of Class C shares of the Fund and $301,892 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Plan.
TRANSFER AGENT
During the fiscal years ended November 30, 1995, 1996 and 1997, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $648,335, $728,605 and $643,878, respectively, for these
services. The transfer agency prices are determined through negotiations with
the Fund's Board of Trustees and are based on competitive market benchmarks.
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 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.
B-22
<PAGE> 84
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 year ended November 30, 1997, the Fund did not pay brokerage
commissions on transactions to brokers selected primarily on the basis of
research services provided to the Adviser.
Prior to December 20, 1994, certain brokers were considered affiliated
persons of the Adviser's former parent, The Travelers Inc. Such affiliated
persons included Smith Barney Inc. ("Smith Barney") and Robinson Humphrey, Inc.
("Robinson Humphrey"). Effective December 20, 1994, Smith Barney and Robinson
Humphrey ceased to be affiliates of the Adviser. Effective October 31, 1996,
Morgan Stanley Group Inc. ("Morgan Stanley") became an affiliate of the Adviser.
Effective May 31, 1997, Dean Witter Discover & Co. ("Dean Witter") became an
affiliate of the Adviser. The negotiated commission paid to an affiliated broker
on any transaction would be comparable to that payable to a non-affiliated
broker in a similar transaction.
The Fund paid the following commissions to these brokers during the periods
shown:
<TABLE>
<CAPTION>
AFFILIATED BROKERS
---------------------------------------
MORGAN DEAN SMITH ROBINSON
BROKERS STANLEY WITTER BARNEY HUMPHREY
------- ---------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Fiscal year 1995................................. $38,053 N/A N/A $ 0 0
Fiscal year 1996................................. $ 0 N/A N/A N/A N/A
Fiscal year 1997................................. $ 6,200 0 0 N/A N/A
Fiscal year 1997 Percentages:
Commissions with affiliate to total
commissions................................. 0 N/A N/A N/A N/A
Value of brokerage transactions with affiliate
to total transactions....................... 0 N/A N/A N/A N/A
</TABLE>
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 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.
B-23
<PAGE> 85
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."
CLASS A SHARES -- REDUCED SALES CHARGE
THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE TIME AN ORDER IS PLACED FOR A
PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED CHARGE ON THE BASIS OF PREVIOUS
PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN WRITING WHEN SUCH AN ORDER IS
PLACED BY MAIL. The reduced sales charge will not be applied if such
notification is not furnished at the time of the order. The reduced sales charge
will also not be applied should a review of the records of the Distributor or
ACCESS fail to confirm the representations concerning the investor's holdings.
LETTER OF INTENT
The Fund will escrow shares totaling 5% of the dollar amount of the Letter
of Intent to be held by ACCESS in the name of the shareholder. 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 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.
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
B-24
<PAGE> 86
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 Participating Funds (as
defined in the Prospectus); 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 a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts That Do Not Have the
Required Minimum Balance
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC -- Class B and C
upon such involuntary redemption.
B-25
<PAGE> 87
(e) Reinvestment of Redemption Proceeds in Shares of the Same Trust Within
180 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 180 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.
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
B-26
<PAGE> 88
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 each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if, among other things, it fails to distribute net capital gains, or if
its annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.
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, 1997 was 4.38%, (ii) the five year period ended November 30, 1997
was 6.95%, and (iii) the ten year period ended November 30, 1997 was 7.81%.
Results from inception through April 1, 1990, reflect expense reimbursement
described under "Investment Advisory Agreement." The Fund's 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, 1997 was 4.82%, (ii)
the five year period ended November 30, 1997 was 6.95%, and (iii) the five year,
four month period since July 20, 1997, the commencement of distribution for
Class B shares of the Fund, through November 30, 1997 was 6.95%. The Fund's
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,
1997 was 7.82% and (ii) the three year, 11 1/2 month period since December 10,
1993, the commencement of distribution for Class C shares of the Fund, through
November 30, 1997 was 6.51%. 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, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SEC yield 5.31% 4.82% 4.83%
Tax-equivalent yield 8.30% 7.53% 7.55%
</TABLE>
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.
Yield and total return are calculated separately for Class A shares, Class
B shares and Class C shares.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return. Such illustrations may be in the
form of charts or graphs and will not be based on historical returns experienced
by the Fund.
B-27
<PAGE> 89
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 West 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, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Fund, performs an
annual audit of the Fund's financial statements.
B-28
<PAGE> 90
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 as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
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.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B. 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 the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
B-29
<PAGE> 91
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis: if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Short-term Notes: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality...but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection...and not
distinctly or predominantly speculative."
Beginning 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.
B-30
<PAGE> 92
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.
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.
Speculative Grade
BB, B,
CCC,
CC, C Debts rated "BB", "B", "CCC", "CC" or "C" are regarded as having
significant speculative characteristics with respect to capacity to
pay interest and repay principal. "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.
BB Debt rated "BB" is less vulnerable to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BBB-" rating.
B Debt rated "B" is more vulnerable to default than debts rated "BB"
but currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest
and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC Debt rated "CCC" is currently vulnerable to default, and is dependent
upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied "B" or "B-" rating.
B-31
<PAGE> 93
CC Debt rating "CC" is currently highly vulnerable to nonpayment. The
rating "CC" is also used for debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
C The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but debt
service payments are continued. The rating "C" typically is applied
to debt subordinated to senior debt which is assigned an actual or
implied "CCC-" debt rating.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if debt service payments
are jeopardized.
CI This rating is reserved for income bonds on which no interest is
being paid.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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 Not rated. (No ranking because of insufficient data or because the stock
is not amenable to the ranking process.)
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.
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.
B-32
<PAGE> 94
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-33
<PAGE> 95
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
material 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, 1997, 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
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 12, 1998
B-34
<PAGE> 96
Portfolio of Investments
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds 99.4%
Alabama 0.3%
$ 750 Vincent, AL Indl Dev Brd Shelby Motel Group Inc Proj.................... 10.500% 09/01/16 $ 764,812
2,500 West Jefferson Cnty, AL Amusement & Pub Pk Auth First Mtg
Visionland Proj. ....................................................... 8.000 12/01/26 2,594,425
------------
3,359,237
-----------
Alaska 0.8%
3,000 Alaska St Hsg Fin Corp Amt Hsg Dev Ser B................................ 5.800 12/01/29 3,029,460
2,250 Seward, AK Rev AK Sealife Cent Proj..................................... 7.650 10/01/16 2,389,388
5,000 Valdez, AK Marine Terminal Rev BP Pipelines Inc......................... 5.850 08/01/25 5,133,100
-----------
10,551,948
-----------
Arizona 1.8%
1,220 Casa Grande, AZ Indl Dev Auth Rfdg...................................... 8.250 12/01/15 1,315,392
2,880 Chandler, AZ Indl Dev Auth Rev Chandler Financial Cent
Proj Ser 1986 (c)....................................................... 9.875 12/01/16 2,448,291
3,000 Maricopa Cnty, AZ Indl Dev Auth Sr Living Fac Rev....................... 7.750 04/01/15 3,126,690
1,300 McDowell, AZ Mountain Ranch Cmnty Fac Dist.............................. 6.500 07/15/22 1,317,784
1,112 Peoria, AZ Indl Dev Auth Sierra Winds Life Care Cmnty Proj (Var
Rate Cpn)............................................................... 6.500 11/01/17 1,093,052
2,750 Pima Cnty, AZ Indl Dev Auth Indl Rev Amt Tucson Elec Pwr Co
Ser A................................................................... 6.100 09/01/25 2,788,390
4,500 Pima Cnty, AZ Indl Dev Auth Indl Rev Tucson Elec Pwr Co Proj
Ser B................................................................... 6.000 09/01/29 4,560,525
2,000 Pima Cnty, AZ Indl Dev Auth Rev La Posada at Park Cent Ser A............ 7.000 05/15/27 2,082,000
1,025 Pinal Cnty, AZ Indl Dev Auth Casa Grande Regl Med Cent Proj Ser A....... 8.125 12/01/22 1,097,549
475 Pinal Cnty, AZ Indl Dev Auth Casa Grande Regl Med Cent Proj Ser B....... 8.125 12/01/22 508,620
1,035 Scottsdale, AZ Indl Dev Auth Rev First Mtg Westminster Village
Rfdg Ser A.............................................................. 8.000 06/01/11 1,139,276
2,000 Scottsdale, AZ Indl Dev Auth Rev First Mtg Westminster Village
Rfdg Ser A.............................................................. 8.250 06/01/15 2,218,240
-----------
23,695,809
-----------
Arkansas 0.4%
500 Fayetteville, AR Pub Fac Brd Rev Butterfield Trail Village Proj B
(Prerefunded @ 09/01/99)................................................ 9.500 09/01/14 554,245
4,420 Jackson Cnty, AR Hlth Care Fac Brd First Mtg Hosp Rev Newport
Hosp & Clinic Inc....................................................... 7.375 11/01/11 4,455,139
-----------
5,009,384
-----------
California 7.7%
1,000 Brentwood, CA Impt Bond Act 1915 (a).................................... 6.000 09/02/27 991,660
1,210 California Edl Fac Auth Rev Pacific Graduate Sch of Psych............... 7.600 11/01/21 1,261,909
2,385 California Edl Fac Auth Rev Pacific Graduate Sch of Psych............... 8.000 11/01/21 2,572,485
5,205 California St Veterans Bonds Ser AY (b)................................. 7.375 04/01/19 5,217,856
15,500 California Statewide Cmntys Dev Auth Spl Fac United Airls............... 5.625 10/01/34 15,341,590
15,000 California Statewide Cmntys Dev Auth Spl Fac United Airls Ser A......... 5.700 10/01/33 15,062,850
1,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist Spl Tax...................... 7.100 09/01/21 1,089,070
</TABLE>
See Notes to Financial Statements
B-35
<PAGE> 97
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 2,000 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser B.......................... 9.500% 07/01/20 $ 2,367,540
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser C.......................... 8.375 07/01/11 2,759,050
1,500 Davis, CA Pub Fac Fin Auth Local Agy Rev................................ 6.600 09/01/25 1,561,215
1,300 Emeryville, CA Impt Bond Act 1915 Assmt Dist 93-1
East Baybridge.......................................................... 7.300 09/02/21 1,365,507
1,000 Folsom, CA Pub Fin Auth Ser A........................................... 6.875 09/02/19 1,030,600
1,500 Folsom, CA Spl Tax Cmnty Fac Dist No 7 Rfdg............................. 7.250 09/01/21 1,614,165
2,795 Fresno, CA Ctfs Partn................................................... 8.500 05/01/16 2,977,570
1,000 Indio, CA Pub Fin Auth Rev Tax Increment................................ 6.500 08/15/27 1,018,490
4,000 Lake Elsinore, CA Pub Fin Auth Local Agy Rev............................ 7.100 09/01/20 4,267,480
1,500 Los Angeles, CA Cmnty Fac Dist Spl Tax No. 3 Cascades
Business Park........................................................... 6.400 09/01/22 1,515,870
3,500 Millbrae, CA Residential Fac Rev Magnolia of Millbrae Proj Ser A........ 7.375 09/01/27 3,525,585
1,000 Moreno Vly, CA Spl Tax Towngate Cmnty Fac Dist 87-1..................... 7.125 10/01/23 1,058,840
1,530 Norco, CA Swr & Wtr Rev Rfdg............................................ 7.200 10/01/19 1,684,683
2,000 Perris, CA Pub Fin Auth Loc Agy Rev Ser D............................... 7.875 09/01/25 2,232,420
1,500 Rancho Cucamonga, CA Cmnty Fac Dist Spl Tax No 88-2..................... 8.250 09/01/19 1,681,860
100 Rancho Cucamonga, CA Cmnty Fac Dist Spl Tax No 88-2..................... 8.000 09/01/20 110,408
3,000 Reedley, CA Ctfs Partn.................................................. 7.500 10/01/26 3,199,170
3,105 Richmond, CA Redev Agy Multi-Family Rev Ser A........................... 7.500 09/01/23 3,124,220
7,500 Riverside Cnty, CA Air Force Village West Inc Ser A Rfdg................ 8.125 06/15/20 8,148,525
2,000 Sacramento, CA Spl Tax Cmnty Fac Dist No 97-1 Ser A..................... 6.700 09/01/17 2,012,520
2,000 Sacramento, CA Spl Tax Cmnty Fac Dist No 97-1 Ser A..................... 6.750 09/01/27 2,011,060
3,000 San Bernardino, CA Hosp Rev San Bernardino Cmnty Hosp Rfdg.............. 7.875 12/01/19 3,151,800
1,900 San Luis Obispo, CA Ctfs Partn Vista Hosp Sys Inc....................... 8.375 07/01/29 1,973,321
3,000 Santa Ana, CA Cmnty Redev Agy Tax Alloc Ser B Rfdg...................... 7.500 09/01/16 3,182,040
1,000 Santa Rosa, CA Impt Bond Act 1915 Fountaingrove Prkwy
Extension Assmt......................................................... 7.625 09/02/19 1,033,650
------------
100,145,009
------------
Colorado 4.3%
1,000 Arrowhead Metro Dist CO................................................. 8.125 12/01/11 1,078,900
1,060 Berry Creek Metro Dist CO Rfdg.......................................... 7.300 12/01/12 1,156,068
2,400 Bowles Metro Dist CO GO................................................. 7.750 12/01/15 2,534,496
2,250 Colorado Hlth Fac Auth Rev Baptist Home Assn Ser A...................... 6.375 08/15/24 2,261,700
1,300 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton Terrace A................ 6.800 07/01/09 1,313,910
3,250 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton Terrace A................ 7.250 07/01/22 3,323,840
1,500 Colorado Hlth Fac Auth Rev Christian Living Campus Proj................. 9.000 01/01/25 1,756,995
2,000 Colorado Hlth Fac Auth Rev Shalom Park Proj Rfdg & Impt................. 7.250 12/15/25 2,056,580
1,250 Cordillera Metro Dist CO Eagle Cnty..................................... 8.250 12/01/13 1,408,175
3,000 Cottonwood Wtr & Sanitation Dist CO Ser A Rfdg.......................... 7.750 12/01/20 3,184,200
1,055 Denver, CO City & Cnty Indl Dev Rev Jewish Cmnty Cent Proj.............. 7.375 03/01/09 1,185,999
1,130 Denver, CO City & Cnty Indl Dev Rev Jewish Cmnty Cent Proj.............. 7.500 03/01/14 1,256,628
815 Denver, CO City & Cnty Indl Dev Rev Jewish Cmnty Cent Proj.............. 7.875 03/01/19 913,077
</TABLE>
See Notes to Financial Statements
B-36
<PAGE> 98
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado (Continued)
$ 2,295 Denver, CO City & Cnty Single Family Mtg Rev Ser A
(GNMA Collateralized).................................................. 8.125% 12/01/20 $2,375,050
1,895 Denver, CO Urban Renewal Auth Tax Increment Rev
South Bdwy/Montgomery Ward............................................. 8.500 05/01/16 2,098,333
2,000 Eagle Cnty, CO Air Term Corp Rev Arpt Term Proj........................ 7.500 05/01/21 2,150,740
1,000 Eaglebend, CO Affordable Hsg Corp Multi-Family Rev Hsg Proj............ 6.200 07/01/12 1,009,810
1,735 Eaglebend, CO Affordable Hsg Corp Multi-Family Rev Hsg Proj............ 6.400 07/01/17 1,751,830
1,500 Eaglebend, CO Affordable Hsg Corp Multi-Family Rev Hsg Proj............ 6.450 07/01/21 1,514,520
4,000 Fairlake Metro Dist City & Cnty of Denver, CO.......................... 9.625 12/01/10 4,554,160
2,500 Hyland Hills, CO Metro Park & Recreation Dist Spl Rev Ser A
(Prerefunded @ 12/15/02)............................................... 8.625 12/15/12 3,019,300
1,000 Landmark Metro Dist CO (Prerefunded @ 06/01/00)........................ 8.750 12/01/05 1,051,640
3,000 Mountain Village Metro Dist CO San Miguel Cnty Rfdg
(Prerefunded @ 12/01/98)............................................... 11.000 12/01/07 3,266,700
4,300 Northern Metro Dist CO Adams Cnty Rfdg................................. 6.500 12/01/16 4,356,115
500 Panorama Metro Dist CO Ser B Rfdg (Prerefunded @ 12/01/99)............. 9.000 12/01/09 551,635
147 Skyland Metro Dist CO Gunnison Cnty Rfdg (Var Rate Cpn)................ 4.000 12/01/08 104,835
750 Snowmass Village, CO Multi-Family Hsg Rev Ser A Rfdg................... 8.000 09/01/14 786,120
660 Superior, CO Metro Dist No 2 Ser A Rfdg................................ 7.250 12/01/02 693,660
840 Superior, CO Metro Dist No 2 Ser A Rfdg................................ 7.750 12/01/13 913,794
650 Telluride, CO Hsg Auth Hsg Rev......................................... 9.100 06/01/01 673,452
2,000 Telluride, CO Hsg Auth Hsg Rev Shandoka Apartments Proj Rfdg........... 7.875 06/01/17 2,133,040
-----------
56,435,302
-----------
Connecticut 2.6%
1,000 Connecticut St Dev Auth Mystic Marinelife Aquar Proj A................. 7.000 12/01/27 1,059,380
2,275 Connecticut St Dev Auth First Mtg Gross Rev Hlthcare Proj
CT Baptist Homes Inc Proj.............................................. 8.750 09/01/12 2,556,895
1,500 Connecticut St Dev Auth First Mtg Gross Rev Hlthcare Proj
CT Baptist Homes Inc Proj.............................................. 9.000 09/01/22 1,701,150
1,225 Connecticut St Dev Auth Hlthcare Rev Independent Living Proj
Ser B.................................................................. 8.000 07/01/17 1,315,625
1,885 Connecticut St Dev Auth Hlthcare Rev Jerome Home Proj.................. 8.000 11/01/19 1,990,428
2,000 Connecticut St Hlth & Edl Fac Auth Rev................................. 6.875 07/01/27 2,102,340
2,500 Connecticut St Hlth & Edl Fac Auth Rev Tolland Cnty Hlthcare Inc
Ser A.................................................................. 9.200 07/01/21 2,826,175
2,760 Connecticut St Hsg Fin Auth............................................ 5.850 11/15/28 2,807,472
5,000 Greenwich, CT Hsg Auth Multi-Family Rev Hsg Greenwich Close
Ser A.................................................................. 6.350 09/01/27 5,044,050
1,500 Greenwich, CT Hsg Auth Multi-Family Rev Hsg Greenwich Close
Ser B.................................................................. 7.500 09/01/27 1,504,110
1,520 Manchester, CT Redev Agy Multi-Family Mtg Rev Bennet Hsg
Dev Rfdg............................................................... 7.200 12/01/18 1,624,090
5,000 Mashantucket Western Pequot Tribe CT Spl Rev Ser B, 144-A (e).......... 5.750 09/01/27 5,044,600
1,365 New Haven, CT Fac Rev Easter Seal Goodwill Rehab Proj.................. 8.875 04/01/16 1,282,964
2,335 New Haven, CT Indl Fac Rev Adj Govt Cent Thermal Energies.............. 7.250 07/01/09 2,339,600
-----------
33,198,879
-----------
</TABLE>
See Notes to Financial Statements
B-37
<PAGE> 99
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Delaware 0.6%
$ 2,530 Delaware St Econ Dev Auth Indl Dev Rev First Mtg Dover
Hlthcare Rfdg............................................................ 7.875% 04/01/08 $2,696,777
400 Delaware St Econ Dev Auth Rev First Mtg Gilpin Hall Proj................. 7.375 07/01/15 422,000
2,800 Delaware St Econ Dev Auth Rev First Mtg Gilpin Hall Proj................. 7.625 07/01/25 2,952,292
965 Delaware St Econ Dev Auth Rev Osteopathic Hosp Assn of DE Ser A
(Prerefunded @ 07/01/04)................................................. 9.500 01/01/22 1,185,881
300 Wilmington, DE Hosp Rev Osteopathic Hosp Assn of DE/Riverside
Hosp Ser A (Prerefunded @ 10/01/98)...................................... 10.000 10/01/03 320,610
500 Wilmington, DE Hosp Rev Osteopathic Hosp Assn of DE/Riverside
Hosp Ser A (Prerefunded @ 10/01/98)...................................... 10.200 10/01/18 535,025
---------
8,112,585
---------
District of Columbia 0.3%
3,500 District of Columbia Rev Natl Pub Radio Ser A............................ 7.700 01/01/23 3,785,705
---------
Florida 7.5%
1,000 Atlantic Beach, FL Rev Fleet Landing Proj Ser A Rfdg & Impt.............. 7.500 10/01/02 1,051,200
2,085 Atlantic Beach, FL Rev Fleet Landing Proj Ser A Rfdg & Impt.............. 7.875 10/01/08 2,358,489
1,500 Bay Cnty, FL Hosp Sys Rev Bay Med Cent Proj Rfdg
(Prerefunded @ 10/01/04)................................................. 8.000 10/01/12 1,792,530
500 Bay Cnty, FL Hosp Sys Rev Bay Med Cent Proj Rfdg
(Prerefunded @ 10/01/04)................................................. 8.000 10/01/19 611,895
1,500 Bobcat Trail Cmnty, FL Dev Dist Cap Impt Rev............................. 6.750 05/01/04 1,506,330
1,300 Bobcat Trail Cmnty, FL Dev Dist Cap Impt Rev............................. 7.500 05/01/19 1,320,956
3,335 Boca Raton, FL Hsg Auth Mtg Hsg Rev First Lien Banyan Place
Sr Living A.............................................................. 7.150 04/01/31 3,385,092
910 Boca Raton, FL Hsg Auth Mtg Hsg Rev Second Lien Banyan Place
Sr Living B.............................................................. 8.700 10/01/32 915,223
1,330 Brevard Cnty, FL Hlth Fac Auth Rev Courtenay Springs Village Rfdg........ 7.375 11/15/04 1,437,983
2,200 Brevard Cnty, FL Hlth Fac Auth Rev Courtenay Springs Village Rfdg........ 7.750 11/15/17 2,398,660
170 Charlotte Cnty, FL Indl Dev Auth Rev Beverly Enterprises Rfdg............ 10.000 06/01/11 193,933
1,545 Collier Cnty, FL Indl Dev Auth Retirement Rental Hsg Rev................. 10.750 03/01/03 1,774,324
1,000 Dade Cnty, FL Hsg Fin Auth Multi-Family Mtg Rev.......................... 6.000 11/01/32 1,012,690
3,000 Fishhawk Cmnty, FL Dev Dist Spl Assmt Rev................................ 7.625 05/01/18 3,184,860
835 Fort Walton Beach, FL Indl Dev Rev First Mtg Fort Walton Beach
Venture Proj............................................................. 10.500 12/01/16 879,956
1,070 Hernando Cnty, FL Indl Dev Rev Beverly Enterprises Rfdg.................. 10.000 09/01/11 1,229,901
3,000 Hialeah Gardens, FL Indl Dev Rev Waterford Convalescent
Ser A Rfdg............................................................... 8.250 12/01/14 3,249,000
1,500 Homestead, FL Indl Dev Rev Brookwood Gardens Cent Proj
Ser A Rfdg............................................................... 8.250 12/01/14 1,624,500
1,330 Lake Bernadette, FL Cmnty Dev Dist Spl Assmt Rev Ser A................... 8.000 05/01/17 1,410,478
2,500 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt Rev...................... 7.875 05/01/17 2,651,100
2,000 Lee Cnty, FL Indl Dev Auth Hlth Care Fac Rev............................. 6.250 10/01/17 2,034,960
1,500 Lee Cnty, FL Indl Dev Auth Hlth Care Fac Rev............................. 6.375 10/01/25 1,533,885
730 Lee Cnty, FL Indl Dev Auth Econ Rev Encore Nursing Cent Partner
Rfdg..................................................................... 8.125 12/01/07 810,285
1,300 Marion Cnty, FL Indl Dev Auth Rev Midland Ross Corp Proj................. 11.875 08/01/11 1,313,611
</TABLE>
See Notes to Financial Statements
B-38
<PAGE> 100
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida (Continued)
$ 4,055 Mount Dora, FL Hlth Fac Auth Hlth Rev................................. 7.125% 08/15/21 $ 4,120,934
2,545 North Miami, FL Hlthcare Fac Rev Imperial Club Proj Ser A............. 9.250 01/01/13 2,887,761
1,000 North Springs Impt Dist FL Spl Assessment Rev......................... 6.250 05/01/05 1,005,000
1,000 North Springs Impt Dist FL Spl Assessment Rev......................... 7.000 05/01/19 1,012,170
3,000 Northern Palm Beach Cnty, FL Impt Dist Wtr Ctl & Impt Unit Dev........ 7.200 08/01/16 3,246,060
2,500 Northern Palm Beach Cnty, FL Impt Dist Wtr Ctl & Impt Unit Dev........ 7.300 08/01/27 2,713,175
440 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr Rfdg.............................................................. 8.125 07/01/06 486,464
2,035 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr Rfdg.............................................................. 8.400 07/01/14 2,321,528
1,325 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr Rfdg.............................................................. 8.625 07/01/20 1,535,741
1,000 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr Rfdg.............................................................. 8.750 07/01/26 1,163,570
2,585 Orange Cnty, FL Hsg Fin Auth Multi-Family Rev Mtg Hands Inc
Proj Ser A............................................................ 7.875 10/01/15 2,760,625
2,035 Orange Cnty, FL Hsg Fin Auth Multi-Family Rev Mtg Hands Inc
Proj Ser A............................................................ 8.000 10/01/25 2,191,166
435 Orange Cnty, FL Indl Dev Auth Rev Beverly Enterprises Proj Rfdg....... 9.250 08/01/10 488,414
3,000 Overoaks, FL Cmnty Dev Dist Cap Impt Rev.............................. 8.250 05/01/17 3,094,830
3,400 Palm Beach Cnty, FL Hlth Fac Auth Rev Waterford Proj Rfdg............. 7.750 10/01/15 3,477,690
3,000 Pinellas Cnty, FL Edl Fac Auth Rev College Harbor Proj Ser A.......... 8.250 12/01/21 3,146,460
1,000 Piney Z Cmnty Dev Dist FL Cap Impt Rev Ser A.......................... 7.250 05/01/19 1,008,190
1,300 Piney Z Cmnty Dev Dist FL Cap Impt Rev Ser B.......................... 6.500 05/01/02 1,289,990
1,370 Plantation, FL Hlth Fac Auth Rev Covenant Retirement Cmnty Inc........ 7.625 12/01/12 1,536,674
750 Plantation, FL Hlth Fac Auth Rev Covenant Retirement Cmnty Inc
Rfdg.................................................................. 7.750 12/01/22 843,563
1,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare Rev Bayview Proj
Ser A................................................................. 7.100 10/01/16 1,066,910
2,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare Rev Bayview Proj Ser A... 7.100 10/01/26 2,133,820
250 Santa Rosa Cnty, FL Indl Dev Auth Rev First Mtg Sandy Ridge
Care Cent............................................................. 10.500 04/01/16 253,580
1,000 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare Manatee Jewish Rfdg...... 7.000 07/01/16 1,063,370
1,000 Tamarac, FL Indl Dev Rev Sun Belt Precision Prods Inc................. 6.500 08/01/17 1,015,000
1,780 Tampa Palms, FL Open Space & Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj...................................................... 8.500 05/01/17 1,956,487
1,000 Tampa Palms, FL Open Space & Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj...................................................... 7.500 05/01/18 1,048,150
710 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg................. 7.125 11/01/06 732,230
1,890 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg................. 7.500 11/01/16 1,979,114
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg................. 7.625 11/01/26 2,108,260
1,775 Westchase East Cmnty, FL Dev Dist Cap Impt Rev........................ 7.500 05/01/17 1,857,875
1,965 Westchase East Cmnty, FL Dev Dist Cap Impt Rev........................ 7.300 05/01/18 2,046,449
-----------
97,273,091
-----------
</TABLE>
See Notes to Financial Statements
B-39
<PAGE> 101
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia 1.0%
$ 1,640 Athens Clarke Cnty, GA Residential Care Fac For The Elderly Auth Rev...... 6.350% 10/01/17 $ 1,660,254
1,220 Athens Clarke Cnty, GA Residential Care Fac For The Elderly Auth Rev...... 6.375 10/01/27 1,231,578
3,000 Atlanta, GA Urban Residential Fin Auth Multi-Family Hsg Renaissance
on Peachtree Apts Proj Ser 85............................................. 8.500 04/01/26 3,159,420
375 Coweta Cnty, GA Residential Care Fac For The Elderly Auth Rev First
Lien Wesley Woods Ser A................................................... 7.625 10/01/06 419,850
1,500 Coweta Cnty, GA Residential Care Fac For The Elderly Auth Rev First
Lien Wesley Woods Ser A................................................... 8.200 10/01/16 1,733,070
1,500 Coweta Cnty, GA Residential Care Fac For The Elderly Auth Rev First
Lien Wesley Woods Ser A................................................... 8.250 10/01/26 1,738,140
300 Richmond Cnty, GA Dev Auth Nursing Home Rev Beverly
Enterprises GA Proj Rfdg.................................................. 8.750 06/01/11 338,208
3,000 Rockdale Cnty, GA Dev Auth Solid Waste Disp Visy Paper Inc Proj........... 7.500 01/01/26 3,243,150
-----------
13,523,670
Hawaii 0.2% -----------
870 Hawaii Cnty, HI Impt Dist No 17 Spl Assmt Kaloko Subdivision.............. 9.500 08/01/11 935,407
2,000 Hawaii St Dept Transport Spl Fac Continental Airls Inc (a)................ 5.625 11/15/27 1,975,680
-----------
2,911,087
-----------
Illinois 7.3%
1,475 Bedford Park, IL Tax Increment Rev 71st & Cicero Proj Rfdg................ 7.375 01/01/12 1,560,388
1,500 Bedford Park, IL Tax Increment Rev Mark IV Proj
(Prerefunded @ 03/01/02).................................................. 9.750 03/01/12 1,838,475
985 Bedford Park, IL Tax Increment Rev Sr Lien Bedford City Sq Proj........... 9.250 02/01/12 1,134,415
2,910 Broadview, IL Tax Increment Rev........................................... 8.250 07/01/13 3,291,501
250 Carol Stream, IL First Mtg Rev Windsor Park Manor Proj.................... 7.000 12/01/13 259,462
2,000 Carol Stream, IL First Mtg Rev Windsor Park Manor Proj.................... 7.200 12/01/14 2,108,620
1,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American Airls Inc
Proj Rfdg................................................................. 8.200 12/01/24 1,209,330
540 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American Airls Inc Proj
Ser A..................................................................... 7.875 11/01/25 592,942
3,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc (b)............. 8.500 05/01/18 3,848,530
1,500 Chicago, IL Tax Increment................................................. 7.250 01/01/14 1,583,820
3,000 Crestwood, IL Tax Increment Rev Rfdg...................................... 7.250 12/01/08 3,195,960
500 Hodgkins, IL Tax Increment................................................ 9.500 12/01/09 589,560
4,000 Hodgkins, IL Tax Increment Rfdg Ser A..................................... 7.625 12/01/13 4,384,760
3,500 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A.................. 8.500 12/01/15 3,861,795
2,470 Illinois Dev Fin Auth Hlth Fac Rev Cmnty Living Options................... 7.125 03/01/10 2,703,761
1,500 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser A Rfdg........... 8.300 04/01/17 1,546,470
605 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj................... 8.000 11/15/06 643,514
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj................... 8.000 11/15/16 1,494,007
2,000 Illinois Dev Fin Auth Rev Debt Restructure-East Saint Louis............... 7.375 11/15/11 2,251,800
4,000 Illinois Edl Fac Auth Rev Peace Mem Ministries Proj....................... 7.500 08/15/26 4,190,160
240 Illinois Hlth Fac Auth Rev Fairview Oblig Group Ser A..................... 7.125 08/15/17 254,650
4,000 Illinois Hlth Fac Auth Rev Victory Hlth Services Ser A.................... 5.750 08/15/27 4,034,640
1,475 Illinois Hlth Fac Auth Rev Covenant Retirement Cmntys Ser A............... 7.600 12/01/12 1,659,803
</TABLE>
See Notes to Financial Statements
B-40
<PAGE> 102
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (Continued)
$ 3,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group Ser A Rfdg............... 7.400% 08/15/23 $ 3,234,480
490 Illinois Hlth Fac Auth Rev Hinsdale Ser C................................ 9.500 11/15/19 573,810
1,700 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig Group Ser B............... 8.000 02/15/25 1,825,936
4,000 Illinois Hlth Fac Auth Rev Lutheran Home & Svcs Proj Ser A............... 7.500 02/15/26 4,195,160
1,250 Illinois Hlth Fac Auth Rev Saint Elizabeth's Hosp Rfdg
(Prerefunded @ 07/01/04)................................................. 7.625 07/01/10 1,487,275
1,500 Illinois Hlth Fac Auth Rev Saint Elizabeth's Hosp Rfdg
(Prerefunded @ 07/01/04)................................................. 7.750 07/01/16 1,795,305
1,380 Jackson Park Hosp Fndtn Chicago, IL Jackson Park Hosp.................... 9.000 03/01/05 1,352,400
3,215 Loves Park, IL First Mtg Rev Hoosier Care Proj Ser A..................... 9.750 08/01/19 3,431,466
2,500 Mill Creek Wtr Reclamation Dist IL Swr Rev............................... 8.000 03/01/10 2,751,075
1,500 Mill Creek Wtr Reclamation Dist IL Wtrwks Rev............................ 8.000 03/01/10 1,650,645
2,480 Palatine, IL Tax Increment Rev Rand/Dundee Cent Proj..................... 7.750 01/01/17 2,584,507
765 Peoria, IL Spl Tax Weaverridge Spl Svc Area.............................. 7.625 02/01/08 810,892
2,050 Peoria, IL Spl Tax Weaverridge Spl Svc Area.............................. 8.050 02/01/17 2,216,665
5,100 Robbins, IL Res Recov Rev................................................ 8.375 10/15/16 5,268,198
1,610 Round Lake Beach, IL Tax Increment Rev Rfdg.............................. 7.200 12/01/04 1,740,474
2,500 Round Lake Beach, IL Tax Increment Rev Rfdg.............................. 7.500 12/01/13 2,719,100
2,950 Saint Charles, IL Indl Dev Rev Tri-City Cent Proj........................ 7.500 11/01/13 3,103,783
3,965 Saint Charles, IL Multi-Family Hsg Rev Bonds Wessel Court Proj........... 7.600 04/01/24 4,111,229
500 Sherman, IL Rev First Mtg Villa Hlthcare Ser A........................... 8.250 10/01/14 525,005
500 Sherman, IL Rev First Mtg Villa Hlthcare Ser A........................... 8.500 10/01/24 526,855
----------
94,142,623
----------
Indiana 2.5%
485 Carmel, IN Retirement Rental Hsg Rev Beverly Enterprises Inc
Proj Rfdg................................................................ 8.750 12/01/08 551,266
1,100 Crawfordsville, IN Redev Comm Dist Tax Increment Rev..................... 7.350 02/01/17 1,113,112
1,500 Delaware Cnty, IN Redev Dist Tax Increment Rev........................... 6.875 02/01/18 1,514,595
3,000 Indiana Dev Fin Auth Indl Dev Rev Unr Rohn Inc Proj...................... 7.500 03/01/11 3,165,120
1,000 Indiana Hlth Fac Auth Cmnty Hartsfield Village Proj Ser A................ 6.250 08/15/14 1,006,680
2,000 Indiana Hlth Fac Auth Cmnty Hartsfield Village Proj Ser A................ 6.375 08/15/27 2,016,560
1,500 Indiana Hlth Fac Auth Saint Anthony Home................................. 7.000 05/15/17 1,529,430
1,000 Indiana Hlth Fac Auth Saint Anthony Home................................. 7.250 05/15/24 1,024,190
3,750 Indianapolis, IN Arpt Auth Rev Spl Fac United Air Lines Proj Ser A....... 6.500 11/15/31 4,010,587
2,500 Jasper Cnty, IN Econ Dev Georgia Pacific Corp Proj (a)................... 5.625 12/01/27 2,466,100
175 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/10 65,097
135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/11 46,518
130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/12 41,496
130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/13 38,438
125 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/14 34,238
125 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/15 31,746
125 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev....................... * 12/30/16 29,409
560 Valparaiso, IN Econ Dev Rev First Mtg Whispering Pines Cent.............. 7.300 01/01/02 544,975
980 Valparaiso, IN Econ Dev Rev First Mtg Whispering Pines Cent.............. 7.500 01/01/07 956,598
</TABLE>
See Notes to Financial Statements
B-41
<PAGE> 103
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indiana (Continued)
$ 1,405 Valparaiso, IN Econ Dev Rev First Mtg Whispering Pines Cent............ 7.750% 01/01/12 $ 1,374,778
2,045 Valparaiso, IN Econ Dev Rev First Mtg Whispering Pines Cent............ 8.000 01/01/17 2,014,734
3,475 Valparaiso, IN Econ Dev Rev First Mtg Whispering Pines Cent Rfdg
(Prerefunded @ 01/01/00)............................................... 9.500 01/01/07 3,899,853
400 Wells Cnty, IN Hosp Auth Rev Caylor Nickel Med Cent Inc Rfdg........... 8.500 04/15/03 452,200
3,600 Wells Cnty, IN Hosp Auth Rev Caylor Nickel Med Cent Inc Rfdg........... 8.750 04/15/12 4,191,264
-----------
32,118,984
-----------
Iowa 0.2%
2,770 Iowa Fin Auth Multi-Family Rev Hsg Park West Proj Rfdg................. 8.000 10/01/23 2,860,468
-----------
Kansas 0.8%
1,000 Lawrence, KS Commercial Dev Rev Holiday Inn Sr Ser A................... 8.000 07/01/16 1,064,470
2,000 Lenexa, KS Hlth Care Fac Rev Lakeview Village Ser B.................... 6.250 05/15/26 2,100,200
3,000 Manhattan, KS Commercial Dev Rev Holiday Inn Sr Ser A Rfdg............. 8.000 07/01/16 3,193,410
1,500 Newton, KS Hosp Rev Newton Hlthcare Corp Ser A......................... 7.375 11/15/14 1,654,785
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser A......................... 7.750 11/15/24 1,116,490
1,125 Shawnee Cnty, KS Rev Rfdg United Methodist Homes Inc A................. 6.125 11/15/19 1,131,120
-----------
10,260,475
-----------
Kentucky 0.3%
1,195 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta Airls Proj Ser A....... 8.100 12/01/15 1,285,163
1,000 Kentucky Econ Dev Fin Auth Hosp Sys Rev................................ 5.800 10/01/12 1,005,170
1,500 Kentucky Econ Dev Fin Auth Hosp Sys Rev................................ 5.850 10/01/17 1,516,965
-----------
3,807,298
-----------
Louisiana 1.9%
980 East Baton Rouge, LA Mtg Fin Auth Single Family Mtg Ser A
(GNMA Collateralized).................................................. 7.600 02/01/20 1,019,141
4,700 Hodge, LA Util Rev..................................................... 9.000 03/01/10 5,122,342
1,400 Iberia Parish, LA Hosp Svc Dist No 1 Hosp Rev.......................... 7.500 05/26/06 1,454,306
2,000 Iberia Parish, LA Hosp Svc Dist No 1 Hosp Rev.......................... 8.000 05/26/16 2,106,940
4,000 Lake Charles, LA Harbor & Terminal Dist Port Fac Rev Trunkline
Lng Co Rfdg............................................................ 7.750 08/15/22 4,610,160
635 Louisiana Pub Fac Auth Rev Indl Dev Beverly Enterprises Inc Rfdg....... 8.250 09/01/08 705,796
1,850 Port New Orleans, LA Indl Dev Rev Avondale Industries Inc Proj Rfdg.... 8.250 06/01/04 2,038,423
3,000 Port New Orleans, LA Indl Dev Rev Continental Grain Co Proj Rfdg....... 7.500 07/01/13 3,309,690
2,500 Saint James Parish, LA Solid Waste Disp Rev Kaiser Aluminum Proj....... 7.750 08/01/22 2,773,850
500 West Feliciana Parish, LA Pollutn Ctl Rev Gulf States Util Co Proj
Ser A.................................................................. 7.500 05/01/15 559,720
1,000 West Feliciana Parish, LA Pollutn Ctl Rev Gulf States Util Co Proj
Ser B.................................................................. 9.000 05/01/15 1,120,320
-----------
24,820,688
-----------
Maine 0.4%
3,200 Maine Fin Auth Solid Waste Disposal Rev Boise Cascade Corp Proj........ 7.900 06/01/15 3,461,952
1,500 Maine Vets Homes Rev................................................... 7.750 10/01/20 1,650,240
-----------
5,112,192
-----------
</TABLE>
See Notes to Financial Statements
B-42
<PAGE> 104
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland 1.2%
$ 2,000 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem Steel Corp Proj
Ser A Rfdg (b) 7.550% 06/01/17 $ 2,214,140
2,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem Steel Corp Proj
Ser B Rfdg 7.500 06/01/15 2,760,975
2,000 Calvert Cnty, MD Econ Dev Rev Asbury-Solomons Island Fac Proj 8.375 01/01/15 2,226,060
2,000 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev 5.875 09/01/25 2,043,600
755 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev 5.750 07/01/39 757,491
2,000 Maryland St Energy Fin Admin Ltd Oblig Rev Cogeneration AES
Warrior Run 7.400 09/01/19 2,198,920
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt Woodview Ser A 8.000 07/01/26 3,163,770
------------
15,364,956
------------
Massachusetts 8.4%
1,480 Massachusetts St Hlth & Edl Fac Auth Rev Indpt Living Ser A 8.100 07/01/18 1,595,573
3,000 Massachusetts St Hlth & Edl Fac Auth Rev Milford-Whitinsville Regl
Hosp Ser B 7.750 07/15/17 3,280,710
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Norwood Hosp Ser E 8.000 07/01/12 1,028,670
745 Massachusetts St Hlth & Edl Fac Auth Rev Saint Anne's Hosp Ser A 9.250 07/01/05 747,444
2,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint Anne's Hosp Ser A 9.375 07/01/14 2,006,760
2,000 Massachusetts St Indl Fin Agy Assisted Living Fac Rev 8.000 09/01/27 2,022,720
2,750 Massachusetts St Indl Fin Agy Hillcrest Edl Cent Inc Proj 8.450 07/01/18 3,034,652
4,000 Massachusetts St Indl Fin Agy Hlthcare Fac Rev Metro Hlth Fndtn Inc
Proj A 6.750 12/01/27 3,994,840
1,075 Massachusetts St Indl Fin Agy Indl Rev Beverly Enterprises Inc/
Gloucester & Lexington Proj Rfdg 8.000 05/01/02 1,146,799
800 Massachusetts St Indl Fin Agy Indl Rev Beverly Enterprises Rfdg 8.375 05/01/09 889,080
1,000 Massachusetts St Indl Fin Agy Indl Rev First Hlthcare Corp Proj
Ser A Rfdg 7.625 04/01/13 1,044,800
1,175 Massachusetts St Indl Fin Agy Rev HMEA Issue 7.000 09/01/12 1,191,744
920 Massachusetts St Indl Fin Agy Rev Seven Hills Fndtn Issue 7.000 09/01/12 934,150
595 Massachusetts St Indl Fin Agy Rev Seven Hills Fndtn Issue 7.150 09/01/17 603,264
2,020 Massachusetts St Indl Fin Agy Rev Seven Hills Fndtn Issue 7.250 09/01/27 2,049,512
500 Massachusetts St Indl Fin Agy Rev Atlantic Med Cent Ser B 10.125 11/01/14 541,530
3,490 Massachusetts St Indl Fin Agy Rev Boston Architectural Cent Proj 8.500 08/01/19 3,729,205
500 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent 8.000 12/01/06 549,460
1,000 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent 8.375 12/01/13 1,140,720
3,000 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent 8.500 12/01/20 3,420,420
2,555 Massachusetts St Indl Fin Agy Rev East Boston Neighborhood Proj 7.500 07/01/16 2,658,299
2,560 Massachusetts St Indl Fin Agy Rev East Boston Neighborhood Proj 7.625 07/01/26 2,646,707
7,000 Massachusetts St Indl Fin Agy Rev Emerson College Issue Ser A (b) 8.900 01/01/18 7,744,450
785 Massachusetts St Indl Fin Agy Rev Evergreen Cent Inc 8.000 11/01/06 856,513
4,300 Massachusetts St Indl Fin Agy Rev Evergreen Cent Inc 9.250 11/01/11 4,725,399
1,230 Massachusetts St Indl Fin Agy Rev Evergreen Cent Inc 8.375 11/01/13 1,415,878
2,165 Massachusetts St Indl Fin Agy Rev Evergreen Cent Inc 8.500 11/01/20 2,515,189
500 Massachusetts St Indl Fin Agy Rev First Mtg Brookhaven Cmnty
(Prerefunded @ 01/01/98) 10.250 01/01/18 517,770
</TABLE>
See Notes to Financial Statements
B-43
<PAGE> 105
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts (Continued)
$ 1,005 Massachusetts St Indl Fin Agy Rev First Mtg Evanswood Bethzatha
Ser A Rfdg 7.400% 01/15/09 $ 1,058,597
2,000 Massachusetts St Indl Fin Agy Rev First Mtg Evanswood Bethzatha
Ser A Rfdg 7.625 01/15/14 2,105,640
2,000 Massachusetts St Indl Fin Agy Rev First Mtg Evanswood Bethzatha
Ser A Rfdg 7.875 01/15/20 2,138,340
690 Massachusetts St Indl Fin Agy Rev First Mtg Loomis House &
Village Proj 7.250 07/01/07 761,422
1,410 Massachusetts St Indl Fin Agy Rev First Mtg Loomis House &
Village Proj 7.400 07/01/12 1,568,808
1,530 Massachusetts St Indl Fin Agy Rev First Mtg Loomis House &
Village Proj 7.500 07/01/17 1,711,626
30 Massachusetts St Indl Fin Agy Rev First Mtg Pioneer Vly 7.000 10/01/01 28,823
500 Massachusetts St Indl Fin Agy Rev First Mtg Pioneer Vly Amended 7.000 10/01/20 469,640
1,000 Massachusetts St Indl Fin Agy Rev First Mtg Reeds Landing Proj 7.750 10/01/00 1,020,890
8,300 Massachusetts St Indl Fin Agy Rev First Mtg Reeds Landing Proj (b) 8.625 10/01/23 9,257,156
1,700 Massachusetts St Indl Fin Agy Rev First Mtg Stone Institute &
Newton 7.700 01/01/14 1,822,332
1,760 Massachusetts St Indl Fin Agy Rev Glenmeadow Retirement Cmnty
Ser C 8.250 02/15/08 1,918,840
1,000 Massachusetts St Indl Fin Agy Rev Glenmeadow Retirement Cmnty
Ser C 8.625 02/15/26 1,096,910
3,715 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth Assn Proj 8.800 06/01/14 4,329,944
325 Massachusetts St Indl Fin Agy Rev Hillcrest Edl Cent Inc Proj 7.500 07/01/00 332,910
740 Massachusetts St Indl Fin Agy Rev Hillcrest Edl Cent Inc Proj 8.000 07/01/05 797,816
3,380 Massachusetts St Indl Fin Agy Rev JRC Assisted Living 7.500 07/01/26 3,570,632
2,360 Massachusetts St Indl Fin Agy Rev NE Cent For Autism 9.000 11/01/05 2,548,635
4,910 Massachusetts St Indl Fin Agy Rev NE Cent For Autism 9.500 11/01/17 5,364,077
1,100 Massachusetts St Indl Fin Agy Rev NE Cent For Autism 7.000 11/01/19 1,108,536
2,000 Massachusetts St Indl Fin Agy Rev Orchard Cove Issue
(Prerefunded @ 05/01/02) 9.000 05/01/22 2,410,680
1,135 Massachusetts St Indl Fin Agy Rev Vinten Corp Issue 7.100 11/15/18 1,249,374
980 Massachusetts St Indl Fin Agy Rev Waarc Inc Proj 7.300 09/01/10 1,038,908
915 Massachusetts St Indl Fin Agy Rev Waarc Inc Proj 7.600 09/01/17 969,259
1,820 Massachusetts St Indl Fin Agy Rev Waarc Inc Proj 7.750 09/01/25 1,933,823
------------
108,645,876
------------
Michigan 2.9%
1,000 Detroit, MI Local Dev Fin Auth Tax Increment Sr Ser B 6.700 05/01/21 1,018,960
3,500 Detroit, MI Local Dev Fin Auth Ser C 6.850 05/01/21 3,576,825
435 Detroit, MI Local Dev Fin Auth Tax Increment Ser A
(Prerefunded @ 05/01/03) 9.500 05/01/21 533,684
1,315 Dickinson Cnty, MI Mem Hosp Sys Hosp Rev 7.625 11/01/05 1,446,382
1,000 Dickinson Cnty, MI Mem Hosp Sys Hosp Rev 8.000 11/01/14 1,123,970
2,390 Meridian, MI Econ Dev Corp First Mtg Burcham Hills Ser A Rfdg 7.500 07/01/13 2,536,889
3,430 Meridian, MI Econ Dev Corp First Mtg Burcham Hills Ser A Rfdg 7.750 07/01/19 3,691,640
</TABLE>
See Notes to Financial Statements
B-44
<PAGE> 106
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
November 30, 1997
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan (Continued)
$ 4,020 Michigan St Hosp Fin Auth Rev Detroit-Macomb Hosp Corp
Ser A Rfdg............................................................... 7.300% 06/01/01 $ 4,049,467
2,400 Michigan St Hosp Fin Auth Rev Gratiot Cmnty Hosp Ser A Rfdg
(Prerefunded @ 10/01/98)................................................. 8.750 10/01/07 2,495,256
500 Michigan St Hosp Fin Auth Rev Hosp Genesys Hlth Sys Ser A Rfdg........... 7.500 10/01/07 572,075
1,500 Michigan St Hosp Fin Auth Rev Hosp Genesys Hlth Sys
Ser A Rfdg (b)........................................................... 8.100 10/01/13 1,777,320
5,590 Michigan St Hosp Fin Auth Rev Saratoga Cmnty Hosp Rfdg................... 8.750 06/01/10 6,317,874
1,500 Michigan St Strategic Fd Ltd Oblig Rev Great Lakes Pulp &
Fibre Proj (d)........................................................... 10.250 12/01/16 832,500
4,000 Michigan St Strategic Fd Solid Waste Disp Rev Genesee Pwr
Station Proj............................................................. 7.500 01/01/21 4,323,160
2,200 Michigan St Strategic Fd Ltd Oblig Rev Environmental
Impt Ser A............................................................... 6.500 08/01/21 2,238,830
500 Oakland Cnty, MI Econ Dev Corp Ltd Oblig Rev Pontiac Osteopathic
Hosp Proj (Prerefunded @01/01/00)........................................ 9.625 01/01/20 562,325
-----------
37,097,157
-----------
Minnesota 2.1%
1,020 Austin, MN Multi-Family Rev Hsg Cedars of Austin Proj Rfdg............... 7.500 04/01/17 1,062,126
2,000 Austin, MN Multi-Family Rev Hsg Cedars of Austin Proj Rfdg............... 7.500 04/01/18 2,082,600
1,955 Brooklyn Cent MN Multi-Family Hsg Rev Four Courts Apts Proj
Ser A Rfdg............................................................... 7.400 12/01/15 2,004,931
1,220 Brooklyn Cent MN Multi-Family Hsg Rev Four Courts Apts Proj
Ser A Rfdg............................................................... 7.500 06/01/25 1,250,146
750 Chisago City, MN Hlth Fac Rev Part Pleasant Heights Proj
Ser A Rfdg............................................................... 7.300 07/01/25 782,422
1,200 Maplewood, MN Hlthcare Fac Rev VOA Care Cent Proj........................ 7.450 10/01/16 1,298,904
682 Minneapolis, MN Cmnty Dev Agy Commercial Dev Rev Std Mill
Hotel Proj (d)........................................................... 12.000 04/01/10 341,010
1,950 Minneapolis, MN Hlthcare Fac Rev Ebenezer Society Proj Ser A............. 7.200 07/01/23 2,020,239
1,000 Minneapolis, MN Hlthcare Fac Rev Saint Olaf Residence Inc Proj........... 7.100 10/01/23 1,039,330
350 Minneapolis, MN Multi-Family Rev Hsg Belmont Apts Proj................... 7.250 11/01/16 356,577
1,320 Minneapolis, MN Multi-Family Rev Hsg Belmont Apts Proj................... 7.625 11/01/27 1,339,404
3,040 New Brighton, MN Rental Hsg Rev Polynesian Village Apts Proj
Ser A Rfdg............................................................... 7.500 10/01/17 3,111,166
815 New Hope, MN Multi-Family Rev Hsg Broadway Lanel Proj.................... 7.750 09/01/07 848,016
2,320 New Hope, MN Multi-Family Rev Hsg Broadway Lanel Proj Rfdg............... 8.000 09/01/18 2,403,404
880 North Saint Paul, MN Multi-Family Rev Hsg Cottages North Saint
Paul Rfdg................................................................ 9.000 02/01/09 945,762
2,220 North Saint Paul, MN Multi-Family Rev Hsg Cottages North Saint
Paul Rfdg................................................................ 9.250 02/01/22 2,383,570
500 Shoreview, MN Sr Hsg Rev Shoreview Sr Residence Proj..................... 7.250 02/01/26 506,020
2,000 Spring Lake Park, MN Multi-Family Hsg Cottages Spring Lake Rfdg.......... 8.375 01/01/22 2,048,420
1,500 Winona, MN Hsg Rev Saint Anne Hospice Inc................................ 6.750 07/01/27 1,511,670
-----------
27,335,717
-----------
</TABLE>
See Notes to Financial Statements
B-45
<PAGE> 107
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mississippi 1.8%
$ 5,500 Claiborne Cnty, MS Pollutn Ctl Rev Middle South Energy Inc
Ser B (b)...................................................................... 8.250% 06/01/14 $ 5,905,295
7,575 Claiborne Cnty, MS Pollutn Ctl Rev Middle South Energy Inc
Ser C (b)...................................................................... 9.875 12/01/14 8,193,196
2,500 Jones Cnty, MS Solid Waste Disp Rev Intl Paper Co Proj Ser A................... 5.800 10/01/21 2,531,850
1,000 Lowndes Cnty, MS Hosp Rev Golden Triangle Med Cent Rfdg........................ 8.500 02/01/10 1,096,020
2,300 Mississippi Dev Bank Spl Oblig Diamond Lakes Utilities
Ser A Rfdg (a)................................................................. 6.250 12/01/17 2,300,000
3,000 Ridgeland, MS Urban Renewal Rev the Orchard Ltd Proj Ser A Rfdg................ 7.750 12/01/15 3,232,860
-----------
23,259,221
-----------
Missouri 1.9%
1,500 Chesterfield, MO Indl Dev Auth Rev Saint Andrews Episcopal-
Presbyterian Ser A (Prerefunded @ 12/01/00).................................... 8.500 12/01/19 1,732,050
1,000 Ferguson, MO Tax Increment Rev Crossings At Halls Ferry Proj................... 7.250 04/01/07 1,002,420
2,000 Ferguson, MO Tax Increment Rev Crossings At Halls Ferry Proj................... 7.625 04/01/17 2,013,580
1,000 Ferguson, MO Tax Increment Rev Crossings At Halls Ferry Proj................... 7.625 04/01/18 1,006,790
1,000 Good Shepherd Nursing Home Dist MO Nursing Home Fac Rev........................ 7.625 08/15/15 1,055,910
3,000 Good Shepherd Nursing Home Dist MO Nursing Home Fac Rev........................ 7.750 08/15/25 3,208,320
2,775 Jefferson Cnty, MO Indl Dev Auth Indl Rev Cedars Hlthcare Cent Proj
Ser A Rfdg..................................................................... 8.250 12/01/15 2,937,670
1,115 Madison Cnty, MO Hosp Rev Ser A................................................ 7.700 10/01/18 1,171,809
1,490 Madison Cnty, MO Hosp Rev Ser A................................................ 7.900 10/01/26 1,577,716
1,075 Missouri St Hlth & Edl Fac Bethesda Hlth Group Inc Proj A Rfdg................. 7.500 08/15/12 1,204,312
1,240 Perry Cnty, MO Nursing Home Rev Ser A.......................................... 7.450 03/01/27 1,272,091
785 Perry Cnty, MO Nursing Home Rev Ser A.......................................... 7.650 03/01/16 828,772
1,745 Perry Cnty, MO Nursing Home Rev Ser A.......................................... 7.750 03/01/26 1,848,409
1,060 Perry Cnty, MO Nursing Home Rev Ser A.......................................... 7.300 03/01/18 1,091,821
500 Saint Louis Cnty, MO Indl Dev Auth Rev First Mtg Deaconess
Manor Assn (Prerefunded @ 06/01/98)............................................ 7.500 06/01/16 523,910
500 Saint Louis Cnty, MO Indl Dev Auth Rev First Mtg Deaconess
Manor Assn (Prerefunded @ 06/01/98)............................................ 7.500 06/01/23 523,910
1,765 Saint Louis, MO Tax Increment Rev Scullin Redev Area Ser A..................... 10.000 08/01/10 2,216,611
-----------
25,216,101
-----------
Montana 0.1%
2,000 Montana St Brd Invt Res Recovery Rev Yellowstone Energy L P Proj............... 7.000 12/31/19 1,963,920
-----------
Nebraska 0.3%
3,500 Nebraska Investment Fin Auth Single Family Hsg Rev Ser B....................... 5.850 09/01/28 3,559,185
-----------
Nevada 1.8%
3,075 Clark Cnty, NV Assisted Living Homestead Boulder City Proj (a)................. 6.500 12/01/27 3,082,595
6,000 Clark Cnty, NV Indl Dev Rev Nevada Pwr Co Proj Ser A........................... 5.900 11/01/32 6,060,360
5,000 Clark Cnty, NV Indl Dev Rev Nevada Pwr Co Proj Ser B Rfdg...................... 5.900 10/01/30 5,045,150
1,500 Henderson, NV Local Impt Dist No T-10.......................................... 7.500 08/01/15 1,551,930
1,395 Henderson, NV Local Impt Dist No T-4 Ser B..................................... 7.300 11/01/12 1,446,978
</TABLE>
See Notes to Financial Statements
B-46
<PAGE> 108
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nevada (Continued)
$ 985 Las Vegas, NV Spl Impt Dist No 505 Elkhorn Springs............. 8.000% 09/15/13 $ 1,021,780
1,735 Nevada St Dept Commerce Hlth Fac Rev Washoe Convalescent Cent
Proj Rfdg...................................................... 8.125 06/01/03 1,816,927
3,000 Washoe Cnty, NV Impt Bonds Spl Assessment Dist No 23........... 6.500 11/01/17 3,010,260
------------
23,035,980
------------
New Hampshire 3.8%
500 New Hampshire Higher Edl & Hlth Fac Auth Rev................... 5.800 11/01/27 515,175
435 New Hampshire Higher Edl & Hlth Fac Auth Rev Colby-Sawyer
College Issue.................................................. 7.200 06/01/12 469,626
2,565 New Hampshire Higher Edl & Hlth Fac Auth Rev Colby-Sawyer
College Issue.................................................. 7.500 06/01/26 2,803,135
5,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Daniel Webster
College Issue Rfdg............................................. 7.625 07/01/16 5,461,400
1,350 New Hampshire Higher Edl & Hlth Fac Auth Rev First Mtg Odd
Fellows Home Rfdg.............................................. 8.000 06/01/04 1,449,346
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev First Mtg Odd
Fellows Home Rfdg.............................................. 9.000 06/01/14 2,362,960
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Havenwood-
Heritage Heights............................................... 7.350 01/01/18 1,056,270
4,825 New Hampshire Higher Edl & Hlth Fac Auth Rev Havenwood-
Heritage Heights............................................... 7.450 01/01/25 5,131,677
2,365 New Hampshire Higher Edl & Hlth Fac Auth Rev Hlthcare
Visiting Nurse................................................. 7.250 09/01/23 2,473,743
1,410 New Hampshire Higher Edl & Hlth Fac Auth Rev Monadock Cmnty
Hosp Issue..................................................... 9.125 10/01/20 1,526,551
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev New London Hosp
Assn Proj...................................................... 7.500 06/01/05 2,239,560
3,455 New Hampshire Higher Edl & Hlth Fac Auth Rev Vly Regl Hosp..... 7.350 04/01/23 3,471,549
4,040 New Hampshire St Business Fin Auth Elec Fac Rev Plymouth
Cogeneration................................................... 7.750 06/01/14 4,308,579
1,500 New Hampshire St Business Fin Auth Swr & Solid Waste Disp Rev
Crown Paper Co Proj............................................ 7.875 07/01/26 1,673,760
10,100 New Hampshire St Hsg Fin Auth Single Family Rev................ 5.900 07/01/28 10,256,449
3,440 New Hampshire St Hsg Fin Auth Single Family Residential........ 8.500 07/01/14 3,571,339
------------
48,771,119
------------
New Jersey 4.6%
4,990 Camden Cnty, NJ Impt Auth Lease Rev Dockside Refrigerated...... 8.400 04/01/24 5,614,997
4,500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn PT Marine Term A.... 8.000 06/01/27 4,809,645
500 New Jersey Econ Dev Auth Econ Dev Rev Green Acres Manor Inc
Ser A Rfdg..................................................... 8.000 01/01/09 529,150
1,000 New Jersey Econ Dev Auth Econ Dev Rev Green Acres Manor Inc
Ser A Rfdg..................................................... 8.250 01/01/17 1,063,750
4,365 New Jersey Econ Dev Auth Econ Dev Rev United Methodist Homes... 7.500 07/01/20 4,762,651
420 New Jersey Econ Dev Auth Econ Dev Rev United Methodist Homes... 7.500 07/01/24 450,509
500 New Jersey Econ Dev Auth Econ Dev Rev Zirbser Greenbriar Inc
Ser A Rfdg..................................................... 7.375 07/15/03 533,200
</TABLE>
See Notes to Financial Statements
B-47
<PAGE> 109
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey (Continued)
$ 915 New Jersey Econ Dev Auth Econ Dev Rev Zirbser Greenbriar Inc
Ser A Rfdg................................................................ 7.750% 07/15/08 $ 979,892
250 New Jersey Econ Dev Auth First Mtg Cranes Mill Ser A...................... 7.000 02/01/10 257,050
1,500 New Jersey Econ Dev Auth First Mtg Cranes Mill Ser A...................... 7.375 02/01/17 1,644,405
3,500 New Jersey Econ Dev Auth First Mtg Cranes Mill Ser A...................... 7.500 02/01/27 3,841,355
750 New Jersey Econ Dev Auth First Mtg Delaire Nursing Ser A Rfdg
(Prerefunded @ 11/01/99).................................................. 8.750 11/01/10 840,472
500 New Jersey Econ Dev Auth First Mtg Gross Rev Burnt Tavern
Convalescent Ser A Rfdg................................................... 9.000 11/15/13 544,930
2,250 New Jersey Econ Dev Auth First Mtg Gross Rev Franciscan Oaks Proj
Ser A..................................................................... 8.500 10/01/23 2,527,965
840 New Jersey Econ Dev Auth First Mtg Gross Rev Stone Arch
Nursing Home Proj Rfdg.................................................... 8.750 12/01/10 916,306
1,000 New Jersey Econ Dev Auth First Mtg Gross Rev The Evergreens
(Prerefunded @ 10/01/02).................................................. 9.250 10/01/22 1,232,150
1,000 New Jersey Econ Dev Auth Holt Hauling & Warehsg Rev Ser G Rfdg............ 8.400 12/15/15 1,091,890
650 New Jersey Econ Dev Auth Rev.............................................. 6.000 10/01/17 655,974
700 New Jersey Econ Dev Auth Rev.............................................. 6.000 10/01/22 704,123
500 New Jersey Econ Dev Auth Rev First Mtg Fellowship Village Proj
Ser A..................................................................... 8.500 01/01/10 551,885
1,000 New Jersey Econ Dev Auth Rev First Mtg Fellowship Village Proj
Ser A..................................................................... 9.250 01/01/25 1,207,600
975 New Jersey Econ Dev Auth Rev First Mtg Millhouse Proj Ser A............... 8.250 04/01/10 1,074,596
2,060 New Jersey Econ Dev Auth Rev First Mtg Millhouse Proj Ser A............... 8.500 04/01/16 2,293,563
1,860 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens
Ser A..................................................................... 7.500 11/01/05 1,928,839
1,000 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens
Ser A..................................................................... 8.500 11/01/16 1,053,750
1,500 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens
Ser A..................................................................... 8.625 11/01/25 1,594,035
855 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A................. 8.000 05/15/02 907,702
750 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A................. 8.000 05/15/04 804,908
2,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A................. 8.000 05/15/12 2,176,520
2,510 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A................. 8.750 05/15/26 2,833,840
2,500 New Jersey Hlthcare Fac Fin Auth Rev Care Institute Inc Cherry
Hill Proj................................................................. 7.750 07/01/10 2,685,025
2,500 New Jersey Hlthcare Fac Fin Auth Rev Raritan Bay Med Cent
Issue Rfdg................................................................ 7.250 07/01/14 2,696,225
4,000 New Jersey St Edl Fac Auth Rev Felician College of Lodi Ser D............. 7.375 11/01/22 4,015,400
1,000 New Jersey St Edl Fac Auth Rev Caldwell College Ser A..................... 7.250 07/01/25 1,081,650
------------
59,905,952
------------
New Mexico 1.2%
680 Albuquerque, NM Nursing Home Rev Albuquerque Hlthcare Rfdg................ 9.750 12/01/14 720,827
4,555 Albuquerque, NM Retirement Fac Rev La Vida Liena Proj Ser A Rfdg.......... 8.850 02/01/23 4,874,123
3,000 Bernalillo Cnty, NM Mult-Family Rev Hsg Topke Commons/Arbors
Proj Ser D................................................................ 7.700 04/01/27 3,070,140
</TABLE>
See Notes to Financial Statements
B-48
<PAGE> 110
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Mexico (Continued)
$ 1,610 Bernalillo Cnty, NM Multi-Family Rev Hsg Sr Solar Villas Apts Ser F...... 7.250% 10/15/22 $ 1,620,385
3,500 Farmington, NM Pollutn Ctl Rev Pub Service Co RMK Ser A Rfdg............. 5.800 04/01/22 3,528,385
700 Santa Fe, NM Indl Rev Casa Real Nursing Home Rfdg........................ 9.750 01/01/13 754,705
455 Truth or Consequences, NM Nursing Home Rev Sierra Hlthcare Rfdg & Impt... 9.750 12/01/14 464,077
-------------
15,032,642
-------------
New York 2.8%
2,000 Castle Rest Residential Hlthcare Fac NY Rev Hlthcare Fac Ser B........... 8.000 08/01/10 2,015,020
1,210 Clifton Springs, NY Hosp & Clinic Ser A Rfdg & Impt...................... 7.650 01/01/12 1,286,085
4,800 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY Institute of Technology Rfdg.... 7.500 03/01/26 5,178,480
4,000 New York City Ser J...................................................... 5.500 02/15/26 3,965,640
2,500 New York City Indl Dev Agy Civic Fac Rev Cmnty Res Developmentally
Disabled................................................................. 7.500 08/01/26 2,634,825
4,125 New York City Indl Dev Agy Civic Fac Rev Our Lady of Mercy Med Cent Pkg
Corp Proj................................................................ 8.500 12/30/22 4,701,097
2,500 New York City Indl Dev Agy Rev Solid Waste Disposal Visy Paper Proj...... 7.800 01/01/16 2,847,425
2,000 New York St Energy Resh & Dev Auth Elec Fac Rev Long Island Ser A........ 7.150 12/01/20 2,176,700
6,500 New York St Mtg Agy Rev Amt Homeowner Mtg Ser 67......................... 5.800 10/01/28 6,604,650
2,830 Newark-Wayne Cmnty Hosp Inc NY Hosp Rev Ser A............................ 7.600 09/01/15 3,049,127
2,000 North Syracuse, NY Hsg Auth Rev Janus Park Proj.......................... 8.000 06/01/14 2,090,580
400 Syracuse, NY Hsg Auth Rev Sub Proj Loretto Rest Ser B.................... 7.500 08/01/10 404,392
-------------
36,954,021
-------------
North Carolina 0.2%
425 North Carolina Med Care Comm Hlth Care Fac Rev........................... 6.000 11/01/19 426,407
2,075 North Carolina Med Care Comm Hlth Care Fac Rev........................... 6.000 11/01/27 2,071,161
-------------
2,497,568
-------------
Ohio 3.5%
1,500 Athens Cnty, OH Hosp Fac Rev O'Bleness Mem Hosp Proj..................... 7.100 11/15/23 1,542,090
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings Hall......................... 7.200 11/15/14 1,063,460
1,500 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings Hall......................... 7.300 11/15/23 1,586,835
2,500 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson Retirement Cmnty Ser A Rfdg.... 7.250 11/15/13 2,663,475
3,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson Retirement Cmnty Ser A Rfdg.... 7.250 11/15/18 3,184,050
2,500 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park Lane Apts Proj Ser A......... 8.250 07/01/28 2,532,900
7,625 Dayton, OH Spl Fac Rev Emery Air Freight Corp Ser A Rfdg (b)............. 12.500 10/01/09 8,199,696
435 Fairfield, OH Econ Dev Rev Beverly Enterprises Inc Proj Rfdg............. 8.500 01/01/03 472,675
1,680 Harrison, OH Harrison Ave Kmart Proj Ser A............................... 8.125 12/01/02 1,769,074
2,000 Montgomery Cnty, OH Hlth Care Fac Rev.................................... 6.250 02/01/22 2,006,720
2,420 Mount Vernon, OH Hosp Rev Knox Cmnty Hosp Rfdg........................... 7.875 06/01/12 2,486,042
1,000 North Canton, OH Hlthcare Fac Rev Waterford at Saint Luke Proj........... 8.625 11/15/21 1,094,050
</TABLE>
See Notes to Financial Statements
B-49
<PAGE> 111
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio (Continued)
$ 1,036 Ohio St Indl Dev Rev First Mtg Swifton Commons Proj Rfdg (d)........... 8.125% 12/01/15 $ 776,778
2,500 Ohio St Solid Waste Rev CSC Ltd Proj................................... 8.500 08/01/22 2,578,500
2,000 Ohio St Solid Waste Rev Republic Engineered Steels Proj................ 8.250 10/01/14 2,025,740
4,000 Ohio St Solid Waste Rev Republic Engineered Steels Proj................ 9.000 06/01/21 4,190,040
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev Coll Cleveland Elec
Ser A Rfdg............................................................. 8.000 10/01/23 2,279,100
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev Coll Toledo Edison
Ser A Rfdg............................................................. 8.000 10/01/23 2,279,100
2,250 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj Rfdg...................... 7.750 12/01/09 2,253,172
-----------
44,983,497
-----------
Oklahoma 0.4%
500 Leflore Cnty, OK Hosp Auth Impt Rev.................................... 9.400 05/01/06 530,195
2,830 Oklahoma Cnty, OK Fin Auth Epworth Villa Proj Ser A Rfdg............... 7.000 04/01/25 2,872,988
140 Oklahoma Hsg Fin Agy Single Family Class A
(GNMA Collateralized).................................................. 7.997 08/01/18 145,276
500 Woodward, OK Muni Auth Hosp Rev........................................ 8.250 11/01/09 552,460
500 Woodward, OK Muni Auth Hosp Rev (Prerefunded @ 11/01/00)............... 9.250 11/01/14 576,715
-----------
4,677,634
-----------
Oregon 0.3%
1,745 Douglas Cnty, OR Hosp Fac Auth Rev Elderly Hsg Forest Glen Ser A....... 7.500 09/01/27 1,761,665
1,500 Salem, OR Hosp Fac Auth Rev Cap Manor Inc.............................. 7.500 12/01/24 1,607,280
-----------
3,368,945
-----------
Pennsylvania 10.8%
1,945 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac Allegheny Vly Sch........ 7.500 02/01/10 2,101,572
3,120 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac Allegheny Vly Sch........ 7.875 02/01/20 3,428,318
7,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral Toledo
Edison Co Proj Rfdg (b)................................................ 7.625 05/01/20 7,969,220
4,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral Toledo
Edison Co Proj Ser A Rfdg.............................................. 7.750 05/01/20 4,611,080
1,100 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral Toledo
Edison Co Proj Ser A Rfdg.............................................. 7.750 09/01/24 1,161,809
1,860 Berks Cnty, PA Muni Auth Rev Phoebe Berks Village Inc Proj Rfdg........ 7.500 05/15/13 1,982,537
1,860 Berks Cnty, PA Muni Auth Rev Phoebe Berks Village Inc Proj Rfdg........ 7.700 05/15/22 1,988,117
2,500 Berks Cnty, PA Muni Auth Rev Phoebe Berks Village Inc Proj Rfdg........ 8.250 05/15/22 2,686,150
1,000 Chartiers Vly, PA Indl & Commercial Dev Auth First Mtg Rev............. 7.250 12/01/11 1,034,220
2,000 Chartiers Vly, PA Indl & Commercial Dev Auth First Mtg Rev............. 7.400 12/01/15 2,111,360
1,000 Chartiers Vly, PA Indl & Commercial Dev Auth First Mtg Rev
(Prerefunded @ 12/01/98) (b)........................................... 9.500 12/01/15 1,073,740
900 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp Proj Rfdg............. 5.625 07/01/21 879,840
4,480 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp Proj
(Prerefunded @ 07/01/99)............................................... 8.100 07/01/12 4,837,280
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp Proj
(Prerefunded @ 07/01/01)............................................... 8.500 07/01/21 1,152,970
</TABLE>
See Notes to Financial Statements
B-50
<PAGE> 112
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 820 Columbia Cnty, PA Indl Dev Auth First Mtg Rev First St Assn
Proj Rfdg............................................................. 9.000% 05/01/14 $ 913,045
870 Delaware Cnty, PA Auth Rev First Mtg Riddle Village Proj
(Prerefunded @ 06/01/02).............................................. 8.750 06/01/10 1,035,639
2,800 Delaware Cnty, PA Auth Rev First Mtg Riddle Village Proj
(Prerefunded @ 06/01/02).............................................. 9.250 06/01/22 3,387,804
2,500 Delaware Cnty, PA Auth Rev First Mtg Riddle Village Proj Rfdg......... 7.000 06/01/26 2,595,575
2,100 Delaware Cnty, PA Auth Rev White Horse Village Ser A Rfdg............. 7.500 07/01/18 2,230,053
1,350 Doylestown, PA Hosp Auth Hosp Rev Pine Run Ser A...................... 7.200 07/01/23 1,446,295
1,250 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev United Church of
Christ Homes Rfdg..................................................... 7.250 10/01/19 1,263,050
250 Lehigh Cnty, PA Genl Purp Auth Rev First Mtg Bible Fellowship Proj.... 7.150 12/15/08 263,938
2,315 Lehigh Cnty, PA Genl Purp Auth Rev First Mtg Bible Fellowship Proj.... 8.000 12/15/23 2,441,677
4,665 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg................................ 8.000 08/01/12 4,986,838
3,000 Luzerne Cnty, PA Indl Dev Auth Exmpt Fac Rev PA Gas & Wtr Co
Proj Ser A Rfdg....................................................... 7.200 10/01/17 3,300,840
2,000 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross Rev Rfdg............... 7.875 12/01/13 2,149,700
500 Montgomery Cnty, PA Higher Edl & Hlth Auth Rev Retirement Cmnty
GDL Farms A (Prerefunded @ 01/01/00).................................. 9.500 01/01/20 561,130
2,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowwood
Ser A Rfdg............................................................ 6.000 12/01/10 2,011,340
3,740 Montgomery Cnty, PA Indl Dev Auth Rev Assisted Living Ser A........... 8.250 05/01/23 4,043,389
1,269 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood
Corp Proj Ser A....................................................... 9.250 12/01/00 1,444,795
2,025 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood
Corp Proj Ser A (Prerefunded @ 12/01/00).............................. 10.000 12/01/19 2,384,053
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood
Corp Proj Ser A Rfdg (Prerefunded @ 12/01/00)......................... 10.250 12/01/20 2,960,725
500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood
Corp Rfdg............................................................. 7.000 12/01/10 523,760
1,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood
Corp Rfdg............................................................. 7.250 12/01/15 1,550,505
4,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood
Corp Rfdg............................................................. 7.400 12/01/20 4,151,600
3,595 Montgomery Cnty, PA Indl Dev Auth Rev Hlthcare Adv Geriatric
Ser A................................................................. 8.375 07/01/23 3,860,599
790 Montgomery Cnty, PA Indl Dev Auth Rev Pennsburg Nursing &
Rehab Cent............................................................ 7.625 07/01/18 895,204
2,660 Montgomery Cnty, PA Indl Dev Auth Rev Wordsworth Academy.............. 7.750 09/01/14 2,861,548
2,000 Montgomery Cnty, PA Indl Dev Auth Rev Wordsworth Academy.............. 7.750 09/01/24 2,116,880
1,500 Montgomery Cnty, PA Indl Dev Rev First Mtg Meadowood
Ser A Rfdg............................................................ 6.250 12/01/17 1,517,805
2,200 Montgomery Cnty, PA Indl Rev GDL Farms Corp Proj Rfdg................. 6.500 01/01/20 2,221,846
750 Northampton Cnty, PA Indl Dev Auth Rev First Mtg Kirkland
Village Proj.......................................................... 7.375 12/15/18 756,053
750 Northampton Cnty, PA Indl Dev Auth Rev First Mtg Kirkland
Village Proj.......................................................... 7.500 12/15/23 756,607
</TABLE>
See Notes to Financial Statements
B-51
<PAGE> 113
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 1,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev MacMillan Ltd
Partnership Proj........................................................ 7.600% 12/01/20 $ 1,164,170
2,950 Pennsylvania Hsg Fin Agy Amt Single Family Mtg Ser 59a.................. 5.800 10/01/29 2,995,223
1,395 Philadelphia, PA Auth For Indl Dev Rev Lutheran Retirement.............. 6.500 01/01/17 1,388,109
1,500 Philadelphia, PA Auth for Indl Dev Rev Cathedral Village................ 7.250 04/01/15 1,565,745
4,000 Philadelphia, PA Auth for Indl Dev Rev Coml RMK Rfdg.................... 7.750 12/01/17 4,452,720
1,155 Philadelphia, PA Auth for Indl Dev Rev First Mtg RHA/Care
Pavilion Proj........................................................... 10.250 02/01/18 1,181,981
2,000 Philadelphia, PA Auth for Indl Dev Rev Long-Term Care Maplewood......... 8.000 01/01/14 2,173,160
5,835 Philadelphia, PA Auth for Indl Dev Rev Long-Term Care Maplewood......... 8.000 01/01/24 6,323,856
1,000 Philadelphia, PA Auth for Indl Dev Rev Lutheran Retire Ser B
(Var Rate Cpn).......................................................... 5.000 01/01/17 979,710
1,180 Philadelphia, PA Hosps & Higher Edl Fac Auth Hosp Rev................... 6.500 07/01/27 1,205,736
1,830 Philadelphia, PA Hosps & Higher Edl Fac Auth Hosp Rev................... 7.250 03/01/24 1,879,941
500 Philadelphia, PA Pkg Auth Rev East Market............................... 8.750 03/01/05 505,550
1,785 Philadelphia, PA Pkg Auth Rev East Market............................... 8.875 03/01/10 1,804,760
1,950 Scranton Lackawanna, PA Hlth & Welfare Auth Rev......................... 6.200 07/01/17 1,995,201
1,465 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg.................... 7.250 01/15/17 1,524,186
3,100 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg.................... 7.350 01/15/22 3,214,824
3,000 Somerset Cnty, PA Hosp Auth Rev Somerset Cmnty Hosp Proj
(Prerefunded @ 03/01/02)................................................ 7.500 03/01/17 3,362,820
2,400 Southern Chester Cnty, PA Hlth & Higher Ed Auth Mtg Rev................. 6.300 06/01/10 2,415,024
250 Warren Cnty, PA Indl Dev Auth Beverly Enterprises Rfdg.................. 9.000 11/01/12 280,903
2,300 Washington Cnty, PA Hosp Auth Rev Canonsburg Genl Hosp Rfdg............. 7.350 06/01/13 2,350,393
------------
140,414,518
------------
South Carolina 0.3%
740 Charleston Cnty, SC Hlth Fac Rev First Mtg Episcopal Proj Rfdg
(Prerefunded @ 04/01/01)................................................ 9.750 04/01/16 885,662
2,000 Orangeburg Cnty, SC Solid Waste Disp Fac Rev (AMBAC Insd)............... 5.700 11/01/24 2,028,420
250 South Carolina Jobs Econ Dev Auth Hlth Fac Rev First Mtg
Lutheran Homes SC Proj.................................................. 7.750 10/01/12 265,760
750 South Carolina Jobs Econ Dev Auth Hlth Fac Rev First Mtg
Lutheran Homes SC Proj.................................................. 8.000 10/01/22 803,062
------------
3,982,904
------------
South Dakota 0.4%
4,000 South Dakota Hsg Dev Auth Homeownership Mtg Ser F....................... 5.800 05/01/28 4,059,880
1,000 South Dakota St Hlth & Edl Fac Auth Rev Huron Regl Med Cent............. 7.250 04/01/20 1,117,720
------------
5,177,600
------------
Tennessee 0.9%
2,000 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev.............................. 6.000 07/01/28 2,021,520
2,000 Shelby Cnty, TN Hlth Edl and Hsg Hlth Care Fac Kirby Pines A (a)........ 6.250 11/15/16 1,973,720
4,000 Shelby Cnty, TN Hlth Edl and Hsg Hlth Care Fac Kirby Pines A (a)........ 6.375 11/15/25 3,951,040
500 Smith Cnty, TN Hlth & Edl Fac First Hlthcare Corp Proj Rfdg............. 7.400 04/01/13 513,395
</TABLE>
See Notes to Financial Statements
B-52
<PAGE> 114
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tennessee (Continued)
$ 3,250 Springfield, TN Hlth & Edl Fac Brd Hosp Rev Jesse Holman Jones
Hosp Proj............................................................... 8.250% 04/01/12 $ 3,576,235
-----------
12,035,910
-----------
Texas 3.0%
1,380 Amarillo, TX Hlth Fac Corp Rev Panhandle Retirement Ser B............... 7.000 08/15/15 1,409,670
3,000 Amarillo, TX Hlth Fac Corp Rev Panhandle Retirement Ser B............... 7.750 08/15/18 3,199,770
985 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp Proj........................... 9.250 07/01/08 1,066,302
3,425 Brazos Cnty, TX Hsg Fin Corp Single Family Mtg Rev
(GNMA Insd) (a).......................................................... 5.800 09/01/25 3,466,648
500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
American Airls Inc...................................................... 7.500 11/01/25 543,965
1,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
American Airls Inc...................................................... 7.250 11/01/30 1,670,565
1,250 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev Delta Airls Inc....... 7.625 11/01/21 1,385,688
2,665 De Soto, TX Hlth Fac Dev Park Manor Senior Care......................... 7.750 12/01/16 2,732,265
200 Harris Cnty, TX Hsg Fin Corp Single Family Hsg Rev...................... 9.875 03/15/14 200,796
200 Harris Cnty, TX Hsg Fin Corp Single Family Hsg Rev 1983 Ser A........... 10.125 07/15/03 200,246
1,285 Harris Cnty, TX Hsg Fin Corp Single Family Hsg Rev 1983 Ser A........... 10.375 07/15/14 1,285,822
5,000 Houston, TX Arpt Sys Rev Spl Fac Continental Airl Term Impt Ser B....... 6.125 07/15/27 5,174,150
770 Montgomery Cnty, TX Hlth Fac Dev Corp Hosp Mtg Rev Woodlands
Med Cent Proj Rfdg (Prerefunded @ 08/15/99)............................. 8.850 08/15/14 841,656
3,255 Rusk Cnty, TX Hlth Fac Corp Hosp Rev Henderson Mem Hosp
Proj Rfdg............................................................... 7.750 04/01/13 3,551,335
500 San Antonio, TX Hlth Fac Dev Corp Rev Encore Nursing Cent Partn......... 8.250 12/01/19 558,095
2,000 San Antonio, TX Hsg Fin Corp Multi-Family Hsg Rev Beverly Oaks
Apts Proj Ser A......................................................... 7.750 02/01/27 1,990,500
1,990 San Antonio, TX Hsg Fin Corp Multi-Family Hsg Rev Marbach
Manor Apts Proj Ser A................................................... 8.125 06/01/27 2,052,327
1,500 Tarrant Cnty, TX Hlth Fac Dev Corp Rev Mtg Cumberland Rest
Ser A Rfdg.............................................................. 7.000 08/15/19 1,521,735
1,401 Texas Genl Svcs Cmty Partn Interests Office Bldg & Land
Acquisition Proj........................................................ 7.000 08/01/24 1,438,286
3,795 Texoma Hsg Fin Corp Texas Single Family Mtg Rev
(GNMA Insd) (a)......................................................... 5.800 09/01/28 3,841,147
790 Weslaco, TX Hlth Fac Dev Corp Hosp Rev Weslaco Hlth Fac Proj
Ser B (Prerefunded @ 06/01/98).......................................... 10.375 06/01/16 823,314
-----------
38,954,282
-----------
Utah 0.9%
1,500 Carbon Cnty, UT Solid Waste Disposal Rev Rfdg Laidlaw
Environmentl Ser A...................................................... 7.450 07/01/17 1,640,565
4,000 Clearfield City, UT Hsg Mtg FHA Oakstone Apts A (FHA Insd)(a)........... 5.850 05/01/39 4,016,840
500 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.......................... 7.600 09/01/06 523,580
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.......................... 7.800 09/01/15 1,035,590
1,000 Tooele Cnty, UT Pollutn Ctl Rev Rfdg Laidlaw Environmentl Ser A......... 7.550 07/01/27 1,099,690
</TABLE>
See Notes to Financial Statements
B-53
<PAGE> 115
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utah (Continued)
$ 2,000 Utah St Hsg Fin Agy Rev RHA Cmnty Services Proj Ser A................ 6.875% 07/01/27 $ 2,014,520
1,760 Utah St Hsg Fin Agy Single Family Mtg Ser C2......................... 7.950 07/01/20 1,809,544
-----------
12,140,329
Vermont 0.1%
700 Vermont Edl & Hlth Bldgs Fin Agy Rev Northwestern Med Cent
Ser A (Prerefunded @ 09/01/98)....................................... 9.750 09/01/18 743,834
-----------
Virginia 1.4%
2,955 Alexandria, VA Indl Dev Auth Rev Saint Coletta Sch Proj.............. 7.750 10/15/26 3,081,031
235 Alexandria, VA Indl Dev Auth Rev Saint Coletta Sch Proj.............. 7.750 10/15/26 242,854
725 Covington-Alleghany Cnty, VA Indl Dev Auth Beverly Enterprises
Inc Proj Rfdg........................................................ 9.375 09/01/01 793,012
3,000 Fairfax Cnty, VA Redev & Hsg Auth Multi-Family Hsg Rev............... 7.600 10/01/36 3,217,290
2,500 Henry Cnty, VA Indl Dev Auth Indl Dev Rev 5Bs Inc Proj Ser A......... 7.400 09/01/17 2,512,425
1,500 Hopewell, VA Indl Dev Auth Res Recovery Rev Stone Container
Corp Proj Rfdg....................................................... 8.250 06/01/16 1,695,840
1,000 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt Fac Ser A............. 7.450 01/01/09 1,098,390
6,000 Richmond, VA Redev & Hsg Auth Multi-Family Rev Ser A Rfdg
(Var Rate Cpn)....................................................... 7.750 12/15/21 6,036,360
-----------
18,677,202
-----------
Washington 0.4%
2,500 Spokane Cnty, WA Indl Dev Corp Solid Waste Disp Rev.................. 7.600 03/01/27 2,783,450
1,000 Vancouver, WA Hsg Auth Rev Hsg Maple Knoll Apts Proj................. 6.000 10/01/17 1,005,070
1,000 Vancouver, WA Hsg Auth Rev Hsg Maple Knoll Apts Proj................. 6.200 10/01/27 1,005,010
-----------
4,793,530
-----------
West Virginia 0.6%
500 Randolph Cnty, WV Bldg Commission Davis Mem Hosp Proj
Ser A Rfdg & Impt.................................................... 7.650 11/01/21 550,140
2,540 Weirton, WV Pollutn Ctl Rev Weirton Steel Proj Rfdg.................. 8.625 11/01/14 2,649,372
5,000 West Virginia St Hsg Dev Fund Hsg Fin Ser D.......................... 5.950 11/01/32 5,137,350
-----------
8,336,862
-----------
Wisconsin 1.1%
3,000 Oconto Falls, WI Cmnty Dev Oconto Falls Tissue Inc Proj (a).......... 7.750 12/01/22 3,000,000
1,560 Wisconsin Hsg & Econ Dev Auth Home Ownership Rev..................... 7.550 07/01/26 1,681,196
795 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem Hosp Assn.............. 7.200 11/01/05 815,106
2,000 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem Hosp Assn.............. 7.875 11/01/22 2,114,600
2,500 Wisconsin St Hlth & Edl Fac Auth Rev Natl Regency of New
Berlin Proj.......................................................... 8.000 08/15/25 2,702,575
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home Proj................. 7.500 07/01/26 3,168,930
500 Wisconsin St Hlth and Edl Rev Mem Hosp At Oconomowoc Inc Proj........ 6.350 07/01/17 504,630
-----------
13,987,037
-----------
</TABLE>
See Notes to Financial Statements
B-54
<PAGE> 116
Portfolio of Investments (Continued)
November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wyoming 1.0%
$ 5,000 Wyoming Cmnty Dev Auth Hsg Rev.......................................... 6.250% 06/01/27 $ 5,226,900
8,000 Wyoming Cmnty Dev Auth Hsg Rev.......................................... 5.850 06/01/28 8,155,280
--------------
13,382,180
--------------
U. S. Virgin Islands 0.3%
1,210 University of Virgin Islands Pub Fin Auth Ser A......................... 7.500 10/01/09 1,355,636
1,965 University of Virgin Islands Pub Fin Auth Ser A......................... 7.650 10/01/14 2,218,072
--------------
3,573,708
Total Long-Term Investments 99.4%
(Cost $1,224,221,636)................................................... 1,288,993,821
Short-Term Investments 0.1%
(Cost $1,200,000)....................................................... 1,200,000
--------------
Total Investments 99.5%
(Cost $1,225,421,636)................................................... 1,290,193,821
Other Assets in Excess of Liabilities 0.5%........................................ 6,558,774
--------------
Net Assets 100.0%................................................................. $1,296,752,595
==============
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
(c) Interest is accruing at less than the stated coupon.
(d) Non-Income producing security.
(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
B-55
<PAGE> 117
Statement of Assets and Liabilities
November 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Total Investments (Cost $1,225,421,636).......................................... $1,290,193,821
Cash............................................................................. 73,883
Receivables:
Interest....................................................................... 26,699,403
Investments Sold............................................................... 21,692,806
Fund Shares Sold............................................................... 2,699,937
Other............................................................................ 48,440
--------------
Total Assets................................................................ 1,341,408,290
--------------
Liabilities:
Payables:
Investments Purchased.......................................................... 38,450,937
Income Distributions........................................................... 3,724,653
Fund Shares Repurchased........................................................ 909,218
Distributor and Affiliates..................................................... 706,427
Investment Advisory Fee........................................................ 566,218
Variation Margin on Futures.................................................... 18,750
Accrued Expenses................................................................. 172,462
Trustees' Deferred Compensation and Retirement Plans............................. 107,030
--------------
Total Liabilities........................................................... 44,655,695
--------------
Net Assets....................................................................... $1,296,752,595
==============
Net Assets Consist of:
Capital.......................................................................... $1,255,492,509
Net Unrealized Appreciation...................................................... 64,464,321
Accumulated Undistributed Net Investment Income.................................. 487,485
Accumulated Net Realized Loss.................................................... (23,691,720)
--------------
Net Assets....................................................................... $1,296,752,595
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share
(Based on net assets of $779,884,248 and 68,085,219 shares of beneficial
interest issued and outstanding)............................................ $ 11.45
Maximum sales charge (4.75%* of offering price)............................. .57
--------------
Maximum offering price to public............................................ $ 12.02
==============
Class B Shares:
Net asset value and offering price per share
(Based on net assets of $425,577,694 and 37,162,826 shares of beneficial
interest issued and outstanding)............................................ $ 11.45
==============
Class C Shares:
Net asset value and offering price per share
(Based on net assets of $91,290,653 and 7,979,623 shares of beneficial
interest issued and outstanding)............................................ $ 11.44
==============
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
B-56
<PAGE> 118
Statement of Operations
For the Year Ended November 30, 1997
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest........................................................................................................ $78,709,930
-----------
Expenses:
Investment Advisory Fee......................................................................................... 5,728,036
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of
$1,608,424, $3,474,149 and $591,365, respectively)............................................................ 5,673,938
Shareholder Services............................................................................................ 860,424
Custody......................................................................................................... 55,622
Legal........................................................................................................... 51,846
Trustees' Fees and Expenses..................................................................................... 25,972
Other........................................................................................................... 753,000
-----------
Total Expenses.................................................................................................. 13,148,838
Less Expenses Reimbursed...................................................................................... 1,500
-----------
Net Expenses.................................................................................................. 13,147,338
-----------
Net Investment Income........................................................................................... $65,562,592
===========
Realized and Unrealized Gain/Loss:
Net Realized Gain/Loss:
Investments................................................................................................... $(1,676,072)
Futures....................................................................................................... 27,335
-----------
Net Realized Loss............................................................................................... (1,648,737)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period....................................................................................... 32,939,996
-----------
End of the Period:
Investments................................................................................................. 64,772,185
Futures..................................................................................................... (307,864)
-----------
64,464,321
-----------
Net Unrealized Appreciation During the Period................................................................... 31,524,325
-----------
Net Realized and Unrealized Gain................................................................................ $29,875,588
===========
Net Increase in Net Assets from Operations...................................................................... $95,438,180
===========
</TABLE>
See Notes to Financial Statements
B-57
<PAGE> 119
Statement of Changes in Net Assets
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
November 30, 1997 November 30, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income................................................... $ 65,562,592 $ 54,897,556
Net Realized Gain/Loss.................................................. (1,648,737) 2,092,011
Net Unrealized Appreciation/Depreciation................................ 31,524,325 (3,815,487)
-------------- --------------
Change in Net Assets from Operations.................................... 95,438,180 53,174,080
-------------- --------------
Distributions from Net Investment Income:
Class A Shares........................................................ (41,904,414) (36,684,070)
Class B Shares........................................................ (19,909,861) (15,919,679)
Class C Shares........................................................ (3,388,275) (2,289,094)
-------------- --------------
Total Distributions................................................. (65,202,550) (54,892,843)
-------------- --------------
Net Change in Net Assets
from Investment Activities............................................ 30,235,630 (1,718,763)
-------------- --------------
From Capital Transactions:
Proceeds from Shares Sold............................................... 369,938,578 301,612,850
Net Asset Value of Shares Issued Through Dividend Reinvestment.......... 28,519,681 23,613,873
Cost of Shares Repurchased.............................................. (126,673,799) (110,086,181)
-------------- --------------
Change in Net Assets from Capital Transactions.......................... 271,784,460 215,140,542
-------------- --------------
Total Increase in Net Assets............................................ 302,020,090 213,421,779
Net Assets:
Beginning of the Period................................................. 994,732,505 781,310,726
-------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $487,485 and $113,411, respectively)............. $1,296,752,595 $ 994,732,505
============== =============
</TABLE>
See Notes to Financial Statements
& B-58
<PAGE> 120
Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $11.139 $ 11.18 $ 10.44 $ 11.19 $ 10.95
------- ------- ------- ------- -------
Net Investment Income.................................... .729 .735 .74 .76 .8132
Net Realized and Unrealized Gain/Loss.................... .312 (.041) .7475 (.744) .2303
------- ------- ------- ------- -------
Total from Investment Operations........................... 1.041 .694 1.4875 .016 1.0435
Less Distributions from Net Investment Income.............. .726 .735 .7475 .766 .8035
------- ------- ------- ------- -------
Net Asset Value, End of the Period......................... $11.454 $11.139 $ 11.18 $10.44 $ 11.19
======= ======= ======= ======= =======
Total Return (a)........................................... 9.63% 6.47% 14.65% .10% 9.65%
Net Assets at End of the Period (In millions).............. $ 779.9 $ 621.0 $ 516.3 $411.1 $ 408.0
Ratio of Expenses to Average Net Assets (b)................ .95% 1.01% .98% 1.02% 1.03%
Ratio of Net Investment Income to Average Net Assets (b)... 6.50% 6.64% 6.81% 6.98% 7.13%
Portfolio Turnover......................................... 29% 23% 26% 33% 27%
</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 certain expenses was less than
0.01%.
See Notes to Financial Statements
B-59
<PAGE> 121
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------
Class B Shares 1997 1996 1995 1994 1993(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $11.136 $ 11.18 $ 10.43 $11.18 $10.96
------- ------- ------- ------ ------
Net Investment Income...................................... .645 .653 .66 .68 .6919
Net Realized and Unrealized Gain/Loss...................... .313 (.046) .7535 (.748) .2476
------- ------- ------- ------ ------
Total from Investment Operations........................... .958 .607 1.4135 (.068) .9395
Less Distributions from Net Investment Income.............. .642 .651 .6635 .682 .7195
------- ------- ------- ------ ------
Net Asset Value, End of the Period......................... $11.452 $11.136 $ 11.18 $10.43 $11.18
======= ======= ======= ====== ======
Total Return (b)........................................... 8.82% 5.67% 13.89% (.76%) 8.84%
Net Assets at End of the Period (In millions).............. $ 425.6 $ 323.8 $ 233.9 $159.3 $104.8
Ratio of Expenses to Average Net Assets (c)................ 1.71% 1.77% 1.73% 1.77% 1.77%
Ratio of Net Investment Income to Average Net Assets (c)... 5.74% 5.88% 6.03% 6.19% 6.15%
Portfolio Turnover......................................... 29% 23% 26% 33% 27%
</TABLE>
(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 certain expenses was less than
0.01%.
See Notes to Financial Statements
B-60
<PAGE> 122
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 10, 1993
Year Ended November 30, (Commencement
--------------------------- of Distribution) to
1997 1996 1995 November 30, 1994 (a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class C Shares
Net Asset Value, Beginning of the Period....................... $11.126 $ 11.17 $ 10.42 $ 11.29
------- ------- ------- ---------
Net Investment Income........................................ .644 .652 .66 .63
Net Realized and Unrealized Gain/Loss........................ .312 (.045) .7535 (.8363)
------- ------- ------- ---------
Total from Investment Operations............................... .956 .607 1.4135 (.2063)
Less Distributions from Net Investment Income.................. .642 .651 .6635 .6637
------- ------- ------- ---------
Net Asset Value, End of the Period............................. $11.440 $11.126 $ 11.17 $ 10.42
======= ======= ======= =========
Total Return (b)............................................... 8.82% 5.68% 13.79% (1.80%)*
Net Assets at End of the Period (In millions).................. $ 91.3 $ 50.0 $ 31.1 $ 15.3
Ratio of Expenses to Average Net Assets (c).................... 1.70% 1.77% 1.72% 1.75%
Ratio of Net Investment Income to Average Net Assets (c)....... 5.69% 5.86% 5.98% 6.07%
Portfolio Turnover............................................. 29% 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 certain reimbursement of expenses was less than
0.01%.
See Notes to Financial Statements
B-61
<PAGE> 123
Notes to Financial Statements
November 30, 1997
- --------------------------------------------------------------------------------
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
investment 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
operations 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 by independent pricing
services or dealers using the most recently quoted bid price or, in the absence
of market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services are valued at fair value
using procedures established in good faith by the Board of Trustees. 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 73% of the Fund's
investment portfolio at the end of the period.
B. Security Transactions--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may 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 aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Advisor") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt securities. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
C. Investment Income--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the life of each
applicable security.
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.
B-62
<PAGE> 124
Notes to Financial Statements (Continued)
November 30, 1997
- --------------------------------------------------------------------------------
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 November 30, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $23,896,048 which expires between November 30,
1998 and November 30, 2005. Of this amount, $192,128 will expire in 1998. Net
realized gains or losses differ 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 and
gains or losses recognized for tax purposes on open futures positions at
November 31, 1997.
At November 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $1,225,423,763; the aggregate gross unrealized
appreciation is $68,669,479 and the aggregate gross unrealized depreciation is
$3,899,421, resulting in net unrealized appreciation of $64,770,058.
E. Distribution of Income and Gains--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Permanent book and tax basis differences relating to the
expiration of a portion of the capital loss carryforward totaling $2,674,127
were reclassified from net realized gain/loss on securities to capital.
Additionally, permanent differences relating to the recognition of expenses
associated with the consolidation of the VKAC open-end fund complex totaling
$14,032 were reclassified from accumulated undistributed net investment income
to capital.
For the year ended November 30, 1997, 99.99% of the income distributions
made by the Fund were exempt from federal income taxes. In January, 1998, the
Fund will provide tax information to shareholders for the 1997 calendar year.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Funds 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 agreed to reimburse the Fund for certain trustees' compensation
in connection with the July, 1995 increase in the number of trustees of the
Fund. This reimbursement was effective through December 31, 1996.
For the year ended November 30, 1997, the Fund recognized expenses of
approximately $41,900 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended November 30, 1997, the Fund recognized expenses of
approximately $240,500 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, 1997,
the Fund recognized expenses of approximately $643,900, representing ACCESS'
cost of providing transfer agency and shareholder services plus a profit.
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.
B-63
<PAGE> 125
Notes to Financial Statements (Continued)
November 30, 1997
- --------------------------------------------------------------------------------
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to $2,500.
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized. At November 30, 1997, capital
aggregated $757,169,936, $410,171,761 and $88,150,812 for Classes A, B, and C,
respectively. For the year ended November 30, 1997, transactions were as
follows:
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
Sales:
<S> <C> <C>
Class A........................................ 18,562,392 $ 210,055,169
Class B........................................ 10,089,692 114,185,577
Class C........................................ 4,036,766 45,697,832
------------ -------------
Total Sales...................................... 32,688,850 $ 369,938,578
============ =============
Dividend Reinvestment:
Class A........................................ 1,614,240 $ 18,155,813
Class B........................................ 745,441 8,385,472
Class C........................................ 175,898 1,978,396
------------ -------------
Total Dividend Reinvestments..................... 2,535,579 $ 28,519,681
============ =============
Repurchases:
Class A........................................ (7,837,512) $ (87,719,551)
Class B........................................ (2,749,344) (30,839,936)
Class C........................................ (723,574) (8,114,312)
------------ -------------
Total Repurchases................................ (11,310,430) $(126,673,799)
============ =============
</TABLE>
B-64
<PAGE> 126
Notes to Financial Statements (Continued)
November 30, 1997
- --------------------------------------------------------------------------------
At 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:
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
Sales:
<S> <C> <C>
Class A........................................... 15,132,127 $ 167,632,504
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)
========== =============
</TABLE>
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 five 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
arrangements, 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, 1997, VKAC, as distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$656,500 and CDSC on the redeemed shares of Classes B and C of approximately
$551,300. Sales charges do not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $586,332,607 and $2,921,500,
respectively.
B-65
<PAGE> 127
Notes to Financial Statements (Continued)
November 30, 1997
- --------------------------------------------------------------------------------
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon disposition, a realized gain or
loss is recognized accordingly, except when exercising an option contract or
taking delivery of a security underlying a futures contract. In these instances
the recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
During the period the Fund invested in future contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date. These contracts
are generally used to manage the portfolio's effective maturity and duration.
Upon entering into future contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts for the year ended November 30, 1997,
were as follows:
<TABLE>
<CAPTION>
Contracts
- -------------------------------------------------------------------------------
<S> <C>
Outstanding at November 30, 1996...................................... 0
Futures Opened........................................................ 975
Futures Closed........................................................ (775)
----
Outstanding at November 30, 1997...................................... 200
====
</TABLE>
The futures contracts outstanding as of November 30, 1997, and the
description and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Depreciation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short Contracts:
U.S. Treasury Bond Futures
December 1997 -- (Current Notional Value of $119,188 per contract).................... 200 $(307,864)
=== =========
</TABLE>
6. 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, 1997, are payments to VKAC of approximately
$3,006,800.
B-66
<PAGE> 128
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
List of all financial statements and exhibits as part of the Registration
Statement.
(a) Financial Statements:
Included in Part A of Registration Statement:
Financial Highlights
Included in Part B of Registration Statement:
Report of Independent Accountants
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<S> <C> <C>
(1)(a) -- First Amended and Restated Agreement and Declaration of
Trust(2)
(b) -- Certificate of Amendment(2)
(c) -- Amended and Restated Certificate of Designation+
(2) -- Amended and Restated Bylaws(2)
(4)(a) -- Specimen Class A Share Certificate+
(b) -- Specimen Class B Share Certificate+
(c) -- Specimen Class C Share Certificate+
(5)(a) -- Investment Advisory Agreement+
(b) -- Subadvisory Agreement+
(6)(a) -- Distribution and Service Agreement+
(b) -- Form of Dealer Agreement(3)
(c) -- Form of Broker Fully Disclosed Selling Agreement(3)
(d) -- Form of Bank Fully Disclosed Selling Agreement(3)
(8)(a) -- Custodian Contract+
(b) -- Transfer Agency and Service Agreement+
(9)(a) -- Data Access Services Agreement(3)
(b) -- Fund Accounting Agreement+
(10) -- Opinion of Counsel and Consent of Skadden, Arps, Slate,
Meagher & Flom (Illinois)(3)
(11) -- Consent of Price Waterhouse LLP+
(13) -- Investment Letter(1)
(15)(a) -- Plan of Distribution Pursuant to Rule 12b-1(3)
(b) -- Form of Shareholder Assistance Agreement(3)
(c) -- Form of Administrative Services Agreement(3)
(d) -- Service Plan(3)
(16) -- Computation of Performance Quotations+
(17)(a) -- List of certain investment companies in response to Item
29(a)+
(b) -- List of officers and directors of Van Kampen American
Capital Distributors, Inc. in response to Item 29(b)+
(18) -- Amended Multi-Class Plan(3)
(24) -- Power of Attorney+
(27) -- Financial Data Schedules+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, File No. 2-96030, filed
December 6, 1985.
(2) Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, File No. 2-96030, filed
March 29, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A, File No. 2-96030, filed
March 28, 1997.
+Filed herewith.
C-1
<PAGE> 129
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF MARCH 6, 1998
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ---------------------------
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Shares of Beneficial Interest,
$0.01 par value................................. 19,598 11,589 2,055
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, (iii) for a criminal proceeding, not having a reasonable
cause to believe that such conduct was unlawful (collectively, "Disabling
Conduct"). Absent a court determination that an officer or trustee seeking
indemnification was not liable on the merits or guilty of Disabling Conduct in
the conduct of his or her office, the decision by the Registrant to indemnify
such person must be based upon the reasonable determination of independent
counsel or non-party independent trustees, after review of the facts, that such
officer or trustee is not guilty of Disabling Conduct in the conduct of his or
her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether
C-2
<PAGE> 130
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of Van Kampen American Capital Asset Management, Inc. (the
"Adviser"). For information as to the business, profession, vocation and
employment of a substantial nature of directors and officers of the Adviser,
reference is made to the Adviser's current Form ADV (File No. 801-1669) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc. (the "Distributor"); which acts as principal underwriter for
certain investment companies and unit investment trusts set forth in Exhibit
17(a).
(b) Van Kampen American Capital Distributors, Inc. which is an affiliated
person of an affiliated person of Registrant, is the sole principal underwriter
for Registrant. The name, principal business address and positions and offices
with Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17(b). Except as disclosed under the
heading, "Trustees and Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a Prospectus
is delivered a copy of the Registrants's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communication with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-3
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL
TAX-EXEMPT TRUST, certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Oakbrook Terrace and State of Illinois,
on the 30th day of March, 1998.
VAN KAMPEN AMERICAN CAPITAL
TAX-EXEMPT TRUST
By: /s/ RONALD A. NYBERG
------------------------------------
Ronald A. Nyberg, Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on March 30, 1998 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ DENNIS J. MCDONNELL* President
- -----------------------------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ EDWARD C. WOOD III* Vice President and Chief Financial Officer
- -----------------------------------------------------
Edward C. Wood III
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini
/s/ LINDA H. HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
* Signed by Ronald A. Nyberg pursuant to a power of attorney filed herewith.
/s/ RONALD A. NYBERG March 30, 1998
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>
<PAGE> 132
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 19 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 30, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
(1)(c) -- Amended and Restated Certificate of Designation
(4)(a) -- Specimen Class A Share Certificate
(b) -- Specimen Class B Share Certificate
(c) -- Specimen Class C Share Certificate
(5)(a) -- Investment Advisory Agreement
(b) -- Subadvisory Agreement
(6)(a) -- Distribution and Service Agreement
(8)(a) -- Custodian Contract
(b) -- Transfer Agency and Service Agreement
(9)(b) -- Fund Accounting Agreement
(11) -- Consent of Price Waterhouse LLP
(16) -- Computation of Performance Quotations
(17)(a) -- List of certain investment companies in response to Item
29(a)
(b) -- List of officers and directors of Van Kampen American
Capital Distributors, Inc. in response to Item 29(b)
(24) -- Power of Attorney
(27) -- Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (1)(c)
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
Amended and Restated Certificate of Designation
of
Van Kampen American Capital High Yield Municipal Fund
The undersigned, being the Secretary of Van Kampen American Capital Tax-Exempt
Trust, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's First
Amended and Restated Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby amend and
restate in its entirety the Certificate of Designation of the Van Kampen
American Capital High Yield Municipal Fund Series of the Trust dated June 21,
1995 by redesignating the following classes of Shares of the Van Kampen
American Capital High Yield Municipal Fund (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund.
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject
to such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share and certain Class C Shares of the Fund shall
be converted automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Shares of the Fund at such times and pursuant
to such terms, conditions and restrictions as may be established by the
Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders
of shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
December 12, 1996
/s/ Ronald A. Nyberg
-------------------------
Ronald A. Nyberg, Secretary
<PAGE> 1
EXHIBIT (4)(a)
NUMBER SHARES
- ------------ ------------
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
------------------
CUSIP 92113R101
------------------
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital High Yield Municipal Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD MUNICIPAL FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
BY
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL
SECURITIES EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A
SAVINGS AND LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, ___________________________ 19__
___________________________________________________________________
Owner
___________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________Custodian_______
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
JT TEN - as joint tenants __________________________
with right of sur- (State)
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT (4)(b)
NUMBER SHARES
- ------------ ------------
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
------------------
CUSIP 92113R200
------------------
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital High Yield Municipal Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD MUNICIPAL FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
BY
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL
SECURITIES EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A
SAVINGS AND LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, ___________________________ 19__
___________________________________________________________________
Owner
___________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________Custodian_______
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
JT TEN - as joint tenants __________________________
with right of sur- (State)
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT (4)(c)
NUMBER SHARES
- ------------ ------------
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
------------------
CUSIP 92113R309
------------------
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen American Capital High Yield Municipal Fund,
transferable on the books of the Fund by the holder thereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated
[VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD MUNICIPAL FUND
DELAWARE SEAL]
RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256
TRANSFER AGENT
BY
----------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD MUNICIPAL FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL
SECURITIES EXCHANGE, REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A
SAVINGS AND LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, ___________________________ 19__
___________________________________________________________________
Owner
___________________________________________________________________
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
________________________________________________________________________________
- --------------------------------------------------------------------------------
*The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN. ACT - ________Custodian_______
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
JT TEN - as joint tenants __________________________
with right of sur- (State)
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL TAX-EXEMPT TRUST, a Delaware business trust (hereinafter
referred to as the "TRUST"), and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT,
INC., a Delaware corporation (hereinafter referred to as the "ADVISER").
The TRUST and the ADVISER agree as follows:
(1) APPOINTMENT
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Van Kampen American Capital High Yield Municipal Fund ("Initial Fund"),
for the period and on the terms set forth in this Agreement. The ADVISER accepts
such appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
b. In the event that the TRUST establishes one or more portfolios other than the
Initial Fund with respect to which it desires to retain the ADVISER to act as
investment adviser hereunder, it shall notify the ADVISER in writing. If the
ADVISER is willing to render such services it shall notify the TRUST in writing
whereupon such portfolio shall become a Fund hereunder and the compensation
payable by such new portfolio to the ADVISER will be as agreed in writing at the
time.
(2) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the TRUST's assets including,
by way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Trust's Fund, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale
of portfolio investments for the account of the Fund of the TRUST with brokers
or dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by
way of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
TRUST selected by the Trustees, and the supervision of the TRUST's Treasurer and
the personnel working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the TRUST's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by
<PAGE> 2
law, cause the TRUST to pay a broker or dealer that provides brokerage and
research services to the ADVISER an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. In the event
of such authorization and to the extent authorized by law, the ADVISER shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the TRUST which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the TRUST's financial statements, preparation of such financial
statements and other TRUST documents and reports of a financial nature required
by federal and state laws, and participation in the production of the TRUST's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders; (v) fees of outside counsel to and of independent accountants
of the TRUST selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the TRUST and its shares
for distribution under state and federal securities laws; (x) expenses of
printing and mailing of registration statements, prospectuses, reports, notices
and proxy solicitation materials of the TRUST; (xi) all other expenses
incidental to holding meetings of the TRUST's shareholders including proxy
solicitations therefor; (xii) expenses for servicing shareholder accounts;
(xiii) insurance premiums for fidelity coverage and errors and omissions
insurance; (xiv) dues for the TRUST's membership in trade associations approved
by the Trustees; and (xv) such nonrecurring expenses as may arise, including
those associated with actions, suits or proceedings to which the TRUST is a
party and the legal obligation which the TRUST may have to indemnify its
officers and trustees with respect thereto. To the extent that any of the
foregoing expenses are allocated between the TRUST and any other party, such
allocations shall be pursuant to methods approved by the Trustees.
For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the TRUST agree that the retention of (i) the chief executive
officer, president, chief financial officer and secretary of the ADVISER and
(ii) each director, officer and employee of the ADVISER or any of its Affiliates
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
who serves as an officer of the TRUST (each person referred to in (i) or (ii)
hereinafter being referred to as an "Essential Person"), in his or her current
capacities, is in the best interest of the TRUST and the TRUST's shareholders.
In connection with the ADVISER's acceptance of employment hereunder, the ADVISER
hereby agrees and covenants for itself and on behalf of its Affiliates that
neither the ADVISER nor any of its Affiliates shall make any material or
significant personnel changes or replace or seek to replace any Essential Person
or cause to be replaced any Essential Person, in each case without first
informing the Board of Trustees of the TRUST in a timely manner. In addition,
neither the ADVISER nor any Affiliate of the ADVISER shall change or seek to
change or cause to be changed, in any material respect, the duties and
responsibilities of any Essential Person, in each case without first informing
the Board of Trustees of the TRUST in a timely manner.
(3) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
<PAGE> 3
Except as otherwise required by the Investment Company Act of 1940 (the
"1940 Act"), any of the shareholders, trustees, officers and employees of the
TRUST may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties hereunder on
the part of the ADVISER, neither the ADVISER nor any subadviser shall be subject
to liability to the TRUST, or to any shareholder of the TRUST, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
(4) COMPENSATION PAYABLE TO THE ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
computed at the following annual rate:
For purposes of this calculation, assets of the Fund shall be combined in
calculating the investment advisory fee. The Fund shall bear is pro rata share
of such fee based upon its average daily net assets.
.60% on the first $300 million of the TRUST's average daily net assets;
.55% on the next $300 million of the TRUST's average daily net assets; and .50%
of any excess over $600 million.
Average daily net assets shall be determined by taking the average of the
net assets for each business day during a given calendar month calculated in the
manner provided in the TRUST's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4
shall be reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the ADVISER, or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the TRUST, less any direct
expenses incurred by such person, in connection with obtaining such commissions,
fees, brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the TRUST's portfolio transactions and shall advise the
Trustees of any other commissions, fees, brokerage or similar payments which may
be possible for the ADVISER or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with TRUST's
portfolio transactions or other arrangements which may benefit the TRUST.
In the event that the ordinary business expenses of the TRUST for any
fiscal year should exceed .95% of average daily net assets, the compensation due
the ADVISER for such fiscal year shall be reduced by the amount of such excess.
The Adviser's compensation shall be so reduced by a reduction or a refund
thereof, at the time such compensation is payable after the end of each calendar
month during such fiscal year of the TRUST and if such amount should exceed such
monthly compensation, the ADVISER shall pay the TRUST an amount sufficient to
make up the deficiency, subject to readjustment during the TRUST's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the TRUST
shall include the investment advisory fee and other operating expenses paid by
the TRUST except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the TRUST; (iv) as a result of litigation involving a defense
against a liability asserted against the TRUST, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by the
TRUST to its officers and trustees and the ADVISER in accordance with applicable
state and federal laws as a result of such litigation; and (vi) amounts paid to
Van Kampen American Capital Distributors, Inc., the distributor of the TRUST's
shares, in connection with a distribution plan adopted by the FUND's Trustees
pursuant to Rule 12b-1 under the Investment Company Act of 1940.
<PAGE> 4
If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(5) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the TRUST are the
property of the TRUST and further agrees to surrender promptly to the TRUST any
of such records upon the TRUST's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records required
to be maintained by Rule 31a-1 under the Act.
(6) DURATION OF AGREEMENT
This Agreement shall become effective with respect to the initial Fund on
the date hereof, and with respect to any additional Portfolios, on the date of
receipt by the TRUST of notice from the ADVISER in accordance with Section 1(b)
hereof that the ADVISER is willing to serve as investment adviser with respect
to such Portfolio, provided that this Agreement (as supplemented by the terms
specified in any notice and agreement pursuant to Section 1(b) hereof) shall
have been approved by the shareholders of each Portfolio subject to this
Agreement, in accordance with the requirements under the 1940 Act, and shall
remain in full force until May 31, 1999 unless sooner terminated as hereinafter
provided. This Agreement shall continue in force as to a particular Fund from
year to year thereafter, but only so long as such continuance is approved at
least annually by the vote of a majority of the TRUST's Trustees who are not
parties to this Agreement or interested persons of any such parties, cast in
person at a meeting called for the purpose of voting on such approval , and by a
vote of a majority of the TRUST's Trustees or a majority of the TRUST's
outstanding voting securities.
This Agreement shall terminate automatically in the event of its
assignment. The Agreement may be terminated as to any Fund, at any time by the
TRUST's Trustees, by vote of a majority of the TRUST's outstanding voting
securities, or by the ADVISER, on 60 days' written notice, or upon such shorter
notice as may be mutually agreed upon. Such termination shall be without payment
of any penalty.
(7) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person, "
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the TRUST by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
It is understood and agreed that the ADVISER may engage a subadviser to
assist it in the performance of its duties hereunder. The execution of this
Agreement has been authorized by the TRUST's Trustees and by the sole
shareholder. This Agreement is executed on behalf of the TRUST or the Trustees
of the TRUST as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or shareholders of
the TRUST individually but are binding only upon the assets and property of the
TRUST. The TRUST is composed of one Fund. All obligations of the TRUST under
this Agreement shall apply only on a Fund by Fund basis and the assets of one
Fund shall not be liable for the obligations of any other Fund. A Certificate of
Trust in respect of the TRUST is on file with the Secretary of State of
Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
<PAGE> 5
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the TRUST.
The parties hereto each have caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC. TAX-EXEMPT TRUST
By:/s/ Dennis J. McDonnell By: /s/ Peter W. Hegel
----------------------- --------------------
Name: Dennis J. McDonnell Name: Peter W. Hegel
Its: President Its: Executive Vice President
<PAGE> 1
EXHIBIT (5)(b)
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT
TRUST -
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD
MUNICIPAL FUND
SUBADVISORY AGREEMENT
THIS AGREEMENT is made this 31st day of May, 1997, by and between VAN KAMPEN
AMERICAN CAPITAL ASSET MANAGEMENT, INC., a Delaware corporation (the "Adviser")
and VAN KAMPEN AMERICAN CAPITAL ADVISORS, INC., a Delaware corporation (the
"Subadviser").
WHEREAS, Van Kampen American Capital Tax-Exempt Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end, diversified management investment company, consisting of multiple
series of investment portfolios;
WHEREAS, the Adviser is registered under the Investment Advisers Act of 1940, as
amended, as an investment adviser and engages in the business of acting as an
investment adviser;
WHEREAS, the Subadviser is registered under the Investment Advisers Act of 1940,
as amended, as an investment adviser;
WHEREAS, the Agreement and Declaration of Trust authorizes the Trustees of the
Trust to classify or reclassify authorized but unissued shares of the Trust, and
as of the date of this Agreement, the Trust's Trustees have authorized the
issuance of one series of shares representing interests in one investment
portfolio--the Van Kampen American Capital High Yield Municipal Fund (the Fund)
(such portfolio and any other portfolios hereafter added to the Trust being
referred to collectively herein as the "Funds");
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May
31, 1997, with the Trust (the "Investment Advisory Agreement"), pursuant to
which the Adviser shall act as investment adviser with respect to the Fund; and
WHEREAS, the securities sought for the investment portfolio of the Fund are sold
in a highly specialized market and the Adviser is desirous to engage a
subadviser in an effort to improve its access to that market and enhance its
ability to acquire investment securities that meet the Fund's investment
objectives;
WHEREAS, the Adviser wishes to retain the Subadviser for purposes of rendering
such advisory services to the Adviser in connection with the Fund upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
(1) APPOINTMENT OF SUBADVISER. The Adviser hereby appoints the Subadviser to
render investment research and advisory services to the Adviser with respect to
the Fund, under the supervision of the Adviser and subject to the approval and
direction the Trust's Trustees, and the Subadviser hereby accepts such
appointment, all subject to the terms and conditions contained herein.
(2) INVESTMENT ANALYSIS. The duties of the Subadviser shall include:
a. obtaining and evaluating pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Fund, and whether
concerning the individual issuers whose securities are included in the Fund or
the activities in which such issuers engage, or with respect to securities which
the Subadviser considers desirable for inclusion in the Fund's investment
portfolio;
b. determining which issuers and securities shall be represented in the
Fund's investment portfolio
<PAGE> 2
and regularly reporting thereon to the Adviser and, at the request of the
Adviser, to the Trust's Trustees; and
c. formulating and implementing continuing programs for the purchases and
sales of the securities of such issuers and regularly reporting thereon to the
Adviser and, at the request of the Adviser, to the Trust's Trustees.
(3) CONTROL BY TRUSTEES. Any investment program undertaken by the Subadviser
pursuant to this Agreement, as well as any other activities undertaken by the
Subadviser with respect to the Fund, shall at all times be subject to any
directives of the Trust's Trustees.
(4) COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Subadviser shall at all times conform to:
a. all applicable provisions of the Act and any rules and regulations
adopted thereunder;
b. the provisions of the registration statement of the Trust, as the same
may be amended from time to time, under the Securities Act of 1933 and the Act;
c. the provisions of the Investment Advisory Agreement;
d. the provisions of the Agreement and Declaration of Trust of the Trust,
as the same may be amended from time to time;
e. the provisions of the by-laws of the Trust, as the same may be amended
from time to time; and
f. any other applicable provisions of state or federal law.
(5) COMPENSATION. The Adviser shall pay the Subadviser, as compensation for
services rendered hereunder, an annual fee, payable monthly, which for the
initial one-year term of this Agreement shall be paid according to the following
fee schedule: 0.40% of the first $20 million of the Fund's average daily net
assets, 0.25% of the next $30 million of the Fund's average daily net assets and
0.15% of the excess over $50 million of the Fund's average daily net assets. The
average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given calendar month,
calculated in the manner provided in the Trust's Agreement and Declaration of
Trust. After the termination of the initial term of this Agreement, such fee
schedule shall be subject to annual adjustment concurrently with renewal of this
Agreement for an additional one-year term. Each annual renewal shall be deemed
to be at the fee schedule in effect immediately prior to the expiration of the
most recent term unless a new fee schedule is set prior to renewal in writing
signed by the Adviser and the Subadviser, in which case the renewal will be
deemed to be at the fee schedule set forth in such writing.
(6) EXPENSES OF THE FUND. All of the ordinary business expenses incurred in the
operations of the Fund and the offering of its shares shall be borne by the Fund
unless specifically provided otherwise in the Investment Advisory Agreement.
(7) NON-EXCLUSIVITY. The services of the Subadviser to the Adviser with respect
to the Trust and the Fund are not to be deemed to be exclusive, and the
Subadviser shall be free to render investment advisory and administrative or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of the
Subadviser may serve as officers or directors/trustees of the Adviser or of the
Trust, and that officers or directors/trustees of the Adviser or of the Trust
may serve as officers or directors of the Subadviser to the extent permitted by
law; and that the officers and directors of the Subadviser are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
(8) TERM AND APPROVAL. This Agreement shall have an initial term through May 31,
1999, and may be continued from year to year thereafter, provided that the
continuation of the Agreement is specifically approved at least annually:
<PAGE> 3
a. (i) by the Trust's Trustees or (ii) by the vote of "a majority of the
outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of
the Act); and
b. by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the Act) of a
party to this Agreement (other than as Trustees of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
(9) TERMINATION. This Agreement may be terminated as to the Fund at any time,
without the payment of any penalty, by vote of the Trust's Trustees or by vote
of a majority of the Fund's outstanding voting securities, or by the Adviser, or
by the Subadviser on sixty (60) days' written notice to the other party and to
the Trust. The notice provided for herein may be waived by either party. This
Agreement shall automatically terminate in the event of its assignment, the term
"assignment" for purposes of this paragraph having the meaning defined in
Section 2(a)(4) of the Act.
(10) LIABILITY OF SUBADVISER. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder on the
part of the Subadviser or any of its officers, directors or employees, the
Subadviser shall not be subject to liability to the Adviser for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
(11) NOTICES. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage paid to such address as may be designated for
the receipt of such notice, with a copy to the Trust. Until further notice, it
is agreed that the address of (i) the Trust shall be One Parkview Plaza,
Oakbrook Terrace, Illinois 60181; (ii) that of the Adviser shall be 2800 Post
Oak Blvd., Houston, Texas 77056; and (iii) that of the Subadviser shall be 40
Broad Street, Suite 828, Boston, Massachusetts 02110.
(12) QUESTIONS OF INTERPRETATION. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretations thereof, if any, by the United
States courts or in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission issued
pursuant to the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of the Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
(13) MISCELLANEOUS PROVISIONS
The execution of this Agreement has been authorized by the Trust's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Trust or
the Trustees of the Trust as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees, officers
or shareholders of the Trust individually but are binding only upon the assets
and property of the Trust. A Certificate of Trust in respect of the Fund is on
file with the Secretary of State of Delaware.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
VAN KAMPEN VAN KAMPEN
AMERICAN CAPITAL AMERICAN CAPITAL
ADVISORS, INC. ASSET MANAGEMENT, INC.
By: /s/ Peter W. Hegel By: /s/ Dennis J. McDonnell
--------------------------- ---------------------------
Name: Peter W. Hegel Name: Dennis J. McDonnell
Its: Executive Vice President Its: President
<PAGE> 1
EXHIBIT (6)(a)
DISTRIBUTION AND SERVICE AGREEMENT
THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997 (the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST, a
Delaware business trust (the "Trust"), on behalf of its series, HIGH YIELD
MUNICIPAL FUND (the "Fund"), and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.,
a Delaware corporation (the "Distributor").
1. (a) Appointment of Distributor. The Fund appoints the Distributor as a
principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund, subject to different combinations of
front-end sales charges, distribution fees, service fees and contingent deferred
sales charges. Classes of shares, if any, subject to a front-end sales charge
and a distribution and/or service fee are referred to herein as "FESC Classes"
and the Shares of such classes are referred to herein as "FESC Shares." Classes
of shares, if any, subject to a contingent-deferred sales charge and a
distribution and/or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares." The Fund reserves the right to refuse at any time or times
to sell Shares hereunder for any reason deemed adequate by the Board of Trustees
of the Fund.
(b) Best Efforts. The Distributor shall use its best efforts to sell,
through its organization and through other dealers and agents, the Shares which
the Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares. Without
the prior approval of the Board of Trustees, the Distributor shall not, directly
or indirectly, distribute, sell or market, through its organization or other
brokers, dealers or agents, shares of any investment companies unless the Board
of Trustees of the Fund determines that such companies do not compete, or
potentially compete, with the Fund.
(c) Positions in the Shares. The Distributor agrees that it will not
take any long or short positions in the Shares, except for long positions in
those Shares purchased by the Distributor in accordance with any systematic
sales plan described in the then current Prospectus of the Fund and except as
permitted by Section 2 hereof, and that so far as it can control the situation,
it will prevent any of its trustees, officers or shareholders from taking any
long or short positions in the Shares, except for legitimate investment
purposes.
(d) Essential Personnel. The Distributor and the Fund agree that the
retention of (i) the chief executive officer, president, treasurer and secretary
of the Distributor, and (ii) each director, officer and employee of the
Distributor or any of its affiliates (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) who serves as an officer of the Fund (each
person referred to in (i) or (ii) hereinafter being referred to as an "Essential
Person "), in his or her curr capacities, is in the best interest of the Fund
and the Fund's shareholders. In connection with the Distributor's acceptance of
employment hereunder, the Distributor hereby agrees and covenants for itself and
on behalf of its Affiliates that neither the Distributor nor any of its
Affiliates shall replace or seek to replace any Essential Person or cause to be
replaced any Essential Person, in each case without first consulting with the
Board of Trustees of the Fund in a timely manner. In addition, neither the
Distributor nor any Affiliate of the Distributor shall change or seek to change
or cause to be changed, in any material respect, the duties and responsibilities
of any Essential Person, in each case without first consulting with the Board of
Trustees of the Fund in a timely manner.
1
<PAGE> 2
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth.
Such exclusive right hereby granted shall not apply to Shares issued or
transferred or sold at net asset value: (a) in connection with the merger
or consolidation of the Fund with any other investment company or the
acquisition by the Fund of all or substantially all of the assets of or the
outstanding Shares of any investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a
stock dividend or stock split or in connection with any other
recapitalization approved by the Board of Trustees; (c) upon the exercise
of purchase or subscription rights granted to the holders of Shares on a
pro rata basis; (d) in connection with the automatic reinvestment of
dividends and distributions from the Fund; or (e) in connection with the
issue and sale of Shares to trustees, officers and employees of the Fund,
to directors, officers and employees of the investment adviser of the Fund
or any principal underwriter (including the Distributor) of the Fund, to
retirees of the Distributor that purchased shares of any mutual fund
distributed by the Distributor prior to retirement, to directors, officers
and employees of Van Kampen American Capital, Inc. (the parent company of
the Distributor), VK/AC Holding, Inc. (the parent company of The Van Kampen
American Capital, Inc.), Morgan Stanley, Dean Witter, Discover & Co. (the
parent company of VK/AC Holding, Inc.) and to the subsidiaries of Van
Kampen American Capital, Inc.; (f) to any trust, pension, profit-sharing or
other benefit plan for any of the aforesaid persons; and (g) to any group
of persons as permitted by Rule 22d-1 under the 1940 Act approved from time
to time by the Board of Trustees and set forth in the then current
Prospectus of the Fund.
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable
allowances for clerical errors, delays and errors of transmission and
cancellation of orders) to fill unconditional orders for Shares received by
the Distributor from dealers, agents and investors during each period when
particular net asset values and public offering prices are in effect as
provided in Section 3 hereof; and the price which the Distributor shall pay
for the Shares so purchased shall be the respective net asset value used in
determining the public offering price on which such orders were based. The
Distributor shall notify the Fund at the end of each such period, or as
soon thereafter on that business day as the orders received in such period
have been compiled, of the number of Shares of each class that the
Distributor elects to purchase hereunder.
3. (a) Public Offering Price. The public offering price per Share
shall be determined in accordance with the then current Prospectus of the
Fund. In no event shall the public offering price exceed the net asset
value per Share, plus, with respect to the FESC Shares, a front-end sales
charge not in excess of the applicable maximum sales charge permitted under
the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., as in effect from time to time. The net asset value per
share for each class of Shares, respectively, shall be determined in the
manner provided in the Declaration of Trust and By-Laws of the Trust as
then amended, the Certificate of Designation with respect to the Fund, as
amended, and in accordance with the then current Prospectus of the Fund
consistent with the terms and conditions of the Fund's Multiple Class Plan
adopted by the Board of Trustees in accordance with Section 18 of the 1940
Act and Rule 18f-3 thereunder. The Fund will cause immediate notice to be
given to the Distributor of each change in net asset value as soon as it is
determined.
(b) Discounts to Dealers. Discounts to dealers purchasing FESC Shares
from the Distributor for resale and to brokers and other eligible agents making
sales of FESC Shares to investors and compensation payable from the Distributor
to dealers, brokers and other eligible agents making sales of CDSC Shares and
Combination Shares shall be set forth in the selling agreements between the
Distributor and such dealers or agents, respectively, as from time to time
amended, and, if such discounts and compensation are described in the then
current Prospectus for the Fund, shall be as so set forth. In connection with
the Distributor's employment hereunder, the Distributor hereby agrees to
distribute the Shares through brokers, dealers and other agents of Dean Witter
Distributors, Inc. on a "proprietary basis" substantially identical to the
distribution of shares of proprietary open-end investment companies distributed
by Dean Witter Distributors, Inc.
2
<PAGE> 3
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund
Shares, the Distributor will in all respects duly comply with all state and
federal laws relating to the sale of such securities and with all
applicable rules and regulations of all regulatory bodies, including
without limitation, the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and all applicable rules and regulations of
the Securities and Exchange Commission under the 1940 Act, and will
indemnify and save the Fund harmless from any damage or expense on account
of any unlawful act by the Distributor or its agents or employees. The
Distributor is not, however, to be responsible for the acts of other
dealers or agents, except to the extent that they shall be acting for the
Distributor or under its direction or authority. None of the Distributor,
any dealer, any agent or any other person is authorized by the Fund to give
any information or to make any representations, other than those contained
in the Registration Statement or Prospectus heretofore or hereafter filed
with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "1933 Act") (as any such Registration Statement and
Prospectus may have been or may be amended from time to time), covering the
Shares, and in any supplemental information to any such Prospectus approved
by the Fund in connection with the offer or sale of Shares. None of the
Distributor, any dealer, any broker or any other person is authorized to
act as agent for the Fund in connection with the offering or sale of Shares
to the public or otherwise. All such sales shall be made by the Distributor
as principal for its own account.
In selling Shares to investors, the Distributor will adopt and comply
with certain standards, as set forth in Exhibit III attached hereto as to
when each respective class of Shares may appropriately be sold to
particular investors. The Distributor will require every broker, dealer and
other eligible agent participating in the offering of the Shares to agree
to adopt and comply with such standards as a condition precedent to their
participation in the offering.
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund will
exercise its best efforts to obtain said registration and
qualification;
(ii) all expenses in connection with the printing of
any notices of shareholders' meetings, proxy and proxy
statements and enclosures therewith, as well as any other
notice or communication sent to shareholders in connection
with any meeting of the shareholders or otherwise, any
annual, semiannual or other reports or communications sent
to the shareholders, and the expenses of sending
prospectuses relating to the Shares to existing
shareholders;
(iii) all expenses of any federal or state
original-issue tax or transfer tax payable upon the
issuance, transfer or delivery of Shares from the Fund to
the Distributor; and
(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.
(b) The Distributor will pay the costs and expenses of qualifying and
maintaining qualification of the Shares for sale under the securities laws
of the various states. The Distributor will also permit its officers and
employees to serve without compensation as trustees and officers of the
Fund if duly elected to such positions.
(c) The Fund shall reimburse the Distributor for out-of-pocket costs
and expenses actually incurred by it in connection with distribution of
each class of Shares respectively in accordance with and subject to the
terms of a plan (the "12b-1 Plan") adopted by the Fund pursuant to Rule
12b-1 under the 1940 Act as such 12b-1 Plan may be in effect from time to
time; provided, however, that no payments shall be due or paid to the
Distributor hereunder with respect to a class of Shares unless and
3
<PAGE> 4
until this Agreement shall have been approved for each such class by a
majority of the Board of Trustees of the Fund and by a majority of the
"Disinterested Trustees" (as such term is defined in such 12b-1 Plan) by vote
cast in person at a meeting called for the purpose of voting on this Agreement.
A copy of such 12b-1 Plan as in effect on the date of this Agreement is attached
as Exhibit I hereto. The Fund reserves the right to terminate such 12b-1 Plan
with respect to a class of Shares at any time, as specified in the Plan. The
persons authorized to direct the payment of funds pursuant to this Agreement and
the 12b-1 Plan shall provide to the Fund's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report with respect to each class of
Shares setting forth the amounts so paid, the purposes for which such
expenditures were made for each such class of Shares, comparing the amounts paid
by such class of Shares with amounts paid by classes of shares issued by
investment companies not governed by the Board of Trustees and distributed by
the Distributor or by direct or indirect Affiliates of the Distributor and such
other information as the Board of Trustees may from time to time request.
(d) The Fund shall compensate the Distributor for providing services to,
and the maintenance of, shareholder accounts in the Fund (including prepaying
service fees to eligible brokers, dealers and financial intermediaries and
expenses incurred in connection therewith) and the Distributor may pay as agent
for and on behalf of the Fund a service fee with respect to each class of Shares
to brokers, dealers and financial intermediaries for the provision of
shareholder services and the maintena of shareholder accounts in the Fund in the
amount with respect to each class of Shares set forth from time to time in the
Fund's prospectus. The Fund shall compensate the Distributor for such expenses
in accordance with the terms of a service plan (the "Service Plan"), as such
Service Plan may be in effect from time to time; provided, however, that no
service fee payments shall be due or paid to the Distributor hereunder with
respect to a class of Shares unless and until this Agreement shall have been
approved for each such class by a majority of the Board of Trustees of the Fund
and by a majority of the Disinterested Trustees by vote cast in person at a
meeting called for the purpose of voting on this Agreement. A copy of such
Service Plan as in effect on the date of this Agreement is attached as Exhibit
II hereto. The Fund reserves the right to terminate such Service Plan with
respect to a class of Shares at any time, as specified in the Plan. The persons
authorized to direct the payment of funds pursuant to this Agreement and the
Service Plan shall provide to the Fund's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report with respect to each class of
Shares setting forth the amounts paid as service fees for each such class of
Shares comparing the amounts paid as service fees by such class of Shares with
amounts paid by classes of shares issued by investment companies not governed by
the Board of Trustees and distributed by the Distributor or by direct or
indirect Affiliates of the Distributor and such other information as the Board
of Trustees may from time to time request.
6. Redemption of Shares. In connection with the Fund's redemption of its
Shares, the Fund hereby authorizes the Distributor to repurchase, upon the terms
and conditions hereinafter set forth, as the Fund's agent and for the Fund's
account, such Shares as may be offered for sale to the Fund from time to time by
holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal and state
legislation, any applicable rules of the National Association of Securities
Dealers, Inc., and any applicable rules and regulations of the Securities
and Exchange Commission under the 1940 Act, the Distributor may accept
offers of holders of Shares to resell such Shares to the Fund on such terms
and conditions and at such prices as described and provided for in the then
current Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times as the
Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such
repurchases, and the Fund shall notify the Distributor of the prices and,
in the case of a class of CDSC Shares or Combination Shares, of the
deferred sales charge as described below, if any, applicable to repurchases
of Shares of such class.
(c) The Fund shall have the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by
telegraph or by written instrument from any of the Fund's officers. In the
event that the Distributor's authorization is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote
of the Board of Trustees of the Fund.
4
<PAGE> 5
(d) The Distributor agrees that all repurchases of Shares made by the
Distributor shall be made only as agent for the Fund's account and pursuant to
the terms and conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to pay, for the
Fund's account, the repurchase price (together with any applicable contingent
deferred sales charge) of any Shares so repurchased for the Fund against the
authorized transfer of book shares from an open account and against delivery of
any other documentation required by the Board of Trustees of the Fund or, in the
case of certificated Shares, against delivery of the certificates representing
such Shares in proper for transfer to the Fund.
(f) The Distributor shall receive no commissions or other compensation in
respect of any repurchases of FESC Shares for the Fund under the foregoing
authorization and appointment as agent. With respect to any repurchase of CDSC
Shares or Combination Shares, the Distributor shall receive the deferred sales
charge, if any, applicable to the respective class of Shares that have been held
for less than a specified period of time with respect to such class as set forth
from time to time in the Fund's Prospectus. The Distributor shall receive no
other commission or other compensation in respect of any repurchases of CDSC
Shares or Combination Shares for the Fund under the foregoing authorization and
appointment as agent.
(g) If any FESC Shares sold to the Distributor under the terms of this
Agreement are redeemed or repurchased by the Fund or by the Distributor as agent
or are tendered for redemption within seven business days after the date of the
Distributor's confirmation of the original purchase by the Distributor, the
Distributor shall forfeit the amount above the net asset value received by it in
respect of such Shares, provided that the portion, if any, of such amount
re-allowed by the Distributor t dealers or agents shall be repayable to the Fund
only to the extent recovered by the Distributor from the dealer or agent
concerned. The Distributor shall include in agreements with such dealers and
agents a corresponding provision for the forfeiture by them of their concession
with respect to FESC Shares purchased by them or their principals and redeemed
or repurchased by the Fund or by the Distributor as agent within seven business
days after the date of the Distributor's confirmation of such initial purchases.
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Distributor and each of its trustees and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground that
the registration statement, Prospectus, shareholder reports or other information
filed or made public by the Fund (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading under the 1933 Act
or any other statute or the common law. However, the Fund does not agree to
indemnify the Distributor or hold it harmless to the extent that the statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Fund by or on behalf of the Distributor. In no case (i) is the
indemnity of the Fund in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any liability to the
Fund or its securityholders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Fund to be liable under its indemnity agreement contained in this Section with
respect to any claim made against the Distributor or any person indemnified
unless the Distributor or any such person shall have notified the Fund in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon the Distributor or any such person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to the Distributor or any person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund shall be entitled to participate at its
own expense in the defense,
5
<PAGE> 6
or, if it so elects, to assume the defense, of any suit brought to enforce any
claims, but if the Fund elects to assume the defense, the defense shall be
conducted by counsel chosen by it and satisfactory to the Distributor or person
or persons, defendant or defendants in the suit. In the event the Fund elects to
assume the defense of any suit and retain counsel, the Distributor, officers or
trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them. If
the Fund does not elect to assume the defense of any suit, it will reimburse the
Distributor, officers or trustees or controlling person or persons, defendant or
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them. The Fund agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of any of the Shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Fund and each of its trustees and officers and each person, if any,
who controls the Fund within the meaning of Section 15 of the 1933 Act against
any loss, liability, damage, claim or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, damage, claim or expense
and reasonable counsel fees incurred in connection therewith) arising by reason
of any person acquiring any Shares, based upon the 1933 Act or any other statute
or common law, alleging any wrongful act of the Distributor or any of its
employees or alleging that the registration statement, Prospectus, shareholder
reports or other information filed or made public by the Fund (as from time to
time amended) included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, insofar as the statement or omission was made in reliance upon,
and in conformity with, information furnished to the Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Distributor in favor of the
Fund or any person indemnified to be deemed to protect the Fund or any such
person against any liability to which the Fund or such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligation and duties under this Amended Agreement, or (ii) is the Distributor
to be liable under its indemnity agreement contained in this paragraph with
respect to any claim made against the Fund or any person indemnified unless the
Fund or person, as the case may be, shall have notified the Distributor in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon the Fund or person (or after the Fund or such person shall have
received notice of service on any designated agent). However, failure to notify
the Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Fund or any person against whom the action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. In the case of any notice to the Distributor, it shall be entitled to
participate, at its own expense, in the defense, or, if it so elects, to assume
the defense, of any suit brought to enforce the claim, but if the Distributor
elects to assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Fund, to its officers and trustees and to any
controlling person or persons, defendant or defendants in the suit. In the event
that the Distributor elects to assume the defense of any suit and retain
counsel, the Fund or controlling persons, defendants in the suit, shall bear the
fees and expenses of any additional counsel retained by them. If the Distributor
does not elect to assume the defense of any suit, it will reimburse the Fund,
officers and trustees or controlling person or persons, defendant or defendants
in the suit, for the reasonable fees and expenses of any counsel retained by
them. The Distributor agrees to notify the Fund promptly of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any of the Shares.
8. Continuation, Amendment or Termination of This Agreement. This Agreement
shall become effective on the Effective Date and thereafter shall continue in
full force and effect year to year with respect to each class of Shares so long
as such continuance is approved at least annually (i) by the Board of Trustees
of the Fund or by a vote of a majority of the outstanding voting securities of
the respective class of Shares of the Fund, and (ii) by vote of a majority of
the Trustees who are not parties to this Agreement or interested persons in any
such party (the "Independent Trustee") cast in person at a meeting called for
the purpose of voting on such approval, provided, however, that (a) this
Agreement may at any time be terminated with respect to either class of Shares
of the Fund without the payment of any penalty either by vote of a majority of
the Disinterested Trustees, or by vote of a majority of the outstanding voting
securities of the respective class of Shares of the Fund, on written notice to
the
6
<PAGE> 7
Distributor; (b) this Agreement shall immediately terminate in the event of its
assignment; and (c) this Agreement may be terminated by the Distributor on
ninety (90) days' written notice to the Fund. Upon termination of this Agreement
with respect to either class of Shares of the Fund, the obligations of the
parties hereunder shall cease and terminate with respect to such class of Shares
as of the date of such termination, except for any obligation to respond for a
breach of this Agreement committed prior to such termination.
This Agreement may be amended with respect to either class of Shares at any
time by mutual consent of the parties, provided that such consent on the part of
the Fund shall have been approved (i) by the Board of Trustees of the Fund, or
by a vote of the majority of the outstanding voting securities of the respective
class of Shares of the Fund, and (ii) by vote of a majority of the Independent
Trustees cast in person at a meeting called for the purpose of voting on such
amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall have
the meanings defined in the 1940 Act, as amended.
9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
10. Notice. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office of
such party or at such other address as such party shall have designated in
writing.
11. Name. In connection with its employment hereunder, the Distributor
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers designated below on the day and year first above written.
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST, on behalf of
its series, HIGH YIELD MUNICIPAL FUND
By: /s/ Dennis J. McDonnell
--------------------------------
Name: Dennis J. McDonnell
Title: President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: /s/ Ronald A. Nyberg
--------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President
8
<PAGE> 1
EXHIBIT (8)(a)
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES LISTED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Moneys . . . . . . . . . . . . . . . . . . 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . 10
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . 10
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.15 Communications Relating to Fund Securities . . . . . . . . 11
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . 11
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . 12
3.4 Agreements with Foreign Banking Institutions . . . . . . . 12
3.5 Access of Independent Accountants of the Fund . . . . . . 12
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . 12
3.7 Transactions in Foreign Custody Account . . . . . . . . . 13
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . 13
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . 13
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . 14
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . 14
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . 15
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . 16
6. Actions Permitted Without Express Authority . . . . . . . . . . . 16
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . 17
8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . 18
11. Reports to Fund by Independent Public Accountants . . . . . . . . 18
12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . 18
13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . 18
14. Effective Period, Termination and Amendment . . . . . . . . . . . 19
15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . 20
16. Interpretive and Additional Provisions . . . . . . . . . . . . . . 21
17. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . 22
19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. Shareholder Communications . . . . . . . . . . . . . . . . . . . . 22
21. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between each fund or series of a fund listed on
Appendix A which evidences its agreement to be bound hereby by executing a copy
of this Contract (each such fund is individually hereafter referred to as
the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to the
provisions of the Fund's governing documents. The Fund agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, beneficial
interest or partnership interest, as applicable, of the Fund, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Fund(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
1
<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund all non-cash property to be held by it in
the United States including all domestic securities owned by such Fund
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury
(and certain federal agencies collectively referred to herein as
"Securities System") and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Fund held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee
2
<PAGE> 6
name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
3
<PAGE> 7
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption;
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board of Trustees,
specifying the securities of the Fund to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
securities shall be made; and
16) Upon termination of the Contract.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to
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<PAGE> 8
Article 1. All securities accepted by the Custodian on behalf of the
Fund under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the Custodian
to maintain securities in "street name", the Custodian shall utilize
its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund ,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for a
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Fund be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund, make federal funds available to such Fund
as of specified times agreed upon from time to time by the Fund and
the Custodian in the amount of checks received in payment for Shares
of such Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when
5
<PAGE> 9
due on securities held hereunder. Income due each Fund on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Fund in the
following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund or (e) for transfer to
a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined
in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
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<PAGE> 10
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified copy
of a resolution of the Board of Trustees, specifying the amount
of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment
is to be made; and
8) Upon termination of this Contract.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
7
<PAGE> 11
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S.
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon (i)
receipt of advice from the U.S. Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;
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<PAGE> 12
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the U.S. Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Fund in
the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund ;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
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<PAGE> 13
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for the account of
the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each such Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund , the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund , a certified copy of a
resolution of the Board of Trustees setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Fund held by it
and in connection with transfers of securities.
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<PAGE> 14
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Fund shall notify the Custodian at
least three business days prior to the date on which the Custodian is
to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in
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<PAGE> 15
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in a clearing agency which acts as a securities depository
or in a book-entry system for the central handling of securities
located outside of the United States (each a "Foreign Securities
System") only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof
(Foreign Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold cash, securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (1) the records of the Custodian with respect to cash,
securities and other non-cash property of the Fund which are
maintained in such account shall identify by book-entry the cash,
securities and other non-cash property belonging to the Fund and (ii)
the Custodian shall require that cash, securities and other non-cash
property so held by the foreign sub-custodian be held separately from
any assets of the Custodian, the foreign sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of
each Fund will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Fund will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Fund; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund(s) held by the foreign
sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund(s) securities and other assets
and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking
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<PAGE> 16
institution for the Custodian on behalf of each applicable Fund
indicating, as to securities acquired for a Fund, the identity of the
entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians. (b) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for securities
received for the account of each applicable Fund and delivery of
securities maintained for the account of each applicable Fund may be
effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. In addition, and
whether or not such practice is a customary established trading
practice in the relevany jurisdictions, the Custodian will, upon
Proper Instructions from the Fund, deliver cash to securities brokers
in foreign jurisdictions who will effect securities trades for the
Fund and cause the securities purchased to be delivered to the
applicable foreign sub-custodian at some later date. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained
in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this
13
<PAGE> 17
paragraph 3.10, in delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any responsibility to the
Fund for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Fund's assets to the extent necessary to obtain
reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Fund's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of
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<PAGE> 18
said Act. The appointment of any such branch as a sub-custodian shall
be governed by paragraph 1 of this Contract. (b) Cash held for each
Fund in the United Kingdom shall be maintained in an interest bearing
account established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Fund and the Transfer Agent of
any receipt by it of payments for Shares of such Fund.
From such funds as may be available for the purpose but subject to the
limitations of the applicable Fund's governing documents and any applicable
votes of the Board of Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares of a Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
15
<PAGE> 19
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Funds' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund ;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees of the Fund.
16
<PAGE> 20
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the governing documents of
the Fund as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Fund and/or compute the net asset value per share
of the outstanding shares of each Fund or, if the Custodian and the Fund
execute the applicable Price Source Authorization (the "Authorization"), the
Custodian shall keep such books of account and/or compute such net asset value
per share pursuant to the terms of the Authorization and the attachments
thereto. If so directed, the Custodian shall also calculate daily the net
income of the Fund as described in the Fund's currently effective Prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Fund shall be made at the time or times
described from time to time in the Fund's currently effective Prospectus
related to such Fund.
9. Records
The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to
17
<PAGE> 21
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in
18
<PAGE> 22
good faith without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by: (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
its investment adviser in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30)
19
<PAGE> 23
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Fund has approved the initial use of a
particular Securities System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of the
Fund has reviewed any subsequent change regarding the use by such Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Fund act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of the Direct Paper System by such Fund and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of the Fund has reviewed the use by such Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Fund's governing documents, and further provided, that the Fund
on behalf of one or more of the Funds may at any time by action of its Board (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for a Fund shall be appointed by the Board
of Trustees of such Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities, Funds and other properties of each
applicable Fund then held by it hereunder and shall transfer to an account of
the successor custodian all of the securities of each Fund held in a Securities
System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such
20
<PAGE> 24
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Fund and all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf of each applicable
Fund and to transfer to an account of such successor custodian all of the
securities of each such Fund held in any Securities System. Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the governing documents of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
17. Additional Funds
In the event that Van Kampen American Capital Distributors , Inc.
establishes any funds in addition to the Funds listed on Appendix A with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request. All references herein to
the "Fund" are to each of the Funds listed on Appendix A individually, as if
21
<PAGE> 25
this Contract were between each such individual Fund and the Custodian. With
respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Funds and the Custodian relating to the custody of
the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
21. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consent or object by checking one of the
alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions of each Fund listed on
Exhibit A.
NO [X] The Custodian is not authorized to release the Fund's
name, address, and share positions of each Fund listed
on Exhibit A.
22
<PAGE> 26
22. Limitation of Liability.
The execution of this Contract has been authorized by each Fund's
Board of Trustees. This Contract is executed on behalf of each Fund or the
trustees of such Fund as trustees and not individually and the obligations of
the Fund under this Contract are not binding upon any of the Fund's trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 1st day of August, 1997.
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ Nicholas Dalmaso By: /s/ Ronald A. Nyberg
- ------------------------ -----------------------------------
Ronald A. Nyberg, Vice President
and Secretary
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Francine Hayes By: [ILLEGIBLE]
- ------------------------ -----------------------------------
Executive Vice President
23
<PAGE> 27
APPENDIX A
FUND NAMES
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
Van Kampen American Capital High Yield Municipal Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
Van Kampen American Capital U.S. Government Fund
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal
Income Fund
Van Kampen American Capital Florida Insured Tax Free
Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
VAN KAMPEN AMERICAN CAPITAL TRUST
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND
24
<PAGE> 28
THE EXPLORER INSTITUTIONAL TRUST
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
VAN KAMPEN AMERICAN CAPITAL NAVIGATOR FUNDS
Emerging Markets Equity Portfolio
Emerging Markets Fixed Income Portfolio
U.S. QUALITY FUNDS
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR PENNSYLVANIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL BOND FUND
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST
25
<PAGE> 1
EXHIBIT (8)(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 31st day of May, 1997 by and between each of the
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto,
which are organized under the laws of the state and as the entities set forth
in Schedule "A" hereto (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation ("ACCESS").
R E C I T A L:
-------------
WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment; Duties of ACCESS.
---------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement, each
of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent.
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence
in accordance with reasonable industry practice, and that the necessary
facilities, equipment and personnel for such performance will be provided.
1.04 For a period of one year commencing on the effective date of this
Agreement, ACCESS and each of the Funds agree that the retention of (i) the
chief executive officer, president, chief financial officer, chief operating
officer and secretary of ACCESS and (ii) each director, officer and employee of
ACCESS or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Funds (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest
<PAGE> 2
of the Funds and the Funds' shareholders. In connection with ACCESS's
acceptance of employment hereunder, ACCESS hereby agrees and covenants for
itself and on behalf of its Affiliates that neither ACCESS nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Funds
in a timely manner. In addition, neither ACCESS nor any Affiliate of ACCESS
shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Funds in a timely
manner.
1.05 In order to assure compliance with section 1.03 and to implement a
cooperative effort to improve and maintain the quality of transfer agency,
dividend disbursing and shareholder services received by each of the Funds and
their shareholders, ACCESS agrees to provide and maintain quantitative
performance objectives, including maximum target turn-around times and maximum
target error rates, for the various services provided hereunder. ACCESS also
agrees to provide a reporting system designed to provide the Board of Trustees
of each of the Funds (the "Board") on a quarterly basis with quantitative data
comparing actual performance for the period with the performance objectives.
The foregoing procedures are designed to provide a basis for continuing
monitoring by the Board of the quality of services rendered hereunder.
Article 2. Fees and Expenses.
------------------
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each of the
Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings
Page 2
<PAGE> 3
to all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.
Article 3. Representations and Warranties of Access.
-----------------------------------------
ACCESS represents and warrants to each of the Funds that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in each jurisdiction in
which the nature of its business requires it to be so qualified.
3.03 It is empowered under applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform its
duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as follows:
(a) Each "as of" transaction effected at a price other than that in
effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error,
or delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon any Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of such Fund, ACCESS shall promptly make a payment to such Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of such Fund. If on the last business day
of the month the cumulative net effect (adjusted by the amount of any
payments or credits used pursuant to the preceding sentence) upon any
Fund is negative, such Fund shall be entitled to a reduction in the
monthly transfer agency fee next payable by an equivalent amount, except
as provided in paragraph (c) below. If on the last
Page 3
<PAGE> 4
business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain
past payments, credits used and reductions in fees, and to a credit
against all future payments and fee reductions made under this paragraph
to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first
be applied to recover any payments, credits used and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar year
by increasing the amount of the monthly transfer agency fee next payable
in an amount equal to prior payments, credits used and fee reductions
made during such year, but not exceeding the sum of that month's credit
and credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects which would otherwise require a payment,
use of a credit or fee reduction to such Fund pursuant to paragraph (b)
above.
Article 4. Representations and Warranties of the Funds.
--------------------------------------------
Each of the Funds hereby represents and warrants on behalf of itself
only and not on behalf of any other Funds which are a party to this Agreement
that:
4.01 It is duly organized and existing and in good standing under the laws
of the commonwealth or state set forth in Schedule "A" hereto.
4.02 It is empowered under applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.
4.03 All requisite proceedings have been taken by its Board to authorize
it to enter into and perform this Agreement.
4.04 It is an open-end, management investment company registered under the
Investment Company Act of 1940, as amended.
Page 4
<PAGE> 5
4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.
Article 5. Indemnification.
---------------
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities (collectively, "Losses") arising out of or attributable to:
(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided that ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS
by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying out by
ACCESS of, any instructions or requests of such Fund.
(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless
such violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares
be made in general or to the residents of a particular state.
(e) Such Fund's refusal or failure to comply with the terms of this
Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder. Notwithstanding the foregoing, no Fund shall be required to
indemnify or hold ACCESS harmless from and against any Losses arising out
of or attributable to any action or failure to take action, or any
information, records or
Page 5
<PAGE> 6
documents prepared or maintained, on behalf of
the Fund by the Fund's investment adviser or distributor, or any person
providing fund accounting or legal services to the Fund that is also an
officer or employee of Van Kampen American Capital, Inc. or its
subsidiaries unless such person or entity is otherwise entitled to
indemnification from the Fund.
5.02 ACCESS shall indemnify and hold harmless each of the Funds from and
against any and all Losses arising out of or attributable to ACCESS' refusal or
failure to comply with the terms of this Agreement, or ACCESS' lack of good
faith, or its negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any of the
Funds for instructions, and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement,
and ACCESS shall not be liable and shall be indemnified by such concerned Fund
for any action taken or omitted by it in good faith in reasonable reliance upon
such instructions or upon the opinion of such counsel. ACCESS shall be
protected and indemnified in acting upon any paper or document reasonably
believed by ACCESS to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the concerned Fund.
ACCESS shall also be protected and indemnified in recognizing stock
certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event that any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim.
Page 6
<PAGE> 7
The party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6. Covenants of Each of the Funds and ACCESS.
------------------------------------------
6.01 Each of the Funds shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of its Board authorizing the
appointment of ACCESS and the execution and delivery of this Agreement.
(b) Certified copies of its Declaration of Trust or Articles of
Incorporation and by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 ACCESS shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.
Page 7
<PAGE> 8
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned
Funds and to secure instructions from an authorized officer of each of the
concerned Funds as to such inspection. ACCESS reserves the right, however, to
exhibit such Fund Records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit such Fund records to such
person.
Article 7. Term and Termination Of Agreement.
----------------------------------
7.01 The initial term of this Agreement shall expire May 31, 1999,
and thereafter this Agreement shall automatically be renewed for
successive one year periods to begin on June 1 of each year unless any party
provides notice to the other party at least 120 days in advance of that date
that this Agreement is not to be renewed.
7.02 Notwithstanding the foregoing, any party may terminate this
Agreement for good and reasonable cause at any time by giving written
notice to the other party at least 60 days prior to the date on which such
termination is to be effective or such shorter period as may be required by
law.
7.03 Any unpaid fees or reimbursable expenses payable to ACCESS at
the termination date of this Agreement shall be due on that termination date.
ACCESS agrees to use its best efforts to cooperate with the Funds and the
successor transfer, dividend disbursement, or shareholder servicing agent
or agents in accomplishing an orderly transition.
Article 8. Miscellaneous.
--------------
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of
any of the Funds to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
Page 8
<PAGE> 9
8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of
the Funds for the acts and omissions of DST, Inc. or other qualified
servicer as it is for its own acts and omissions.
8.04 Without the prior approval of the Boards of Trustees of the
Funds, ACCESS shall not, directly or indirectly, provide services,
including services such as transfer agent, dividend disbursing agent or
shareholder service agent, to any investment companies.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
any prior agreement with respect thereto, whether oral or written, and
this Agreement may not be modified except by written instrument executed
by the affected parties.
8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the
Trustees of the Funds as Trustees and not individually and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Funds individually but are binding only
upon the assets and property of the Funds. A Certificate of Trust in
respect of each of the Funds is on file with the appropriate state
agency.
8.07 For each of those Funds which have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under
this Agreement shall apply only on a portfolio-by-portfolio basis and the
assets of one portfolio shall not be liable for the obligations of any
other.
8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties
hereto agree to renegotiate such affected portions in good faith.
8.09 All questions concerning the validity, meaning and effect of
this Agreement shall be determined in accordance with the laws (without
giving effect to the conflict-of-law principles thereof) of the State of
Delaware applicable to contracts made and to be performed in that state.
8.10 (a) Any dispute, controversy, or claim arising out of or
relating to this Agreement, or the breach, termination or validity
thereof, shall be finally settled by arbitration in accordance with
the Expedited Procedures
Page 9
<PAGE> 10
of the commercial arbitration Rules of the American Arbitration
Association (the "AAA") then in effect (the "Rules"). The
arbitration shall be held in Chicago, Illinois.
(b) There shall be one arbitrator who shall be selected jointly by
the parties. If the parties are unable to agree on an arbitrator
within 15 days after a demand for arbitration is made by a party,
the arbitrator shall be appointed by the AAA in accordance with the
Rules. The hearing shall be held within 90 days of the appointment
of the arbitrator. Notwithstanding the Expedited Procedures
of the Rules, the arbitrator, at his discretion, may schedule
additional days of hearings.
(c) Either party may, without inconsistency with this Agreement,
seek from a court any interim or provisional relief in aid of
arbitration, pending the establishment of the arbitral tribunal.
The parties hereby submit to the exclusive jurisdiction of the
federal and state courts located in the northern district of the
state of Illinois for any such relief in aid of arbitration, or for
any relief relating to arbitration, except for the enforcement of an
arbitral award which may be enforced in any court having
jurisdiction.
(d) Any arbitration proceedings or award rendered hereunder and the
validity, effect and interpretation of Section 8.10 shall be
governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et
--
seq.) The award shall be final and binding upon the parties.
---
Judgment upon any award may be entered in any court having
jurisdiction.
(e) This Agreement and the rights and obligations of the Parties
shall remain in full force and effect pending the award in any
arbitration proceeding hereunder.
Page 10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
EACH OF THE VAN KAMPEN AMERICAN CAPITAL
OPEN END FUNDS LISTED ON SCHEDULE
"A" HERETO
BY: /s/ Ronald A. Nyberg
----------------------------------
Vice President
ATTEST:
/s/ Nicholas Dalmaso
- ----------------------------------
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY: /s/ Paul R. Wolkenberg
---------------------------------
President and Chief Executive Officer
ATTEST:
/s/ Huey P. Falgout
- ---------------------------------
Assistant Secretary
Page 11
<PAGE> 12
SCHEDULE "A"
------------
VAN KAMPEN AMERICAN CAPITAL OPEN-END FUNDS
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Aggressive Growth Fund DE T
Van Kampen American Capital California Insured Tax Free Fund DE T
Van Kampen American Capital Comstock Fund DE T
Van Kampen American Capital Corporate Bond Fund DE T
Van Kampen American Capital Emerging Growth Fund DE T
Van Kampen American Capital Enterprise Fund DE T
Van Kampen American Capital Equity Income Fund DE T
Van Kampen American Capital Florida Insured Tax Free Income Fund DE T
Van Kampen American Capital Foreign Securities Fund DE T
Van Kampen American Capital Global Managed Assets Fund DE T
Van Kampen American Capital Government Securities Fund DE T
Van Kampen American Capital Government Target Fund DE T
Van Kampen American Capital Great American Companies Fund DE T
Van Kampen American Capital Growth Fund DE T
Van Kampen American Capital Growth and Income Fund DE T
Van Kampen American Capital Harbor Fund DE T
Van Kampen American Capital High Income Corporate Bond Fund DE T
Van Kampen American Capital High Yield Fund DE T
Van Kampen American Capital Insured Tax Free Income Fund DE T
Van Kampen American Capital Intermediate Term Municipal Income Fund DE T
</TABLE>
Page 12
<PAGE> 13
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Life Investment Trust DE T
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen American Capital Limited Maturity Government Fund DE T
Van Kampen American Capital Municipal Income Fund DE T
Van Kampen American Capital New Jersey Tax Free Income Fund DE T
Van Kampen American Capital New York Tax Free Income Fund DE T
Van Kampen American Capital Pace Fund DE T
Van Kampen American Capital Pennsylvania Tax Free Income Fund PA T
Van Kampen American Capital Prospector Fund DE T
Van Kampen American Capital Real Estate Securities Fund DE T
Van Kampen American Capital Reserve Fund DE T
Van Kampen American Capital Short-Term Global Income Fund DE T
Van Kampen American Capital Small Capitalization Fund DE T
Van Kampen American Capital Strategic Income Fund DE T
Van Kampen American Capital Tax-Exempt Trust DE T
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Tax Free High Income Fund DE T
Van Kampen American Capital Tax Free Money Fund DE T
Van Kampen American Capital U.S. Government Fund DE T
Van Kampen American Capital U.S. Government Trust for Income DE T
Van Kampen American Capital Utility Fund DE T
Van Kampen American Capital Value Fund DE T
</TABLE>
PAGE 13
<PAGE> 14
<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital World Portfolio Series Trust DE T
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities
Fund
</TABLE>
PAGE 14
<PAGE> 1
Exhibit (9)(b)
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, dated May 31, 1997, by and between the parties
set forth in Schedule A hereto (designated collectively hereafter as the
"Funds") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").
W I T N E S S E T H:
WHEREAS, each of the Funds is registered as a management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Advisory Corp. has the capability of providing certain
accounting services to the Funds; and
WHEREAS, each desires to utilize Advisory Corp. in the
provision of such accounting services; and
WHEREAS, Advisory Corp. intends to maintain its staff in order
to accommodate the provision of all such services.
NOW THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:
1. Appointment of Advisory Corp. As agent, Advisory Corp. shall provide
-----------------------------
each of the Funds the accounting services ("Accounting Services") as set
forth in Paragraph 2 of this Agreement. Advisory Corp. accepts such
appointment and agrees to furnish the Accounting Services in return for the
compensation provided in Paragraph 3 of this Agreement.
2. Accounting Services to be Provided. Advisory Corp. will provide
----------------------------------
to each respective Fund accounting related services in connection with the
maintenance of the financial records of such Fund, including without
limitation: (i) maintenance of the general ledger and other financial books
and records; (ii) processing of portfolio transactions; (iii) coordination
of the valuation of portfolio securities; (iv) calculation of the Fund's
net asset value; (v) coordination of financial and regulatory reporting;
(vi) preparation of financial reports for each Fund's Board of Trustees;
(vii) coordination of tax and financial compliance issues; (viii) the
establishment and maintenance of accounting policies; (ix) recommendations
with respect to dividend policies; (x) preparation of each Fund's financial
reports and other accounting and tax related notice information to
shareholders; and (xi) the assimilation and interpretation of accounting
data for meaningful management review. Advisory Corp. shall provide
accurate maintenance of each Fund's financial books and records as required
by the applicable securities statutes and regulations, and shall hire
persons (collectively the "Accounting Service Group") as needed to provide
such Accounting Services.
<PAGE> 2
3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision
of the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.
The Accounting Services Expenses will be paid by Advisory Corp.
and reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.
4. Payment for Accounting Service Expenses Among the Funds. As to one
quarter (25%) of the Accounting Service Expenses incurred under the
Agreement, the expense shall be allocated between all Funds based on the
number of classes of shares of beneficial interest that each respective
Fund has issued. As to the remaining three quarters (75%) of the Accounting
Service Expenses incurred under the Agreement, the expense shall be
allocated between all Funds based on their relative net assets. For
purposes of determining the percentage of expenses to be allocated to any
Fund, the liquidation preference of any preferred shares issued by any such
Fund shall not be considered a liability of such Fund for the purposes of
calculating relative net assets of such Fund.
5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will
remain the property of each respective Fund and will be preserved by
Advisory Corp. for the periods prescribed in Section 31 of the 1940 Act and
the rules thereunder or such other applicable rules that may be adopted
from time to time under the act. In the event of termination of the
Agreement, such records will be promptly delivered to the respective Funds.
Such records may be inspected by the respective Funds at reasonable times.
6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any
Fund for any action taken or thing done by it or its agents or contractors
on behalf of the fund in carrying out the terms and provisions of the
Agreement if done in good faith and without gross negligence or misconduct
on the part of Advisory Corp., its agents or contractors.
7. Indemnification By Funds. Each Fund will indemnify and hold Advisory
Corp. harmless from all lost, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Advisory Corp. resulting from: (a) any
claim, demand, action or suit in connection with Advisory Corp.'s acceptance of
this Agreement; (b) any action or omission by Advisory Corp. in the performance
of its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed
by it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions
constituting gross negligence or willful misconduct of Advisory Corp. or its
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, Advisory Corp. shall give the Fund reasonable
opportunity to defend against said claim in its own name or in the name of
Advisory Corp.
8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and
hold harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided
that such negligence or misconduct is not attributable to the Funds, their
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, the Fund shall give Advisory Corp. reasonable
opportunity to defend against said claim in its own name or in the name of such
Fund.
2
<PAGE> 3
9. Further Assurances. Each party agrees to perform such further acts and
-------------------
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Dual Interests. It is understood that some person or persons may be
---------------
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
11. Execution, Amendment and Termination. The term of this Agreement shall
-------------------------------------
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or
amended from time to time by mutual agreement between the parties hereto and
may be terminated after May, 1998, by at least sixty (60) days' written notice
given by one party to the others. Upon termination hereof, each Fund shall pay
to Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement
may be amended in the future to include as additional parties to the Agreement
other investment companies for with Advisory Corp., any subsidiary or affiliate
serves as investment advisor or distributor if such amendment is approved by
the President of each Fund.
12. Assignment. Any interest of Advisory Corp. under this Agreement shall
-----------
not be assigned or transferred, either voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of the Funds.
This Agreement shall automatically and immediately terminate in the event of
its assignment without the prior written consent of the Funds.
13. Notice. Any notice under this Agreement shall be in writing, addressed
-------
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until further notice to the other parties, it is agreed that
for this purpose the address of each Fund is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, Attention: President and that of Advisory Corp. for
this purpose is One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: President.
14. Personal Liability. As provided for in the Agreement and Declaration of
------------------
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and
other agents of the Fund shall not personally be found by or liable for the
matters set forth hereto, nor shall resort be had to their private property for
the satisfaction of any obligation or claim hereunder.
15. Interpretative Provisions. In connection with the operation of this
--------------------------
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.
16. State Law. This Agreement shall be construed and enforced in accordance
----------
with and governed by the laws of the State of Illinois.
17. Captions. The captions in this Agreement are included for convenience
---------
of reference only and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this amended and
restated Agreement to be executed as of the day and year first above written.
ALL OF THE PARTIES SET FORTH IN SCHEDULE A
By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President
4
<PAGE> 5
SCHEDULE A
I. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):
CLOSED END FUNDS
- ----------------
Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust
INSTITUTIONAL FUNDS
- -------------------
II. Funds Advised by Van Kampen American Capital Management, Inc.
("Management, Inc.") (Collectively, the "Former Van Kampen Funds"):
The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
5
<PAGE> 6
OPEN END FUNDS
- --------------
III. Funds Advised by Van Kampen American Capital Asset Management, Inc.
("Asset Management, Inc.") (Collectively, the "Former American Capital Funds"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Funds")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf of
its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
6
<PAGE> 7
IV. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of its
series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York
Tax Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")
Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth Fund")
Van Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund ("Pennsylvania
Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
7
<PAGE> 1
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 19 to
the registration statement on Form N-1A (the "Registration Statement") of our
report dated January 12, 1998, relating to the financial statements and
financial highlights of Van Kampen American Capital High Yield Municipal Fund,
a series of Van Kampen American Capital Tax-Exempt Trust, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings
"Financial Highlights" and "Independent Accountants" in such Prospectus and to
the reference to us under the heading "Independent Accountants" in such
Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
March 30, 1998
<PAGE> 1
EXHIBIT (16)
HIGH YIELD MUNICIPAL FUND - CLASS A SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,043.76 = ERV
One year period ended 11/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 4.38% = T
Excluding Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,096.27 = ERV
One year period ended 11/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 9.63% = T
TOTAL RETURN CALCULATION FIVE YEARS ENDED NOVEMBER 30, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,399.09 = ERV
Five years ended 11/30/97 5 = n
TOTAL RETURN FOR THE PERIOD 6.95% = T
Excluding Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,468.89 = ERV
Five years ended 11/30/97 5 = n
TOTAL RETURN FOR THE PERIOD 7.99% = T
</TABLE>
<PAGE> 2
HIGH YIELD MUNICIPAL FUND - CLASS A SHARES
TOTAL RETURN CALCULATION TEN YEARS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,121.17 = ERV
Ten years ended 11/30/97 10 = n
TOTAL RETURN FOR THE PERIOD 7.81% = T
Excluding Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,226.94 = ERV
Ten years ended 11/30/97 10 = n
TOTAL RETURN FOR THE PERIOD 8.34% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH NOVEMBER 30, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,269.17 = ERV
Inception through 11/30/97 11.91 = n
TOTAL RETURN FOR THE PERIOD 7.12% = T
Excluding Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,382.22 = ERV
Inception through 11/30/97 11.91 = n
TOTAL RETURN FOR THE PERIOD 7.56% = T
</TABLE>
<PAGE> 3
HIGH YIELD MUNICIPAL FUND - CLASS A SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Formula ERV - P
-------
P = T
Including Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,269.17 = ERV
TOTAL RETURN FOR THE PERIOD 126.92% = T
Excluding Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,382.22 = ERV
TOTAL RETURN FOR THE PERIOD 138.22% = T
</TABLE>
<PAGE> 4
HIGH YIELD MUNICIPAL FUND - CLASS B SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,048.15 = ERV
One year period ended 11/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 4.82% = T
Excluding Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,088.15 = ERV
One year period ended 11/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 8.82% = T
TOTAL RETURN CALCULATION FIVE YEARS ENDED NOVEMBER 30, 1997
Formula P(1+T)n = ERV
Including Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,399.45 = ERV
Five years ended 11/30/97 5 = n
TOTAL RETURN FOR THE PERIOD 6.95% = T
Excluding Payment of the Sales Charge
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,414.45 = ERV
Five years ended 11/30/97 5 = n
TOTAL RETURN FOR THE PERIOD 7.18% = T
</TABLE>
<PAGE> 5
HIGH YIELD MUNICIPAL FUND - CLASS B SHARES
TOTAL RETURN CALCULATION INCEPTION THROUGH NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,434.85 = ERV
Inception through 11/30/97 5.37 = n
TOTAL RETURN FOR THE PERIOD 6.95% = T
Excluding Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,434.85 = ERV
Inception through 11/30/97 5.37 = n
TOTAL RETURN FOR THE PERIOD 6.95% = T
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH NOVEMBER 30, 1997
Formula ERV - P
-------
P = T
Including Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,434.85 = ERV
TOTAL RETURN FOR THE PERIOD 43.48% = T
Excluding Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,434.85 = ERV
TOTAL RETURN FOR THE PERIOD 43.48% = T
</TABLE>
<PAGE> 6
HIGH YIELD MUNICIPAL FUND - CLASS C SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $11.44
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,078.23 = ERV
One year period ended 11/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 7.82% = T
Excluding Payment of the CDSC
Net Asset Value $11.44
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,088.23 = ERV
One year period ended 11/30/97 1 = n
TOTAL RETURN FOR THE PERIOD 8.82% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH NOVEMBER 30, 1997
Formula P(1+T)n = ERV
Including Payment of the CDSC
Net Asset Value $11.44
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,285.10 = ERV
Inception through 11/30/97 3.98 = n
TOTAL RETURN FOR THE PERIOD 6.51% = T
Excluding Payment of the CDSC
Net Asset Value $11.45
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,285.10 = ERV
Inception through 11/30/97 3.98 = n
TOTAL RETURN FOR THE PERIOD 6.51% = T
</TABLE>
<PAGE> 7
HIGH YIELD MUNICIPAL FUND - CLASS C SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Formula ERV - P
---------
P = T
Including Payment of the CDSC
Net Asset Value $11.44
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,285.10 = ERV
TOTAL RETURN FOR THE PERIOD 28.51 % = T
Excluding Payment of the CDSC
Net Asset Value $11.44
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,285.10 = ERV
TOTAL RETURN FOR THE PERIOD 28.51% = T
</TABLE>
<PAGE> 8
HIGH YIELD MUNICIPAL FUND
Calculation of Distribution Rate
Period Ended November 30, 1997
Current Annual Income Per Share
Current Offering Price
<TABLE>
<CAPTION>
<S> <C> <C>
Class A Shares
$.720
--------
$12.02 = 5.99%
Class B Shares
$.636
--------
$11.45 = 5.55%
Class C Shares
$.636
--------
$11.44 = 5.56%
</TABLE>
<PAGE> 9
CALCULATION OF YIELD
The Fund calculates its yield quotations based on a 30-day period ended on
the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a - b
YIELD (y) = 2[(------- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Class A Class B Class C
----------- ----------- -----------
a = 4,170,419 a = 2,277,989 a = 486,110
b = 611,287 b = 594,295 b = 126,724
c = 67,654,998 c = 36,953,764 c = 7,887,044
d = 12.02 d = 11.45 d = 11.44
y = 5.31 y = 4.82 y = 4.83
<PAGE> 1
EXHIBIT (17)(a)
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
March 24, 1998
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
Van Kampen American Capital Foreign Securities Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen American Capital Senior Floating Rate Fund
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Asset Allocation Portfolio
Van Kampen American Capital Domestic Income Portfolio
Van Kampen American Capital Emerging Growth Portfolio
Van Kampen American Capital Enterprise Portfolio
Van Kampen American Capital Global Equity Portfolio
Van Kampen American Capital Government Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
<PAGE> 2
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax -Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
Morgan Stanley Fund, Inc.
Morgan Stanley Aggressive Equity Fund
Morgan Stanley American Value Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley Government Obligations Money Market Fund
Morgan Stanley High Yield Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Latin American Fund
Morgan Stanley Money Market Fund
Morgan Stanley U.S. Real Estate Fund
Morgan Stanley Value Fund
Morgan Stanley Worldwide High Income Fund
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 397
Arizona Insured Municipals Income Trust Series 18
California Insured Municipals Income Trust Series 172
Colorado Insured Municipals Income Trust Series 85
Connecticut Insured Municipals Income Trust Series 36
Florida Insured Municipals Income Trust Series 120
Georgia Insured Municipals Income Trust Series 86
Kentucky Investors' Quality Tax-Exempt Trust Series 60
Maryland Investors' Quality Tax-Exempt Trust Series 83
Massachusetts Insured Municipals Income Trust Series 35
Michigan Insured Municipals Income Trust Series 149
Minnesota Insured Municipals Income Trust Series 62
Missouri Insured Municipals Income Trust Series 105
New Jersey Insured Municipals Income Trust Series 121
New York Insured Municipals Income Trust Series 144
North Carolina Investors' Quality Tax-Exempt Trust Series 93
Ohio Insured Municipals Income Trust Series 109
Pennsylvania Insured Municipals Income Trust Series 234
South Carolina Investors' Quality Tax-Exempt Trust Series 86
Tennessee Insured Municipals Income Trust Series 40
Virginia Investors' Quality Tax-Exempt Trust Series 80
Van Kampen American Capital Insured Income Trust Series 70
Internet Trust Series 9
Strategic Ten Trust, United States Portfolio March 1998
Series
Strategic Ten Trust, United Kingdom February 1998
Series
Strategic Ten Trust, Hong Kong February 1998
Series
Strategic Five Trust, United States Portfolio March 1998
Series
Strategic Fifteen Trust Global Portfolio March 1998
Series
Strategic Thirty Trust Global Portfolio March 1998
Series
Great International Firms Trust Series 4
Blue Chip Opportunity and Treasury Trust Series 5
Blue Chip Opportunity Trust Series 3
Baby Boomer Opportunity Trust Series 4
Global Energy Trust Series 4
Brand Name Equity Trust Series 5
Strategic Picks Opportunity Trust March 1998
Series
International Assets Advisory Corp. Global Passport Series
Infrastructure and Utilities Growth Trust Series 1
Edward Jones Select Growth Trust February 1998
Series
Banking Trust Series 1
Morgan Stanley High-Technology 35 Index Trust Series 1
MidCap Growth Trust Series 1
Small Cap Growth Trust Series 1
Real Estate Income and Growth Trust Series 1
</TABLE>
<PAGE> 1
EXHIBIT (17)(b)
Officers
Van Kampen American Capital Distributors, Inc.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman Houston, TX
Philip N. Duff Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmermann, III President & Chief Operating Oakbrook Terrace, IL
Officer
Douglas B. Gehrman Executive Vice President Houston, TX
Ronald A. Nyberg Executive Vice President, General Oakbrook Terrace, IL
Counsel & Assistant Secretary
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX
Laurence Joseph Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Mark T. McGannon Sr. Vice President Oakbrook Terrace, IL
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Walter E. Rein Senior Vice President Oakbrook Terrace, IL
Steven P. Sorenson Senior Vice President Oakbrook Terrace, IL
Michael L. Stallard Sr. Vice President Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Glenn M. Cackovic 1st Vice President Laguna Niguel, CA
Eric J. Hargens 1st Vice President Orlando, FL
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Carl Mayfield 1st Vice President Lakewood, CO
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
George J. Vogel 1st Vice President Oakbrook Terrace, IL
Patrick J. Woelfel 1st Vice President Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Sheldon Barker Vice President Moon, PA
Patricia A. Bettlach Vice President Chesterfield, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
Michael P. Boos Vice President Oakbrook Terrace, IL
James J. Boyne Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Robert C. Brooks Vice President Oakbrook Terrace, IL
William F Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Joseph N. Caggiano Vice President New York, NY
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Daniel R. Chambers Vice President Austin, TX
Richard J. Charlino Vice President Houston, TX
Deanna Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Vice President, Associate General
Counsel & Asst. Secretary Oakbrook Terrace, IL
Daniel R. DeJong Vice President Oakbrook Terrace, IL
Tracey M. DeLusant Vice President New York, NY
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Jonathan Eckard Vice President Tampa, FL
Huey P. Falgout, Jr. Vice President, Assistant Secretary &
Sr. Attorney Houston, TX
Charles Edward Fisher Vice President Naperville, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Richard G. Golod Vice President Annapolis, MD
Timothy D. Griffith Vice President Kirkland, WA
Dalton L. Gustafson Vice President Bolton, MA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John A. Hanhauser Vice President Philadelphia, PA
John G. Hansen Vice President Oakbrook Terrace, IL
Calvin B. Hays Vice President Richmond, VA
Joseph Hays Vice President Cherry Hill, NJ
Gregory Heffington Vice President Ft. Collins, CO
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michael B. Hughes Vice President Oakbrook Terrace, IL
Robert S. Hunt Vice President Phoenix, MD
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Steven T. Johnson Vice President Oakbrook Terrace, IL
Jeffrey S. Kinney Vice President Overland Park, KS
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
Richard D. Kozlowski Vice President Atlanta, GA
Bradford N. Langs Vice President Oakbrook Terrace, IL
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
S. William Lehew III Vice President Charlotte, NC
Eric Levinson Vice President San Francisco, CA
Jonathan Linstra Vice President Oakbrook Terrace, IL
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Peter Nicolas Vice President Beverly, MA
Michael D. Ossmen Vice President Oakbrook Terrace, IL
Todd W. Page Vice President Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Anthony Piazza Vice President Old Bridge, NJ
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Fairlawn, OH
Daniel D. Reams Vice President Royal Oak, MI
Michael W. Rohr Vice President Oakbrook Terrace, IL
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Thomas Rowley Vice President St. Louis, MO
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Andrew J. Scherer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorensen Vice President Oakbrook Terrace, IL
Kimberly M. Spangler Vice President Fairfax, VA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Gary R. Steele Vice President Philadelphia, PA
Richard Stefanec Vice President Los Angeles, CA
James D. Stevens Vice President North Andover, MA
James M. Stilwell Vice President San Diego, CA
William C. Strafford Vice President Granger, IN
Mark A. Sysweida Vice President Oakbrook Terrace, IL
David A. Tabone Vice President Scottsdale, AZ
James C. Taylor Vice President Naperville, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Todd Volkman Vice President Austin, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Kirk Wiggins Vice President Arlington, TX
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
David M. Wynn Vice President Phoenix, AZ
James R. Yount Vice President Mercer Island, WA
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Joan E. Blackwood Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Gregory T. Brunk Asst. Vice President Oakbrook Terrace, IL
Gina Costello Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Houston, TX
Valri G. Hamilton Asst. Vice President Houston, TX
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, ILL
Ivan R. Lowe Asst. Vice President Houston, TX
Pamela D. Meyer Asst. Vice President Phoenix, AZ
Susan M. Mini Asst. Vice President Oakbrook Terrace, IL
Brian K. Mitchell Asst. Vice President Oakbrook Terrace, IL
Stuart R. Moehlman Asst. Vice President Houston, TX
Steven R. Norvid Asst. Vice President Oakbrook Terrace, IL
Vincent M. Pellegrini Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President Oakbrook Terrace, IL
& Assistant Secretary
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
Vanessa M. Sanchez Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Bruce Saxon Asst. Vice President Oakbrook Terrace, IL
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Christina L. Schmieder Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Thomas M. Watson Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL
Gina M. Costello Assistant Secretary Oakbrook Terrace, IL
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Collette M. Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ------------------- ------------------------ ------------------------------
<S> <C> <C>
Don G. Powell Chairman 2800 Post Oak
Blvd.Houston, TX 77056
Philip N. Duff Chief Executive Officer One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President, One Parkview Plaza
General Counsel & Assistant Oakbrook Terrace, IL 60181
Secretary
William R. Rybak Executive Vice President One Parkview Plaza
& Chief Financial Officer Oakbrook Terrace, IL 60181
</TABLE>
<PAGE> 1
EXHIBIT (24)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (with the exception of Don G. Powell), as
indicated on Schedule 1 attached hereto and incorporated by reference, each a
Delaware business trust, except for the Van Kampen American Capital
Pennsylvania Tax Free Income Fund, being a Pennsylvania business trust
(individually, a "Trust"), do hereby, in the capacities shown below,
individually appoint Dennis J. McDonnell and Ronald A. Nyberg, each of
Oakbrook Terrace, Illinois, and each of them, as the agents and
attorneys-in-fact with full power of substitution and resubstitution, for each
of the undersigned, to execute and deliver, for and on behalf of the
undersigned, any and all amendments to the Registration Statement filed by
each Trust with the Securities and Exchange Commission pursuant to the
provisions of the Securities Act of 1933 and the Investment Company Act of
1940.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: July 24, 1997
Signature Title
--------- -----
/s/ J. Miles Branagan Trustee
- ---------------------------
J. Miles Branagan
/s/ Richard M. DeMartini Trustee
- ---------------------------
Richard M. DeMartini
/s/ Linda Hutton Heagy Trustee
- ---------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee
- ---------------------------
R. Craig Kennedy
/s/ Jack E. Nelson Trustee
- ---------------------------
Jack E. Nelson
/s/ Don G. Powell Trustee (For Former Van
- --------------------------- Kampen Funds only)
Don G. Powell
/s/ Jerome L. Robinson Trustee
- ---------------------------
Jerome L. Robinson
/s/ Phillip B. Rooney Trustee
- ---------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc.D. Trustee
- ---------------------------
Fernando Sisto, Sc.D.
/s/ Wayne W. Whalen Trustee and Chairman
- ---------------------------
Wayne W. Whalen
/s/ Edward C. Wood III Vice President and
- --------------------------- Chief Financial Officer
Edward C. Wood III
/s/ Dennis J. McDonnell President
- ---------------------------
Dennis J. McDonnell
<PAGE> 2
SCHEDULE 1
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust")
on behalf of its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
("Intermediate Term Municipal Income Fund") (f/k/a Limited Term Municipal
Income Fund)
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey Tax
Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax Free
Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax Free
Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax Free
Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free Income
Fund")
Van Kampen American Capital Trust ("VKAC Trust")
on behalf of its series
Van Kampen American Capital High Yield Fund ("VKAC High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term Global
Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 3
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Fund")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Morgan Stanley Real Estate Securities Portfolio ("LIT Morgan Stanley Real
Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
Van Kampen American Capital World Portfolio Series Trust ("World Portfolio
Series Trust") on behalf of its Series
Van Kampen American Capital Global Equity Fund ("Global Equity Fund")
Van Kampen American Capital Global Government Securities Fund ("Global
Government Securities Fund")
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> HIGH YIELD MUNICIPAL FUND CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,225,421,636
<INVESTMENTS-AT-VALUE> 1,290,193,821
<RECEIVABLES> 51,092,146
<ASSETS-OTHER> 48,440
<OTHER-ITEMS-ASSETS> 73,883
<TOTAL-ASSETS> 1,341,408,290
<PAYABLE-FOR-SECURITIES> 38,450,937
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,204,758
<TOTAL-LIABILITIES> 44,655,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 757,169,936
<SHARES-COMMON-STOCK> 68,085,219
<SHARES-COMMON-PRIOR> 55,746,099
<ACCUMULATED-NII-CURRENT> 487,485
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,691,720)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 64,464,321
<NET-ASSETS> 779,884,248
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 78,709,930
<OTHER-INCOME> 0
<EXPENSES-NET> (13,147,338)
<NET-INVESTMENT-INCOME> 65,562,592
<REALIZED-GAINS-CURRENT> (1,648,737)
<APPREC-INCREASE-CURRENT> 31,524,325
<NET-CHANGE-FROM-OPS> 95,438,180
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (41,904,414)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,562,392
<NUMBER-OF-SHARES-REDEEMED> (7,837,512)
<SHARES-REINVESTED> 1,614,240
<NET-CHANGE-IN-ASSETS> 67,124,642
<ACCUMULATED-NII-PRIOR> 113,411
<ACCUMULATED-GAINS-PRIOR> (24,717,110)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,728,036
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,148,838
<AVERAGE-NET-ASSETS> 648,882,998
<PER-SHARE-NAV-BEGIN> 11,139
<PER-SHARE-NII> 0.729
<PER-SHARE-GAIN-APPREC> 0.312
<PER-SHARE-DIVIDEND> (0.726)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.454
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> HIGH YIELD MUNICIPAL FUND CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,225,421,636
<INVESTMENTS-AT-VALUE> 1,290,193,821
<RECEIVABLES> 51,092,146
<ASSETS-OTHER> 48,440
<OTHER-ITEMS-ASSETS> 73,993
<TOTAL-ASSETS> 1,341,408,290
<PAYABLE-FOR-SECURITIES> 38,450,937
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,204,758
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 44,655,695
<PAID-IN-CAPITAL-COMMON> 410,171,761
<SHARES-COMMON-STOCK> 37,162,826
<SHARES-COMMON-PRIOR> 29,077,037
<ACCUMULATED-NII-CURRENT> 487,485
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,691,720)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 64,464,321
<NET-ASSETS> 425,577,694
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 78,709,930
<OTHER-INCOME> 0
<EXPENSES-NET> (13,147,338)
<NET-INVESTMENT-INCOME> 65,562,592
<REALIZED-GAINS-CURRENT> (1,648,737)
<APPREC-INCREASE-CURRENT> 31,524,325
<NET-CHANGE-FROM-OPS> 95,438,180
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,909,861)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,089,692
<NUMBER-OF-SHARES-REDEEMED> (2,749,344)
<SHARES-REINVESTED> 745,441
<NET-CHANGE-IN-ASSETS> 101,766,477
<ACCUMULATED-NII-PRIOR> 113,411
<ACCUMULATED-GAINS-PRIOR> (24,717,110)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,728,036
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,148,838
<AVERAGE-NET-ASSETS> 348,775,752
<PER-SHARE-NAV-BEGIN> 11.136
<PER-SHARE-NII> 0.645
<PER-SHARE-GAIN-APPREC> 0.313
<PER-SHARE-DIVIDEND> (0.642)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.452
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> HIGH YIELD MUNICIPAL FUND CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,225,421,636
<INVESTMENTS-AT-VALUE> 1,290,193,821
<RECEIVABLES> 51,092,146
<ASSETS-OTHER> 48,440
<OTHER-ITEMS-ASSETS> 73,883
<TOTAL-ASSETS> 1,341,408,290
<PAYABLE-FOR-SECURITIES> 38,450,937
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,204,758
<TOTAL-LIABILITIES> 44,655,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,150,812
<SHARES-COMMON-STOCK> 7,979,623
<SHARES-COMMON-PRIOR> 4,490,533
<ACCUMULATED-NII-CURRENT> 487,485
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,691,720)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 64,464,321
<NET-ASSETS> 91,290,653
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 78,709,930
<OTHER-INCOME> 0
<EXPENSES-NET> (13,147,338)
<NET-INVESTMENT-INCOME> 65,562,592
<REALIZED-GAINS-CURRENT> (1,648,737)
<APPREC-INCREASE-CURRENT> 31,524,325
<NET-CHANGE-FROM-OPS> 95,438,180
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,388,275)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,036,766
<NUMBER-OF-SHARES-REDEEMED> (723,574)
<SHARES-REINVESTED> 175,898
<NET-CHANGE-IN-ASSETS> 41,329,942
<ACCUMULATED-NII-PRIOR> 113,411
<ACCUMULATED-GAINS-PRIOR> (24,717,110)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,728,036
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,148,838
<AVERAGE-NET-ASSETS> 59,551,281
<PER-SHARE-NAV-BEGIN> 11.126
<PER-SHARE-NII> 0.644
<PER-SHARE-GAIN-APPREC> 0.312
<PER-SHARE-DIVIDEND> (0.642)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.440
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
