<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999
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. 21 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF [X]
1940
AMENDMENT NO. 25 [X]
</TABLE>
VAN KAMPEN TAX-EXEMPT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
DENNIS J. MCDONNELL
EXECUTIVE VICE PRESIDENT
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA, PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(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)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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
HIGH YIELD MUNICIPAL FUND
Van Kampen High Yield Municipal Fund is a
mutual fund with an investment objective to
seek to provide investors with as high a level
of interest income exempt from federal income
tax as is consistent with the investment
policies of the Fund. The Fund's management
generally seeks to achieve the investment
objective by investing primarily in a
diversified portfolio of medium and lower
grade municipal securities.
Shares of the Fund have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulators, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to state
otherwise.
This prospectus is dated MARCH 30, 1999.
[VAN KAMPEN FUNDS LOGO]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 6
Investment Objective and Policies................. 7
Investment Advisory Services...................... 13
Purchase of Shares................................ 14
Redemption of Shares.............................. 21
Distributions from the Fund....................... 22
Shareholder Services.............................. 23
Federal Income Taxation........................... 25
Financial Highlights.............................. 27
Appendix -- Description of Securities Ratings..... A-1
</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 Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's 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.
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with an investment objective to seek to provide
investors with as high a level of interest income exempt from federal income tax
as is consistent with the investment policies of the Fund. There can be no
assurance that the Fund will achieve its investment objective.
INVESTMENT STRATEGIES
The Fund's management generally seeks to achieve the investment objective by
investing primarily in a diversified portfolio of medium and lower credit
quality municipal securities. The Fund's investment adviser buys and sells
securities for the Fund's portfolio with a view to seeking a high level of
interest income exempt from federal income tax and selects securities which the
Fund's investment adviser believes entail reasonable credit risk considered in
relation to the investment policies of the Fund. Lower credit quality securities
are commonly referred to as "junk bonds" (see sidebar and appendix for an
explanation of quality ratings). The Fund's investments in medium and lower
credit quality securities involves special risks as compared to investments in
higher credit quality securities.
Investment opportunities for medium and lower credit quality municipal
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.
UNDERSTANDING
QUALITY RATINGS
Bond ratings are based on the issuer's ability to pay interest and repay the
principal. Bonds with ratings above the line are considered "investment
grade," while those with ratings below the line are regarded as
"noninvestment grade," or "junk bonds." A detailed explanation of these and
other ratings can be found in the appendix to this prospectus.
S&P Moody's Meaning
- ------------------------------------------------------
AAA Aaa Highest quality
................................................................................
AA Aa High quality
................................................................................
A A Above-average quality
................................................................................
BBB Baa Average quality
- ------------------------------------------------------
BB Ba Below-average quality
................................................................................
B B Marginal quality
................................................................................
CCC Caa Poor quality
................................................................................
CC Ca Highly speculative
................................................................................
C C Lowest quality
................................................................................
D -- In default
................................................................................
INVESTMENT RISKS
An investment in the Fund is subject to investment risks and you could lose
money on your investment in the Fund over the short or long term. With its
portfolio of medium and lower grade securities, the Fund has greater risks than
a fund owning higher grade securities.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Because the Fund invests primarily in securities with
medium and low credit quality, the Fund is subject to a higher level of credit
risk than a fund that buys only investment grade securities. The credit quality
of "noninvestment grade" securities is considered speculative by recognized
rating agencies with respect to the issuer's continuing ability to pay interest
and principal. Lower grade securities may have less liquidity and a higher
incidence of default than investments in higher grade securities. The Fund may
incur higher expenditures to protect the Fund's interest in such securities. The
credit risks and market prices of lower grade municipal securities generally are
more sensitive to negative issuer developments, such as reduced revenues or
increased expenditures, or adverse economic conditions, such as a recession,
than higher grade municipal securities.
3
<PAGE> 5
MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This "market risk" is usually greater among income securities with longer
maturities. The Fund has no policy limiting the maturities of its investments.
To the extent the Fund owns securities with longer maturities, the Fund will be
subject to greater market risk than a fund that owns shorter-term securities.
Lower grade securities may fluctuate more in price in response to negative
issuer or general economic news than higher grade securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short and long term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of municipal
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities would be reinvested by the Fund in securities with the new, lower
interest rates, resulting in a possible decline in the Fund's income and
distributions to shareholders.
MUNICIPAL SECURITIES RISK. The Fund invests primarily in municipal securities.
The yields of municipal securities may move differently and adversely compared
to the yields of the overall debt securities markets. While the interest
received from municipal securities generally is exempt from federal income tax,
the Fund may invest a substantial portion of its total assets in municipal
securities subject to the alternative minimum tax. The Fund may not be a
suitable investment for investors who are already subject to the federal
alternative minimum tax or who could become subject to the federal alternative
minimum tax as a result of an investment in the Fund. In addition, there could
be changes in applicable tax laws or tax treatments that reduce or eliminate the
current federal income tax exemption on municipal securities or otherwise
adversely affect the current federal or state tax status of municipal
securities.
UNDERSTANDING
MUNICIPAL SECURITIES
Municipal securities, including municipal bonds, notes or leases, generally
are issued by state and local governments or regional governmental
authorities to raise money for their daily operations or special projects.
The interest received from municipal securities generally is exempt from
federal income tax. In addition, the interest may be exempt from certain
state or local taxes when received from issuers who are located in the
investors' home state, municipality or region. The interest from certain
municipal securities is a preference item subject to federal alternative
minimum tax.
MANAGER RISK. As with any managed fund, the Fund's management may not be
successful in selecting the best-performing securities and the Fund's
performance may lag behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objective and investment strategies, the Fund may be appropriate
for investors who:
- - Seek a high level of current income.
- - Are in a high federal income tax bracket.
- - Are willing to take on the substantially increased risks of medium and lower
credit quality securities in exchange for potentially higher income.
- - Wish to add to their personal investment portfolio a fund that invests
primarily in medium and lower credit quality municipal securities.
Investors should carefully consider the additional risks associated with
investment in medium or lower credit quality municipal securities. 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
about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
4
-
<PAGE> 6
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past ten calendar years prior to
the date of this prospectus. Sales loads are not reflected in this chart. If
these sales loads had been included, the returns shown below would have been
lower. Remember that the past performance of the Fund is not indicative of its
future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1989 10.33
'1990 5.99
'1991 10.65
'1992 9.05
'1993 10.16
'1994 0.19
'1995 13.91
'1996 5.81
'1997 11.03
'1998 6.67
</TABLE>
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the ten-year period shown in the bar chart, the highest quarterly return
was 5.11% (for the quarter ended March 31, 1995) and the lowest quarterly return
was -2.92% (for the quarter ended March 31, 1994).
COMPARATIVE PERFORMANCE
This table shows how the Fund's performance compares with the Lehman Brothers
Municipal Bond Index, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. The Fund performance figures
include the maximum sales charges paid by investors. The index performance
figures do not include any commissions or sales charges that would be paid by
investors. Average annual total returns are shown for the periods ended December
31, 1998 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Fund is not indicative of
its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns Past 10
for the Years
Periods Ended Past Past or Since
December 31, 1998 1 Year 5 Years Inception
- -------------------------------------------------------
<S> <C> <C> <C>
Van Kampen High
Yield Municipal
Fund
.......................................................
Class A Shares 1.59% 6.39% 7.79%
.......................................................
Class B Shares 2.00% 6.39% 6.98%(1)
.......................................................
Class C Shares 4.92% 6.59% 6.62%(2)
.......................................................
Lehman Brothers
Municipal Bond
Index 6.48% 6.22% 8.22%
6.97%(3)
6.22%(4)
.......................................................
</TABLE>
Inception dates: (1) 7/20/92, (2) 12/10/93, (3) 7/31/92, (4) 12/31/93.
The current yield for the thirty-day period ended November 30, 1998 is 4.99% for
Class A Shares, 4.49% for Class B Shares and 4.50% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.
5
-
<PAGE> 7
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- -----------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a 4.75%(1) None None
percentage of offering
price)
.....................................................
Maximum deferred sales
charge (load) (as a
percentage of the
lesser of original
purchase price or None(2) 4.00%(3) 1.00%(4)
redemption proceeds)
.....................................................
Maximum sales charge
(load) imposed on
reinvested dividends
(as a percentage of None None None
offering price)
.....................................................
Redemption fees (as a
percentage of amount None None None
redeemed)
.....................................................
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 deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares -- Class A Shares."
(3) The maximum deferred sales charge is 4.00% in the first or second year after
purchase and declining thereafter as follows:
Year 1-4.00%
Year 2-4.00%
Year 3-3.00%
Year 4-2.50%
Year 5-1.50%
After-None
See "Purchase of Shares -- Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares -- Class C Shares."
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.53% 0.53% 0.53%
..............................................................
Distribution and/or 0.25% 1.00%(2) 1.00%(2)
Service (12b-1)
Fees(1)
..............................................................
Other Expenses 0.13% 0.14% 0.14%
..............................................................
Total Annual Fund 0.91% 1.67% 1.67%
Operating Expenses
..............................................................
</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 "Purchase of Shares."
(2) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% annual return each year and
that the Fund's operating expenses remain the same each year (except for the
ten-year amounts for Class B Shares which reflect the conversion of Class B
Shares to Class A Shares after eight years). Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $563 $751 $955 $1,541
......................................................................
Class B Shares $570 $826 $1,057 $1,774*
......................................................................
Class C Shares $270 $526 $907 $1,976
......................................................................
</TABLE>
6
-
<PAGE> 8
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $563 $751 $955 $1,541
.....................................................................
Class B Shares $170 $526 $907 $1,774*
.....................................................................
Class C Shares $170 $526 $907 $1,976
.....................................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
INVESTMENT OBJECTIVE
AND POLICIES
The Fund's investment objective is to seek to provide investors with as high a
level of interest income exempt from federal income tax as is consistent with
the investment policies of the Fund. The Fund's investment objective is a
fundamental policy and may not be changed without shareholder approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). There are risks
inherent in all investments in securities; accordingly there can be no assurance
that the Fund will achieve its investment objective.
The Fund's investment adviser generally seeks to achieve the investment
objective by investing primarily in a diversified portfolio of medium and lower
grade municipal securities. Although not governed by specific rating categories,
under normal market conditions, the Fund generally invests at least 75% of its
net assets in: municipal securities rated at the time of purchase by S&P as BBB
through CC (inclusive) for bonds or SP-2 or lower for notes, or by Moody's as
Baa through Ca (inclusive) for bonds or MIG3 or VMIG3 or lower for notes; and
unrated municipal securities judged by the Fund's investment adviser to be of
comparable quality at the time of purchase. Medium and lower grade securities
involve special risks compared to higher grade securities. Securities rated by
S&P as BB or below for bonds or SP-3 or below for notes, or by Moody's as Ba or
below for bonds or SG or below for notes, and unrated municipal securities of
comparable quality are commonly referred to as "junk bonds" and are considered
speculative by recognized rating agencies with respect to the issuer's
continuing ability to pay interest or principal. The Fund does not purchase
obligations that are in default or rated C or D by S&P or C by Moody's or
unrated bonds, notes and other obligations considered by the Fund's investment
adviser to be of comparable quality; although the Fund may retain obligations
assigned such ratings after a purchase is made.
The Fund invests primarily in medium and lower grade municipal securities. At
times, the market conditions in the municipal securities markets may be such
that the Fund's investment adviser may invest in higher grade issues,
particularly when the difference in returns between quality classifications is
very narrow or when the Fund's investment adviser expects interest rates to
increase. These investments may lessen the decline in net asset value but may
also affect the amount of current income since yields on higher grade securities
are usually lower than yields on medium or lower grade securities. Under normal
market conditions, the Fund invests 20% or less of the Fund's total assets in
higher grade municipal securities rated A, SP-1 or higher by S&P or rated A, MIG
2, VMIG 2 or higher by Moody's, and in tax-exempt commercial paper rated A-3 or
higher by S&P or rated Prime-3 or higher by Moody's.
Under normal market conditions, the Fund may from time to time invest
temporarily up to 20% of its net assets in taxable securities of at least
comparable quality to the municipal securities in which the Fund invests.
The Fund's investment adviser buys and sells securities for the Fund's portfolio
with a view to seeking a high level of interest income exempt from federal
income tax and selects securities which the Fund's investment adviser believes
entail reasonable credit risk considered in relation to the investment policies
of the Fund. As a result, the Fund will not necessarily invest in the highest
yielding municipal securities permitted by its investment policies if the Fund's
investment adviser determines that market risks or credit risks associated with
such investments would subject the Fund's portfolio to undue risk. The potential
for realization of capital gains resulting from possible changes in interest
rates will not be a major consideration. Other than for tax purposes, frequency
of portfolio turnover generally will not be a limiting factor if the Fund's
investment adviser considers it advantageous to purchase or sell securities.
The Fund may seek to hedge against changes in interest rates through
transactions in listed futures contracts or options on futures contracts. See
"Futures Contracts and Related Options" below.
7
<PAGE> 9
The Fund may enter into stand-by commitments with respect to municipal
securities held by the Fund and may purchase and sell municipal securities on a
"when-issued" or "delayed delivery" basis. See "Other Investments and Risk
Factors" below and the Statement of Additional Information.
MUNICIPAL SECURITIES
Municipal securities are obligations issued by or on behalf of states,
territories or possessions of the United States, the District of Columbia and
their political subdivisions, agencies and instrumentalities, the interest on
which, in the opinion of bond counsel or other counsel to the issuers of such
securities, is, at the time of issuance, exempt from federal income tax
(collectively, "municipal securities"). Under normal market conditions, at least
80% of the Fund's net assets will be invested in municipal securities. The
policy stated in the foregoing sentence is a fundamental policy of the Fund and
may not be changed without shareholder approval of the holders of a majority of
the Fund's outstanding voting securities, as defined in the 1940 Act. The Fund
may invest a substantial portion of its assets in municipal securities that are
subject to federal alternative minimum tax.
The issuers of municipal securities 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.
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.
The two principal classifications of municipal securities are "general
obligation" and "revenue" or "special delegation" securities. "General
obligation" securities are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. "Revenue" securities
are usually 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. Industrial development bonds are usually
revenue securities, the credit quality of which is normally directly related to
the credit standing of the industrial user involved. 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, housing and health
care issues.
Within these principal classifications of municipal securities, there are a
variety of types of municipal securities, including fixed and variable rate
securities, municipal notes, variable rate demand notes, municipal leases,
custodial receipts, participation certificates and derivative municipal
securities (which contain terms or elements similar to options, futures
contracts and related options). Variable rate securities bear rates of interest
that are adjusted periodically according to formula intended to reflect market
rates of interest. Municipal notes include tax, revenue and bond anticipation
notes of short maturity, generally less than three years, which are issued to
obtain temporary funds for various public purposes. Variable rate demand notes
are obligations which contain a floating or variable interest rate adjustment
formula and which are subject to a right of demand for payment of the principal
balance plus accrued interest either at any time or at specified intervals. The
interest rate on a variable rate 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 may be a market rate that is adjusted at specified
intervals. The adjustment formula maintains the value of the variable rate
demand note at approximately the par value of such note at the adjustment date.
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide
8
-
<PAGE> 10
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Custodial receipts are underwritten by securities dealers or banks
and evidence ownership of future interest payments, principal payments or both
on certain municipal securities. Participation certificates are obligations
issued by state or local governments or authorities to finance the acquisition
of equipment and facilities. They may represent participations in a lease, an
installment purchase contract, or a conditional sales contract. Municipal
securities may not be backed by the faith, credit and taxing power of the
issuer. Certain of the municipal securities in which the Fund may invest
represent relatively recent innovations in the municipal securities markets and
the markets for such securities may be less developed than the market for
conventional fixed rate municipal securities. A more detailed description of the
types of municipal securities in which the Fund may invest is included in the
Statement of Additional Information which can be obtained by investors free of
charge as described on the back cover of this prospectus.
Market Risks. Under normal market conditions, longer term municipal securities
generally provide a higher yield than shorter term municipal securities. The
Fund has no limitation as to the maturity of municipal securities in which it
may invest. The Fund's investment adviser may adjust the average maturity of the
Fund's portfolio from time to time depending on its assessment of the relative
yields available on securities of different maturities and its expectations of
future changes in interest rates.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. Because the Fund will invest primarily in fixed income
municipal securities, the net asset value of the Fund can be expected to change
as general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed income securities generally can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested in fixed income securities generally can be expected to decline. The
prices of longer term municipal securities generally are more volatile with
respect to changes in interest rates than the prices of shorter term municipal
securities. Volatility may be greater during periods of general economic
uncertainty.
Credit Risks. Municipal securities, like other debt obligations, are subject to
the credit risk of non-payment. The ability of issuers of municipal securities
to make timely payments of interest and principal may be adversely impacted in
general economic downturns and as relative governmental cost burdens are
allocated and reallocated among federal, state and local governmental units.
Such non-payment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal securities experiencing
non-payment and a potential decrease in the net asset value of the Fund. In
addition, the Fund may incur expenses to work out or restructure a distressed or
defaulted security. Securities below investment grade involve special risks
compared to higher grade securities. See "Risks of Investing in Medium and Lower
Grade Municipal Securities" below.
Other Municipal Securities Risks. The Fund may invest a substantial portion of
its net assets in municipal securities that are subject to the alternative
minimum tax. The Fund may not be a suitable investment for investors who are
already subject to the federal alternative minimum tax or who would become
subject to the federal alternative minimum tax as a result of investment in the
Fund.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the current federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected and the Fund
would re-evaluate its investment objective and policies and consider changes in
its structure.
The Fund generally considers investments in municipal securities not to be
subject to industry concentration policies (issuers of municipal securities as a
group are not an industry) and the Fund may invest 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, airports, 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 net asset value
also increases. The Fund may invest more than 25% of its total assets in a
segment of the municipal securities market with similar characteristics if the
Fund's investment adviser determines that the yields available from obligations
in a particular
9
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<PAGE> 11
segment justify the additional risks of a larger investment in such segment. The
Fund may not, however, invest more than 25% of its total assets in industrial
development bonds issued for companies in the same industry. 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 municipal
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 issuers located in the same state. If the Fund were to invest more
than 25% of its total assets in issuers located in the same state, it would be
more susceptible to adverse economic, business, or regulatory conditions in that
state.
From time to time, the Fund's investments may include securities as to which the
Fund, by itself or together with other funds or accounts managed by the Fund's
investment adviser, holds a major portion or all of an issue of municipal
securities. Because there may be relatively few potential purchasers for such
investments and, in some cases, there may be contractual restrictions on
resales, the Fund may find it more difficult to sell such securities at a time
when the Fund's investment adviser believes it is advisable to do so.
RISKS OF INVESTING IN
MEDIUM AND LOWER GRADE
MUNICIPAL SECURITIES
Under normal market conditions, the Fund generally seeks to achieve the
investment objective by investing primarily in a diversified portfolio of medium
and lower grade municipal securities. With respect to such investments, the Fund
has not established any limit on the percentage of its portfolio which may be
invested in securities in any one rating category. Securities rated BB or below
by S&P, Ba or below by Moody's or unrated securities of comparable quality an
commonly referred to as "junk bonds". Generally, medium and lower grade
securities provide higher yields than higher grade securities of similar
maturity but are subject to greater risks, such as greater credit risk, greater
liquidity concerns and potentially greater manager risk. Investors should
carefully consider the risks of owning shares of a fund which invests in medium
and lower grade municipal securities before making an investment in the Fund.
The higher yield on such securities held by the Fund reflects the greater credit
risk that the financial condition of the issuer or adverse changes in general
economic conditions, or both, may impair the ability of the issuer to make
payments of income and principal. Lower grade securities are considered
speculative by the rating agencies with respect to the capacity of the issuer to
make interest and principal payments and both lower and medium grade securities
are more susceptible to nonpayment or default than higher grade securities. An
economic downturn or increase in interest rates could severely impact the
ability of such issuers to pay principal and interest or obtain other financing.
The ratings of S&P and Moody's represent their opinions of the quality of the
securities they undertake to rate, but not the market value risk of such
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. In addition, credit ratings agencies may fail
to change such ratings to reflect subsequent events in a timely fashion. See the
appendix for a description of securities ratings.
The values of all debt securities fluctuate in response to changes in interest
rates. Medium and lower grade securities also tend to react to short-term issuer
or economic developments to a greater extent than higher grade securities, which
fluctuate primarily in response to the general level of interest rates, assuming
that there has been no change in the fundamental quality of such securities.
Yields on the Fund's portfolio securities can be expected to fluctuate over
time. A significant increase in interest rates or a general economic downturn
could severely disrupt the market for medium and lower grade municipal
securities and adversely affect the market value of such securities. Such events
also could lead to a higher incidence of default by issuers of medium and lower
grade municipal securities compared to higher grade securities. In addition,
changes in credit risks, changes in interest rates, the credit markets or
periods of general economic uncertainty can be expected to result in increased
volatility in the market price of the Fund's medium and lower grade municipal
securities and thus in the net asset value of the Fund. Medium and lower grade
securities may be more susceptible to real or perceived adverse economic
conditions than higher grade securities. A projection of an economic downturn,
for example, could cause a decline in prices of medium and lower grade
securities because the advent of a recession could lessen the ability of a such
issuer to make principal and interest payments on its securities or obtain
additional financing when necessary. In
10
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<PAGE> 12
addition, recent and proposed legislation may have an adverse impact on the
market prices or liquidity for medium and lower grade municipal securities.
The amount of available information about the financial condition of municipal
securities issuers is generally less extensive than that for corporate issuers
with publicly traded securities and the market for municipal securities is
generally considered to be less liquid than the market for corporate debt
obligations. In addition, the markets for medium and lower grade securities may
be less liquid than the markets for higher grade securities. Liquidity relates
to the ability of a fund to sell a security in a timely manner at a price which
reflects the value of that security. To the extent that there is no established
retail market for some of the medium and lower grade municipal securities in
which the Fund may invest, trading in such securities may be relatively
inactive. Prices of medium and lower grade debt securities may decline rapidly
in the event a significant number of holders decide to sell. Changes in
expectations regarding an individual issuer or medium or lower grade debt
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. The effects of adverse publicity and investor perceptions may be
more pronounced for securities for which no established retail market exists as
compared with the effects on securities for which such a market does exist. An
economic downturn or an increase in interest rates could severely disrupt the
market for such securities and adversely affect the value of outstanding bonds
or the ability of the issuers to repay principal and interest. Further, the Fund
may have more difficulty selling such securities in a timely manner and at their
stated value than could be the case for securities for which an established
retail market does exist. Certain municipal securities in which the Fund may
invest, such as special obligation bonds, lease obligations, participation
certificates and variable rate instruments, may be particularly less liquid.
Although the issuer of some such municipal securities may be obligated to redeem
such securities at face value, such redemption could result in capital losses to
the Fund to the extent such municipal securities were purchased by the Fund at a
premium to face value.
The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Trustees. During
periods of reduced market liquidity or in the absence of readily available
market quotations for medium or lower grade municipal securities held in the
Fund's portfolio, the ability of the Fund's investment adviser to value the
Fund's securities becomes more difficult and the judgment of the Fund's
investment adviser may play a greater role in the valuation of the Fund's
securities due to the reduced availability of reliable objective data.
In the event that an issuer of securities held by the Fund experiences
difficulties in the timely payment of principal or interest and such issuer
seeks to restructure the terms of its borrowings, the Fund may incur additional
expenses and may determine to invest additional assets with respect to such
issuer or the project or projects to which the Fund's portfolio securities
relate. Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain recovery thereof.
The Fund's investment adviser seeks to minimize the risks involved in investing
in medium and lower grade municipal securities through diversification, careful
investment analysis and attention to current developments and trends in the
economy and financial and credit markets. In purchasing and selling securities,
the Fund's investment adviser evaluates the issuers of such securities based on
a number of factors, including but not limited to the issuers's financial
strength, its sensitivity to economic conditions and trends, its revenues or
earnings potential, its operating history and management skills. Municipal
securities generally are not listed for trading on any national securities
exchange, and many issuers of medium and lower grade municipal securities choose
not to have a rating assigned to their obligations by any nationally recognized
statistical rating organization. The amount of information available about the
financial condition of an issuer of unlisted or unrated securities generally is
not as extensive as that which is available with respect to issuers of listed or
rated securities. Thus, investment results of the Fund's medium and lower grade
securities may be more dependent upon the investment adviser's credit analysis,
judgment and experience than a fund investing solely in higher grade securities.
Certain of the medium and lower grade municipal securities in which the Fund may
invest may be, subsequent to the Fund's investment in such securities,
downgraded or have their rating withdrawn by Moody's or S&P or may be deemed by
the Fund's investment adviser to be of a lower quality as a result of impairment
of the creditworthiness of the issuer of such securities or of the project the
11
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<PAGE> 13
revenues from which are the source of payment of interest and repayment of
principal with respect to such securities. The Fund may, if deemed appropriate
by the Fund's investment adviser, retain a security whose rating has been
downgraded or whose rating has been withdrawn. In such instances, the secondary
market for such municipal securities may become less liquid, with the
possibility that more than 10% of the Fund's net assets would be invested in
securities which are not readily marketable. In such event, the Fund will take
reasonable and appropriate steps to reduce the percentage of the Fund's
portfolio represented by securities that are not readily marketable to less than
10% of the Fund's net assets as soon as is reasonably practicable.
The table below sets forth the percentages of the Fund's assets invested during
the fiscal year ended November 30, 1998 in the various S&P and Moody's rating
categories and in unrated securities determined by the Fund's investment 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 1998 fiscal year computed on a monthly basis.
<TABLE>
<CAPTION>
Year Ended November 30, 1998
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 2.55% 2.25%
....................................................................
AA/Aa 1.65% 0.20%
....................................................................
A/A 1.53% 0.65%
....................................................................
BBB/Baa 6.01% 24.50%
....................................................................
BB/Ba 5.49% 43.15%
....................................................................
B/B 0.75% 11.00%
....................................................................
CCC/Caa --% 0.13%
....................................................................
CC/Ca --% 0.01%
....................................................................
C/C --% 0.07%
....................................................................
D --% 0.06%
....................................................................
Percentage
of Rated and
Unrated
Securities 17.98% 82.02%
....................................................................
</TABLE>
The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those set forth above.
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
specific municipal securities, an index of municipal securities (such as The
Bond Buyer Municipal Bond Index) or related to 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 investment adviser's expectations concerning the securities markets.
In certain cases, the futures markets and related options markets provide
investment or risk management opportunities that are not available from direct
investments in securities. In addition, some strategies can be performed with
greater ease and at lower cost by utilizing the futures markets and related
options markets rather than purchasing or selling portfolio securities. However,
such transactions involve risks different from those involved with direct
investments in underlying securities such as imperfect correlation between the
value of the instruments and the underlying assets, risks of default by the
other party to certain transactions, risks that the transactions may incur
losses that partially or completely offset gains in portfolio positions, risks
that the transactions may not be liquid and manager risk. In addition, such
transactions may involve commissions and other costs, which may increase the
Fund's expenses and reduce its return.
A more complete discussion of futures contracts and related options and their
risks is contained in the Statement of Additional Information.
OTHER INVESTMENTS AND RISK FACTORS
The Fund may engage in repurchase agreements with banks and broker-dealers to
earn a return on temporarily available cash. Such transactions are subject to
the risk of default by the other party.
The Fund may invest up to 10% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
12
<PAGE> 14
The Fund may borrow amounts up to 5% of its total assets in order to pay for
redemptions or for other temporary or emergency purposes when liquidation of
portfolio securities is considered disadvantageous or inconvenient and may
pledge up to 10% of its total assets to secure such borrowings.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Statement of
Additional Information.
Although the Fund does not intend to engage in substantial short-term trading,
it may sell securities without regard to the length of time they have been held
in order to take advantage of new investment opportunities or yield
differentials or otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had a lower portfolio turnover. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in taxable securities of at least comparable quality to the
municipal securities in which the Fund invests, securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, corporate bonds or
debentures, commercial paper, certificates of deposit, bankers' acceptances and
other obligations of domestic banks having total assets of at least $500
million, and repurchase agreements (collectively, "temporary investments"). The
effect of taking such a defensive position may be that the Fund does not achieve
its investment objective.
YEAR 2000 RISKS. 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 investment adviser 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 Fund's investment advisor is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses 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 assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected. The statements above are subject to the Year 2000
Information and Readiness Disclosure Act which Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $75 billion under management or supervision. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
13
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<PAGE> 15
THE SUBADVISER. Van Kampen Advisors Inc. is the Fund's investment subadviser
(the "Subadviser"). The Subadviser is a wholly owned subsidiary of Van Kampen
Investments. The Subadviser's principal office is located 40 Broad Street, Suite
915, Boston, Massachusetts 02109.
ADVISORY AGREEMENTS. The Fund retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- ------------------------------------------------------
<S> <C> <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>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 0.53% of the Fund's average daily net assets for the Fund's
fiscal year ended November 30, 1998.
Under the Advisory Agreement, the Fund also reimburses the Adviser for the cost
of the Fund's accounting services, which include maintaining its financial books
and records and calculating its daily net asset value. Other operating expenses
paid by the Fund include service fees, distribution fees, custodial fees, legal
and accounting fees, the costs of reports and proxies to shareholders, trustees'
fees (other than those who are affiliated persons of the Adviser, Distributor or
Van Kampen Investments) and all other business expenses not specifically assumed
by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with the Subadviser to assist it in performing its investment
advisory functions with respect to the Fund. Under the Subadvisory Agreement,
the Subadviser receives a monthly fee from the Adviser computed on average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- ------------------------------------------------------
<S> <C> <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>
The Adviser may also utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Subadviser have
adopted Codes of Ethics designed to recognize the fiduciary relationship between
the Fund and the Adviser/Subadviser and their employees. The Codes of Ethics
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. Wayne D. Godlin has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since March 1990. Mr.
Godlin is a Senior Vice President of the Adviser, Advisory Corp. and the
Subadviser since 1998. Mr. Godlin was Vice President of the Adviser from 1990 to
1998, Vice President of Advisory Corp. from 1995 to 1998 and Vice President of
the Subadviser from 1993 to 1998.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
14
<PAGE> 16
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 A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan (described below) 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 offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily 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
for trading. Net asset value per share for each class is determined by dividing
the value of the Fund's portfolio 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. When, in the judgment of the service, quoted bid and ask prices
for municipal securities are readily available and are representatives of the
market, such securities are valued at the mean between the last reported bid and
asked prices (as obtained by the service from dealers in such securities). Other
municipal securities are priced at fair value as determined by the service,
based on methods which include consideration of: yields or prices of municipal
securities of comparable quality, coupon, maturity and type; indications as to
value 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 securities not
valued by the service are valued at fair value as determined in good faith by
the Adviser using methods determined by the Fund's Trustees. Short-term
securities are valued in the manner described in the notes to the financial
statements included in the Fund's Statement of Additional Information.
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 pay distribution fees in connection with the sale and distribution of its
shares and service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. The net income attributable to a class of shares and the
dividends payable on such class of shares will be reduced by the amount of the
distribution fees and other expenses associated with such class of shares. To
assist investors in comparing classes of shares, the tables under the heading
"Fees and Expenses of the Fund" provide a summary of sales charges and expenses
and an example of the sales charges and expenses applicable to each class of
shares. Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by National Association of Securities
Dealers, Inc. rules.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. 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 or investors
15
-
<PAGE> 17
("brokers"). "Dealers" and "brokers" are sometimes referred to herein as
"authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The offering price for shares is based on the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit orders received by them to Investor Services so they will be received
in a timely manner. Orders of less than $500 generally are mailed by the
authorized dealer and processed at the offering price next calculated after
receipt by Investor Services.
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.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 341-2911 or by writing to the Fund, c/o Van Kampen Investors Services
Inc., PO Box 418256, Kansas City, MO 64141-9256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$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 contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales 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.
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.
16
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<PAGE> 18
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase 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>
The contingent deferred sales 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 sales 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.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are aggregated and deemed to have been made on the last
day of the month.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
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.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales 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 sales 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
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
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. 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. The aggregate
distribution and service fees are currently 1.00% per year of the average daily
net assets attributable to Class C Shares of the Fund. The aggregate
distribution and service fees are 0.90% per year of the average daily net assets
attributable to Class C Shares of the Fund with respect to accounts existing
before April 1, 1995.
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<PAGE> 19
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan Class B Shares received on such shares, 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 Class B Shares received on such shares, 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 Class C Shares received on such shares, 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 of the Fund acquired
through the exchange privilege from another Van Kampen fund is determined by
reference to the Van Kampen fund 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 federal income tax law 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.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required minimum distributions from an individual retirement
account ("IRA") or certain other retirement plan distributions, (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 involuntarily
liquidate a shareholder's account as described under the heading "Redemption of
Shares." The contingent deferred sales charge also is waived on redemptions of
Class C Shares as it relates to the reinvestment of redemption proceeds in
shares of the same class of the Fund within 180 days after redemption. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Fund's Statement of Additional Information or contact your
authorized dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced sales charges. 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 Asset Management 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 Class A Shares 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 Class A Shares
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-
18
<PAGE> 20
month period to determine the sales charge as outlined in the Class A Shares
sales charge table. The size of investment shown in the Class A Shares sales
charge table 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. The initial purchase must be for an amount equal to at
least 5% of the minimum total purchase amount of the level selected. If trades
not initially made under a Letter of Intent subsequently qualify for a lower
sales charge through the 90-day back-dating provisions, an adjustment will be
made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the reduced sales charge previously paid. Such payments may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges in
connection with the unit investment trust reinvestment program 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 PROGRAM. 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 per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
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 Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' 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 quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. 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, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with
19
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<PAGE> 21
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 details with respect to such alliance 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) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by non-profit organizations
defined under Section 501(c)(3) of the Code and assets held by an employer
or trustee in connection with an eligible deferred compensation plan under
Section 457 of the Code. Such plans will qualify for purchases at net asset
value provided, for plans initially establishing accounts with the
Distributor in the Participating Funds after February 1, 1997, that (1) the
initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than
100 eligible employees. Such plans that have been established with a
Participating Fund or have received proposals from the Distributor prior to
February 1, 1997 based on net asset value purchase privileges previously in
effect will be qualified to purchase shares of the Participating Funds at
net asset value for accounts established on or before May 1, 1997. Section
403(b) and similar accounts for which Van Kampen Trust Company serves as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million, plus 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a commission
will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.
(9) 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
economies of scale 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
contingent deferred sales charge of 1.00% in the
20
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<PAGE> 22
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 Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services 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 on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
acceptance by Investor Services 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. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the redemption until it confirms 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.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 418256, Kansas City, MO 64141-9256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding
certificates, the certificates for the shares being redeemed properly endorsed
for transfer 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. IRA
redemption requests should be sent to the IRA custodian to be forwarded to
Investor Services. Contact the IRA custodian for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined
21
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<PAGE> 23
after the request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form 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. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application 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. Van Kampen Investments, Investor Services 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 Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services 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
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services 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 payable by wire transfer 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.
OTHER REDEMPTION INFORMATION. The Fund may redeem shares of any shareholder
account that has a 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 will be given and the
shareholder will be 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.
DISTRIBUTIONS FROM THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions. Investors will be entitled to begin receiving
dividends on their shares on the business day after Investor Services receives
payment for such shares. However, shares become entitled to dividends on the day
Investor Services receives payment for the shares either through a fed wire or
NSCC settlement. Shares remain entitled to dividends through the day such shares
are processed for payment on redemption.
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<PAGE> 24
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
Under the Fund's present policy, which may be changed at any time by the Board
of Trustees, distributions of all or substantially all of this income, less
expenses, are declared daily and paid monthly as dividends to shareholders.
Dividends are automatically applied to purchase additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. As in the
case of dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value unless the shareholder
instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. 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 Investor Services to charge a bank account on a
regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
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 Investor Services 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 Investor Services. Once the form is
properly completed, signed and returned to the agent, 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 Investor Services at the next determined net
asset value per share. Check writing redemptions represent the sale of Class A
Shares. Any gain or loss realized on the sale of shares is a taxable event.
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 proceeds 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. Retirement plans and accounts that are subject to backup withholding are
not eligible for the privilege.
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<PAGE> 25
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 value per
share 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 contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another Participating Fund, Class B Shares and Class
C Shares are subject to the contingent deferred sales charge schedule imposed by
the Participating Fund from which such shares were originally purchased.
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 Investor Services 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 the prospectus. Van
Kampen Investments and its subsidiaries, including Investor Services, 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 Investments, Investor Services nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. 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
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund may modify, restrict
or terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
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 such shareholder's 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 Participating Funds may be obtained from any
authorized dealer or the Distributor.
24
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<PAGE> 26
An investor considering an exchange to one of such funds should refer to the
prospectus for additional information regarding such fund prior to investing.
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 at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services 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 Van Kampen Investments, Investor Services 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, Investor Services may
rely on the instructions of any one owner.
FEDERAL INCOME TAXATION
The Fund intends to invest in sufficient tax-exempt municipal securities to
permit payment of "exempt-interest dividends" (as defined under applicable
federal income tax law). Exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. 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.
Under applicable federal income tax law, the interest on certain municipal
securities may be an item of tax preference subject to the alternative minimum
tax. The Fund may invest a substantial portion of its assets in municipal
securities subject to this provision so that a portion of its exempt-interest
dividends may be an item of tax preference to the extent such dividends
represent interest received from such municipal securities. Accordingly,
investment in the Fund could cause shareholders to be subject to (or result in
an increased liability under) the alternative minimum tax.
Although exempt-interest dividends from the Fund generally may be treated by
shareholders as interest excludable from their gross income, each shareholder is
advised to consult his or her tax adviser with respect to whether
exempt-interest dividends retain this exclusion given the investors' tax
circumstances. For example, exempt-interest dividends may not be excludable if
the shareholder would be treated as a "substantial user" (or a "related person"
of a substantial user, as each term is defined by applicable federal income tax
law) of the facilities financed with respect to any of the tax-exempt
obligations held by the Fund.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Fund is not deductible for federal income tax purposes if the Fund
distributes exempt-interest dividends during the shareholder's taxable year. If
a shareholder receives an exempt-interest dividend with respect to any shares
and such shares are held for six months or less, any 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
(consisting generally of tax-exempt interest, taxable income and net short-term
capital gains) will constitute tax-exempt interest, a significant portion of the
Fund's net investment income may consist of taxable income. Distributions of
such 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 (which are the
excess of net long-term capital gains over net short-term capital losses) as
capital gain dividends, if any, are taxable to shareholders as long-term capital
gains, whether paid in cash or reinvested in additional shares, and regardless
of how long the shares of the Fund have been held by such shareholders. Such
capital gain dividends may be taxed at different rates depending on how long the
Fund held the securities. Consistent with the Fund's investment object the Fund
expects that its distributions will consist of ordinary income and capital gain
dividends. 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). Although distributions generally are
treated as taxable in the year they are paid, distributions declared in October,
November or
25
-
<PAGE> 27
December, payable to shareholders of record on 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 31st
prior to the date of payment. 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 designated as exempt-interest dividends
cannot exceed the excess of 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 taxable 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 generally will not qualify for the dividends
received deduction for corporations.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares 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. Any capital gains may be taxed
at different rates depending on how long the shareholder held its shares.
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.
The Fund intends to qualify as a regulated investment company under the federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on an income it distributed to
shareholders. If the Fund distributes less than the sum of 98% of its ordinary
income and 98% of its capital gain net income, then the Fund will be subject to
a 4% excise tax on the undistributed amounts.
The federal income tax discussion above is for general information only. 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 event 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. 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. Prospective investors should consult their own tax advisers
regarding the specific federal tax consequences of purchasing, holding,
exchanging or selling shares, as well as the effects of state, local and foreign
tax law and any proposed tax law changes.
26
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<PAGE> 28
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back 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 Shares Class B Shares
Year Ended November 30, Year Ended November 30,
1998 1997 1996 1995 1994 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $11.454 $11.139 $11.18 $10.44 $11.19 $11.452 $11.136 $11.18
-------- -------- ------- ------- ------- -------- -------- -------
Net Investment
Income.............. .699 .729 .735 .74 .76 .612 .645 .653
Net Realized and
Unrealized Gain/
Loss................ .217 .312 (.041) .7475 (.744) .216 .313 (.046)
-------- -------- ------- ------- ------- -------- -------- -------
Total from Investment
Operations............ .916 1.041 .694 1.4875 .016 .828 .958 .607
Less Distributions from
and in Excess of Net
Investment Income..... .706 .726 .735 .7475 .766 .622 .642 .651
-------- -------- ------- ------- ------- -------- -------- -------
Net Asset Value, End of
the Period............ $11.664 $11.454 $11.139 $11.18 $10.44 $11.658 $11.452 $11.136
======== ======= ======== ======= ====== ======== ======== =======
Total Return(b)......... 8.28% 9.63% 6.47% 14.65% .10% 7.41% 8.82% 5.67%
Net Assets at End of the
Period (In
millions)............. $905.0 $779.9 $621.0 $516.3 $411.1 $451.9 $425.6 $323.8
Ratio of Expenses to
Average Net
Assets(c)............. .91% .95% 1.01% .98% 1.02% 1.67% 1.71% 1.77%
Ratio of Net Investment
Income to Average Net
Assets(c)............. 6.01% 6.50% 6.64% 6.81% 6.98% 5.26% 5.74% 5.88%
Portfolio Turnover...... 26% 29% 23% 26% 33% 26% 29% 23%
<CAPTION>
Class B Shares Class C Shares
December 10,
1993
(Commencement
of
Distribution)
Year Ended November 30, to November 30,
1995 1994 1998 1997 1996 1995 1994(a)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $10.43 $11.18 $11.440 $11.126 $11.17 $10.42 $11.29
------ ------ ------- ------- ------- ------ ------
Net Investment
Income.............. .66 .68 .613 .644 .652 .66 .63
Net Realized and
Unrealized Gain/
Loss................ .7535 (.748) .215 .312 (.045) .7535 (.8363)
------ ------ ------- ------- ------- ------ ------
Total from Investment
Operations............ 1.4135 (.068) .828 .956 .607 1.4135 (.2063)
Less Distributions from
and in Excess of Net
Investment Income..... .6635 .682 .622 .642 .651 .6635 .6637
------ ------ ------- ------- ------- ------ ------
Net Asset Value, End of
the Period............ $11.18 $10.43 $11.646 $11.440 $11.126 $11.17 $10.42
====== ====== ======= ======= ======= ====== ======
Total Return(b)......... 13.89% (.76%) 7.42% 8.82% 5.68% 13.79% (1.80%)**
Net Assets at End of the
Period (In
millions)............. $233.9 $159.3 $110.6 $91.3 $50.0 $31.1 $15.3
Ratio of Expenses to
Average Net
Assets(c)............. 1.73% 1.77% 1.67% 1.70% 1.77% 1.72% 1.75%
Ratio of Net Investment
Income to Average Net
Assets(c)............. 6.03% 6.19% 5.25% 5.69% 5.86% 5.98% 6.07%
Portfolio Turnover...... 26% 33% 26% 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
maximum sales charge or contingent deferred sales charge.
(c) For the years ended November 30, 1995 through 1997, 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%.
27
<PAGE> 29
APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P follows):
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
A- 1
-
<PAGE> 30
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 payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation 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 payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
2. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- -- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
- -- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong or strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse Financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
3. COMMERCIAL PAPER
An 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 several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:
A-1: A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B: A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent on
A- 2
-
<PAGE> 31
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating is used
when payments on an obligation 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 payments on
an obligation are jeopardized.
A 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 or 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.
4. TAX-EXEMPT DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols for the put option (for example, 'AAA/A-1+').
With short-term demand debt, S&P's note rating symbols are used with the
commercial paper rating symbols (for example, 'SP-1+/A-1+').
MOODY'S INVESTORS SERVICE INC. -- A brief description of the applicable Moody's
Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
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
edged." 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 the 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 some time 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 payment
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
A- 3
-
<PAGE> 32
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, 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 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 date to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM EXEMPT NOTES
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature-variable rate demand obligation. Such ratings will be designated as
VMIG, SG or, if the demand feature is not rated, as NR.
Moody's short-term ratings are designated Moody's Investment Grade as MIG 1 or
VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's assigns a MIG
or VMIG rating, all categories define an investment grade situation.
MIG 1/VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
SG. This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.
3. TAX-EXEMPT COMMERCIAL PAPER
Moody's short-term debt 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 makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability for
repayment of short-term debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
A- 4
-
<PAGE> 33
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a ranges of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supported institutions) have an acceptable ability for
repayment of short-term debt obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained.
Issuers rated Not Prime do not fall within any of the prime rating categories.
A- 5
-
<PAGE> 34
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or redemptions, call
the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUND INFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN HIGH YIELD MUNICIPAL FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Subadviser
VAN KAMPEN ADVISORS, INC.
40 Broad Street, Suite 828
Boston, MA 02110
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen High Yield Municipal Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen High Yield Municipal Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 35
VAN KAMPEN
HIGH YIELD MUNICIPAL FUND
PROSPECTUS
MARCH 30, 1999
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
Investment Company Act File No.
811-4746.
HYM PRO 3/99
<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
HIGH YIELD MUNICIPAL FUND
Van Kampen High Yield Municipal Fund (the "Fund") is a mutual fund with an
investment objective to seek to provide investors with as high a level of
interest income exempt from federal income tax as is consistent with the
investment policies of the Fund. The Fund's management generally seeks to
achieve the investment objective by investing primarily in a diversified
portfolio of medium and lower grade municipal securities.
The Fund is organized as a diversified series of Van Kampen Tax-Exempt
Trust, an open-end, management investment company (the "Trust").
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 that 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 Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833
for the hearing impaired).
---------------------------------------------
TABLE OF CONTENTS
---------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-4
Investment Restrictions..................................... B-14
Trustees and Officers....................................... B-16
Investment Advisory Agreement............................... B-27
Distribution and Service.................................... B-29
Transfer Agent.............................................. B-32
Portfolio Transactions and Brokerage Allocation............. B-32
Shareholder Services........................................ B-35
Redemption of Shares........................................ B-37
Contingent Deferred Sales Charge-Class A.................... B-37
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-38
Taxation.................................................... B-40
Fund Performance............................................ B-44
Other Information........................................... B-48
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-37
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MARCH 30, 1999.
<PAGE> 37
GENERAL INFORMATION
The Trust was originally organized on December 5, 1984 under the name
American Capital Tax-Exempt Trust as a Massachusetts business trust (the
"Massachusetts Trust"). The Massachusetts Trust was reorganized into the Trust,
a business trust organized under the laws of the State of Delaware, under the
name Van Kampen American Capital Tax-Exempt Trust as of July 31, 1995. The Trust
was created for the purpose of facilitating the Massachusetts Trust
reorganization into a Delaware business trust. On July 14, 1998, the Trust
adopted its current name. The Trust currently is comprised of one series: the
Van Kampen High Yield Municipal Fund.
The Fund was originally organized on December 5, 1984 as a series of the
Massachusetts Trust under the name American Capital High Yield Municipal Series
Fund. The Fund was renamed as the American Capital High Yield Municipal
Portfolio as of May 30, 1985. The Fund was reorganized as a series of the Trust
under the name Van Kampen American Capital High Yield Municipal Fund as of July
31, 1995. On July 14, 1998, the Fund adopted its current name.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Dean Witter Investment 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 securities lending.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
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 Declaration of Trust. Each
class of shares of the Fund
B-2
<PAGE> 38
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.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and separate votes are taken by each class of a series on matters
affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.
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
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
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 debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
B-3
<PAGE> 39
As of March 1, 1999 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 of
Ownership at
March 1, Class Percentage
Name and Address of Holder 1999 of Shares Ownership
-------------------------- --------------- --------- ----------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith Inc...... 4,073,582 A 5.09%
For the Sole Benefit of its Customers 4,414,834 B 11.69%
Attn: Fund Administration 1,573,350 C 16.16%
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
MUNICIPAL SECURITIES
Municipal securities include long-term obligations, which often are called
municipal bonds, as well as shorter term municipal notes, municipal leases, and
tax exempt commercial paper. Under normal market conditions, longer term
municipal securities generally provide a higher yield than shorter term
municipal securities, and therefore the Fund may be invested primarily in longer
term municipal securities. The Fund may, however, invest in shorter term
municipal securities when yields are greater than yields available on longer
term municipal securities, for temporary defensive purposes and when redemption
requests are expected. The two principal classifications of municipal securities
are "general obligation" and "revenue" or "special obligation" securities, which
include "industrial revenue bonds." General obligation securities are secured by
the issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue or special obligation securities 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. The Fund
may also invest in "moral obligation" bonds which are normally issued by special
purpose public authorities. If an issuer of moral obligation bonds is unable to
meet its obligations, the repayment of such bonds becomes a moral commitment but
not a legal obligation of the state or municipality in question.
B-4
<PAGE> 40
Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of state and local
governments or authorities used to finance the acquisition of equipment and
facilities. Lease obligations generally do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged. A lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. A risk exists that the municipality will not, or will be unable
to, appropriate money in the future in the event of political changes, changes
in the economic viability of the project, general economic changes or for other
reasons. In addition to the "non-appropriation" risk, these securities represent
a relatively new type of financing that has not yet developed the depth of
marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by an assignment of the
lessee's interest in the leased property, management and/or disposition of the
property in the event of foreclosure could be costly, time consuming and result
in unsatisfactory recoupment of the Fund's original investment. Additionally,
use of the leased property may be limited by state or local law to a specified
use thereby further limiting ability to rent. There is no limitation on the
percentage of the Fund's assets that may be invested in "non-appropriation"
lease obligations. In evaluating such lease obligations, the Adviser will
consider such factors as it deems appropriate, which factors may include (a)
whether the lease can be cancelled, (b) the ability of the lease obligee to
direct the sale of the underlying assets, (c) the general creditworthiness of
the lease obligor, (d) the likelihood that the municipality will discontinue
appropriating funding for the leased property in the event such property is no
longer considered essential by the municipality, (e) the legal recourse of the
lease obligee in the event of such a failure to appropriate funding and (f) any
limitations which are imposed on the lease obligor's ability to utilize
substitute property or services than those covered by the lease obligation. Also
included in the term municipal securities are participation certificates issued
by state and local governments or authorities to finance the acquisition of
equipment and facilities. They may represent participations in a lease, an
installment purchase contract, or a conditional sales contract.
The Fund may purchase floating and variable rate demand notes, which are
municipal securities normally having a stated maturity in excess of one year,
but which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such notes normally has a corresponding
right, after a given period, to prepay at its discretion upon notice to the
noteholders the outstanding principal amount of the notes plus accrued interest.
The interest rate on a floating rate demand note is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is adjusted
automatically at specified intervals. Investments by the Fund in variable rate
demand notes may also be made in the form of participation interests in variable
rate tax-exempt obligations held by a financial institution, typically a
commercial bank. Participating interest in such notes 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 variable rate demand note from the institution upon a
specified number of days' notice, not to exceed seven days. The Fund has an
undivided interest in
B-5
<PAGE> 41
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 note and
issuing the repurchase commitment.
The Fund may acquire custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain municipal securities. The underwriter of
these certificates or receipts typically purchases municipal securities and
deposits the securities in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Although under the terms of a custodial receipt, the
Fund typically would be authorized to assert its rights directly against the
issuer of the underlying obligation, the Fund could be required to assert
through the custodian bank those rights as may exist against the underlying
issuer. Thus, in the event the underlying issuer fails to pay principal or
interest when due, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, in the event that the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
recognition of any taxes paid.
The "issuer" of municipal securities generally is deemed to be the
governmental agency, authority, instrumentality or other political subdivision,
or the non-governmental user of a revenue bond-financed facility, the assets and
revenues of which will be used to meet the payment obligations, or the guarantor
of such payment obligations, of the municipal securities.
Municipal securities, like other debt obligations, are subject to the risk
of non-payment. The ability of issuers of municipal securities to make timely
payments of interest and principal may be adversely impacted in general economic
downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such non-payment
would result in a reduction of income to the Fund, and could result in a
reduction in the value of the municipal security experiencing non-payment and a
potential decrease in the net asset value of the Fund. Issuers of municipal
securities might seek protection under the bankruptcy laws. In the event of
bankruptcy of such an issuer, the Fund could experience delays and limitations
with respect to the collection of principal and interest on such municipal
securities and the Fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may take possession of and manage the assets securing the
issuer's obligations on such securities, which may increase the Fund's operating
expenses and adversely affect the net asset value of the Fund. Any income
derived from the Fund's ownership or operation of such assets may not be
tax-exempt. In addition, the Fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), may limit the extent to which the Fund may exercise its rights by
taking possession of such assets, because as a regulated investment company the
Fund is subject to certain limitations on its investments and on the nature of
its income. Further, in connection with the working out or restructuring of a
defaulted security, the Fund may acquire additional securities of the issuer,
the acquisition of which
B-6
<PAGE> 42
may be deemed to be a loan of money or property. Such additional securities
should be considered speculative with respect to the capacity to pay interest or
repay principal in accordance with their terms.
SPECIAL CONSIDERATIONS REGARDING CERTAIN SECURITIES
The Fund may invest in certain securities not producing immediate cash
income, such as zero-coupon and payment-in-kind securities, when the Fund's
investment adviser believes the effective yield on such securities over
comparable instruments paying cash income makes these investments attractive.
Zero-coupon securities are debt obligations that do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer.
Payment-in-kind securities are securities that pay interest through the issuance
of additional securities. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuations in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative than are
securities that pay interest periodically in cash. In addition, the amount of
non-cash interest income earned on such instruments is included, for federal
income tax purposes, in the Fund's calculation of income that is required to be
distributed to shareholders for the Fund to maintain its desired federal income
tax status (even though such non-cash paying securities do not provide the Fund
with the cash flow with which to pay such distributions). Accordingly, the Fund
may be required to borrow or to liquidate portfolio securities at a time that it
otherwise would not have done so in order to make such distributions. The Fund's
investment adviser will weigh these concerns against the expected total returns
from such instruments.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by the Fund. 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
B-7
<PAGE> 43
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 opinion of the Fund's investment adviser, present
minimal credit risks.
The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying municipal securities which would continue to be
valued in accordance with the method of valuation employed for the Fund in which
they are held. Stand-by commitments acquired by the Fund would be valued at zero
in determining net asset value. Where the Fund paid any consideration directly
or indirectly for a stand-by commitment, its costs would be reflected as
unrealized depreciation for the period during which the commitment was held by
the Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase and sell municipal securities on a "when-issued" or
"delayed delivery" basis whereby the Fund buys or sells a security with payment
and delivery taking place in the future. The payment obligation and the interest
rate are fixed at the time the Fund enters into the commitment. No income
accrues to the Fund on municipal securities in connection with such transactions
prior to the date the Fund actually takes delivery of such securities. These
transactions are subject to market risk as the value or yield of a municipal
security at delivery may be more or less than the purchase price or the yield
generally available on municipal securities when delivery occurs. In addition,
the Fund is subject to counterparty risk because it relies on the buyer or
seller, as the case may be, to consummate the transaction, and failure by the
other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. 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. When the Fund is the buyer
in such a transaction, however, it will maintain, in a segregated account with
its custodian, cash or liquid securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. The Fund will make
commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when-issued" or "delayed delivery" basis.
B-8
<PAGE> 44
FUTURES CONTRACTS AND RELATED OPTIONS
A futures contract is an agreement pursuant to which two parties agree to
take and make delivery of security for a specified amount of cash at a future
delivery date. An index futures contract is an agreement pursuant to which two
parties agree to take or make delivery on an amount of cash equal to a specified
dollar amount times the differences between the index value at a specified time
and the price at which the futures contract is originally struck. In an index
futures contract, no physical delivery of the securities underlying the index is
made.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its custodian in an
account in the broker's name an amount of cash 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
B-9
<PAGE> 45
so doing, provides an alternative to the liquidation of securities positions in
the Fund with attendant transaction costs. Ordinarily commissions on futures
transactions are lower than transaction costs incurred in the purchase and sale
of securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contact.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movements, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities
B-10
<PAGE> 46
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.
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.
B-11
<PAGE> 47
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.
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.
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 may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Trustees. 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, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and 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.
B-12
<PAGE> 48
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 exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt
securities and are considered to be loans under 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 will be required to maintain the value of the underlying
securities market-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.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. The
Fund's portfolio turnover rate (the lesser of the value of the securities
purchased or securities sold divided by the average value of the securities held
in the Fund's portfolio excluding all securities whose maturities at acquisition
were one year or less) is shown in the table of "Financial Highlights" in the
Prospectus. A high portfolio turnover rate (100% or more) increases the Fund's
transaction costs, including brokerage commissions, and may result in the
realization of more short-term capital gains than if the Fund had a lower
portfolio turnover. The turnover rate will not be a limiting factor, however, if
the Adviser deems portfolio changes appropriate.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance
B-13
<PAGE> 49
with procedures approved by the Fund's Trustees. Ordinarily, the Fund would
invest in restricted securities only when it receives the issuer's commitment to
register the securities without expense to the Fund. However, registration and
underwriting expenses (which may range from 7% to 15% of the gross proceeds of
the securities sold) may be paid by the Fund. Restricted securities which can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("144A Securities") and are determined to be liquid under guidelines
adopted by and subject to the supervision of the Fund's Board of Trustees are
not subject to the limitation on illiquid securities. Such 144A Securities are
subject to monitoring and may become illiquid to the extent qualified
institutional buyers become, for a time, uninterested in purchasing such
securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Fund in securities of
other investment companies will not be considered investments in restricted
securities 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting securities which is defined by the 1940 Act as the lesser of
(i) 67% or more of the voting securities present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy; or (ii) more than 50% of the Fund's outstanding voting
securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. These
restrictions provide that the Fund shall not:
1. Purchase or hold securities of any issuer if any of the Fund's officers
or trustees, or officers or directors of its investment adviser, who
beneficially owns more than 1/2% of the securities of that issuer,
together own beneficially more than 5% of the securities of such
issuer;
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Fund of an
initial or maintenance margin in connection with futures contracts or
related option transactions is not considered the purchase of a
security on margin;
3. Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional
cost securities identical to those sold short;
4. Make loans of money or securities to other persons except that the Fund
may purchase or hold debt instruments and enter into repurchase
agreements in accordance with its investment objective and policies;
B-14
<PAGE> 50
5. Invest in real estate or mortgage loans (but this shall not prevent the
Fund from investing in municipal securities (as defined in the
prospectus) or temporary investments (as defined in the prospectus)
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 1933 Act (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) 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 U.S. 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 1933 Act by virtue of disposing
of portfolio securities;
9. Invest in securities other than municipal securities (as defined in the
Prospectus), temporary investments (as defined in the Prospectus)
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 U.S. 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;
B-15
<PAGE> 51
12. Borrow money, except that the Fund may borrow from banks to meet
redemptions or for other temporary or emergency purposes, with such
borrowing not to exceed 5% of the total assets of the Fund at market
value at the time of borrowing. Any such borrowing may be secured
provided that not more than 10% of the total assets of the Fund at
market value at the time of pledging may be used as security for such
borrowings;
13. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall
not apply to municipal securities or governmental guarantees of
municipal securities; and provided, further, that for the purpose of
this limitation only, industrial development bonds that are considered
to be issued by non-governmental users shall not be deemed to be
municipal securities; and provided, further, that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions
of the 1940 Act; or
14. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making
and collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts and other investment strategies and instruments that would be
considered "senior securities" but for the maintenance by the Fund of a
segregated account with its custodian or some other form of "cover".
Because of the nature of the securities in which the Fund may invest, the
Fund may not invest in voting securities or invest for the purpose of exercising
control or management. If a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in value will not constitute a violation of such restriction.
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset
B-16
<PAGE> 52
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 Van Kampen 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
1632 Morning Mountain Road August 1996, Chairman, Chief Executive
Raleigh, NC 27614 Officer and President, MDT Corporation (now
Date of Birth: 07/14/32 known as Getinge/Castle, Inc., a 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.
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of
Two World Trade Center International Private Client Group, a
66th Floor division of Morgan Stanley Dean Witter & Co.
New York, NY 10048 Director of Dean Witter Reynolds Inc.
Date of Birth: 10/12/52 Chairman and Director of Dean Witter Capital
Corporation. Chairman, Chief Executive
Officer, President and a Director of Dean
Witter Alliance Capital Corporation. Director
of the National Healthcare Resources, Inc.,
Dean Witter Realty Inc., Dean Witter Reynolds
Venture Equities Inc., DW Window Covering
Holding, Inc., and is a member of the Morgan
Stanley Dean Witter Management Committee.
Prior to January 1999, Director of Morgan
Stanley Dean Witter Distributors, Inc. Prior
to January 1999, Chairman of Dean Witter
Futures & Currency Management Inc. and
Demeter Management Corporation. Prior to
December 1998, Mr. DeMartini was President
and Chief Operating Officer of Morgan Stanley
Dean Witter Individual Asset Management and a
Director of Morgan Stanley Dean Witter Trust
FSB. 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 of the
TCW/DW Funds, Director of the Morgan Stanley
Dean Witter Funds and Trustee/Director of
each of the funds in the Fund Complex.
</TABLE>
B-17
<PAGE> 53
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Prior to 1997,
233 South Wacker Drive Partner, Ray & Berndtson, Inc., an executive
Suite 7000 recruiting and management consulting firm.
Chicago, IL 60606 Formerly, Executive Vice President of ABN
Date of Birth: 06/03/48 AMRO, N.A., a Dutch bank holding company.
Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the
University of Chicago Hospitals Board, Vice
Chair of the Board of The YMCA of
Metropolitan Chicago and a member of the
Women's Board of the University of Chicago.
Prior to 1996, Trustee of The International
House Board. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund
11 DuPont Circle, N.W. of the United States. Formerly, advisor to
Washington, D.C. 20036 the Dennis Trading Group Inc. Prior to 1992,
Date of Birth: 02/29/52 President and Chief Executive 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
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser. President,
Date of Birth: 02/13/36 Nelson Ivest Brokerage Services Inc., 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-18
<PAGE> 54
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Don G. Powell*............................ Currently a member of the board of governors
3 Wexford Court and executive committee for the Investment
Houston, TX 77024 Company Institute, and a member of the Board
Date of Birth: 10/19/39 of Trustees of the Houston Museum of Natural
Science. Prior to January 1999, Chairman of
the Investment Company Institute, Chairman
and a Director of Van Kampen Investments, the
Advisers, the Distributor and Investor
Services, Van Kampen Advisors Inc., Van
Kampen Recordkeeping Services Inc., American
Capital Contractual Services Inc., Van Kampen
Merritt Equity Advisors Corp., Van Kampen
Insurance Agency of Illinois Inc., Van Kampen
System Inc., Van Kampen Trust Company, Van
Kampen Services Inc. and Van Kampen Exchange
Corp. Prior to July of 1998, Director and
Chairman of VK/AC Holding, Inc. Prior to
1997, Chairman, President and Director of
American Capital Shareholders Corporation.
Prior to April of 1997, Chairman, President
and Director of Van Kampen Merritt Equity
Holdings Corp. Prior to July of 1996,
Chairman and Director of VSM Inc. and VCJ
Inc. Prior to September 1996, Chairman and
Director of McCarthy, Crisanti & Maffei, Inc.
and McCarthy, Crisanti & Maffei acquisition
Corporation. Prior to November 1996,
President, Chief Executive Officer and a
Director of VK/AC Holding, Inc.
Trustee/Director of each of the funds in the
Fund Complex and Trustee of other funds
advised by the Advisers or Van Kampen
Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The
One ServiceMaster Way ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of
Date of Birth: 07/08/44 Illinois Tool Works, Inc., a manufacturing
company and the Urban Shopping Centers Inc.,
a retail mall management company. Trustee,
University of Notre Dame. Prior to 1998,
Director of Stone Smurfit Container Corp., a
paper manufacturing company. Formerly,
President, Chief Executive Officer and Chief
Operating Officer of Waste Management, Inc.,
an environmental services company.
Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>
B-19
<PAGE> 55
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
- --------------------- --------------------------
<S> <C>
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean
155 Hickory Lane of the Graduate School, Stevens Institute of
Closter, NJ 07624 Technology. Director, Dynalysis of Princeton,
Date of Birth: 08/02/24 a firm engaged in engineering research.
Trustee/Director of each of the funds in the
Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps,
333 West Wacker Drive Slate, Meagher & Flom (Illinois), legal
Chicago, IL 60606 counsel to the funds in the Fund Complex, and
Date of Birth: 08/22/39 other open-end and closed-end funds advised
by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the
Fund Complex, and Trustee/Managing General
Partner of other open-end and closed-end
funds advised by the Advisers or Van Kampen
Management Inc.
Paul G. Yovovich.......................... Private investor. Prior to April 1996,
Sears Tower President of Advance Ross Corporation.
233 South Wacker Drive Director of 3Com Corporation, APAC Customer
Suite 9700 Services, Inc., and COMARCO, Inc.
Chicago, IL 60606 Trustee/Director of each of the Funds in the
Date of Birth: 10/29/53 Fund Complex.
</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. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
current or former positions with Morgan Stanley Dean Witter & Co. or its
affiliates.
B-20
<PAGE> 56
OFFICERS
Messrs. McDonnell, Hegel, Sullivan, Wood, Dalmaso, Martin, Wetherell and
Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL
60181-5555. The Fund's other officers are located at 2800 Post Oak Blvd.,
Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and a Director of Van
Date of Birth: 05/20/42 Kampen Investments. President, Chief Operating
President Officer and a Director of the Advisers, Van
Kampen Advisors Inc., and Van Kampen Management
Inc. Prior to July of 1998, Director and
Executive Vice President of VK/AC Holding, Inc.
Prior to April of 1998, President and a Director
of Van Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, Mr. McDonnell 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 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/Managing General Partner of
other investment companies advised by the
Advisers and Management Inc.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors
Vice President Inc. Prior to September of 1996, he was a
Director of McCarthy, Crisanti & Maffei, Inc.
Prior to July of 1996, Mr. Hegel was a Director
of VSM Inc. Vice President of each of the funds
in the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments
Date of Birth: 08/20/55 and the Advisers. Treasurer, Vice President and
Treasurer, Vice President and Chief Chief Financial Officer of each of the funds in
Financial Officer the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 President and Chief Accounting Officer of each of
Vice President and Chief Accounting the funds in the Fund Complex and certain other
Officer investment companies advised by the Advisers or
their affiliates.
</TABLE>
B-21
<PAGE> 57
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Paul R. Wolkenberg................... Executive Vice President and Director of Van
Date of Birth: 11/10/44 Kampen Investments. Executive Vice President of
Vice President the Advisers, and the Distributor. President and
a Director of Investor Services. President, Chief
Operating Officer, and a Director of Van Kampen
Recordkeeping Services Inc. President, Chief
Executive Officer and Director of Van Kampen
Trust Company. Prior to July of 1998, Director
and Executive Vice President of VK/AC Holding,
Inc. Vice President of each of the funds in the
Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior
Vice President Vice President and Chief Operating Officer of the
Distributor. Vice President of each of the funds
in the Fund Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the
Controller Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Nicholas Dalmaso..................... Vice President, Associate General Counsel and
Date of Birth: 03/01/65 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Advisors Inc. and Van Kampen Management Inc.
Assistant Secretary of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
</TABLE>
B-22
<PAGE> 58
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments.
Assistant Secretary Senior Vice President, Deputy General Counsel and
Secretary of the Advisers, the Distributor,
Investor Services, American Capital Contractual
Services, Inc., Van Kampen Management Inc., Van
Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van
Kampen System Inc. and Van Kampen Recordkeeping
Services Inc. Prior to July of 1998, Senior Vice
President, Deputy General Counsel and Assistant
Secretary of VK/AC Holding, Inc. Prior to April
of 1998, 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 their affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and
Date of Birth: 06/15/56 Assistant Secretary of Van Kampen Investments,
Assistant Secretary the Advisers, the Distributor, Van Kampen
Management Inc. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments, Van
Date of Birth: 10/16/64 Kampen Management Inc. and the Advisers.
Assistant Treasurer Assistant Treasurer of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Michael Robert Sullivan.............. Assistant Vice President of the Advisers, Van
Date of Birth: 03/30/33 Kampen Investments and Van Kampen Management Inc.
Assistant Controller Assistant Controller of each of the funds in the
Fund Complex and other investment companies
advised by the Advisers or their 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
B-23
<PAGE> 59
63 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
Van Kampen Series Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Van Kampen Series Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of Van Kampen Investments,
the Advisers or the Distributor (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.
Effective January 1, 1998, the trustees adopted a standardized compensation
and benefits program for each fund in the Fund Complex. 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. 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.
B-24
<PAGE> 60
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
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
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.
B-25
<PAGE> 61
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 Estimated
Pension or Maximum Total
Aggregate Retirement Annual Compensation
Year First Compensation Benefits Benefits from before
Appointed or before Accrued as the Fund Deferral from
Elected to Deferral from Part of Upon Fund
Name(1) the Board the Fund(2) Expenses(3) Retirement(4) Complex(5)
------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan 1991 $3,331 $35,691 $60,000 $125,200
Linda Hutton Heagy 1995 3,131 3,861 60,000 112,800
R. Craig Kennedy 1995 3,331 2,652 60,000 125,200
Jack E. Nelson 1995 3,331 18,385 60,000 125,200
Phillip B. Rooney 1997 3,331 6,002 60,000 125,200
Dr. Fernando Sisto 1984 3,331 68,615 60,000 125,200
Wayne W. Whalen 1995 3,331 12,658 60,000 125,200
Paul G. Yovovich(1) 1998 764 0 60,000 25,300
</TABLE>
- ------------------------------------
(1) Mr. Yovovich joined the Board of Trustees on October 22, 1998 and therefore
does not have a complete fiscal year of information to report in the table.
Trustees not eligible for compensation are not included in the Compensation
Table.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended November 30, 1998. The
following trustees deferred compensation from the Fund during the fiscal
year ended November 30, 1998: Mr. Branagan, $3,331; Ms. Heagy, $3,131; Mr.
Kennedy, $1,666; Mr. Nelson, $3,331; Mr. Rooney, $3,331; Dr. Sisto, $1,666;
and Mr. Whalen, $3,331. 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, 1998 is as
follows: Mr. Branagan, $6,714; Dr. Caruso, $4,577; Mr. Gaughan, $448; Ms.
Heagy, $8,576; Mr. Kennedy, $4,985; Mr. Lipshie, $263; Mr. Miller, $3,009;
Mr. Nelson, $9,895; Mr. Robinson, $5,570; Mr. Rooney, $4,630; Dr. Sisto,
$5,129; Mr. Vernon, $433; and Mr. Whalen, $9,746. 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 each of the trustees for the Funds' respective fiscal years
ended in 1998. The retirement plan is described above the Compensation
Table.
B-26
<PAGE> 62
(4) For each trustee, 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.
(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,
1998 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, 1998. 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
Non-Affiliated 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
$285,825 during the calendar year ended December 31, 1998.
As of March 1, 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.
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 the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include 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 the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The Fund also
pays distribution fees, service fees, custodian fees, legal and auditing fees,
the costs of reports to shareholders, and all other ordinary business 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 without willful misfeasance, bad faith, negligence or reckless
disregard of its obligations.
B-27
<PAGE> 63
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.60% on the first $300 million of
average daily net assets; 0.55% on the next $300 million of average daily net
assets; and 0.50% on the average daily net assets over $600 million.
The Adviser has entered into a subadvisory agreement (the "Subadvisory
Agreement") with Van Kampen Advisors, Inc. (the "Subadviser") to assist it in
performing its investment advisory function with respect to the Fund. Under the
Subadvisory Agreement, the Subadviser receives a fee from the Adviser 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 average daily net
assets over $50 million.
The Fund's average daily net assets are determined by taking the average of
all of the determinations of the net assets during a given calendar month. Such
fee is payable for each calendar month as soon as practicable after the end of
that month. The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments,
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of Van Kampen Investments 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 include the investment advisory fee and other operating costs paid by
the Fund except (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreement,
and (4) payments made by the Fund pursuant to the distribution plans.
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 a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
B-28
<PAGE> 64
During the fiscal years ended November 30, 1998, 1997 and 1996, the Adviser
received $7,402,600, $5,726,536 and $4,740,392, respectively, in advisory fees
from the Fund after fee waivers of $0, $1,500 and $17,000, respectively. For
such periods the Fund paid $352,200, $240,529 and $208,513, respectively, for
accounting services.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
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 on a continuous basis. 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)(i) by the Fund's
Trustees or (ii) 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.
<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal Year Ended November 30, 1998..................... $ 3,096,411 $ 352,187
Fiscal Year Ended November 30, 1997..................... $ 5,273,143 $ 659,053
Fiscal Year Ended November 30, 1996..................... $ 5,191,191 $ 87,095
</TABLE>
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
Total Sales Charge
------------------------- Reallowed
As % of As % of Net To Dealers
Size of Offering Amount As a % of
Investment Price Invested Offering 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 contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or
B-29
<PAGE> 65
transaction fee will be paid by the Distributor at the time of purchase
directly out of the Distributor's assets (and not out of the Fund's assets) to
authorized dealers who initiate and are responsible for purchases of $1
million or more computed based on a percentage of the dollar value of such
shares sold 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.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
In addition to reallowances or commissions described above, 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 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 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.
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
B-30
<PAGE> 66
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.
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 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.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the Prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any contingent
deferred sales charges it received. For Class A Shares, to the extent the
Distributor is not fully reimbursed in a given year, there is no carryover of
such unreimbursed amounts to succeeding years. For each of the Class B Shares
and Class C Shares, to the extent the Distributor is not fully reimbursed in a
given year, any unreimbursed expenses for such class will be carried forward and
paid by the Fund in future years so long as such Plans are in effect. Except as
mandated by applicable law, the Fund does not impose any limit with respect to
the
B-31
<PAGE> 67
number of years into the future that such unreimbursed expenses may be carried
forward (on a Fund level basis). Because such expenses are accounted for 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, 1998, there were $20,803,516 and $920,421 of
unreimbursed distribution-related expenses with respect to Class B Shares and
Class C Shares, respectively, representing 4.60% and 0.83% of the Fund's net
assets attributable to Class B Shares and Class C Shares, respectively. If the
Plans were 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 contingent deferred sales charges.
For the fiscal year ended November 30, 1998, the Fund's aggregate expenses
under the Plans for Class A Shares were $2,069,577 or 0.25% of the Class A
Shares' average daily net assets. Such expenses were paid to reimburse the
Distributor for payments made to financial intermediaries for servicing Fund
shareholders and for administering the Class A Share Plans. For the fiscal year
ended November 30, 1998, the Fund's aggregate expenses under the Plans for Class
B Shares were $4,189,631 or 1.00% of the Class B Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $3,073,636 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and $1,115,995
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Class B Share Plans. For the fiscal year ended November 30,
1998, the Fund's aggregate expenses under the Plans for Class C Shares were
$930,497 or 1.00% of the Class C Shares' average daily net assets. Such expenses
were paid to reimburse the Distributor for the following payments: $607,067 for
commissions and transaction fees paid to financial intermediaries in respect of
sales of Class C Shares of the Fund and $323,430 for fees paid to financial
intermediaries for servicing Class C shareholders and administering the Class C
Share Plans.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc., PO Box 418256, Kansas
City, MO 64141-9256. During the fiscal years ended November 30, 1998, 1997 and
1996, Investor Services received fees aggregating $733,534, $643,878 and
$728,605, respectively for these services. Prior to 1998, these services were
provided at cost plus a profit. Beginning in 1998, the transfer agency prices
are determined through negotiations with the Fund's Board of Trustees and are
based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
B-32
<PAGE> 68
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market 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 a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed bonds on a exchange, which are effected through brokers who charge a
commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund. The Adviser also may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with brokerage firms participating in the distribution of
the Fund's shares if it reasonably believes that the quality of execution and
the commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Fund's shares.
B-33
<PAGE> 69
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, 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.
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 Trustees have
adopted certain policies incorporating the standards of Rule 17e-1 issued by the
SEC under the 1940 Act which requires that the commissions paid to affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Affiliated Brokers
----------------------
All Morgan Dean
Brokers Stanley Witter
------- ------- ------
<S> <C> <C> <C>
Fiscal year ended November 30, 1998........... $8,520 -- --
Fiscal year ended November 30, 1997........... $6,200 -- --
Fiscal year ended November 30, 1996........... $ 0 N/A N/A
Fiscal year 1998 Percentages:
Commissions with affiliate to total
commissions.............................. 0% 0%
Value of brokerage transactions with
affiliate to total transactions.......... 0% 0%
</TABLE>
B-34
<PAGE> 70
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
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 Investor Services.
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 Funds, c/o Investor Services, PO Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services 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.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
B-35
<PAGE> 71
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 with the completed
application. Once Investor Services 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 Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the 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 investor 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 per
share as of the payable date of the distribution.
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, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semiannual or
annual checks in any amount, not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by the Fund.
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 contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.
B-36
<PAGE> 72
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 plans are reinvested in additional shares
at the next determined net asset value per share. 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 redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
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 contingent deferred sales
charge paid upon such redemption. Such reinstatement is made at the net asset
value per share (without sales charge) next determined after the order is
received, which must be within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.
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
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a contingent deferred sales
charge ("CDSC -- Class A Shares") may be imposed on certain redemptions made
within one year of purchase. 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
B-37
<PAGE> 73
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 "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge. The CDSC-Class B and C is waived on redemptions of Class B Shares and
Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7)
B-38
<PAGE> 74
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.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC-Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from 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.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
INVOLUNTARY REDEMPTIONS OF SHARES
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.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus 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.
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<PAGE> 75
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.
TAXATION
Federal Income Taxation. The Trust and its series, including the Fund, will
be treated as separate corporations for federal income tax purposes. The Fund
has elected and 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 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income (not including tax-exempt income) for such year and (ii) 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 31st 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 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
B-40
<PAGE> 76
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. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.
Distributions. The Fund intends to invest in sufficient tax-exempt
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 government 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 purposes. The percentage of the total dividends paid by the Fund
during any taxable year that qualify as exempt-interest dividends will be the
same for all shareholders of the Fund receiving dividends during such year.
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. Per capita volume limitations on certain
private-activity bonds could limit the amount of such bonds available for
investment by the Fund.
B-41
<PAGE> 77
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 shareholder 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. "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 tax-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 useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
While the Fund expects that a major portion of its net investment income
will constitute tax-exempt interest, a significant portion may consist of
taxable income. Distributions of the Fund's net investment 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. 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" below. 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. 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 designated as exempt-interest dividends cannot exceed the
excess of 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 taxable 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 generally will not qualify for the dividends received
deduction for corporations.
B-42
<PAGE> 78
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on 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 31st 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.
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 (including capital gain dividends), see "Capital
Gains Rates" 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 gain 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. 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 or (ii) 20% for capital assets held for more than one year. A special 28%
tax rate may apply to a portion of the capital gain dividend paid by the Fund
with respect to its taxable year ended November 30, 1998. The maximum long-term
capital gains rate for corporations is 35%.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with its correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Fund that the shareholder has failed to properly report certain interest and
dividend income to the IRS and to respond to notices to that effect or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Redemption proceeds may be subject to withholding
under the circumstances described in (i) above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
General. The federal, income tax discussion set forth above is for general
information only. Prospective investors should consult their 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.
B-43
<PAGE> 79
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 the maximum sales charge 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.
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.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares.
Non-standardized total return calculations do not reflect the imposition of
a contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC imposed at the time of redemption were
reflected, it would reduce the performance quoted.
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.
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
B-44
<PAGE> 80
net income computed for federal income tax reporting purposes. Thus the yield
computed for a period may be greater or less than the Fund's then current
dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
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; 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 class of shares of the classes
will differ.
Tax-equivalent yield demonstrates the taxable yield required to produce an
after-tax yield equivalent to that of the Fund's yield. The Fund's
tax-equivalent yield quotation for a 30 day period as described above is
computed by dividing that portion of the yield of the Fund (as computed above)
which is tax-exempt by a percentage equal to 100% minus a stated percentage
income tax rate and adding the result to that portion of the Fund's yield, if
any, that is not tax-exempt.
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.
From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top five sectors, ten largest holdings and other Fund asset
structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes the Fund compares relative to other Van Kampen funds.
Materials may also discuss the Dalbar Financial Services study from 1984 to 1994
which studied investor cash flow into and out of all types of mutual funds. The
ten year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless of if shareholders purchased their funds in direct or
sales force distribution
B-45
<PAGE> 81
channels. The study showed that investors working with a professional
representative have tended over time to earn higher returns than those who
invested directly. The Fund will also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, the Dow
Jones Industrial Average, Standard & Poor's Indices, NASDAQ Composite Index,
other appropriate indices of investment securities, or with investment or
savings vehicles. The performance information may also include evaluations of
the Fund published by nationally recognized ranking services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce the
Fund's performance. The Fund will include performance data for each class of
shares of the Fund in any advertisement or information including performance
data of the Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, 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
other-wise, 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.
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.
CLASS A SHARES
The average annualized total return, assuming payment of the maximum sales
charge, for Class A Shares of the Fund for (i) the one year period ended
November 30, 1998 was 3.14%, (ii) the five year period ended November 30, 1998
was 6.67% and (iii) the ten year period ended November 30, 1998 was 7.82%.
The Fund's yield with respect to the Class A Shares for the 30 day period
ending November 30, 1998 was 4.99%. The Fund's current distribution rate with
respect to the Class A Shares for the month ending November 30, 1998 (calculated
in the manner described in the Prospectus) was 5.69%. The Fund's taxable
equivalent distribution rate with respect to the Class A Shares for the month
ending November 30, 1998 was 8.89%.
B-46
<PAGE> 82
The Class A Shares cumulative non-standardized total return, including
payment of the maximum sales charge, with respect to the Class A Shares from its
inception to November 30, 1998 was 145.77%.
The Fund's cumulative non-standardized total return, excluding payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to November 30, 1998 was 157.94%.
CLASS B SHARES
The average annualized total return, including payment of the CDSC, with
respect to the Class B Shares for (i) the one year period ended November 30,
1998 was 3.41%, (ii) the five year period ended November 30, 1998 was 6.67% and
(iii) the approximately six year, four month period of July 20, 1992
(commencement of investment operations of the Fund) through November 30, 1998
was 7.03%.
The Fund's yield with respect to the Class B Shares for the 30 day period
ending November 30, 1998 was 4.49%. The Fund's current distribution rate with
respect to the Class B Shares for the month ending November 30, 1998 was 5.25%.
The Fund's taxable equivalent distribution rate with respect to the Class B
Shares for the month ending November 30, 1998 was 8.20%.
The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class B Shares from its inception to November 30,
1998 (as calculated in the manner described in the Prospectus) was 54.12%.
The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class B Shares from its inception to November 30,
1998 was 54.12%.
CLASS C SHARES
The average annualized total return, including payment of the CDSC, with
respect to the Class C Shares for (i) the one year period ended November 30,
1998 was 6.42% and (ii) the approximately four year, eleven month period from
December 10, 1993 (the commencement of investment operations of the Fund)
through November 30, 1998 was 6.70%.
The Fund's yield with respect to the Class C Shares for the 30 day period
ending November 30, 1998 was 4.50%. The Fund's current distribution rate with
respect to the Class C Shares for the month ending November 30, 1998 was 5.25%.
The Fund's taxable equivalent distribution rate with respect to the Class C
Shares for the month ending November 30, 1998 was 8.20%.
The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class C Shares from its inception to November 30,
1998 was 38.05%.
The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class C Shares from its inception to November 30,
1998 was 38.05%.
B-47
<PAGE> 83
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 200 East Randolph Drive, Chicago, Illinois
60601, the independent accountants for the Fund, performs an annual audit of the
Fund's financial statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
B-48
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen 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 High Yield Municipal
Fund (the "Fund"), a series of the Van Kampen Tax-Exempt Trust, at November 30,
1998, 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
January 11, 1999
F-1
<PAGE> 85
PORTFOLIO OF INVESTMENTS
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 97.4%
ALABAMA 0.3%
$ 750 Vincent, AL Indl Dev Brd Shelby Motel Group Inc
Proj........................................... 10.500% 09/01/16 $ 735,000
3,255 West Jefferson Cnty, AL Amusement & Pub Pk Auth
First Mtg Visionland Proj...................... 8.000 12/01/26 3,653,835
--------------
4,388,835
--------------
ALASKA 0.2%
2,250 Seward, AK Rev AK Sealife Cent Proj............ 7.650 10/01/16 2,421,180
--------------
ARIZONA 2.7%
1,205 Casa Grande, AZ Indl Dev Auth Rfdg............. 8.250 12/01/15 1,277,577
2,880 Chandler, AZ Indl Dev Auth Rev Chandler Finl
Cent Proj Ser 1986 (c)......................... 9.875 12/01/16 2,448,290
3,000 Flagstaff, AZ Indl Dev Auth Rev Sr Living Cmnty
Northern AZ Ser A.............................. 6.200 09/01/28 2,991,150
5,500 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev (e).................................... 6.625 07/01/33 5,579,310
3,000 Maricopa Cnty, AZ Indl Dev Auth Sr Living Fac
Rev............................................ 7.750 04/01/15 3,239,940
1,300 McDowell, AZ Mountain Ranch Cmnty Fac Dist..... 6.500 07/15/22 1,349,296
999 Peoria, AZ Indl Dev Auth Sierra Winds Life Care
Cmnty Proj (Var Rate Cpn)...................... 8.500 11/01/17 1,093,985
2,750 Pima Cnty, AZ Indl Dev Auth Indl Rev Tuscon
Elec Pwr Co Ser A.............................. 6.100 09/01/25 2,779,535
3,000 Pima Cnty, AZ Indl Dev Auth Multi-Family Rev
(e)............................................ 6.625 10/01/28 3,061,320
2,000 Pima Cnty, AZ Indl Dev Auth Rev La Posada at
Park Cent Ser A................................ 7.000 05/15/27 2,152,020
3,600 Pima Cnty, AZ Indl Dev Auth Sr Living Facs
Catilina Vlg Ser A Rev......................... 6.500 07/01/29 3,628,872
1,025 Pinal Cnty, AZ Indl Dev Auth Casa Grande Regl
Med Cent Proj Ser A............................ 8.125 12/01/22 1,136,346
475 Pinal Cnty, AZ Indl Dev Auth Casa Grande Regl
Med Cent Proj Ser B............................ 8.125 12/01/22 526,599
1,500 Red Hawk Canyon Cmnty Facs Dist No 2 AZ Dist
Assmt Rev...................................... 6.000 12/01/02 1,506,600
1,425 Red Hawk Canyon Cmnty Facs Dist No 2 AZ Dist
Assmt Rev...................................... 6.500 12/01/12 1,445,292
1,035 Scottsdale, AZ Indl Dev Auth Rev First Mtg
Westminster Vlg Ser A Rfdg..................... 8.000 06/01/11 1,172,676
2,000 Scottsdale, AZ Indl Dev Auth Rev First Mtg
Westminster Vlg Ser A Rfdg..................... 8.250 06/01/15 2,281,700
1,845 Tuscon, AZ Indl Dev Auth Rev Clarion Santa Rita
Hotel Ser A Rfdg (e)........................... 6.375 12/01/16 1,852,011
--------------
39,522,519
--------------
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARKANSAS 0.3%
$ 500 Fayetteville, AR Pub Fac Brd Rev Butterfield
Trail Vlg Proj B (Prerefunded @ 09/01/99)....... 9.500% 09/01/14 $ 533,040
4,260 Jackson Cnty, AR Hlthcare Fac Brd First Mtg
Hosp Rev Newport Hosp & Clinic Inc.............. 7.375 11/01/11 4,470,785
--------------
5,003,825
--------------
CALIFORNIA 6.2%
1,255 Abag Fin Auth For Nonprofit Corps CA Ctfs
Partn........................................... 6.375 11/15/15 1,265,404
1,455 Abag Fin Auth For Nonprofit Corps CA Ctfs
Partn........................................... 6.375 11/15/28 1,458,565
1,000 Brentwood, CA Impt Bond Act 1915................ 6.000 09/02/27 1,030,210
1,210 California Edl Fac Auth Rev Pacific Graduate
Sch of Psych.................................... 7.600 11/01/21 1,306,437
2,350 California Edl Fac Auth Rev Pacific Graduate
Sch of Psych.................................... 8.000 11/01/21 2,585,822
2,000 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser B.. 9.500 07/01/20 2,465,940
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser C.. 8.375 07/01/11 2,835,375
1,500 Davis, CA Pub Fac Fin Auth Loc Agy Rev.......... 6.600 09/01/25 1,602,015
1,300 Emeryville, CA Impt Bond Act 1915 Assmt Dist
93-1 East Baybridge............................. 7.300 09/02/21 1,352,546
1,000 Folsom, CA Pub Fin Auth Ser A................... 6.875 09/02/19 1,032,450
1,500 Folsom, CA Spl Tax Cmnty Fac Dist No 7 Rfdg..... 7.250 09/01/21 1,635,360
1,000 Fontana, CA Spl Tax Sub Cmnty Fac Dist 2 Ser C
Rfdg............................................ 6.375 09/01/17 1,000,020
2,730 Fresno, CA Ctfs Partn........................... 8.500 05/01/16 2,899,615
840 Healdsburg, CA Ctfs Partn Nuestro Hosp Inc...... 6.250 11/01/08 843,083
2,500 Healdsburg, CA Ctfs Partn Nuestro Hosp Inc...... 6.375 11/01/28 2,475,100
990 Indio, CA Pub Fin Auth Rev Tax Increment........ 6.500 08/15/27 1,033,758
1,200 Irvine, CA Mobile Home Pk Rev Sub Meadows
Mobile Home Pk Ser B............................ 6.050 03/01/28 1,215,504
3,000 Irwindale, CA Pub Fin Auth Spl Cmnty Facs Dist
No 1 Rfdg....................................... 6.000 11/01/20 3,057,420
4,550 Lake Elsinore, CA Pub Fin Auth Loc Agy Rev...... 7.100 09/01/20 4,941,254
1,500 Los Angeles, CA Cmnty Fac Dist Spl Tax No. 3
Cascades Business Pk............................ 6.400 09/01/22 1,573,665
3,000 Merced, CA Irrigation Dist Rev Ctfs Partn Sub
Electric Sys Proj............................... 6.300 03/01/19 3,045,990
4,500 Millbrae, CA Residential Fac Rev Magnolia of
Millbrae Proj Ser A............................. 7.375 09/01/27 4,764,375
1,000 Moreno Vly, CA Spl Tax Towngate Cmnty Fac Dist
87-1............................................ 7.125 10/01/23 1,051,720
2,000 Perris, CA Pub Fin Auth Loc Agy Rev Ser D....... 7.875 09/01/25 2,255,480
1,500 Rancho Cucamonga, CA Cmnty Fac Dist Spl Tax No
88-2............................................ 8.250 09/01/19 1,683,060
100 Rancho Cucamonga, CA Cmnty Fac Dist Spl Tax No
88-2............................................ 8.000 09/01/20 110,733
3,000 Reedley, CA Ctfs Partn.......................... 7.500 10/01/26 3,297,630
3,105 Richmond, CA Redev Agy Multi-Family Rev Ser A .. 7.500 09/01/23 3,190,574
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$7,500 Riverside Cnty, CA Air Force Vlg West Inc Ser A
Rfdg........................................... 8.125% 06/15/20 $ 8,281,200
2,000 Sacramento, CA Spl Tax Cmnty Fac Dist No 97-1
Ser A.......................................... 6.700 09/01/17 2,115,060
2,000 Sacramento, CA Spl Tax Cmnty Fac Dist No 97-1
Ser A.......................................... 6.750 09/01/27 2,104,920
2,500 San Bernardino, CA Assn Cmntys Fin Auth
Hlthcare Ctfs Partn............................ 6.900 05/01/27 2,630,925
3,000 San Bernardino, CA Hosp Rev San Bernardino
Cmnty Hosp Rfdg................................ 7.875 12/01/19 3,124,080
1,900 San Luis Obispo, CA Ctfs Partn Vista Hosp Sys
Inc............................................ 8.375 07/01/29 2,114,757
3,000 Santa Ana, CA Cmnty Redev Agy Tax Alloc Ser B
Rfdg........................................... 7.500 09/01/16 3,105,750
1,000 Santa Rosa, CA Impt Bond Act 1915 Fountaingrove
Pkwy Extension Assmt........................... 7.625 09/02/19 1,034,540
2,000 Simi Valley, CA Cmnty Dev Agy Coml Sycamore
Plaza II Rfdg.................................. 6.000 09/01/12 2,030,000
1,835 Stockton, CA Cmnty Facs Dist Spl Tax........... 6.000 09/01/24 1,897,060
2,000 Vallejo, CA Hiddenbrooke Impt Dist No 1........ 6.500 09/01/31 2,017,280
3,000 Ventura, CA Port Dist Ctfs Partn............... 6.375 08/01/28 3,039,090
800 Vista, CA Mobile Home Pk Rev Estrella De Oro
Mobile Home Ser A.............................. 5.875 02/01/28 812,232
--------------
91,315,999
--------------
COLORADO 3.8%
1,000 Arrowhead Metro Dist CO (Prerefunded @
12/01/02)...................................... 8.125 12/01/11 1,180,300
1,060 Berry Creek Metro Dist CO Rfdg................. 7.300 12/01/12 1,141,376
2,367 Bowles Metro Dist CO........................... 7.750 12/01/15 2,517,659
2,250 Colorado Hlth Fac Auth Rev Baptist Home Assoc
Ser A.......................................... 6.375 08/15/24 2,376,720
1,300 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton
Terrace Ser A.................................. 6.800 07/01/09 1,368,562
3,250 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton
Terrace Ser A.................................. 7.250 07/01/22 3,400,020
1,500 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj.................................... 9.000 01/01/25 1,779,150
2,000 Colorado Hlth Fac Auth Rev Shalom Pk Proj Rfdg
& Impt......................................... 7.250 12/15/25 2,088,240
1,250 Cordillera Metro Dist CO Eagle Cnty............ 8.250 12/01/13 1,428,287
3,000 Cottonwood Wtr & Sanitation Dist CO Ser A
Rfdg........................................... 7.750 12/01/20 3,252,000
1,055 Denver, CO City & Cnty Indl Dev Rev Jewish
Cmnty Cent Proj................................ 7.375 03/01/09 1,183,837
1,130 Denver, CO City & Cnty Indl Dev Rev Jewish
Cmnty Cent Proj................................ 7.500 03/01/14 1,256,142
815 Denver, CO City & Cnty Indl Dev Rev Jewish
Cmnty Cent Proj................................ 7.875 03/01/19 911,846
1,460 Denver, CO City & Cnty Single Family Mtg Rev
Ser A (GNMA Collateralized).................... 8.125 12/01/20 1,491,186
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$1,855 Denver, CO Urban Renewal Auth Tax Increment Rev
South Bdwy/Montgomery Ward..................... 8.500% 05/01/16 $ 2,071,312
2,000 Eagle Cnty, CO Air Term Corp Rev Arpt Term
Proj........................................... 7.500 05/01/21 2,187,140
1,000 Eaglebend, CO Affordable Hsg Corp Multi-Family
Rev Hsg Proj................................... 6.200 07/01/12 1,053,910
1,735 Eaglebend, CO Affordable Hsg Corp Multi-Family
Rev Hsg Proj................................... 6.400 07/01/17 1,829,020
1,500 Eaglebend, CO Affordable Hsg Corp Multi-Family
Rev Hsg Proj................................... 6.450 07/01/21 1,581,090
4,000 Fairlake Metro Dist City & Cnty of Denver, CO
(Prerefunded @ 12/01/01)....................... 9.625 12/01/10 4,625,280
2,500 Hyland Hills, CO Metro Pk & Rec Dist Spl Rev
Ser A (Prerefunded @ 12/15/02)................. 8.625 12/15/12 2,993,475
4,000 Lafayette, CO Indl Dev Rev Rocky Medium Term Nt
Instr Proj Ser A............................... 7.000 10/01/18 3,932,640
500 Lafayette, CO Indl Dev Rev Rocky Medium Term Nt
Instr Proj Ser B............................... 6.125 10/01/08 498,965
1,000 Landmark Metro Dist CO (Prerefunded @
06/01/00)...................................... 8.750 12/01/05 1,064,810
4,300 Northern Metro Dist CO Adams Cnty Rfdg (e)..... 6.500 12/01/16 4,645,892
500 Panorama Metro Dist CO Ser B Rfdg (Prerefunded
@ 12/01/99).................................... 9.000 12/01/09 533,765
145 Skyland Metro Dist CO Gunnison Cnty Rfdg (Var
Rate Cpn)...................................... 5.000 12/01/08 103,762
750 Snowmass Vlg, CO Multi-Family Hsg Rev Ser A
Rfdg........................................... 8.000 09/01/14 787,875
660 Superior, CO Metro Dist No 2 Ser A Rfdg........ 7.250 12/01/02 714,707
2,000 Telluride, CO Hsg Auth Hsg Rev Shandoka Apts
Proj Rfdg...................................... 7.875 06/01/17 2,128,600
--------------
56,127,568
--------------
CONNECTICUT 2.0%
1,000 Connecticut St Dev Auth Mystic Marinelife Aquar
Proj A......................................... 7.000 12/01/27 1,076,100
2,195 Connecticut St Dev Auth First Mtg Gross Rev
Hlthcare Proj CT Baptist Homes Inc Proj........ 8.750 09/01/12 2,447,096
1,500 Connecticut St Dev Auth First Mtg Gross Rev
Hlthcare Proj CT Baptist Homes Inc Proj........ 9.000 09/01/22 1,684,755
1,325 Connecticut St Dev Auth Hlthcare Rev Indpt
Living Proj Ser B.............................. 8.000 07/01/17 1,452,213
1,850 Connecticut St Dev Auth Hlthcare Rev Jerome
Home Proj (Prerefunded @ 11/01/99)............. 8.000 11/01/19 1,965,607
3,400 Connecticut St Dev Auth Indl Dev Rev Watson
Foods Co Inc Proj.............................. 5.900 06/01/28 3,438,760
2,000 Connecticut St Hlth & Edl Fac Auth Rev......... 6.875 07/01/27 2,159,300
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 89
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONNECTICUT (CONTINUED)
$2,500 Connecticut St Hlth & Edl Fac Auth Rev Tolland
Cnty Hlthcare Inc Ser A........................ 9.200% 07/01/21 $ 2,779,850
300 Connecticut St Hlth & Edl Facs Auth Rev........ 6.875 07/01/17 323,895
5,000 Greenwich, CT Hsg Auth Multi-Family Rev Hsg
Greenwich Close Ser A.......................... 6.350 09/01/27 5,194,000
1,705 Greenwich, CT Hsg Auth Multi-Family Rev Hsg
Greenwich Close Ser B.......................... 7.500 09/01/27 1,720,243
1,435 Manchester, CT Redev Agy Multi-Family Mtg Rev
Bennet Hsg Dev Rfdg............................ 7.200 12/01/18 1,565,843
1,365 New Haven, CT Fac Rev Easter Seal Goodwill
Rehab Proj (c)................................. 8.875 04/01/16 1,303,302
2,205 New Haven, CT Indl Fac Rev Adj Govt Cent
Thermal Energies............................... 7.250 07/01/09 2,288,878
--------------
29,399,842
--------------
DELAWARE 0.5%
2,380 Delaware St Econ Dev Auth Indl Dev Rev First
Mtg Dover Hlthcare Rfdg........................ 7.875 04/01/08 2,596,152
955 Delaware St Econ Dev Auth Rev Osteopathic Hosp
Assn of DE Ser A (Prerefunded @ 07/01/04)...... 9.500 01/01/22 1,213,566
3,500 Wilmington, DE Multi-Family Rent Rev Hsg
Electra Arms Sr Assoc Proj..................... 6.250 06/01/28 3,444,420
--------------
7,254,138
--------------
DISTRICT OF COLUMBIA 0.3%
3,500 District of Columbia Rev Natl Pub Radio Ser A.. 7.700 01/01/23 3,822,770
--------------
FLORIDA 8.6%
995 Arbor Greene Cmnty Dev Dist FL Spl Assmt Rev... 6.300 05/01/19 1,014,393
875 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.500 10/01/02 915,626
2,085 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.875 10/01/08 2,365,245
1,500 Bay Cnty, FL Hosp Sys Rev Bay Med Cent Proj
Rfdg (Prerefunded @ 10/01/04).................. 8.000 10/01/12 1,786,905
500 Bay Cnty, FL Hosp Sys Rev Bay Med Cent Proj
Rfdg (Prerefunded @ 10/01/04).................. 8.000 10/01/19 613,580
1,980 Bayside Impt Cmnty Dev Dist FL Ser A........... 6.300 05/01/18 2,009,660
555 Bayside Impt Cmnty Dev Dist FL Ser B........... 6.375 05/01/18 563,281
1,150 Bobcat Trail Cmnty, FL Dev Dist Cap Impt Rev... 6.750 05/01/04 1,169,941
1,300 Bobcat Trail Cmnty, FL Dev Dist Cap Impt Rev... 7.500 05/01/19 1,345,357
3,335 Boca Raton, FL Hsg Auth Mtg Hsg Rev First Lien
Banyan Place Sr Living A....................... 7.150 04/01/31 3,457,995
910 Boca Raton, FL Hsg Auth Mtg Hsg Rev Second Lien
Banyan Place Sr Living B....................... 8.700 10/01/32 950,722
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 90
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$1,180 Brevard Cnty, FL Hlth Fac Auth Rev Courtenay
Springs Vlg Rfdg............................... 7.375% 11/15/04 $ 1,282,412
2,200 Brevard Cnty, FL Hlth Fac Auth Rev Courtenay
Springs Vlg Rfdg............................... 7.750 11/15/17 2,434,190
160 Charlotte Cnty, FL Indl Dev Auth Rev Beverly
Enterprises Rfdg............................... 10.000 06/01/11 179,667
1,410 Collier Cnty, FL Indl Dev Auth Retirement
Rental Hsg Rev................................. 10.750 03/01/03 1,591,453
4,350 Fishhawk Cmnty, FL Dev Dist Spl Assmt Rev...... 7.625 05/01/18 4,715,574
4,000 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apts
Ser C.......................................... 6.610 07/01/38 4,074,240
4,000 Florida Hsg Fin Corp Rev Hsg Cypress Trace Apts
Ser G.......................................... 6.600 07/01/38 4,071,000
5,000 Florida Hsg Fin Corp Rev Hsg Westchase Apts Ser
B.............................................. 6.610 07/01/38 5,092,800
815 Fort Walton Beach, FL Indl Dev Rev First Mtg
Fort Walton Beach Venture Proj................. 10.500 12/01/16 841,088
1,000 Heritage Harbor Cmnty Dev Dist FL Rev Recntl... 7.750 05/01/19 1,011,540
1,000 Heritage Harbor Cmnty Dev Dist FL Rev Spl Assmt
Ser A.......................................... 6.700 05/01/19 1,022,680
1,000 Heritage Harbor Cmnty Dev Dist FL Rev Spl Assmt
Ser B.......................................... 6.000 05/01/03 1,017,530
1,015 Hernando Cnty, FL Indl Dev Rev Beverly
Enterprises Rfdg............................... 10.000 09/01/11 1,149,406
3,000 Hialeah Gardens, FL Indl Dev Rev Waterford
Convalescent Ser A Rfdg........................ 8.250 12/01/14 3,305,670
1,500 Homestead, FL Indl Dev Rev Brookwood Gardens
Cent Proj Ser A Rfdg........................... 8.250 12/01/14 1,652,835
1,300 Lake Bernadette, FL Cmnty Dev Dist Spl Assmt
Rev Ser A...................................... 8.000 05/01/17 1,393,704
2,445 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt
Rev............................................ 7.875 05/01/17 2,629,500
2,000 Largo, FL Sun Coast Hlth Sys Rev Hosp.......... 6.200 03/01/13 2,026,880
2,350 Largo, FL Sun Coast Hlth Sys Rev Hosp.......... 6.300 03/01/20 2,372,842
680 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Cent Partn Rfdg........................ 8.125 12/01/07 752,447
2,000 Lee Cnty, FL Indl Dev Auth Hlthcare Fac Rev.... 6.250 10/01/17 2,083,720
1,500 Lee Cnty, FL Indl Dev Auth Hlthcare Fac Rev.... 6.375 10/01/25 1,571,115
5,000 Leon Cnty, FL Edl Facs Auth Rev Southgate
Residence Hall Ser A Rfdg...................... 6.750 09/01/28 5,096,000
4,055 Mount Dora, FL Hlth Fac Auth Hlth Rev.......... 7.125 08/15/21 4,224,904
2,000 North Springs, FL Impt Dist Spl Assmt Rev...... 6.250 05/01/05 2,055,300
1,000 North Springs, FL Impt Dist Spl Assmt Rev...... 7.000 05/01/19 1,055,710
3,000 Northern Palm Beach Cnty, FL Impt Dist Wtr Ctl
& Impt Unit Dev................................ 7.200 08/01/16 3,292,860
2,500 Northern Palm Beach Cnty, FL Impt Dist Wtr Ctl
& Impt Unit Dev................................ 7.300 08/01/27 2,757,375
440 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg...................... 8.125 07/01/06 490,468
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 91
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$2,035 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg...................... 8.400% 07/01/14 $ 2,366,624
1,325 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg...................... 8.625 07/01/20 1,561,552
1,250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg...................... 8.750 07/01/26 1,465,162
2,380 Orange Cnty, FL Hsg Fin Auth Hsg Alhambra Trace
Apts Proj Ser C................................ 7.375 04/01/28 2,423,554
2,515 Orange Cnty, FL Hsg Fin Auth Multi-Family Rev
Mtg Hands Inc Proj Ser A....................... 7.875 10/01/15 2,791,575
2,035 Orange Cnty, FL Hsg Fin Auth Multi-Family Rev
Mtg Hands Inc Proj Ser A....................... 8.000 10/01/25 2,272,810
415 Orange Cnty, FL Indl Dev Auth Rev Beverly
Enterprises Proj Rfdg.......................... 9.250 08/01/10 461,061
3,000 Overoaks, FL Cmnty Dev Dist Cap Impt Rev....... 8.250 05/01/17 3,145,620
3,000 Pinellas Cnty, FL Edl Fac Auth Rev College
Harbor Proj Ser A.............................. 8.250 12/01/21 3,311,910
1,000 Piney Z Cmnty Dev Dist FL Cap Impt Rev Ser A... 7.250 05/01/19 1,037,740
1,295 Piney Z Cmnty Dev Dist FL Cap Impt Rev Ser B... 6.500 05/01/02 1,300,206
1,370 Plantation, FL Hlth Fac Auth Rev Covenant
Retirement Cmnty Inc (Prerefunded @
12/01/02)...................................... 7.625 12/01/12 1,583,953
750 Plantation, FL Hlth Fac Auth Rev Covenant
Retirement Cmnty Inc Rfdg (Prerefunded @
12/01/02)...................................... 7.750 12/01/22 870,578
1,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare
Rev Bayview Proj Ser A......................... 7.100 10/01/16 1,089,640
2,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare
Rev Bayview Proj Ser A......................... 7.100 10/01/26 2,183,240
250 Santa Rosa Cnty, FL Indl Dev Auth Rev First Mtg
Sandy Ridge Care Cent.......................... 10.500 04/01/16 253,770
1,000 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Manatee Jewish Rfdg............................ 7.000 07/01/16 1,083,130
2,300 Tamarac, FL Indl Dev Rev Sun Belt Precision
Prods Inc...................................... 6.500 08/01/17 2,376,590
1,700 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 8.500 05/01/17 1,882,308
2,200 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 7.500 05/01/18 2,356,772
710 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg...................................... 7.125 11/01/06 765,281
1,835 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg...................................... 7.500 11/01/16 2,032,409
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg...................................... 7.625 11/01/26 2,230,080
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 92
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$1,730 Westchase East Cmnty, FL Dev Dist Cap Impt
Rev............................................ 7.500% 05/01/17 $ 1,847,951
1,965 Westchase East Cmnty, FL Dev Dist Cap Impt
Rev............................................ 7.300 05/01/18 2,113,672
--------------
126,244,803
--------------
GEORGIA 2.0%
1,640 Athens Clarke Cnty, GA Residential Care Fac for
the Elderly Auth Rev........................... 6.350 10/01/17 1,697,646
1,720 Athens Clarke Cnty, GA Residential Care Fac for
the Elderly Auth Rev........................... 6.375 10/01/27 1,775,659
3,300 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev............................... 6.750 07/01/30 3,374,283
3,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Hsg Renaissance on Peachtree Apts
Proj Ser 85.................................... 8.500 04/01/26 3,408,960
375 Coweta Cnty, GA Residential Care Fac For The
Elderly Auth Rev First Lien Wesley Woods Ser
A.............................................. 7.625 10/01/06 423,229
1,500 Coweta Cnty, GA Residential Care Fac For The
Elderly Auth Rev First Lien Wesley Woods Ser
A.............................................. 8.200 10/01/16 1,745,175
1,500 Coweta Cnty, GA Residential Care Fac For The
Elderly Auth Rev First Lien Wesley Woods Ser
A.............................................. 8.250 10/01/26 1,749,855
500 Forsyth Cnty, GA Hosp Auth Rev GA Baptist
Hlthcare Sys Proj.............................. 6.000 10/01/08 501,425
1,500 Forsyth Cnty, GA Hosp Auth Rev GA Baptist
Hlthcare Sys Proj.............................. 6.250 10/01/18 1,489,740
1,500 Forsyth Cnty, GA Hosp Auth Rev GA Baptist
Hlthcare Sys Proj.............................. 6.375 10/01/28 1,492,890
1,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev............................................ 6.375 02/01/08 1,015,130
4,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev............................................ 6.500 02/01/28 4,072,640
300 Richmond Cnty, GA Dev Auth Nursing Home Rev
Beverly Enterprises GA Proj Rfdg............... 8.750 06/01/11 335,517
3,000 Rockdale Cnty, GA Dev Auth Solid Waste Disp
Visy Paper Inc Proj............................ 7.500 01/01/26 3,212,340
2,500 Smyrna, GA Hosp Auth Rev First Mtg Woodland
Ridge Proj..................................... 6.000 07/01/28 2,492,975
--------------
28,787,464
--------------
HAWAII 0.1%
840 Hawaii Cnty, HI Impt Dist No 17 Spl Assmt
Kaloko Subdivision............................. 9.500 08/01/11 904,974
--------------
ILLINOIS 7.3%
1,475 Bedford Park, IL Tax Increment Rev 71st &
Cicero Proj Rfdg............................... 7.375 01/01/12 1,610,685
1,475 Bedford Park, IL Tax Increment Rev Mark IV Proj
(Prerefunded @ 03/01/02)....................... 9.750 03/01/12 1,748,288
960 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj........................... 9.250 02/01/12 1,096,502
</TABLE>
See Notes to Financial Statements
F-9
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$2,810 Broadview, IL Tax Increment Rev Sr Lien........ 8.250% 07/01/13 $ 3,200,281
250 Carol Stream, IL First Mtg Rev Windsor Park
Manor Proj..................................... 7.000 12/01/13 272,325
2,000 Carol Stream, IL First Mtg Rev Windsor Park
Manor Proj..................................... 7.200 12/01/14 2,191,500
1,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Rfdg................... 8.200 12/01/24 1,185,360
540 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A.................. 7.875 11/01/25 582,001
3,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc...................................... 8.500 05/01/18 3,750,915
1,500 Chicago, IL Tax Increment...................... 7.250 01/01/14 1,634,910
3,000 Clay Cnty, IL Hosp Rev......................... 5.900 12/01/28 3,033,960
3,000 Crestwood, IL Tax Increment Rev Rfdg........... 7.250 12/01/08 3,236,820
500 Hodgkins, IL Tax Increment..................... 9.500 12/01/09 585,310
4,000 Hodgkins, IL Tax Increment Ser A Rfdg.......... 7.625 12/01/13 4,463,480
3,500 Huntley, IL Increment Alloc Rev Huntley Redev
Proj Ser A..................................... 8.500 12/01/15 4,102,385
2,450 Huntley, IL Spl Svc Area Number 6.............. 6.750 02/01/25 2,501,719
2,470 Illinois Dev Fin Auth Hlth Fac Rev Cmnty Living
Options........................................ 7.125 03/01/10 2,718,581
690 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................... 8.000 11/15/06 773,828
1,750 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................... 8.000 11/15/16 1,954,068
2,000 Illinois Dev Fin Auth Rev Debt
Restructure--East Saint Louis.................. 7.375 11/15/11 2,295,920
4,000 Illinois Edl Fac Auth Rev Peace Mem Ministries
Proj........................................... 7.500 08/15/26 4,417,480
1,500 Illinois Edl Facs Auth Rev Lifelink Corp Oblig
Group Rfdg..................................... 5.850 02/15/20 1,509,555
4,295 Illinois Edl Facs Auth Rev Lifelink Corp Oblig
Group Rfdg..................................... 5.700 02/15/24 4,260,511
240 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Ser A.......................................... 7.125 08/15/17 264,814
1,475 Illinois Hlth Fac Auth Rev Covenant Retirement
Cmntys Ser A................................... 7.600 12/01/12 1,661,130
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Ser A Rfdg..................................... 7.400 08/15/23 3,351,120
470 Illinois Hlth Fac Auth Rev Hinsdale Ser C...... 9.500 11/15/19 532,049
1,700 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig
Group Ser B (Prerefunded @ 02/15/05)........... 8.000 02/15/25 2,067,812
4,000 Illinois Hlth Fac Auth Rev Lutheran Home & Svcs
Proj Ser A..................................... 7.500 08/15/26 4,366,760
1,000 Illinois Hlth Facs Auth Rev Bohemian Tabor
Hills Ser B Rfdg............................... 5.900 11/15/24 1,011,900
8,944 Illinois St Real Estate Lease Ctfs (c)......... 8.800 06/15/18 10,446,950
1,265 Jackson Park Hosp Fndtn Chicago, IL Jackson
Park Hosp...................................... 9.000 03/01/05 1,251,857
3,155 Loves Park, IL First Mtg Rev Hoosier Care Proj
Ser A.......................................... 9.750 08/01/19 3,309,974
2,275 Mill Creek Wtr Reclamation Dist IL Sewage
Rev............................................ 8.000 03/01/10 2,621,073
1,375 Mill Creek Wtr Reclamation Dist IL Wtrwks
Rev............................................ 8.000 03/01/10 1,584,165
2,480 Palatine, IL Tax Increment Rev Rand/Dundee Cent
Proj (Prerefunded @ 01/01/07).................. 7.750 01/01/17 3,011,241
</TABLE>
See Notes to Financial Statements
F-10
<PAGE> 94
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 765 Peoria, IL Spl Tax Weaverridge Spl Svc Area.... 7.625% 02/01/08 $ 838,991
2,050 Peoria, IL Spl Tax Weaverridge Spl Svc Area.... 8.050 02/01/17 2,278,636
4,100 Robbins, IL Res Recov Rev...................... 8.375 10/15/16 2,460,000
1,455 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.200 12/01/04 1,599,787
2,500 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.500 12/01/13 2,738,675
2,855 Saint Charles, IL Indl Dev Rev Tri-City Cent
Proj........................................... 7.500 11/01/13 3,027,785
3,965 Saint Charles, IL Multi-Family Hsg Rev Bonds
Wessel Court Proj.............................. 7.600 04/01/24 4,142,196
500 Sherman, IL Rev First Mtg Villa Hlthcare Ser
A.............................................. 8.250 10/01/14 524,370
500 Sherman, IL Rev First Mtg Villa Hlthcare Ser
A.............................................. 8.500 10/01/24 525,375
--------------
106,743,044
--------------
INDIANA 1.7%
470 Carmel, IN Retirement Rental Hsg Rev Beverly
Enterprises Inc Proj Rfdg...................... 8.750 12/01/08 530,437
1,100 Crawfordsville, IN Redev Comm Dist Tax
Increment Rev.................................. 7.350 02/01/17 1,144,154
1,465 Delaware Cnty, IN Redev Dist Tax Increment
Rev............................................ 6.875 02/01/18 1,504,907
2,874 Indiana Dev Fin Auth Indl Dev Rev Unr-Rohn Inc
Proj (e)....................................... 7.500 03/01/11 3,137,575
1,000 Indiana Hlth Fac Auth Cmnty Hartsfield Vlg Proj
Ser A.......................................... 6.250 08/15/14 1,028,580
2,000 Indiana Hlth Fac Auth Cmnty Hartsfield Vlg Proj
Ser A.......................................... 6.375 08/15/27 2,061,940
1,500 Indiana Hlth Fac Auth Saint Anthony Home....... 7.000 05/15/17 1,564,605
1,000 Indiana Hlth Fac Auth Saint Anthony Home....... 7.250 05/15/24 1,048,710
175 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/10 71,517
135 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/11 51,331
130 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/12 45,588
130 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/13 42,267
125 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/14 37,647
125 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/15 34,905
125 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev............................................ * 12/30/16 32,334
560 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent.......................... 7.300 01/01/02 562,744
980 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent.......................... 7.500 01/01/07 990,653
1,405 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent.......................... 7.750 01/01/12 1,420,033
2,045 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent.......................... 8.000 01/01/17 2,066,657
3,250 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent Rfdg (Prerefunded @
01/01/00)...................................... 9.500 01/01/07 3,519,555
</TABLE>
See Notes to Financial Statements
F-11
<PAGE> 95
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 400 Wells Cnty, IN Hosp Auth Rev Caylor Nickel Med
Cent Inc Rfdg.................................. 8.500% 04/15/03 $ 448,432
3,600 Wells Cnty, IN Hosp Auth Rev Caylor Nickel Med
Cent Inc Rfdg.................................. 8.750 04/15/12 4,156,452
--------------
25,501,023
--------------
IOWA 0.7%
2,500 Cedar Rapids, IA Rev First Mtg Cottage Grove... 5.875 07/01/28 2,475,950
2,770 Iowa Fin Auth Multi-Family Rev Hsg Park West
Proj Rfdg...................................... 8.000 10/01/23 2,879,277
2,265 Iowa Fin Auth Retirement Fac Presbyterian Homes
Mill Pond...................................... 6.000 10/01/33 2,187,899
2,000 Palo Alto Cnty, IA Hosp Rev Palo Alto Cnty Hosp
Proj........................................... 6.000 08/01/28 2,034,340
--------------
9,577,466
--------------
KANSAS 0.8%
1,000 Lawrence, KS Coml Dev Rev Holiday Inn Sr Ser
A.............................................. 8.000 07/01/16 1,111,710
2,000 Lenexa, KS Hlthcare Fac Rev Lakeview Vlg Ser
B.............................................. 6.250 05/15/26 2,130,320
3,000 Manhattan, KS Coml Dev Rev Holiday Inn Sr Ser A
Rfdg........................................... 8.000 07/01/16 3,335,130
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser A
(Prerefunded @ 11/15/04)....................... 7.750 11/15/24 1,209,570
3,125 Shawnee Cnty, KS Rev United Methodist Homes Inc
Ser A Rfdg..................................... 6.125 11/15/19 3,269,656
--------------
11,056,386
--------------
KENTUCKY 0.1%
1,195 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A............................... 8.100 12/01/15 1,262,613
--------------
LOUISIANA 2.3%
4,700 Hodge, LA Util Rev............................. 9.000 03/01/10 4,985,102
1,270 Iberia Parish, LA Hosp Svc Dist No 1 Hosp
Rev............................................ 7.500 05/26/06 1,307,249
2,000 Iberia Parish, LA Hosp Svc Dist No 1 Hosp
Rev............................................ 8.000 05/26/16 2,138,380
4,000 Lake Charles, LA Harbor & Terminal Dist Port
Fac Rev Trunkline Lng Co Rfdg.................. 7.750 08/15/22 4,529,000
200 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A............................... 7.200 01/01/06 201,540
4,675 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A............................... 7.125 01/01/28 4,719,132
605 Louisiana Pub Fac Auth Rev Indl Dev Beverly
Enterprises Inc Rfdg........................... 8.250 09/01/08 669,511
1,000 Louisiana Pub Facs Auth Rev Progressive
Hlthcare....................................... 6.375 10/01/20 986,560
1,000 Louisiana Pub Facs Auth Rev Progressive
Hlthcare....................................... 6.375 10/01/28 974,520
1,650 Port New Orleans, LA Indl Dev Rev Avondale Inds
Inc Proj Rfdg.................................. 8.250 06/01/04 1,815,990
3,000 Port New Orleans, LA Indl Dev Rev Continental
Grain Co Proj Rfdg............................. 7.500 07/01/13 3,203,070
</TABLE>
See Notes to Financial Statements
F-12
<PAGE> 96
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$2,500 Saint James Parish, LA Solid Waste Disp Rev
Kaiser Alum Proj............................... 7.750% 08/01/22 $ 2,748,400
3,500 St Tammany, LA Pub Trust Fin Auth Rev
Christwood Proj Rfdg........................... 5.700 11/15/28 3,362,170
500 West Feliciana Parish, LA Pollutn Ctl Rev Gulf
States Util Co Proj Ser A...................... 7.500 05/01/15 554,330
1,000 West Feliciana Parish, LA Pollutn Ctl Rev Gulf
States Util Co Proj Ser B...................... 9.000 05/01/15 1,086,690
--------------
33,281,644
--------------
MAINE 0.3%
3,200 Maine Fin Auth Solid Waste Disposal Rev Boise
Cascade Corp Proj.............................. 7.900 06/01/15 3,387,616
1,500 Maine Vets Homes ME Rev........................ 7.750 10/01/20 1,703,325
--------------
5,090,941
--------------
MARYLAND 1.7%
2,000 Anne Arundel Cnty, MD Spl Tax Dist Farmington
Vlg Proj Ser A................................. 6.250 06/01/25 1,996,140
1,750 Baltimore Cnty, MD Nursing Fac Eastpoint Rehab
& Nursing Cent Ser A........................... 6.750 04/01/28 1,757,525
2,000 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser A Rfdg..................... 7.550 06/01/17 2,185,660
2,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser B Rfdg..................... 7.500 06/01/15 2,729,975
2,000 Calvert Cnty, MD Econ Dev Rev Asbury-Solomons
Island Fac Proj (Prerefunded @ 01/01/05)....... 8.375 01/01/15 2,484,460
750 Frederick Cnty, MD Retirement Cmnty Rev........ 6.000 01/01/24 768,188
1,500 Frederick Cnty, MD Spl Olbig Urbana Cmnty Dev
Auth........................................... 6.625 07/01/25 1,512,600
2,000 Maryland St Energy Fin Admin Ltd Oblig Rev
Cogeneration AES Warrior Run................... 7.400 09/01/19 2,096,680
3,730 Montgomery Cnty, MD Econ Dev Rev Editorial
Projs In Edl Ser A (e)......................... 6.400 09/01/28 3,703,032
1,270 Montgomery Cnty, MD Econ Dev Rev Editorial
Projs In Edl Ser A (e)......................... 6.250 09/01/08 1,264,907
1,130 Prince Georges Cnty, MD Hosp Rev............... 6.375 01/01/23 734,500
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt
Woodview Ser A................................. 8.000 07/01/26 3,246,990
--------------
24,480,657
--------------
MASSACHUSETTS 9.2%
5,530 Massachusetts St Dev Fin Agy New England Cent
For Children................................... 6.000 11/01/19 5,609,190
1,500 Massachusetts St Dev Fin Agy Rev Greater Lynn
Mental Hlth Ser B.............................. 6.375 06/01/18 1,504,845
</TABLE>
See Notes to Financial Statements
F-13
<PAGE> 97
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$1,470 Massachusetts St Hlth & Edl Fac Auth Rev Indpt
Living Ser A................................... 8.100% 07/01/18 $ 1,639,550
3,000 Massachusetts St Hlth & Edl Fac Auth Rev
Milford-Whitinsville Regl Hosp Ser B
(Prerefunded @ 07/15/02)....................... 7.750 07/15/17 3,447,150
1,000 Massachusetts St Hlth & Edl Fac Auth Rev
Norwood Hosp Ser E............................. 8.000 07/01/12 1,021,350
745 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Anne's Hosp Ser A.............................. 9.250 07/01/05 747,630
2,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Anne's Hosp Ser A.............................. 9.375 07/01/14 2,007,260
2,000 Massachusetts St Indl Fin Agy Rev Sr Living
Fac-Forge Hill Project......................... 6.750 10/01/28 1,997,460
2,000 Massachusetts St Indl Fin Agy Assisted Living
Fac Rev........................................ 8.000 09/01/27 2,206,280
2,000 Massachusetts St Indl Fin Agy Assisted Living
Fac Rev........................................ 7.500 12/01/27 2,096,860
1,000 Massachusetts St Indl Fin Agy First Mtg Pilgrim
Inc Proj....................................... 6.500 10/01/15 998,970
2,850 Massachusetts St Indl Fin Agy Rev Hillcrest Edl
Cent Inc Proj.................................. 8.450 07/01/18 3,294,059
225 Massachusetts St Indl Fin Agy Rev Hillcrest Edl
Cent Inc Proj.................................. 7.500 07/01/00 229,932
740 Massachusetts St Indl Fin Agy Rev Hillcrest Edl
Cent Inc Proj.................................. 8.000 07/01/05 815,480
4,000 Massachusetts St Indl Fin Agy Hlthcare Fac Rev
Metro Hlth Fndtn Inc Proj A.................... 6.750 12/01/27 4,282,720
875 Massachusetts St Indl Fin Agy Indl Rev Beverly
Enterprises Inc/Gloucester & Lexington Proj
Rfdg........................................... 8.000 05/01/02 915,871
800 Massachusetts St Indl Fin Agy Indl Rev Beverly
Enterprises Rfdg............................... 8.375 05/01/09 883,216
1,000 Massachusetts St Indl Fin Agy Indl Rev First
Hlthcare Corp Proj Ser A Rfdg.................. 7.625 04/01/13 1,027,230
3,000 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth (e)................................ 6.200 06/01/08 3,028,050
6,000 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth (e)................................ 6.375 06/01/18 6,063,300
3,675 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth.................................... 8.800 06/01/14 4,416,688
1,135 Massachusetts St Indl Fin Agy Rev HMEA Issue... 7.000 09/01/12 1,171,615
2,600 Massachusetts St Indl Fin Agy Rev Montserrat
College Art Issue Ser A........................ 7.000 12/01/27 2,649,894
905 Massachusetts St Indl Fin Agy Rev Seven Hills
Fndtn Issue.................................... 7.000 09/01/12 935,182
595 Massachusetts St Indl Fin Agy Rev Seven Hills
Fndtn Issue.................................... 7.150 09/01/17 613,915
2,020 Massachusetts St Indl Fin Agy Rev Seven Hills
Fndtn Issue.................................... 7.250 09/01/27 2,085,448
2,000 Massachusetts St Indl Fin Agy Rev Sr Living Fac
Forge Hill Proj................................ 6.750 04/01/30 1,951,440
500 Massachusetts St Indl Fin Agy Rev Atlantic Med
Cent Ser B..................................... 10.125 11/01/14 529,020
3,430 Massachusetts St Indl Fin Agy Rev Boston
Architectural Cent Proj........................ 8.500 09/01/19 3,578,176
</TABLE>
See Notes to Financial Statements
F-14
<PAGE> 98
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 500 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent...................................... 8.000% 12/01/06 $ 568,950
1,000 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent...................................... 8.375 12/01/13 1,176,680
3,000 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent...................................... 8.500 12/01/20 3,545,010
2,555 Massachusetts St Indl Fin Agy Rev East Boston
Neighborhood Proj.............................. 7.500 07/01/16 2,694,324
2,560 Massachusetts St Indl Fin Agy Rev East Boston
Neighborhood Proj.............................. 7.625 07/01/26 2,683,418
7,000 Massachusetts St Indl Fin Agy Rev Emerson
College Issue Ser A (b)........................ 8.900 01/01/18 7,601,720
585 Massachusetts St Indl Fin Agy Rev Evergreen
Cent Inc....................................... 8.000 11/01/06 665,759
4,100 Massachusetts St Indl Fin Agy Rev Evergreen
Cent Inc (e)................................... 9.250 11/01/11 4,536,937
1,230 Massachusetts St Indl Fin Agy Rev Evergreen
Cent Inc....................................... 8.375 11/01/13 1,472,974
2,165 Massachusetts St Indl Fin Agy Rev Evergreen
Cent Inc....................................... 8.500 11/01/20 2,617,009
1,005 Massachusetts St Indl Fin Agy Rev First Mtg
Evanswood Bethzatha Ser A Rfdg................. 7.400 01/15/09 1,046,507
2,000 Massachusetts St Indl Fin Agy Rev First Mtg
Evanswood Bethzatha Ser A Rfdg................. 7.625 01/15/14 2,091,320
2,000 Massachusetts St Indl Fin Agy Rev First Mtg
Evanswood Bethzatha Ser A Rfdg................. 7.875 01/15/20 2,103,020
690 Massachusetts St Indl Fin Agy Rev First Mtg
Loomis House & Vlg Proj........................ 7.250 07/01/07 771,061
1,410 Massachusetts St Indl Fin Agy Rev First Mtg
Loomis House & Vlg Proj........................ 7.400 07/01/12 1,585,996
1,530 Massachusetts St Indl Fin Agy Rev First Mtg
Loomis House & Vlg Proj........................ 7.500 07/01/17 1,729,359
20 Massachusetts St Indl Fin Agy Rev First Mtg
Pioneer Vly.................................... 7.000 10/01/01 19,354
500 Massachusetts St Indl Fin Agy Rev First Mtg
Pioneer Vly Amended............................ 7.000 10/01/20 485,530
1,000 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj............................. 7.750 10/01/00 1,011,470
8,300 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj............................. 8.625 10/01/23 9,420,832
1,700 Massachusetts St Indl Fin Agy Rev First Mtg
Stone Institute & Newton....................... 7.700 01/01/14 1,880,149
1,760 Massachusetts St Indl Fin Agy Rev Glenmeadow
Retirement Cmnty Ser C (Prerefunded @
02/15/06)...................................... 8.250 02/15/08 2,229,322
1,000 Massachusetts St Indl Fin Agy Rev Glenmeadow
Retirement Cmnty Ser C (Prerefunded @
02/15/06)...................................... 8.625 02/15/26 1,286,170
</TABLE>
See Notes to Financial Statements
F-15
<PAGE> 99
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$3,380 Massachusetts St Indl Fin Agy Rev JRC Assisted
Living......................................... 7.500% 07/01/26 $ 3,573,606
2,145 Massachusetts St Indl Fin Agy Rev NE Cent for
Autism (e)..................................... 9.000 11/01/05 2,393,219
4,910 Massachusetts St Indl Fin Agy Rev NE Cent for
Autism (e)..................................... 9.500 11/01/17 5,523,259
1,100 Massachusetts St Indl Fin Agy Rev NE Cent for
Autism (e)..................................... 7.000 11/01/19 1,186,911
2,000 Massachusetts St Indl Fin Agy Rev Orchard Cove
Issue (Prerefunded @ 05/01/02)................. 9.000 05/01/22 2,377,840
1,115 Massachusetts St Indl Fin Agy Rev Vinten Corp
Issue.......................................... 7.100 11/15/18 1,275,961
930 Massachusetts St Indl Fin Agy Rev Waarc Inc
Proj........................................... 7.300 09/01/10 997,239
915 Massachusetts St Indl Fin Agy Rev Waarc Inc
Proj........................................... 7.600 09/01/17 980,377
1,820 Massachusetts St Indl Fin Agy Rev Waarc Inc
Proj........................................... 7.750 09/01/25 1,954,425
--------------
135,233,489
--------------
MICHIGAN 2.1%
1,000 Detroit, MI Local Dev Fin Auth Tax Increment Sr
Ser B (e)...................................... 6.700 05/01/21 1,040,930
3,500 Detroit, MI Local Dev Fin Auth Tax Increment
Ser C.......................................... 6.850 05/01/21 3,653,090
430 Detroit, MI Local Dev Fin Auth Tax Increment
Ser A (Prerefunded @ 05/01/03)................. 9.500 05/01/21 527,460
1,190 Dickinson Cnty, MI Mem Hosp Sys Hosp Rev....... 7.625 11/01/05 1,324,791
1,000 Dickinson Cnty, MI Mem Hosp Sys Hosp Rev....... 8.000 11/01/14 1,138,480
2,390 Meridian, MI Econ Dev Corp First Mtg Burcham
Hills Ser A Rfdg............................... 7.500 07/01/13 2,615,568
3,430 Meridian, MI Econ Dev Corp First Mtg Burcham
Hills Ser A Rfdg............................... 7.750 07/01/19 3,794,095
500 Michigan St Hosp Fin Auth Rev Hosp Genesys Hlth
Sys Ser A Rfdg (Prerefunded @ 10/01/05)........ 7.500 10/01/07 610,515
1,500 Michigan St Hosp Fin Auth Rev Hosp Genesys Hlth
Sys Ser A Rfdg (Prerefunded @ 10/01/05)........ 8.100 10/01/13 1,884,855
5,343 Michigan St Hosp Fin Auth Rev Saratoga Cmnty
Hosp Rfdg (Prerefunded 06/01/02)............... 8.750 06/01/10 6,184,629
922 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fiber Proj (f).................... 8.000 12/01/27 622,242
2,000 Michigan St Strategic Fd Res Recovery Ltd Oblig
Rev Central Wayne Energy Rec Ser A............. 7.000 07/01/27 2,016,560
4,000 Michigan St Strategic Fd Solid Waste Disp Rev
Genesee Pwr Station Proj....................... 7.500 01/01/21 4,342,800
500 Oakland Cnty, MI Econ Dev Corp Ltd Oblig Rev
Pontiac Osteopathic Hosp Proj (Prerefunded @
01/01/00)...................................... 9.625 01/01/20 542,220
--------------
30,298,235
--------------
MINNESOTA 2.7%
1,020 Austin, MN Multi-Family Rev Hsg Cedars of
Austin Proj Rfdg............................... 7.500 04/01/17 1,079,854
2,000 Austin, MN Multi-Family Rev Hsg Cedars of
Austin Proj Rfdg............................... 7.500 04/01/18 2,117,360
</TABLE>
See Notes to Financial Statements
F-16
<PAGE> 100
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINNESOTA (CONTINUED)
$3,400 Bloomington, MN Hsg & Redev Auth Sr Summerhouse
Bloomington Proj............................... 6.125% 05/01/35 $ 3,441,752
1,955 Brooklyn Cent MN Multi-Family Hsg Rev Four
Courts Apts Proj Ser A Rfdg.................... 7.400 12/01/15 2,060,726
1,220 Brooklyn Cent MN Multi-Family Hsg Rev Four
Courts Apts Proj Ser A Rfdg.................... 7.500 06/01/25 1,285,721
1,460 Cambridge, MN Hsg & Hlthcare Fac Rev Grandview
West Proj Ser A................................ 6.000 10/01/28 1,460,934
1,495 Cambridge, MN Hsg & Hlthcare Fac Rev Grandview
West Proj Ser B (a)............................ 6.000 10/01/33 1,475,490
750 Chisago City, MN Hlth Fac Rev Part Pleasant
Heights Proj Ser A Rfdg........................ 7.300 07/01/25 821,963
3,000 Columbia Heights, MN Multi-Family Crest View
Corp Proj...................................... 6.000 03/01/33 3,055,080
840 Little Canada, MN Fac Rev Hsg Alt Dev Co Proj
Ser A.......................................... 6.100 12/01/17 856,296
1,450 Little Canada, MN Fac Rev Hsg Alt Dev Co Proj
Ser A.......................................... 6.250 12/01/27 1,477,956
1,200 Maplewood, MN Hlthcare Fac Rev VOA Care Cent
Proj........................................... 7.450 10/01/16 1,314,528
682 Minneapolis, MN Cmnty Dev Agy Coml Dev Rev Std
Mill Hotel Proj (d)............................ 8.000 04/01/10 680,997
1,950 Minneapolis, MN Hlthcare Fac Rev Ebenezer
Society Proj Ser A............................. 7.200 07/01/23 2,058,283
1,000 Minneapolis, MN Hlthcare Fac Rev Saint Olaf
Residence Inc Proj............................. 7.100 10/01/23 1,057,390
350 Minneapolis, MN Multi-Family Rev Hsg Belmont
Apts Proj...................................... 7.250 11/01/16 368,424
1,320 Minneapolis, MN Multi-Family Rev Hsg Belmont
Apts Proj...................................... 7.625 11/01/27 1,390,726
3,040 New Brighton, MN Rental Hsg Rev Polynesian Vlg
Apts Proj Ser A Rfdg........................... 7.500 10/01/17 3,234,894
760 New Hope, MN Multi-Family Rev Hsg Broadway
Lanel Proj..................................... 7.750 09/01/07 799,300
2,320 New Hope, MN Multi-Family Rev Hsg Broadway
Lanel Proj Rfdg................................ 8.000 09/01/18 2,430,084
835 North Saint Paul, MN Multi-Family Rev Hsg
Cottages North Saint Paul Rfdg................. 9.000 02/01/09 899,913
2,220 North Saint Paul, MN Multi-Family Rev Hsg
Cottages North Saint Paul Rfdg................. 9.250 02/01/22 2,390,585
500 Shoreview, MN Sr Hsg Rev Shoreview Sr Residence
Proj........................................... 7.250 02/01/26 515,100
2,000 Spring Lake Park, MN Multi-Family Hsg Cottages
Spring Lake Rfdg............................... 8.375 01/01/22 2,070,280
1,500 Winona, MN Hsg Rev Saint Anne Hospice Inc...... 6.750 07/01/27 1,547,160
--------------
39,890,796
--------------
</TABLE>
See Notes to Financial Statements
F-17
<PAGE> 101
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSISSIPPI 0.8%
$5,500 Claiborne Cnty, MS Pollutn Ctl Rev Middle South
Energy Inc Ser B............................... 8.250% 06/01/14 $ 5,755,970
1,000 Lowndes Cnty, MS Hosp Rev Golden Triangle Med
Cent Rfdg...................................... 8.500 02/01/10 1,063,480
2,300 Mississippi Dev Bank Spl Oblig Diamond Lakes
Utils Ser A Rfdg............................... 6.250 12/01/17 2,372,933
2,900 Ridgeland, MS Urban Renewal Rev the Orchard Ltd
Proj Ser A Rfdg................................ 7.750 12/01/15 3,168,714
--------------
12,361,097
--------------
MISSOURI 1.6%
1,500 Chesterfield, MO Indl Dev Auth Rev Saint
Andrews Episcopal-Presbyterian Ser A
(Prerefunded @ 12/01/00)....................... 8.500 12/01/19 1,696,920
1,000 Ferguson, MO Tax Increment Rev Crossings At
Halls Ferry Proj............................... 7.250 04/01/07 1,020,380
2,000 Ferguson, MO Tax Increment Rev Crossings At
Halls Ferry Proj............................... 7.625 04/01/17 2,057,260
1,000 Ferguson, MO Tax Increment Rev Crossings At
Halls Ferry Proj............................... 7.625 04/01/18 1,028,630
3,610 Good Shepard Nursing Home Dist MO Nursing Home
Fac Rev Rfdg................................... 5.900 08/15/23 3,666,063
2,705 Jefferson Cnty, MO Indl Dev Auth Indl Rev
Cedars Hlthcare Cent Proj Ser A Rfdg........... 8.250 12/01/15 3,038,283
3,000 Kansas City, MO Multi-Family Hsg Rev Vlg Green
Apts Proj...................................... 6.250 04/01/30 3,055,800
1,490 Madison Cnty, MO Hosp Rev Ser A (Prerefunded @
10/01/06)...................................... 7.900 10/01/26 1,873,988
1,075 Missouri St Hlth & Edl Fac Bethesda Hlth Group
Inc Proj A Rfdg................................ 7.500 08/15/12 1,207,150
3,000 Perry Cnty, MO Nursing Home Rev Rfdg........... 5.900 03/01/28 2,960,580
1,695 Saint Louis, MO Tax Increment Rev Scullin Redev
Area Ser A..................................... 10.000 08/01/10 2,159,718
--------------
23,764,772
--------------
MONTANA 0.3%
3,825 Montana St Brd Invt Res Recovery Rev
Yellowstone Energy L P Proj.................... 7.000 12/31/19 3,688,218
--------------
NEVADA 0.9%
2,000 Boulder City, NV Hosp Rev Boulder City Hosp Inc
Proj Rfdg...................................... 5.850 01/01/22 1,999,120
3,075 Clark Cnty, NV Assisted Living Homestead
Boulder City Proj.............................. 6.500 12/01/27 3,210,115
1,345 Henderson, NV Local Impt Dist No T-4 Ser B..... 7.300 11/01/12 1,393,138
1,495 Henderson, NV Local Impt Dist No T-10.......... 7.500 08/1/15 1,543,064
</TABLE>
See Notes to Financial Statements
F-18
<PAGE> 102
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEVADA (CONTINUED)
$ 985 Las Vegas, NV Spl Impt Dist No 505 Elkhorn
Springs........................................ 8.000% 09/15/13 $ 1,024,075
1,470 Nevada St Dept Commerce Hlth Fac Rev Washoe
Convalescent Cent Proj Rfdg.................... 8.125 06/01/03 1,545,823
3,000 Washoe Cnty, NV Impt Bonds Spl Assmt Dist
No 23......................................... 6.500 11/01/17 3,084,270
--------------
13,799,605
--------------
NEW HAMPSHIRE 2.6%
435 New Hampshire Higher Edl & Hlth Fac Auth Rev
Colby-Sawyer College Issue..................... 7.200 06/01/12 476,229
2,565 New Hampshire Higher Edl & Hlth Fac Auth Rev
Colby-Sawyer College Issue..................... 7.500 06/01/26 2,839,147
5,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Daniel Webster College Issue Rfdg.............. 7.625 07/01/16 5,503,650
1,200 New Hampshire Higher Edl & Hlth Fac Auth Rev
First Mtg Odd Fellows Home Rfdg................ 8.000 06/01/04 1,295,652
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
First Mtg Odd Fellows Home Rfdg................ 9.000 06/01/14 2,437,880
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights..................... 7.350 01/01/18 1,097,380
4,825 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights..................... 7.450 01/01/25 5,322,506
2,330 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hlthcare Visiting Nurse (e).................... 7.250 09/01/23 2,477,792
1,390 New Hampshire Higher Edl & Hlth Fac Auth Rev
Monadock Cmnty Hosp Issue (Prerefunded @
10/01/00)...................................... 9.125 10/01/20 1,551,476
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
New London Hosp Assn Proj...................... 7.500 06/01/05 2,268,740
3,405 New Hampshire Higher Edl & Hlth Fac Auth Rev
Vly Regl Hosp (e).............................. 7.350 04/01/23 3,435,100
1,000 New Hampshire Higher Edl & Hlth Facs Auth Rev
Littleton Hosp Assn............................ 6.000 05/01/28 1,018,570
3,960 New Hampshire St Business Fin Auth Elec Fac Rev
Plymouth Cogeneration.......................... 7.750 06/01/14 4,273,038
1,500 New Hampshire St Business Fin Auth Swr & Solid
Waste Disp Rev Crown Paper Co Proj............. 7.875 07/01/26 1,500,030
1,990 New Hampshire St Hsg Fin Auth Single Family
Rev............................................ 5.900 07/1/28 2,106,157
--------------
37,603,347
--------------
NEW JERSEY 4.3%
4,990 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrigerated................................... 8.400 04/01/24 5,617,742
4,500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn PT
Marine Term A.................................. 8.000 06/01/27 5,078,925
1,000 New Jersey Econ Dev Auth Econ Dev Rev.......... 6.375 04/01/18 1,001,090
</TABLE>
See Notes to Financial Statements
F-19
<PAGE> 103
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$4,000 New Jersey Econ Dev Auth Econ Dev Rev.......... 6.375% 04/01/31 $ 3,953,640
500 New Jersey Econ Dev Auth Econ Dev Rev Green
Acres Manor Inc Ser A Rfdg..................... 8.000 01/01/09 530,515
1,000 New Jersey Econ Dev Auth Econ Dev Rev Green
Acres Manor Inc Ser A Rfdg..................... 8.250 01/01/17 1,065,870
500 New Jersey Econ Dev Auth Econ Dev Rev ZirbSer
Greenbriar Inc Ser A Rfdg...................... 7.375 07/15/03 533,125
915 New Jersey Econ Dev Auth Econ Dev Rev ZirbSer
Greenbriar Inc Ser A Rfdg...................... 7.750 07/15/08 982,033
250 New Jersey Econ Dev Auth First Mtg Cranes Mill
Ser A.......................................... 7.000 02/01/10 271,265
1,500 New Jersey Econ Dev Auth First Mtg Cranes Mill
Ser A.......................................... 7.375 02/01/17 1,669,080
3,500 New Jersey Econ Dev Auth First Mtg Cranes Mill
Ser A.......................................... 7.500 02/01/27 3,898,370
750 New Jersey Econ Dev Auth First Mtg Delaire
Nursing Ser A Rfdg (Prerefunded @ 11/01/99).... 8.750 11/01/10 816,195
500 New Jersey Econ Dev Auth First Mtg Gross Rev
Burnt Tavern Convalescent Ser A Rfdg........... 9.000 11/15/13 551,850
2,250 New Jersey Econ Dev Auth First Mtg Gross Rev
Franciscan Oaks Proj Ser A (Prerefunded @
10/01/02)...................................... 8.500 10/01/23 2,667,847
840 New Jersey Econ Dev Auth First Mtg Gross Rev
Stone Arch Nursing Home Proj Rfdg.............. 8.750 12/01/10 929,485
1,000 New Jersey Econ Dev Auth First Mtg Gross Rev
The Evergreens (Prerefunded @ 10/01/02)........ 9.250 10/01/22 1,205,640
1,000 New Jersey Econ Dev Auth Holt Hauling & Warehsg
Rev Ser G Rfdg................................. 8.400 12/15/15 1,092,360
650 New Jersey Econ Dev Auth Rev................... 6.000 10/01/17 684,398
700 New Jersey Econ Dev Auth Rev................... 6.000 10/01/22 734,524
2,000 New Jersey Econ Dev Auth Rev Kullman Assoc Proj
Ser A.......................................... 6.125 06/01/18 2,012,140
500 New Jersey Econ Dev Auth Rev First Mtg
Fellowship Vlg Proj Ser A (Prerefunded @
01/01/05)...................................... 8.500 01/01/10 626,920
1,000 New Jersey Econ Dev Auth Rev First Mtg
Fellowship Vlg Proj Ser A (Prerefunded @
01/01/05)...................................... 9.250 01/01/25 1,293,300
975 New Jersey Econ Dev Auth Rev First Mtg
Millhouse Proj Ser A........................... 8.250 04/01/10 1,113,616
2,060 New Jersey Econ Dev Auth Rev First Mtg
Millhouse Proj Ser A........................... 8.500 04/01/16 2,367,991
1,860 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A....................... 7.500 11/01/05 1,976,008
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A....................... 8.500 11/01/16 1,138,060
</TABLE>
See Notes to Financial Statements
F-20
<PAGE> 104
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A....................... 8.625% 11/01/25 $ 1,707,120
855 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A..................................... 8.000 05/15/02 905,069
750 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A..................................... 8.000 05/15/04 829,178
2,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A..................................... 8.000 05/15/12 2,317,140
2,560 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A..................................... 8.750 05/15/26 3,082,061
2,500 New Jersey Hlthcare Fac Fin Auth Rev Care
Institute Inc Cherry Hill Proj................. 7.750 07/01/10 2,713,025
2,400 New Jersey Hlthcare Fac Fin Auth Rev Raritan
Bay Med Cent Issue Rfdg........................ 7.250 07/01/14 2,555,496
4,000 New Jersey St Edl Fac Auth Rev Felician College
of Lodi Ser D.................................. 7.375 11/01/22 4,350,920
950 New Jersey St Edl Fac Auth Rev Caldwell College
Ser A.......................................... 7.250 07/01/25 1,035,034
--------------
63,307,032
--------------
NEW MEXICO 1.2%
665 Albuquerque, NM Nursing Home Rev Albuquerque
Hlthcare Rfdg.................................. 9.750 12/01/14 699,327
4,505 Albuquerque, NM Retirement Fac Rev La Vida
Liena Proj Ser A Rfdg.......................... 8.850 02/01/23 5,234,405
3,000 Bernalillo Cnty, NM Mult-Family Rev Hsg Topke
Commons/Arbors Proj Ser D...................... 7.700 04/01/27 3,127,590
3,000 Bernalillo Cnty, NM Multi-Family Hsg Brentwood
Gardens Apt B 1................................ 6.600 10/15/28 3,026,190
1,590 Bernalillo Cnty, NM Multi-Family Rev Hsg Sr
Solar Villas Apts Ser F........................ 7.250 10/15/22 1,641,071
2,920 RHA Hsg Dev Corp NM Multi-Family Rev Mtg
Woodleaf Apts Proj A Rfdg...................... 7.125 12/15/27 2,975,714
685 Santa Fe, NM Indl Rev Casa Real Nursing Home
Rfdg........................................... 9.750 01/01/13 740,560
435 Truth or Consequences, NM Nursing Home Rev
Sierra Hlthcare Rfdg & Impt.................... 9.750 12/01/14 449,433
--------------
17,894,290
--------------
NEW YORK 3.8%
2,000 Castle Rest Residential Hlthcare Fac NY Rev
Hlthcare Fac Ser B............................. 8.000 08/01/10 2,099,200
1,210 Clifton Springs, NY Hosp & Clinic Ser A Rfdg &
Impt........................................... 7.650 01/01/12 1,370,119
1,500 Erie Cnty, NY Indl Dev Agy Life Care Cmnty Rev
Episcopal Church Home Ser A.................... 6.000 02/01/28 1,534,170
</TABLE>
See Notes to Financial Statements
F-21
<PAGE> 105
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$4,800 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg................... 7.500% 03/01/26 $ 5,329,776
1,500 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev
Empire Sports Proj Ser A....................... 6.250 03/01/28 1,502,220
3,500 New York City Indl Dev Agy Civic Fac Rev Cmnty
Res Developmentally Disabled................... 7.500 08/01/26 3,778,985
4,020 New York City Indl Dev Agy Civic Fac Rev Our
Lady of Mercy Med Cent Pkg Corp Proj........... 8.500 12/30/22 4,557,434
2,000 New York City Indl Dev Agy Field Hotel Assoc LP
JFK Rfdg....................................... 6.000 11/01/28 2,003,940
1,750 New York City Indl Dev Agy Laguardia Assoc LP
Proj Rfdg...................................... 6.000 11/01/28 1,753,448
2,500 New York City Indl Dev Agy Rev Solid Waste
Disposal Visy Paper Proj....................... 7.800 01/01/16 2,790,125
6,650 New York City Transitional Future Tax Secured
Ser A.......................................... 5.000 08/15/27 6,574,522
2,000 New York St Energy Resh & Dev Auth Elec Fac Rev
Long Island Ser A.............................. 7.150 12/01/20 2,182,080
5,000 New York St Thruway Auth Svc Contract Rev (MBIA
Insd).......................................... 5.000 04/01/18 5,019,000
2,750 Newark-Wayne Cmnty Hosp Inc NY Hosp Rev Ser
A.............................................. 7.600 09/01/15 2,982,678
2,000 North Syracuse, NY Hsg Auth Rev Janus Park
Proj........................................... 8.000 06/01/14 2,135,760
675 Oswego Cnty, NY Indl Dev Agy Civic Fac Rev..... 7.000 02/01/12 686,414
1,500 Peekskill, NY Indl Dev Agy Sr Drum Hill Sr
Living Proj.................................... 6.375 10/01/28 1,506,015
1,480 Rensselaer Cnty, NY Indl Dev Agy Indl Dev Rev
(e)............................................ 7.000 02/01/11 1,489,502
1,275 Rensselaer Cnty, NY Indl Dev East Greenbush
Cent Proj Rfdg (e)............................. 7.000 02/01/11 1,280,087
2,300 Rockland Cnty, NY Indl Dev Agy Civic Fac Rev
Dominican College Proj (e)..................... 6.250 05/01/28 2,312,144
3,100 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A................ 6.375 12/01/17 3,142,563
400 Syracuse, NY Hsg Auth Rev Sub Proj Loretto Rest
Ser B.......................................... 7.500 08/01/10 415,108
--------------
56,445,290
--------------
NORTH CAROLINA 0.3%
425 North Carolina Med Care Comm Hlthcare Fac
Rev............................................ 6.000 11/01/19 433,976
2,075 North Carolina Med Care Comm Hlthcare Fac
Rev............................................ 6.000 11/01/27 2,103,199
2,055 North Carolina Med Care Comm Hlthcare Facs
Rev............................................ 6.125 01/11/28 2,079,599
--------------
4,616,774
--------------
NORTH DAKOTA 0.5%
2,610 Devils Lake, ND Hlthcare Facs Rev & Impt Lk Reg
Lutheran Rfdg.................................. 6.100 10/01/23 2,618,352
3,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj........................................... 6.250 12/01/34 3,045,330
2,000 Grand Forks, ND Sr Hsg Rev Spl Term 4000 Vly
Square Proj.................................... 6.375 12/01/34 2,081,200
--------------
7,744,882
--------------
</TABLE>
See Notes to Financial Statements
F-22
<PAGE> 106
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 3.2%
$1,500 Athens Cnty, OH Hosp Fac Rev O'Bleness Mem Hosp
Proj........................................... 7.100% 11/15/23 $ 1,595,850
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings
Hall........................................... 7.200 11/15/14 1,089,020
1,500 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings
Hall........................................... 7.300 11/15/23 1,642,005
2,500 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson
Retirement Cmnty Ser A Rfdg.................... 7.250 11/15/13 2,746,650
3,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson
Retirement Cmnty Ser A Rfdg.................... 7.250 11/15/18 3,295,980
1,195 Cuyahoga Cnty, OH Multi-Family Rev Hsg Mtg
Colonnade Apts Ser A Rfdg...................... 7.500 12/01/17 1,224,445
2,305 Cuyahoga Cnty, OH Multi-Family Rev Hsg Mtg
Colonnade Apts Ser A Rfdg...................... 7.750 12/01/28 2,361,058
2,500 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park
Lane Apts Proj Ser A........................... 8.250 07/01/28 2,575,000
370 Fairfield, OH Econ Dev Rev Beverly Enterprises
Inc Proj Rfdg.................................. 8.500 01/01/03 398,101
2,215 Hamilton Cnty, OH Multi-Family Rev Hsg Garden
Hill Washington Park Apts...................... 7.750 10/01/21 2,395,235
1,530 Harrison, OH Harrison Ave Kmart Proj Ser A..... 8.125 12/01/02 1,644,872
1,000 Madison Cnty, OH Hosp Impt Rev Madison Cnty
Hosp Proj Rfdg................................. 6.250 08/01/18 1,009,970
2,465 Madison Cnty, OH Hosp Impt Rev Madison Cnty
Hosp Proj Rfdg................................. 6.400 08/01/28 2,489,379
2,000 Montgomery Cnty, OH Hlthcare Fac Rev........... 6.250 02/01/22 2,033,560
2,330 Mount Vernon, OH Hosp Rev Knox Cmnty Hosp
Rfdg........................................... 7.875 06/01/12 2,381,446
2,500 North Canton, OH Hlthcare Facs Rev The
Waterford at St Luke Proj Rfdg................. 5.800 11/15/28 2,470,175
1,000 North Canton, OH Hlthcare Facs Rev The
Waterford at St Luke Proj...................... 8.625 11/15/21 1,190,320
3,000 Ohio St Solid Waste Rev CSC Ltd Proj........... 8.500 08/01/22 3,154,110
2,000 Ohio St Solid Waste Rev Rep Engineered Steels
Proj........................................... 8.250 10/01/14 2,065,860
4,000 Ohio St Solid Waste Rev Rep Engineered Steels
Proj........................................... 9.000 06/01/21 4,318,560
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev Coll
Cleveland Elec Ser A Rfdg...................... 8.000 10/01/23 2,288,060
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev Coll
Toledo Edison Ser A Rfdg....................... 8.000 10/01/23 2,288,060
--------------
46,657,716
--------------
</TABLE>
See Notes to Financial Statements
F-23
<PAGE> 107
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OKLAHOMA 0.3%
$ 500 Leflore Cnty, OK Hosp Auth Impt Rev
(Prerefunded @ 05/01/99)....................... 9.400% 05/01/06 $ 522,630
2,830 Oklahoma Cnty, OK Fin Auth Epworth Villa Proj
Ser A Rfdg..................................... 7.000 04/01/25 2,970,821
500 Woodward, OK Muni Auth Hosp Rev................ 8.250 11/01/09 567,460
500 Woodward, OK Muni Auth Hosp Rev (Prerefunded @
11/01/00)...................................... 9.250 11/01/14 561,295
--------------
4,622,206
--------------
OREGON 1.1%
3,000 Clackamas Cnty, OR Hosp Fac Auth Rev Odd
Fellows Home Ser A Rfdg........................ 5.875 09/15/21 3,022,800
1,000 Clatsop Care Cent Hlth Dist OR Rev Sr Hsg...... 6.000 08/01/14 1,009,180
4,000 Clatsop Care Cent Hlth Dist OR Rev Sr Hsg...... 6.875 08/01/28 4,034,920
1,745 Douglas Cnty, OR Hosp Fac Auth Rev Elderly Hsg
Forest Glen Ser A.............................. 7.500 09/01/27 1,834,117
4,000 Oregon St Hlth Hsg Edl & Cultural Facs Auth.... 7.250 06/01/28 4,071,760
1,500 Salem, OR Hosp Fac Auth Rev Cap Manor Inc...... 7.500 12/01/24 1,640,205
--------------
15,612,982
--------------
PENNSYLVANIA 11.2%
2,000 Allegheny Cnty, PA Hosp Dev Hlthcare Facs Villa
St Joseph...................................... 6.000 08/15/28 1,982,800
1,945 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac
Allegheny Vly Sch.............................. 7.500 02/01/10 2,136,758
3,120 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac
Allegheny Vly Sch.............................. 7.875 02/01/20 3,487,474
7,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Rfdg (b)...... 7.625 05/01/20 7,908,040
4,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Ser A Rfdg.... 7.750 05/01/20 4,575,600
1,100 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Ser A Rfdg.... 7.750 09/01/24 1,145,364
2,000 Berks Cnty, PA Muni Auth Rev................... 5.700 05/15/18 1,976,800
1,795 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg.................................. 7.500 05/15/13 2,153,049
1,860 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg.................................. 7.700 05/15/22 2,255,231
2,500 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg.................................. 8.250 05/15/22 2,875,250
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Devitt
Homes Proj A1 Rfdg............................. 5.750 05/15/22 989,810
1,000 Chartiers Vly, PA Indl & Coml Dev Auth First
Mtg Rev........................................ 7.250 12/01/11 1,032,470
2,000 Chartiers Vly, PA Indl & Coml Dev Auth First
Mtg Rev........................................ 7.400 12/01/15 2,182,260
</TABLE>
See Notes to Financial Statements
F-24
<PAGE> 108
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$4,480 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj (Prerefunded @ 07/01/99)............. 8.100% 07/01/12 $ 4,695,443
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj (Prerefunded @ 07/01/01)............. 8.500 07/01/21 1,133,480
855 Columbia Cnty, PA Indl Dev Auth First Mtg Rev
First St Assn Proj Rfdg........................ 9.000 05/01/14 890,243
5,000 Dauphin Cnty, PA Genl Auth Rev Office & Pkg
Riverfront Office.............................. 6.000 01/01/25 5,045,000
4,000 Dauphin Cnty, PA Genl Auth Rev Office & Pkg
Forum Place Ser A.............................. 6.000 01/15/25 4,049,360
3,000 Dauphin Cnty, PA Genl Auth Rev Hotel & Conf
Cent Hyatt Regency............................. 6.200 01/01/29 2,994,120
870 Delaware Cnty, PA Auth Rev First Mtg Riddle Vlg
Proj (Prerefunded @ 06/01/02).................. 8.750 06/01/10 1,022,668
2,800 Delaware Cnty, PA Auth Rev First Mtg Riddle Vlg
Proj (Prerefunded @ 06/01/02).................. 9.250 06/01/22 3,336,060
2,500 Delaware Cnty, PA Auth Rev First Mtg Riddle Vlg
Proj Rfdg...................................... 7.000 06/01/26 2,637,700
2,100 Delaware Cnty, PA Auth Rev White Horse Vlg Ser
A Rfdg......................................... 7.500 07/01/18 2,312,331
3,500 Grove City, PA Area Hosp Auth Hlth Facs Rev.... 6.625 08/15/29 3,513,685
2,000 Harrisburg, PA Auth Office & Pkg Rev Ser A..... 6.000 05/01/19 2,024,980
1,250 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev
United Church of Christ Homes Rfdg............. 7.250 10/01/19 1,265,112
250 Lehigh Cnty, PA Genl Purp Auth Rev First Mtg
Bible Fellowship Proj.......................... 7.150 12/15/08 266,110
2,315 Lehigh Cnty, PA Genl Purp Auth Rev First Mtg
Bible Fellowship Proj.......................... 8.000 12/15/23 2,455,706
4,000 Lehigh Cnty, PA Genl Purp Auth Rev Kidspeace
Oblig Group.................................... 6.000 11/01/23 4,008,200
1,790 Lehigh Cnty, PA Indl Dev Auth Lifepath Inc
Proj........................................... 6.100 06/01/18 1,751,103
3,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev
Lifepath Inc Proj.............................. 6.300 06/01/28 2,923,590
4,710 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg......... 8.000 08/01/12 5,060,471
3,000 Luzerne Cnty, PA Indl Dev Auth Exmpt Fac Rev PA
Gas & Wtr Co Proj Ser A Rfdg................... 7.200 10/01/17 3,300,960
1,870 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross
Rev Rfdg....................................... 7.875 12/01/13 2,057,654
500 Montgomery Cnty, PA Higher Edl & Hlth Auth Rev
Retirement Cmnty GDL Farms A (Prerefunded @
01/01/00)...................................... 9.500 01/01/20 541,585
2,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Ser A Rfdg....................... 6.000 12/01/10 2,063,520
3,695 Montgomery Cnty, PA Indl Dev Auth Rev Assisted
Living Ser A................................... 8.250 05/01/23 4,300,684
</TABLE>
See Notes to Financial Statements
F-25
<PAGE> 109
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 684 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Proj Ser A.................. 9.250% 12/01/00 $ 726,983
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 2,310,039
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 2,863,600
500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg........................ 7.000 12/01/10 539,030
1,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg........................ 7.250 12/01/15 1,629,360
4,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg........................ 7.400 12/01/20 4,347,680
1,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Proj Ser A Rfdg............. 6.250 12/01/17 1,581,045
3,595 Montgomery Cnty, PA Indl Dev Auth Rev Hlthcare
Adv Geriatric Ser A............................ 8.375 07/01/23 3,896,153
770 Montgomery Cnty, PA Indl Dev Auth Rev Pennsburg
Nursing Rehab Cent (Prerefunded @ 03/31/04).... 7.625 07/01/18 900,515
2,660 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy............................. 7.750 09/01/14 2,945,844
1,955 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy............................. 7.750 09/01/24 2,182,073
2,200 Montgomery Cnty, PA Indl Rev GDL Farms Corp
Proj Rfdg...................................... 6.500 01/01/20 2,256,848
1,665 Philadelphia, PA Auth for Indl Dev Hlthcare Fac
Rev............................................ 5.850 05/15/13 1,700,514
400 Philadelphia, PA Auth for Indl Dev Hlthcare Fac
Rev............................................ 5.750 05/15/18 399,800
1,650 Philadelphia, PA Auth for Indl Dev Hlthcare Fac
Rev............................................ 5.875 05/15/28 1,655,412
4,000 Philadelphia, PA Auth for Indl Dev Rev Coml RMK
Rfdg........................................... 7.750 12/01/17 4,507,160
2,000 Philadelphia, PA Auth for Indl Dev Rev
Long-Term Care Maplewood....................... 8.000 01/01/14 2,226,400
5,835 Philadelphia, PA Auth for Indl Dev Rev
Long-Term Care Maplewood....................... 8.000 01/01/24 6,480,818
1,180 Philadelphia, PA Hosp & Higher Edl Facs Auth
Hosp Rev....................................... 6.500 07/01/27 1,238,422
900 Philadelphia, PA Hosp & Higher Edl Facs Auth
Hosp Rev....................................... 6.500 07/01/23 917,307
1,500 Philadelphia, PA Hosp & Higher Edl Facs Auth
Hosp Rev....................................... 7.000 07/01/05 570,000
1,000 Philadelphia, PA Hosp & Higher Edl Facs Auth
Hosp Rev....................................... 7.250 07/01/18 380,000
1,830 Philadelphia, PA Hosp & Higher Edl Facs Auth
Hosp Rev....................................... 7.250 03/01/24 1,940,642
500 Philadelphia, PA Pkg Auth Rev East Market...... 8.750 03/01/05 506,265
1,785 Philadelphia, PA Pkg Auth Rev East Market...... 8.875 03/01/10 1,807,455
1,465 Scranton Lackawanna, PA Hlth Welfare Auth Rev
Rfdg........................................... 7.250 01/15/17 1,601,377
3,100 Scranton Lackawanna, PA Hlth Welfare Auth Rev
Rfdg........................................... 7.350 01/15/22 3,408,295
</TABLE>
See Notes to Financial Statements
F-26
<PAGE> 110
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$3,000 Somerset Cnty, PA Hosp Auth Rev Somerset Cmnty
Hosp Proj (Prerefunded @ 03/01/02)............. 7.500% 03/01/17 $ 3,338,520
2,400 Southern Chester Cnty, PA Hlth & Higher Ed Auth
Mtg Rev........................................ 6.300 06/01/10 2,469,408
250 Warren Cnty, PA Indl Dev Auth Beverly
Enterprises Rfdg............................... 9.000 11/01/12 277,853
2,300 Washington Cnty, PA Hosp Auth Rev Canonsburg
Genl Hosp Rfdg................................. 7.350 06/01/13 2,334,500
2,500 Westmoreland Cnty, PA Indl Dev Auth Rev
Hlthcare Facs Redstone Rfdg.................... 5.850 11/15/29 2,485,750
--------------
164,775,739
--------------
SOUTH CAROLINA 0.5%
725 Charleston Cnty, SC Hlth Fac Rev First Mtg
Episcopal Proj Rfdg (Prerefunded @ 04/01/01)... 9.750 04/01/16 829,146
250 South Carolina Jobs Econ Dev Auth Hlth Fac Rev
First Mtg Lutheran Homes SC Proj (Prerefunded @
10/01/02)...................................... 7.750 10/01/12 290,875
750 South Carolina Jobs Econ Dev Auth Hlth Fac Rev
First Mtg Lutheran Homes SC Proj (Prerefunded @
10/01/02)...................................... 8.000 10/01/22 879,248
5,095 South Carolina St Hsg Fin & Dev Auth
Multi-Family Rev............................... 6.750 05/01/28 5,229,253
--------------
7,228,522
--------------
SOUTH DAKOTA 0.2%
2,500 Mobridge, SD Hlthcare Facs Rev Mobridge Regl
Hosp Proj...................................... 6.500 12/01/22 2,549,050
1,000 South Dakota St Hlth & Edl Fac Auth Rev Huron
Regl Med Cent.................................. 7.250 04/01/20 1,118,920
--------------
3,667,970
--------------
TENNESSEE 1.2%
2,000 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev..... 6.000 07/01/28 2,108,900
2,000 Shelby Cnty, TN Hlth Edl & Hsg Hlthcare Fac
Kirby Pines Ser A.............................. 6.250 11/15/16 2,059,100
4,000 Shelby Cnty, TN Hlth Edl & Hsg Hlthcare Fac
Kirby Pines
Ser A.......................................... 6.375 11/15/25 4,125,560
500 Smith Cnty, TN Hlth & Edl Fac First Hlthcare
Corp Proj Rfdg (Prerefunded @ 04/01/99)........ 7.400 04/01/13 516,810
3,250 Springfield, TN Hlth & Edl Fac Brd Hosp Rev
Jesse Holman Jones Hosp Proj (Prerefunded @
04/01/06)...................................... 8.250 04/01/12 4,029,545
2,155 Sweetwater, TN Indl Dev Brd Mtg Rev Wood
Presbyterian Home Proj......................... 7.500 01/01/18 2,188,058
2,845 Sweetwater, TN Indl Dev Brd Mtg Rev Wood
Presbyterian Home Proj......................... 7.750 01/01/29 2,888,158
--------------
17,916,131
--------------
TEXAS 2.1%
1,000 Abilene, TX Hlth Facs Dev Sears Methodist
Retirement Ser A............................... 5.875 11/15/18 994,160
1,850 Abilene, TX Hlth Facs Dev Corp Retirement Facs
Rev............................................ 5.900 11/15/25 1,831,463
</TABLE>
See Notes to Financial Statements
F-27
<PAGE> 111
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 925 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp
Proj........................................... 9.250% 07/01/08 $ 972,721
4,000 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev................................... 7.600 12/01/17 4,052,280
500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev American Airls Inc......................... 7.500 11/01/25 535,580
1,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev American Airls Inc......................... 7.250 11/01/30 1,654,710
1,250 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc............................ 7.625 11/01/21 1,367,188
2,665 De Soto, TX Hlth Fac Dev Park Manor Sr Care.... 7.750 12/01/16 2,779,035
163 Harris Cnty, TX Hsg Fin Corp Single Family Hsg
Rev............................................ 9.875 03/15/14 163,769
170 Harris Cnty, TX Hsg Fin Corp Single Family Hsg
Rev 1983 Ser A................................. 10.125 07/15/03 170,260
1,090 Harris Cnty, TX Hsg Fin Corp Single Family Hsg
Rev 1983 Ser A................................. 10.375 07/15/14 1,091,057
750 Montgomery Cnty, TX Hlth Fac Dev Corp Hosp Mtg
Rev Woodlands Med Cent Proj Rfdg (Prerefunded @
08/15/99)...................................... 8.850 08/15/14 793,500
3,235 Orange, TX Hsg Dev Corp Multi-Family Rev Hsg
Vlgs At Pine Hallow............................ 8.000 03/01/28 3,308,920
3,255 Rusk Cnty, TX Hlth Fac Corp Hosp Rev Henderson
Mem Hosp Proj Rfdg............................. 7.750 04/01/13 3,551,596
500 San Antonio, TX Hlth Fac Dev Corp Rev Encore
Nursing Cent Partn............................. 8.250 12/01/19 556,180
2,000 San Antonio, TX Hsg Fin Corp Multi-Family Hsg
Rev Beverly Oaks Apts Proj Ser A............... 7.750 02/01/27 2,080,020
1,975 San Antonio, TX Hsg Fin Corp Multi-Family Hsg
Rev Marbach Manor Apts Proj Ser A.............. 8.125 06/01/27 2,070,807
1,500 Tarrant Cnty, TX Hlth Fac Dev Corp Rev Mtg
Cumberland Rest Ser A Rfdg..................... 7.000 08/15/19 1,550,400
1,401 Texas Genl Svcs Cmty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/24 1,439,182
--------------
30,962,828
--------------
UTAH 0.5%
1,500 Carbon Cnty, UT Solid Waste Disposal Rev Rfdg
Laidlaw Environmentl Ser A..................... 7.450 07/01/17 1,657,650
500 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.600 09/01/06 529,050
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/15 1,060,600
1,000 Tooele Cnty, UT Pollutn Ctl Rev Rfdg Laidlaw
Environmentl Ser A............................. 7.550 07/01/27 1,110,650
</TABLE>
See Notes to Financial Statements
F-28
<PAGE> 112
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH (CONTINUED)
$2,000 Utah St Hsg Fin Agy Rev RHA Cmnty Services Proj
Ser A.......................................... 6.875% 07/01/27 $ 2,093,860
905 Utah St Hsg Fin Agy Single Family Mtg Ser C2... 7.950 07/01/20 928,240
--------------
7,380,050
--------------
VIRGINIA 1.9%
2,955 Alexandria, VA Indl Dev Auth Rev Saint Coletta
Sch Proj....................................... 7.750 10/15/26 3,125,415
235 Alexandria, VA Indl Dev Auth Rev Saint Coletta
Sch Proj....................................... 7.750 10/15/26 246,482
6,600 Alexandria, VA Redev & Hsg Auth 3001 Park Cent
Apts Ser A Rfdg................................ 6.375 04/01/34 6,658,938
565 Covington-Alleghany Cnty, VA Indl Dev Auth
Beverly Enterprises Inc Proj Rfdg.............. 9.375 09/01/01 600,759
2,000 Dulles Town Cent Cmnty Dev Auth Dulles Town
Cent Proj...................................... 6.250 03/01/26 2,043,540
3,000 Fairfax Cnty, VA Redev & Hsg Auth Multi-Family
Hsg Rev........................................ 7.600 10/01/36 3,298,320
2,500 Henry Cnty, VA Indl Dev Auth Indl Dev Rev 5Bs
Inc Proj Ser A................................. 7.400 09/01/17 2,574,475
1,500 Hopewell, VA Indl Dev Auth Res Recovery Rev
Stone Container Corp Proj Rfdg................. 8.250 06/01/16 1,664,220
1,000 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt
Fac Ser A...................................... 7.450 01/01/09 1,105,090
6,000 Richmond, VA Redev & Hsg Auth Multi-Family Rev
Ser A Rfdg (Var Rate Cpn)...................... 7.500 12/15/21 6,151,320
1,000 Rockingham Cnty, VA Indl Dev Auth Residential
Care Fac Rev................................... 5.750 04/01/28 1,005,290
--------------
28,473,849
--------------
WASHINGTON 0.8%
2,650 Seattle, WA Hsg Auth Rev Holly Park Proj
Rmkt........................................... 5.900 01/01/30 2,704,351
2,500 Spokane Cnty, WA Indl Dev Corp Solid Waste Disp
Rev............................................ 7.600 03/01/27 2,767,875
300 Tacoma, WA Hsg Auth Rev Hsg Wedgewood Homes
Proj (a)(e).................................... 6.000 01/01/28 299,859
1,000 Tacoma, WA Hsg Auth Rev Hsg Wedgewood Homes
Proj (a)(e).................................... 6.000 03/01/28 999,340
1,680 Tacoma, WA Hsg Auth Rev Hsg Wedgewood Homes
Proj........................................... 6.000 04/01/28 1,678,908
500 Tacoma, WA Hsg Auth Rev Hsg Wedgewwd Homes
Proj........................................... 6.000 02/01/28 499,745
1,000 Vancouver, WA Hsg Auth Rev Hsg Maple Knoll Apts
Proj........................................... 6.000 10/01/17 1,028,190
1,000 Vancouver, WA Hsg Auth Rev Hsg Maple Knoll Apts
Proj........................................... 6.200 10/01/27 1,031,440
--------------
11,009,708
--------------
WEST VIRGINIA 0.3%
2,000 Randolph Cnty, WV Bldg Comm Rev Crossover
Elkins Regl Proj Rfdg.......................... 6.125 07/01/23 2,020,860
485 Randolph Cnty, WV Bldg Commission Davis Mem
Hosp Proj Ser A Rfdg & Impt (Prerefunded @
11/01/01)...................................... 7.650 11/01/21 544,922
2,540 Weirton, WV Pollutn Ctl Rev Weirton Steel Proj
Rfdg........................................... 8.625 11/01/14 2,520,848
--------------
5,086,630
--------------
</TABLE>
See Notes to Financial Statements
F-29
<PAGE> 113
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN 1.4%
$ 805 Baldwin, WI Hosp Rev Mtg Ser A................. 6.125% 12/01/18 $ 816,664
2,590 Baldwin, WI Hosp Rev Mtg Ser A................. 6.375 12/01/28 2,627,141
3,000 Oconto Falls, WI Cmnty Dev Oconto Falls Tissue
Inc Proj....................................... 7.750 12/01/22 3,236,400
1,550 Wisconsin Hsg & Econ Dev Auth Home Ownership
Rev............................................ 7.550 07/01/26 1,683,347
720 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.200 11/01/05 768,924
2,000 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.875 11/01/22 2,259,340
2,500 Wisconsin St Hlth & Edl Fac Auth Rev Natl
Regency of New Berlin Proj..................... 8.000 08/15/25 2,840,350
2,000 Wisconsin St Hlth & Edl Facs Auth Rev Clement
Manor Rfdg..................................... 5.750 08/15/24 1,941,060
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home
Proj........................................... 7.500 07/01/26 3,314,610
500 Wisconsin St Hlth & Edl Rev Mem Hosp At
Oconomowoc Inc Proj............................ 6.350 07/01/17 511,415
--------------
19,999,251
--------------
WYOMING 0.3%
4,100 Wyoming Cmnty Dev Auth Hsg Rev................. 6.250 06/01/27 4,372,978
--------------
U. S. VIRGIN ISLANDS 0.2%
1,210 University of Virgin Islands Pub Fin Auth
Ser A.......................................... 7.500 10/01/09 1,378,517
1,965 University of Virgin Islands Pub Fin Auth
Ser A.......................................... 7.650 10/01/14 2,248,038
--------------
3,626,555
--------------
TOTAL LONG-TERM INVESTMENTS 97.4%
(Cost $1,349,023,537)..................................................... 1,430,228,633
SHORT-TERM INVESTMENTS 0.6%
(Cost $8,500,000)......................................................... 8,500,000
--------------
TOTAL INVESTMENTS 98.0%
(Cost $1,357,523,537)..................................................... 1,438,728,633
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%................................. 28,749,718
--------------
NET ASSETS 100.0%.......................................................... $1,467,478,351
==============
</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.
(c) Interest is accruing at less than the stated coupon.
(d) Non-income producing security.
(e) 144A/Private Placement 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.
(f) Payment-in-kind security
See Notes to Financial Statements
F-30
<PAGE> 114
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,357,523,537)..................... $1,438,728,633
Cash........................................................ 61,609
Receivables:
Interest.................................................. 30,854,126
Investments Sold.......................................... 18,156,920
Fund Shares Sold.......................................... 2,795,794
Other....................................................... 51,815
--------------
Total Assets.......................................... 1,490,648,897
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 16,120,916
Income Distributions...................................... 4,022,193
Fund Shares Repurchased................................... 1,158,428
Distributor and Affiliates................................ 832,633
Investment Advisory Fee................................... 635,214
Accrued Expenses............................................ 270,847
Trustees' Deferred Compensation and Retirement Plans........ 130,315
--------------
Total Liabilities..................................... 23,170,546
--------------
NET ASSETS.................................................. $1,467,478,351
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,402,256,499
Net Unrealized Appreciation................................. 81,205,096
Accumulated Distributions in Excess of Net Investment
Income.................................................... (441,772)
Accumulated Net Realized Loss............................... (15,541,472)
--------------
NET ASSETS.................................................. $1,467,478,351
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $904,973,579 and 77,580,797 shares of
beneficial interest issued and outstanding)............. $ 11.66
Maximum sales charge (4.75%* of offering price)......... .58
--------------
Maximum offering price to public........................ $ 12.24
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $451,891,305 and 38,760,934 shares of
beneficial interest issued and outstanding)............. $ 11.66
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $110,613,467 and 9,497,974 shares of
beneficial interest issued and outstanding)............. $ 11.65
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
F-31
<PAGE> 115
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 96,316,419
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,101,487, $4,467,767 and $1,019,836,
respectively)............................................. 7,589,090
Investment Advisory Fee..................................... 7,402,566
Shareholder Services........................................ 980,681
Custody..................................................... 56,118
Legal....................................................... 41,288
Trustees' Fees and Expenses................................. 26,769
Other....................................................... 753,036
------------
Total Expenses.......................................... 16,849,548
------------
NET INVESTMENT INCOME....................................... $ 79,466,871
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain/Loss:
Investments............................................... $ 8,107,046
Futures................................................... 43,631
------------
NET REALIZED GAIN........................................... 8,150,677
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 64,464,321
End of the Period:
Investments............................................. 81,205,096
------------
Net Unrealized Appreciation During the Period............... 16,740,775
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 24,891,452
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $104,358,323
============
</TABLE>
See Notes to Financial Statements
F-32
<PAGE> 116
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended November 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, 1998 November 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 79,466,871 $ 65,562,592
Net Realized Gain/Loss............................... 8,150,677 (1,648,737)
Net Unrealized Appreciation.......................... 16,740,775 31,524,325
-------------- --------------
Change in Net Assets from Operations................. 104,358,323 95,438,180
-------------- --------------
Distributions from Net Investment Income*............ (79,954,356) (65,202,550)
Distributions in Excess of Net Investment Income*.... (442,201) -0-
-------------- --------------
Total Distributions................................ (80,396,557) (65,202,550)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 23,961,766 30,235,630
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 263,990,520 369,938,578
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 35,960,456 28,519,681
Cost of Shares Repurchased........................... (153,186,986) (126,673,799)
-------------- --------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 146,763,990 271,784,460
-------------- --------------
TOTAL INCREASE IN NET ASSETS......................... 170,725,756 302,020,090
NET ASSETS:
Beginning of the Period.............................. 1,296,752,595 994,732,505
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of ($441,772)
and $487,485, respectively)........................ $1,467,478,351 $1,296,752,595
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class: November 30, 1998 November 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
DISTRIBUTIONS FROM AND IN EXCESS OF NET INVESTMENT
INCOME:
Class A Shares..................................... $ (51,028,959) $ (41,904,414)
Class B Shares..................................... (23,908,632) (19,909,861)
Class C Shares..................................... (5,458,966) (3,388,275)
--------------- ---------------
$ (80,396,557) $ (65,202,550)
=============== ===============
</TABLE>
See Notes to Financial Statements
F-33
<PAGE> 117
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 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $11.454 $11.139 $ 11.18 $ 10.44 $11.19
------- ------- ------- ------- ------
Net Investment Income................. .699 .729 .735 .74 .76
Net Realized and Unrealized
Gain/Loss........................... .217 .312 (.041) .7475 (.744)
------- ------- ------- ------- ------
Total from Investment Operations...... .916 1.041 .694 1.4875 .016
Less Distributions from and in Excess
of Net Investment Income............ .706 .726 .735 .7475 .766
------- ------- ------- ------- ------
Net Asset Value, End of the Period.... $11.664 $11.454 $11.139 $ 11.18 $10.44
======= ======= ======= ======= ======
Total Return (a)...................... 8.28% 9.63% 6.47% 14.65% .10%
Net Assets at End of the Period (In
millions)........................... $ 905.0 $ 779.9 $ 621.0 $ 516.3 $411.1
Ratio of Expenses to Average Net
Assets (b).......................... .91% .95% 1.01% .98% 1.02%
Ratio of Net Investment Income to
Average Net Assets (b).............. 6.01% 6.50% 6.64% 6.81% 6.98%
Portfolio Turnover.................... 26% 29% 23% 26% 33%
</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) For the years ended November 30, 1995 through 1997, the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-34
<PAGE> 118
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 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $11.452 $11.136 $ 11.18 $ 10.43 $11.18
------- ------- ------- ------- ------
Net Investment Income................. .612 .645 .653 .66 .68
Net Realized and Unrealized
Gain/Loss........................... .216 .313 (.046) .7535 (.748)
------- ------- ------- ------- ------
Total from Investment Operations...... .828 .958 .607 1.4135 (.068)
Less Distributions from and in Excess
of Net Investment Income............ .622 .642 .651 .6635 .682
------- ------- ------- ------- ------
Net Asset Value, End of the Period.... $11.658 $11.452 $11.136 $ 11.18 $10.43
======= ======= ======= ======= ======
Total Return (a)...................... 7.41% 8.82% 5.67% 13.89% (.76%)
Net Assets at End of the Period (In
millions)........................... $ 451.9 $ 425.6 $ 323.8 $ 233.9 $159.3
Ratio of Expenses to Average Net
Assets (b).......................... 1.67% 1.71% 1.77% 1.73% 1.77%
Ratio of Net Investment Income to
Average Net Assets (b).............. 5.26% 5.74% 5.88% 6.03% 6.19%
Portfolio Turnover.................... 26% 29% 23% 26% 33%
</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) For the years ended November 30, 1995 through 1997, the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-35
<PAGE> 119
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
Class C Shares 1998 1997 1996 1995 November 30, 1994(a)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $11.440 $11.126 $ 11.17 $ 10.42 $ 11.29
------- ------- ------- ------- -------
Net Investment Income....... .613 .644 .652 .66 .63
Net Realized and Unrealized
Gain/Loss................. .215 .312 (.045) .7535 (.8363)
------- ------- ------- ------- -------
Total from Investment
Operations................ .828 .956 .607 1.4135 (.2063)
Less Distributions from and
in Excess of Net
Investment Income......... .622 .642 .651 .6635 .6637
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $11.646 $11.440 $11.126 $ 11.17 $ 10.42
======= ======= ======= ======= =======
Total Return (b)............ 7.42% 8.82% 5.68% 13.79% (1.80%)*
Net Assets at End of the
Period (In millions)...... $ 110.6 $ 91.3 $ 50.0 $ 31.1 $ 15.3
Ratio of Expenses to Average
Net Assets (c)............ 1.67% 1.70% 1.77% 1.72% 1.75%
Ratio of Net Investment
Income to Average Net
Assets (c)................ 5.25% 5.69% 5.86% 5.98% 6.07%
Portfolio Turnover.......... 26% 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) For the years ended November 30, 1995 through 1997, the impact on the Ratios
of Expenses and Net Investment Income to Average Net Assets due to Van
Kampen's reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
F-36
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Municipal Fund, formerly known as Van Kampen American
Capital High Yield Municipal Fund, (the "Fund") is organized as a series of the
Van Kampen 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 VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices 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 64% 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
F-37
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
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 Asset Management Inc. (the "Adviser") 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. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At November 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $15,540,922 which expires between November 30,
2002 and November 30, 2005. Net realized gains or losses differ for financial
reporting and tax purposes primarily as a result of the deferral for tax
purposes of losses resulting from wash sales.
At November 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $1,357,524,087; the aggregate gross unrealized
appreciation is
F-38
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
$87,525,603 and the aggregate gross unrealized depreciation is $6,321,057,
resulting in net unrealized appreciation of $81,204,546.
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.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
Permanent book and tax differences relating to market discount on securities
sold totaling $429 were reclassified from accumulated net realized gain/loss to
accumulated net investment income.
For the year ended November 30, 1998, 99.99% of the income distributions
made by the Fund were exempt from federal income taxes. In January, 1999, the
Fund will provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------
<S> <C>
First $300 million...................................... .60 of 1%
Next $300 million....................................... .55 of 1%
Over $600 million....................................... .50 of 1%
</TABLE>
For the year ended November 30, 1998, the Fund recognized expenses of
approximately $41,300 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, 1998, the Fund recognized expenses of
approximately $352,200 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
These services are provided by Van Kampen at cost.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
November 30, 1998, the Fund recognized expenses of approximately $733,500.
Beginning in 1998, the transfer
F-39
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. 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 Fund. The maximum
annual benefit per trustee under the plan is $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, 1998, capital
aggregated $867,776,273, $428,691,229 and $105,788,997 for Classes A, B, and C,
respectively. For the year ended November 30, 1998, transactions were as
follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 15,501,149 $ 180,363,153
Class B.................................. 5,190,835 60,344,265
Class C.................................. 2,003,857 23,283,102
----------- -------------
Total Sales................................ 22,695,841 $ 263,990,520
=========== =============
Dividend Reinvestment:
Class A.................................. 1,945,625 $ 22,655,360
Class B.................................. 886,374 10,315,348
Class C.................................. 257,191 2,989,748
----------- -------------
Total Dividend Reinvestments............... 3,089,190 $ 35,960,456
=========== =============
Repurchases:
Class A.................................. (7,951,196) $ (92,412,176)
Class B.................................. (4,479,101) (52,140,145)
Class C.................................. (742,697) (8,634,665)
----------- -------------
Total Repurchases.......................... (13,172,994) $(153,186,986)
=========== =============
</TABLE>
F-40
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996, 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, 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, automatically
convert to Class A shares ten years after the end of the calendar month in which
such shares were purchased. The CDSC will be imposed on most
F-41
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
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.
<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, 1998, Van Kampen, as distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $343,400 and CDSC on the redeemed shares of Classes B and C of
approximately $525,500. 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 $472,081,065 and $355,217,098,
respectively.
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. 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.
F-42
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1998
- --------------------------------------------------------------------------------
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, each with a par value of $100,000, for
the year ended November 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at November 30, 1997............................ 200
Futures Opened.............................................. 865
Futures Closed.............................................. (1,065)
------
Outstanding at November 30, 1998............................ -0-
======
</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, 1998, are payments retained by Van Kampen
of approximately $3,711,600.
F-43
<PAGE> 127
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <S> <C>
(a)(1) -- First Amended and Restated Agreement and Declaration of
Trust(1)
(2) -- Certificate of Amendment(1)
(3) -- Second Certificate of Amendment(4)
(4) -- Amended and Restated Certificate of Designation(3)
(5) -- Second Amended and Restated Certificate of Designation(4)
(b) -- Amended and Restated Bylaws(1)
(c)(1) -- Specimen Class A Share Certificate(3)
(2) -- Specimen Class B Share Certificate(3)
(3) -- Specimen Class C Share Certificate(3)
(d)(1) -- Investment Advisory Agreement(3)
(2) -- Subadvisory Agreement(3)
(e)(1) -- Distribution and Service Agreement(3)
(2) -- Form of Dealer Agreement(2)
(3) -- Form of Broker Fully Disclosed Selling Agreement(2)
(4) -- Form of Bank Fully Disclosed Selling Agreement(2)
(f)(1) -- Form of Trustee Deferred Compensation Plan+
(2) -- Form of Trustee Retirement Plan+
(g)(1) -- Custodian Contract(3)
(2) -- Transfer Agency and Service Agreement(3)
(h)(1) -- Data Access Services Agreement(2)
(2) -- Fund Accounting Agreement(3)
(i) -- Opinion of Counsel and Consent of Skadden, Arps, Slate,
Meagher & Flom (Illinois)(2)
(j) -- Consent of PricewaterhouseCoopers LLP+
(k) -- Not Applicable
(l) -- Investment Letter+
(m)(1) -- Plan of Distribution Pursuant to Rule 12b-1(2)
(2) -- Form of Shareholder Assistance Agreement(2)
(3) -- Form of Administrative Services Agreement(2)
(4) -- Service Plan(2)
(n) -- Financial Data Schedules+
(o) -- Amended Multi-Class Plan(2)
(p) -- Power of Attorney(4)
(z)(1) -- List of certain investment companies in response to Item
27(a)+
(2) -- List of officers and directors of Van Kampen Funds Inc. in
response to Item 27(b)+
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A, File No. 2-96030, filed
March 30, 1998.
(4) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File No. 2-96030, filed
January 29, 1999.
+ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
C-1
<PAGE> 128
ITEM 25. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's First
Amended and Restated 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, or (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 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 26. 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 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.
C-2
<PAGE> 129
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc. (the
"Distributor"); which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds 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 Funds
Inc. of each of the directors and officers are disclosed in Exhibit (z)(2).
Except as disclosed under the heading, "Trustees and Officers" in Part B of this
Registration Statement, none of such persons has any position or office with
Registrant.
(c) Not applicable.
ITEM 28. 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 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555, Van Kampen 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 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181; and (iii) by the Distributor, the
principal underwriter, will be maintained at its offices located at 1 Parkview
Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN 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, 1999.
VAN KAMPEN TAX-EXEMPT TRUST
By: /s/ DENNIS J. MCDONNELL
------------------------------------
Dennis J. McDonnell, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on March 30, 1999 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/ JOHN L. SULLIVAN* Vice President, Treasurer and Chief
- ----------------------------------------------------- Financial Officer
John L. Sullivan
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/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
* Signed by Dennis J. McDonnell pursuant to a power of attorney filed herewith.
/s/ DENNIS J. MCDONNELL March 30, 1999
- -----------------------------------------------------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>
<PAGE> 131
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 21 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 30, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
(f)(1) -- Form of Trustee Deferred Compensation Plan
(f)(2) -- Form of Trustee Retirement Plan
(j) -- Consent of PricewaterhouseCoopers LLP
(l) -- Investment Letter
(n) -- Financial Data Schedules
(z)(1) -- List of certain investment companies in response to Item
27(a)
(z)(2) -- List of officers and directors of Van Kampen Funds Inc.
in response to Item 27(b)
</TABLE>
<PAGE> 1
EXHIBIT (f) (1)
FORM OF
DEFERRED COMPENSATION AGREEMENT
AGREEMENT, made on this ____ day of _______________, _______
by and between each of the funds listed on Schedule A attached hereto as may be
amended from time to time, each a registered investment company having its
principal offices at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois
60181-5555 (collectively the "Funds" or individually the "Fund"), and
Trustee/Director's Name, residing at Trustee/Director's Address (the "Trustee").
WHEREAS, the Fund and the Trustee desire to enter into an
agreement whereby the Fund will provide to the Trustee a vehicle under which the
Trustee can defer receipt of trustees' fees payable by the Fund.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Fund and the Trustee hereby agree
as follows:
1. DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions. Unless a different meaning is plainly implied
by the context, the following terms as used in this Agreement shall have the
following meanings:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after the death
of the Trustee.
(b) "Board of Trustees" shall mean the Board of Trustees
or Board of Directors, as the case may be, of the Fund.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of trustee's fees
paid by the Fund to the Trustee during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or
amounts of the Trustee's Compensation deferred under the provisions of Section 3
of this Agreement.
(f) "Deferral Account" shall mean the account maintained
to reflect the Trustee's Compensation Deferral made pursuant to Section 3 hereof
and any other credits or debits thereto.
<PAGE> 2
(g) "Deferral Year" shall mean each calendar year during
which the Trustee makes, or is entitled to make, a Compensation Deferral under
Section 3 hereof.
(h) "Valuation Date" shall mean any day upon which the
Fund makes a valuation of the Deferral Account and shall, at a minimum, be the
last business day of each calendar quarter.
1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.
1.3 Headings. The headings and subheadings in this Agreement
are inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 Commencement of Compensation Deferrals. The Trustee may
elect, on a form provided by, and submitted to, the President of the Fund, to
commence Compensation Deferrals under Section 3 hereof for the period beginning
on the later of (i) the date this Agreement is executed or (ii) the date such
form is submitted to the President of the Fund.
2.2 Termination of Deferrals. The Trustee shall not be
eligible to make Compensation Deferrals after the earlier of the following
dates:
(a) The date of which he ceases to serve as a Trustee of
the Fund; or
(b) The effective date of the termination of this
Agreement.
3. COMPENSATION DEFERRALS
3.1 Compensation Deferral Elections.
(a) The Trustee may elect, on the form described in
Section 2.1 hereof, to defer the receipt of all or a portion of the
Compensation for such Deferral Year.Such writing shall set forth the amount of
such Compensation Deferral (in whole percentage amounts). Such election shall
continue in effect for all subsequent Deferral Years unless it is canceled or
modified as provided below.
2
<PAGE> 3
(b) Compensation Deferrals shall be withheld from
each payment of Compensation by the Fund to the Trustee based upon the
percentage amount elected by the Trustee under Section 3.1(a) hereof.
(c) The Trustee may cancel or modify the amount
of his Compensation Deferrals on a prospective basis by submitting to the
President of the Fund a revised Compensation Deferral election form. Such change
will be effective as of the first day following the date such revision is
submitted to the President of the Fund.
3.2 Valuation of Deferral Account.
(a) The Fund shall establish a bookkeeping Deferral
Account to which will be credited an amount equal to the Trustee's Compensation
Deferrals under this Agreement. Compensation Deferrals shall be allocated to the
Deferral Account on the first business day following the date such Compensation
Deferrals are withheld from the Trustee's Compensation. The Deferral Account
shall be debited to reflect any distributions from such Account. Such debits
shall be debited to the Deferral Account as of the date such distributions are
made.
(b) Any Compensation Deferrals made into a Trustee's
Deferral Account will be valued as if such amounts are invested in the manner
set forth under Section 3.3 beginning as of the close of business on the last
day of the month in which such Compensation Deferrals were credited to such
Trustee's Deferral Account. As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Account is invested in the manner est
forth herein) attributable to the period following the next preceding Valuation
Date shall be credited to and/or deducted from the Trustee's Deferral Account.
3.3 Investment of Deferral Account Balance.
(a) (1) The Trustee may select, from various
options made available by the Fund, the investment media in which all or part
of his Deferral Account shall be deemed to be invested.
(2) The Trustee shall make an investment
designation on a form provided by the President of the Fund which shall remain
effective until another valid direction has been made by the Trustee as herein
provided. On the investment designation form, the Trustee may select from
underlying investment securities from theoptions made available to the Trustee
pursuant to Section 3.3(a)(1). The Trustee may amend the investment designation
only once each calendar quarter by giving written direction to the President of
the Fund. Unless otherwise specified, a Trustee's amendment to an investment
designation applies only to future compensation Deferrals. A Trustee may amend
the investment designation for existing amounts in the Trustee's Deferral
Account provided, however, that such changes in investment designation will only
be valid and applied to the existing amounts in the Trustee's Deferral Account
if the Trustee provides sufficient instruction regarding amounts to be
exchanged. A change in
3
<PAGE> 4
investment designation will be valid only if, after giving effect to such change
in investment designation, the Trustee has selected investment securities from
the options made available to the Trustee pursuant to Section 3.3(a)(1). A
timely, valid change in a Trustee's investment designation shall become
effective as of the close of business on the last day of the calendar quarter
following receipt by the President of the Fund.
(3) The investment media deemed to be
made available to the Trustee, and any limitation on the maximum or minimum
percentages of the Trustee's Deferral Account that may be invested in any
particular medium, shall be the same as from time to time communicated to the
Trustee by the President of the Fund.
(b) Except as provided below, the Trustee's
Deferral Account shall be deemed to be invested in accordance with the
investment designations, provided such designations conform to the provisions
of this Section. If:
(1) the Trustee does not furnish the
President of the Fund with written investment instructions,
(2) the written investment instructions
from the Trustee are unclear, or
(3) less than all of the Trustee's Deferral
Account is covered by such written investment instructions,
then the Trustee's Deferral Account shall be deemed to be invested in the Fund
until such time as the Trustee shall provide the President of the Fund with
complete investment instructions. Notwithstanding the above, the Board of
Trustees, in its sole discretion, may disregard the Trustee's election and
determine that all Compensation Deferrals shall be deemed to be invested in the
Fund.
The Fund shall provide an annual statement to the Trustee
showing such information as is appropriate, including the aggregate amount in
the Deferral Account, as of a reasonably current date.
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
4.1 In General. Distributions from the Trustee's Deferral Account shall
be paid in cash, in generally equal annual installments over a period of five
(5) years beginning on the date of the Trustee's retirement or disability,
except that the Board of Trustees may, in its sole discretion, accelerate or,
with the consent of the Trustee, extend the distribution of such Deferral
Account. Notwithstanding the foregoing, in the event of the liquidation,
dissolution or winding up of the Fund or the distribution of all or
substantially all of the Fund's assets and property relating to one or more
series of its shares to the shareholders (for this purpose a sale, conveyance or
transfer of the Fund's assets to a trust, partnership, association or
corporation in exchange for cash, shares or other securities with the transfer
being made subject to, or with the assumption by the
4
<PAGE> 5
transferee of, the liabilities of the Fund shall not be deemed a termination of
the Fund or such a distribution), all unpaid amounts in the Deferral Account as
of the effective date thereof shall be paid in a lump sum on such effective
date.
4.2 Death Prior to Distribution of Deferral Account. Upon the
death of the Trustee prior to the commencement of the distribution of the
amounts credited to the Deferral Account, the Deferral Account shall be
distributed to the Beneficiary over a period of five (5) years beginning as soon
as practicable after the Trustee's death. In the event of the death of the
Trustee after the commencement of such distribution, but prior to the complete
distribution of the Deferral Account, the balance of the amounts in the Deferral
Account shall be distributed to the Beneficiary over the remaining period during
which such amounts were distributable to the Trustee under Section 4.1 hereof.
In the event the Trustee survives the designated Beneficiary, the balance of
such Deferral Account shall be paid in a lump sum to such Trustee's estate.
Notwithstanding the above, the Board of Trustees may, in its sole discretion,
accelerate or, with the consent of the Beneficiary or the Trustee's estate, as
applicable, extend the distribution of the Deferral Account.
4.3 Designation of Beneficiary. For purposes of Section 4.2
hereof, the Trustee's Beneficiary shall be the person or persons so designated
by the Trustee in a written instrument submitted to the President of the Fund.
In the event the Trustee fails to properly designate a Beneficiary, the balance
of such Trustee's Deferred Account shall be paid in a lump sum to such Trustee's
estate.
4.4 Payments Due Missing Persons. The Fund shall make a
reasonable effort to locate all persons entitled to benefits under this
Agreement. However, notwithstanding any provisions of this Agreement to the
contrary, if, after a period of five (5) years from the date such benefit shall
be due, any such persons entitled to benefits have not been located, their
rights under this Agreement shall stand suspended. Before this provision becomes
operative, the Fund shall send a certified letter to all such persons to their
last known address advising them that their benefits under this Agreement shall
be suspended. Any such suspended amounts shall be held by the Fund for a period
of three (3) additional years (or a total of eight (8) years from the time the
benefits first become payable) and thereafter, if unclaimed, such amounts shall
be forfeited.
5. AMENDMENTS AND TERMINATION
5.1 Amendments.
(a) The Fund and the Trustee may, by a written
instrument signed by both such parties, amend this Agreement at any time and in
any manner.
(b) The Fund reserves the right to amend, in whole or
in part, and in any manner, any or all of the provisions of this Agreement by
action of its Board
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<PAGE> 6
of Trustees for the purposes of complying with any provision of the Code or any
other technical or legal requirements, provided that:
(1) No such amendment shall make it
possible for any part of the Trustee's Deferral Account to be used for,
or diverted to, purposes other than for the exclusive benefit of the
Trustee or the Beneficiaries, except to the extent otherwise provided
in this Agreement; and
(2) No such amendment may reduce the
amount of the Trustee's Deferral Account as of the effective date of
such amendment.
5.2 Termination. The Trustee and the Fund may, by written
instrument signed by both such parties, terminate this Agreement at any time.
The rights of the Trustee to the Deferral Account shall become payable as of the
Valuation Date next following the effective date of the termination of this
Agreement.
6. MISCELLANEOUS.
6.1 Rights of Creditors.
(a) This Agreement is unfunded. Neither the
Trustee nor any other persons shall have any interest in any specific asset or
assets of the Fund by reason of any Deferral Account hereunder, nor any rights
to receive distribution of the Deferral Account except and as to the extent
expressly provided hereunder. The Fund shall not be required to purchase, hold
or dispose of any investments pursuant to this Agreement; however, if in order
to cover its obligations hereunder the Fund elects to purchase any investments
the same shall continue for all purposes to be a part of the general assets and
property of the Fund, subject to the claims of its general creditors and no
person other than the Fund shall by virtue of the provisions of this Agreement
have any interest in such assets other than an interest as a general creditor.
(b) The rights of the Trustee and the
Beneficiaries to the amounts held in the Deferral Account are unsecured and
shall be subject to the creditors of the Fund. With respect to the payment of
amounts held under the Deferral Account, the Trustee and the Beneficiaries have
the status of unsecured creditors of the Fund. This Agreement is executed on
behalf of the Fund by an officer of the Fund as such and not individually. Any
obligation of the Fund hereunder shall be an unsecured obligation of the Fund
and not of any other person.
6.2 Agents. The Fund may employ agents and provide for
such clerical, legal, actuarial, accounting, advisory or other services as it
deems necessary to perform its duties under this Agreement. The Fund shall bear
the cost of such services and all other expenses it incurs in connection with
the administration of this Agreement.
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<PAGE> 7
6.3 Liability and Indemnification. Except for its own gross
negligence, willful misconduct or willful breach of the terms of this Agreement,
the Fund shall be indemnified and held harmless by the Trustee against liability
or losses occurring by reason of any act or omission of the Fund or any other
person.
6.4 Incapacity. If the Fund shall receive evidence
satisfactory to it that the Trustee or any Beneficiary entitled to receive any
benefit under the Agreement is, at the time when such benefit becomes payable, a
minor, or is physically or mentally incompetent to receive such benefit and to
give a valid release therefor, and that another person or an institution is then
maintaining or has custody of the Trustee or Beneficiary and that no guardian,
committee or other representative of the estate of the Trustee or Beneficiary
shall have been duly appointed, the Fund may make payment of such benefit
otherwise payable to the Trustee or Beneficiary to such other person or
institution, including a custodian under the Uniform Gifts to Minors Act or
corresponding legislation (such custodian shall be an adult, a guardian of the
minor or a trust company), and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.
6.5 Cooperation of Parties. All parties to this Agreement and
any person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.
6.6 Governing Law. This Agreement is made and entered into in
the State of Illinois, and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Illinois.
6.7 Nonguarantee of Trusteeship. Nothing contained in this
Agreement shall be construed as a contract or guarantee of the right of the
Trustee to be, or remain as, a trustee of the Fund or to receive any, or any
particular rate of, Compensation.
6.8 Counsel. The Fund may consult with legal counsel with
respect to the meaning or construction of this Agreement or its obligations or
duties hereunder or with respect to any action or proceeding or any question of
law, and it shall be fully protected with respect to any action taken or omitted
by it in good faith pursuant to the advice of legal counsel.
6.9 Spendthrift Provision. The Trustee's and Beneficiaries'
interests in the Deferral Account may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred, alienated, assigned nor become subject
to execution, garnishment or attachment, and any attempt to do so by any person
shall render the Deferral Amount immediately forfeitable.
6.10 Notices. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
United States
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<PAGE> 8
registered or certified mail, return receipt requested, postage prepaid, or by
nationally recognized overnight delivery service providing for a signed return
receipt, addressed to the Trustee at the home address set forth in the Fund's
records and to the Fund at the address set forth on the first page of this
Agreement, provided that all notices to the Fund shall be directed to the
attention of the President of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
6.11 Entire Agreement. This Agreement contains the entire
understanding between the Fund and the Trustee with respect to the payment of
non-qualified elective deferred compensation by the Fund to the Trustee.
6.12 Interpretation of Agreement. Interpretations of, and
determinations related to, this Agreement made by the Fund in good faith,
including any determinations of the amounts of the Deferral Account, shall be
conclusive and binding upon all parties; and the Fund shall not incur any
liability to the Trustee for any such interpretation or determination so made or
for any other action taken by it in connection with this Agreement in good
faith.
6.13 Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the Fund and its successors and assigns
and to the Trustee and such Trustee's heirs, executors, administrators and
personal representatives.
6.14 Severability. In the event any one or more provisions of
this Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.15 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
Deferred Compensation Agreement to be executed as of the day and year first
above written.
On behalf of the Funds
listed on Schedule A
attached hereto:
By:
------------------------
Name:
----------------------
Title:
---------------------
On behalf of theTrustee/Director
listed on page 1 hereto:
----------------------------------
Trustee/Director's Signature
<PAGE> 1
EXHIBIT (f)(2)
FORM OF
RETIREMENT PLAN FOR EACH FUND
Van Kampen ( Fund Name) , a registered investment company
having its principal offices at 1 Parkview Plaza, P.O. Box 5555,Oakbrook
Terrace, Illinois 60181-5555 (the "Fund"), has adopted this Retirement Plan,
effective (date shown on Annex A) (the "Plan"), for its Eligible Trustees (as
defined herein) in order to recognize and reward the valued services provided by
such trustees or directors, as the case may be, to the Fund.
1. DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions. Unless a different meaning is plainly implied
by the context, the following terms as used in this Plan shall have the
following meanings:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 6.4 hereof to receive benefits after the death
of the Eligible Trustee.
(b) "Board of Trustees" shall mean the Board of
Trustees or the Board of Directors, as the case may be, of the Fund.
(c) "Capped Retirement Benefit" shall have the
meaning described in Section 3.4.
(d) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, or any successor statute.
(e) "Compensation" shall mean an amount equal to
$2,500.
(f) "Disability" shall have the meaning described in
Section 5.1.
(g) "Early Retirement Benefit" shall have the meaning
described in Section 3.3.
(h) "Effective Date" shall mean .
(i) "Effective Date Trustee" means a person who is a
trustee or director, as the case may be, of the Fund on the Effective Date.
<PAGE> 2
(j) "Eligible Retirement Age" shall have the meaning
described in Section 4.1.
(k) "Eligible Trustee" shall mean a person who: (i)
is or becomes a trustee or director, as the case may be, of the Fund on or after
the Effective Date, and (ii) is, prior to the time of such trustee's or
director's, as the case may be, termination of service, receiving trustee's or
director's fees from the Fund.
(l) "Fund Complex" shall mean the funds listed on
Schedule A attached hereto as may be amended from time to time.
(m) "Mandatory Retirement Age" shall have the meaning
described in Section 4.1.
(n) "Normal Distribution" shall have the meaning
described in Section 6.1.
(o) "Normal Retirement Benefit" shall have the
meaning described in Section 3.2.
(p) "Plan Committee" shall have the meaning described
in Section 8.2.
(q) "Retirement Benefit" shall mean the applicable
normal Retirement Benefit, Early Retirement Benefit or Capped Retirement Benefit
due to such trustee or director, as the case may be.
(r) "Retirement Benefit Cap" shall mean the amount
listed on Schedule A attached hereto as may be amended from time to time.
(s) "Service Requirement" shall have the meaning
described in Section 2.1.
(t) "Years of Service" shall be counted using January
1st of the year such trustee or director, as the case may be, begins service as
a trustee or director of the Fund and include all completed calendar years of
service prior to such trustee's or director's, as the case may be, termination
of service, including such service performed prior to the adoption of the plan.
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<PAGE> 3
1.2 Plurals and Gender. Where appearing in this Plan the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.
References herein to "trustees" shall include trustees of a fund organized as a
trust or directors of a fund organized as a corporation, as the case may be.
1.3 Headings. The headings and subheadings in this Plan are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
2. SERVICE REQUIREMENT
2.1 Service Requirement. Each Eligible Trustee that has
completed five (5) Years of Service as a trustee for the Fund shall be entitled
to receive retirement benefits from the Fund. An Eligible Trustee is not
entitled to benefits pursuant to the Plan merely because such trustee is an
Eligible Trustee; a trustee must meet the Years of Service requirement.
3. RETIREMENT BENEFIT
3.1 In General. The retirement benefit amount for an
Eligible Trustee meeting the Service Requirement is determined at the time of
such trustee's termination of service as a trustee. Subject to Sections 3.4 and
5.1, an Eligible Trustee terminating service as a trustee to the Fund prior to
attaining the Eligible Retirement Age is eligible for the Early Retirement
Benefit as described in Section 3.3. Subject to Section 3.4, an Eligible Trustee
terminating service as a trustee to the fund after attaining the Eligible
Retirement Age is eligible for the Normal Retirement Benefit as described in
Section 3.2. An Eligible Trustee terminating service as a trustee to the Fund
after the Mandatory Retirement Age forfeits and is not entitled to any
retirement benefit under the Plan.
3.2 Normal Retirement Benefit. The Normal Retirement Benefit
shall be 50% of the Compensation and such benefit shall increase by 10% for each
Year of Service by such trustee in excess of five (5) Years of Service up to a
maximum amount of 100% of the Compensation for any trustee who has completed ten
(10) or more Years of Service.
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<PAGE> 4
Years of Service Percentage Of Compensation
- --------------------------------------------------------------------------------
Less than 5 0%
- --------------------------------------------------------------------------------
5 50%
- --------------------------------------------------------------------------------
6 60%
- --------------------------------------------------------------------------------
7 70%
- --------------------------------------------------------------------------------
8 80%
- --------------------------------------------------------------------------------
9 90%
- --------------------------------------------------------------------------------
10 or more 100%
- --------------------------------------------------------------------------------
3.3 Early Retirement Benefit. The Early Retirement Benefit
shall be the Normal Retirement Benefit for such trustee based upon such
trustee's Years of Service at the time of such trustee's termination of service
reduced by 3% for each year prior to the Eligible Retirement Age.
3.4 Retirement Benefit Cap. A trustee shall not receive
aggregate retirement benefits per calendar year from the Fund Complex in excess
of the Retirement Benefit Cap in effect at the time of such trustee's
termination of service. When a trustee would otherwise be entitled to aggregate
retirement benefits from the Fund Complex in excess of the Retirement Benefit
Cap but for this provision, the Fund shall only pay a Capped Retirement Benefit
to such trustee based on its pro rata portion of the retirement benefit the Fund
would have paid relative to the aggregate retirement benefits from the Fund
Complex absent such Retirement Benefit Cap.
4. RETIREMENT AGE
4.1 Retirement Age. The Eligible Retirement Age shall be
upon attaining the age of 60. A trustee may elect to continue to serve as a
trustee beyond the Eligible Retirement Age to a Mandatory Retirement Age of
December 31st in the year such trustee reaches the age of 72; provided, however,
that the Mandatory Retirement Age shall be the later of the Mandatory Retirement
Age as set forth herein or as set forth in the by-laws of the Fund as may be
amended from time to time.
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<PAGE> 5
5. DISABILITY
5.1 Disability. Disability shall have the meaning as set forth
in the Code under Section 22(e)(3). An Eligible Trustee who becomes disabled, as
defined herein, prior to reaching the Eligible Retirement Age is not subject to
the Early Retirement Benefit provision in section 3.3 but is instead eligible to
receive the lesser of the Normal Retirement Benefit or Capped Retirement Benefit
calculated as described in Section 3 using the Disability date as the date of
such trustee's termination of service.
6. PAYMENT OF RETIREMENT BENEFITS
6.1 Retirement or Disability Terminating Trustee's Service.
Subject to Sections 6.2 and 6.3, an Eligible Trustee shall receive the amount of
the applicable Retirement Benefit calculated pursuant to Section 3 for each of
the ten (10) years commencing in the fiscal year of such trustee's termination
of service (the "Normal Distribution"). Payment of benefits to an Eligible
Trustee shall commence, and be paid annually thereafter, at the end of the
Fund's fiscal year. In the event of such Eligible Trustee's death prior to
complete distribution under the Plan, such trustee's Beneficiary shall receive
the remaining retirement benefits based upon the Normal Distribution. In the
event the Eligible Trustee survives the Beneficiary or no Beneficiary has been
named, the Fund shall pay a lump sum amount equal to the actuarial present value
of the remaining retirement benefits to the Eligible Trustee's estate.
6.2 Death Terminating Trustee's Service. Subject to Section
6.3, in the event an Eligible Trustee's death causes the termination of service,
the Eligible Trustee's Beneficiary shall receive the amount of the applicable
Retirement Benefit calculated pursuant to Section 3 for each of the ten (10)
years commencing in the fiscal year of such trustee's death. Payment of benefits
to such Beneficiary shall commence, and be paid annually thereafter, at the end
of the Fund's fiscal year. In the event the Eligible Trustee survived the
Beneficiary or no Beneficiary was named, the Fund shall pay a lump sum amount
equal to the actuarial present value of the applicable retirement benefits to
the Eligible Trustee's estate.
6.3 Liquidation, Dissolution, Winding Up or Distribution of
Substantially All of the Assets of the Fund. Notwithstanding Sections 6.1 or
6.2, in the event of a liquidation, dissolution or winding up of the Fund or
distribution of all or substantially all of the Fund's assets and property, the
Fund shall pay to each Eligible Trustee serving as a trustee of the Fund on the
effective date of such liquidation, dissolution, winding up or distribution a
lump sum amount equal to the actuarial present value of the applicable Normal
Retirement Benefit or Early Retirement Benefit calculated pursuant to Section 3
using the effective date of such liquidation, dissolution, winding up or
distribution as the date of such trustee's termi-
5
<PAGE> 6
nation of services. In the event an Eligible Trustee terminates services prior
to such liquidation, dissolution, winding up or distribution and such trustee
(or such trustee's Beneficiary) is then receiving payment of benefits pursuant
to either Section 6.1 or 6.2 at the time of such liquidation, dissolution,
winding up or distribution, the Fund shall pay to such trustee (or Beneficiary)
on the effective date of such liquidation, dissolution, winding up or
distribution a lump sum amount equal to the actuarial present value of the
remaining retirement benefits due to such trustee (or Beneficiary).
6.4 Designation of Beneficiary. The Eligible Trustee's
Beneficiary shall be the person or persons so designated by such trustee in a
written instrument submitted to the President of the Fund. In the event the
Eligible Trustee fails to properly designate a Beneficiary, the Fund shall pay a
lump sum amount equal to the actuarial present value of the applicable
retirement benefits to the Eligible Trustee's estate.
6.5 Payments Due Missing Persons. The Fund shall make a
reasonable effort to locate all persons entitled to benefits under this Plan.
However, notwithstanding any provisions of this Plan to the contrary, if, after
a period of five (5) years from the date such benefit shall be due, any such
persons entitled to benefits have not been located, their rights under this Plan
shall stand suspended. Before this provision becomes operative, the Fund shall
send a certified letter to all such persons to their last known address advising
them that their benefits under this Plan shall be suspended. Any such suspended
amounts shall be held by the Fund for a period of three (3) additional years (or
a total of eight (8) years from the time the benefits first become payable) and
thereafter, if unclaimed, such amounts shall be forfeited.
6.6 Actuarial Present Value Calculations. For purposes of
this Plan, the "actuarial present value" of any benefits shall be computed using
interest factors and other reasonable assumptions chosen by the Plan Committee.
The Plan Committee shall have sole and uncontrolled discretion with respect to
the application of the provisions of this paragraph and such exercise of
discretion shall be conclusive and binding on the Eligible Trustee, any
Beneficiary or other person.
7. AMENDMENTS AND TERMINATION
7.1 Amendments. The Fund anticipates the Plan to be permanent
but the Fund reserves the right to amend any or all of the provisions of this
Plan by action of its Board of Trustees or Board of Directors, as the case may
be, when, in the sole opinion of the Board of Trustees or Board of Directors, as
the case may be, such amendment is advisable, including for the purposes of
complying with any provision of the Code or any other technical or legal
requirements.
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<PAGE> 7
7.2 Termination. The Fund may by action of its Board of
Trustees or Board of Directors, as the case may be, terminate this Plan at any
time.
8. MISCELLANEOUS.
8.1 Forfeiture of Benefits. Notwithstanding any other
provision of the Plan, future payment of any retirement benefit hereunder to an
Eligible Trustee, Beneficiary or other person will, at the discretion of the
Plan Committee, be discontinued and forfeited, and the Fund will have no further
obligation hereunder to such Eligible Trustee, Beneficiary or other person, if
any of the following circumstances occur:
(a) The Eligible Trustee is discharged from the Fund's
Board of Trustees or Board of Directors, as the case may be, for cause;
(b) The Eligible Trustee engages in competition with
the Fund or other acts considered detrimental or not in the best interests of
the Fund or its shareholders following such trustee's termination of service; or
(c) The Eligible Trustee performs an act or acts of
wilful malfeasance or reckless disregard of duties in connection with the
service as a trustee for the Fund.
The Plan Committee shall have the sole and uncontrolled discretion with respect
to the application of the provisions of this paragraph and such exercise of
discretion shall be conclusive and binding on the Eligible Trustee, any
Beneficiary or other person.
8.2 Administration. The Plan shall be administered by a Plan
Committee which shall be composed of three non-affiliated trustees and the
principal financial or accounting officer as designated by the Board of Trustees
or Board of Directors, as the case may be, of the Fund.
8.3 Agents. The Fund may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as it deems
necessary to perform its duties under this Plan. The Fund shall bear the cost of
such services and all other expenses it incurs in connection with the
administration of this Plan.
8.4 Funding and Rights of Creditors. The obligations of the
Fund under this Agreement are unfunded. Neither the Eligible Trustees, the
Beneficiaries nor any other persons shall have any interest in any specific
asset or assets of the Fund for the benefits hereunder, nor any rights to
receive distribution of the benefits except and as to the extent expressly
provided hereunder. The rights of the Eligible Trustees, the Beneficiaries or
any other person to the benefits hereunder are unsecured and shall have no
priority over the
7
<PAGE> 8
other creditors of the Fund. Any obligation of the Fund hereunder shall be an
unsecured obligation of the Fund and not of any other person in relation to this
Plan.
8.5 Liability and Indemnification. Except for its own gross
negligence, willful misconduct or willful breach of the terms of this Plan, the
Fund shall be indemnified and held harmless by the Eligible Trustee against
liability or losses occurring by reason of any act or omission of the Fund or
any other person.
8.6 Incapacity. If the Fund shall receive evidence
satisfactory to it that the Eligible Trustee or any Beneficiary entitled to
receive any benefit under the Plan is, at the time when such benefit becomes
payable, a minor, or is physically or mentally incompetent to receive such
benefit and to give a valid release therefor, and that another person or an
institution is then maintaining or has custody of the Eligible Trustee or
Beneficiary and that no guardian, committee or other representative of the
estate of the Eligible Trustee or Beneficiary shall have been duly appointed,
the Fund may make payment of such benefit otherwise payable to the Trustee or
Beneficiary to such other person or institution, including a custodian under the
Uniform Gifts to Minors Act or corresponding legislation (such custodian shall
be an adult, a guardian of the minor or a trust company), and the release of
such other person or institution shall be a valid and complete discharge for the
payment of such benefit.
8.7 Governing Law. This Plan is established under laws of the
State of Illinois, and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Illinois.
8.8 Nonguarantee of Trusteeship. Nothing contained in this
Plan shall be construed as a contract or guarantee of the right of the Eligible
Trustee to be, or remain as, a trustee of the Fund or to receive any, or any
particular rate of, Compensation.
8.9 Spendthrift Provision. The Eligible Trustee's and
Beneficiaries' interests in the benefits hereunder may not be anticipated, sold,
encumbered, pledged, mortgaged, charged, transferred, alienated, assigned nor
become subject to execution, garnishment or attachment, and any attempt to do so
by any person shall render the benefits immediately forfeitable.
8.10 Disclosure and Notices. The rights and benefits of
Eligible Trustees under the Plan shall not be represented or evidenced by any
form of certificate or other instrument. Each Eligible Trustee shall receive a
copy of the Plan and the Plan Committee will make available for inspection by
any Eligible Trustee a copy of the rules and regulations used by the Plan
Committee in administering the Plan. For purposes of this Plan, all notices and
other communications provided for in this Plan shall be in writing and shall be
deemed
8
<PAGE> 9
to have been duly given when delivered personally or mailed by United States
registered or certified mail, return receipt requested, postage prepaid, or by
nationally recognized overnight delivery service providing for a signed return
receipt, addressed to the Eligible Trustee at the home address set forth in the
Fund's records and to the Fund at the address set forth on the first page of
this Plan, provided that all notices to the Fund shall be directed to the
attention of the President of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
8.11 Interpretation of Plan. Interpretations of, and
determinations related to, this Plan made by the Plan Committee in good faith,
including any determinations of the amounts of the benefits, shall be conclusive
and binding upon all parties; and the Fund shall not incur any liability to the
Eligible Trustee for any such interpretation or determination so made or for any
other action taken by it in connection with this Plan in good faith.
8.12 Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the Fund and its successors and assigns
and to the Eligible Trustees and such trustees' heirs, executors, administrators
and personal representatives.
9
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 21 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 11, 1999, relating to the financial statements and financial highlights
of Van Kampen High Yield Municipal Fund, a series of the Van Kampen 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/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 29, 1999
<PAGE> 1
EXHIBIT (1)
[AMERICAN CAPITAL LETTERHEAD]
December 4, 1985
American Capital Tax-Exempt Trust
2800 Post Oak Blvd.
Houston, Texas 77056
Re: Investment Letter
Gentlemen:
We are purchasing 8400 shares of your beneficial interest $0.01 par value
(the "Shares") at a price of $11.91 per snare upon the terms and conditions set
forth Below.
We understand that the shares have not been registered under any state or
federal securities laws and that the Fund is relying on certain exemptions from
such registration requirements including exemptions dependent upon our intent in
acquiring the Shares. We also understand that any resale of the Shares or any
portion thereof may be subject to restrictions under state and federal
securities laws. Thus we may be required to bear the economic risk of an
investment in the Shares for an indefinite period of time.
We hereby represent and warrant that we are acquiring the Shares solely for
our own account and solely for investment purposes and not with a view to the
resale, redemption or disposition of all or any part thereof and that we have no
present plan or intention to sell, redeem or otherwise dispose of the Shares or
any part thereof. We also represent that the Shares will not be resold except
through redemption or repurchase.
We understand that your organizational expenses will be capitalized and
charged to operations over a period of five years from the date of commencement
of operations. In the event that we redeem any of the shares within such
five-year amortization period, we understand that the proceeds payable to us
will be reduced by the pro rata share (based upon the proportion of the Shares
redeemed to the total number of the remaining Shares purchased by us) of the
then unamortized
<PAGE> 2
December 4, 1985
Page Two
deferred organizational expenses as of the date of any such redemption. We
further understand that in the event you liquidate before the deferred
organizational expenses are fully amortized, then the Shares shall bear their
pro rata share (as described above) of such unamortized deferred organizational
expenses.
Very truly yours,
AMERICAN CAPITAL TAX-EXEMPT TRUST
By /s/ Nori L. Gabert
-------------------------------
Nori L. Gabert
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HIGH YIELD MUNI A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,357,523,537<F1>
<INVESTMENTS-AT-VALUE> 1,438,728,633<F1>
<RECEIVABLES> 51,806,840<F1>
<ASSETS-OTHER> 51,815<F1>
<OTHER-ITEMS-ASSETS> 61,609<F1>
<TOTAL-ASSETS> 1,490,648,897<F1>
<PAYABLE-FOR-SECURITIES> 16,120,916<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 7,049,630<F1>
<TOTAL-LIABILITIES> 23,170,546<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 867,776,273
<SHARES-COMMON-STOCK> 77,580,797
<SHARES-COMMON-PRIOR> 68,085,219
<ACCUMULATED-NII-CURRENT> (441,772)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,541,472)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 81,205,096<F1>
<NET-ASSETS> 904,973,579
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 96,316,419<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (16,849,948)<F1>
<NET-INVESTMENT-INCOME> 79,466,871<F1>
<REALIZED-GAINS-CURRENT> 8,150,677<F1>
<APPREC-INCREASE-CURRENT> 16,740,775<F1>
<NET-CHANGE-FROM-OPS> 104,358,323<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (51,028,959)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,501,149
<NUMBER-OF-SHARES-REDEEMED> (7,951,196)
<SHARES-REINVESTED> 1,945,625
<NET-CHANGE-IN-ASSETS> 125,089,331
<ACCUMULATED-NII-PRIOR> 487,485<F1>
<ACCUMULATED-GAINS-PRIOR> (23,691,720)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 7,402,566<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 16,849,548<F1>
<AVERAGE-NET-ASSETS> 841,781,960
<PER-SHARE-NAV-BEGIN> 11.454
<PER-SHARE-NII> 0.699
<PER-SHARE-GAIN-APPREC> 0.217
<PER-SHARE-DIVIDEND> (0.706)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.664
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HIGH YIELD MUNI B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,357,523,537<F1>
<INVESTMENTS-AT-VALUE> 1,438,728,633<F1>
<RECEIVABLES> 51,806,840<F1>
<ASSETS-OTHER> 51,815<F1>
<OTHER-ITEMS-ASSETS> 61,609<F1>
<TOTAL-ASSETS> 1,490,648,897<F1>
<PAYABLE-FOR-SECURITIES> 16,120,916<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 7,049,630<F1>
<TOTAL-LIABILITIES> 23,170,546<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 428,691,229
<SHARES-COMMON-STOCK> 38,760,934
<SHARES-COMMON-PRIOR> 37,162,826
<ACCUMULATED-NII-CURRENT> (441,772)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,541,472)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 81,205,096<F1>
<NET-ASSETS> 451,891,305
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 96,316,419<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (16,849,548)<F1>
<NET-INVESTMENT-INCOME> 79,466,871<F1>
<REALIZED-GAINS-CURRENT> 8,150,677<F1>
<APPREC-INCREASE-CURRENT> 16,740,775<F1>
<NET-CHANGE-FROM-OPS> 104,358,323<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (23,908,632)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,190,835
<NUMBER-OF-SHARES-REDEEMED> (4,479,101)
<SHARES-REINVESTED> 886,374
<NET-CHANGE-IN-ASSETS> 26,313,611
<ACCUMULATED-NII-PRIOR> 487,485<F1>
<ACCUMULATED-GAINS-PRIOR> (23,691,720)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 7,402,566<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 16,849,548<F1>
<AVERAGE-NET-ASSETS> 447,225,504
<PER-SHARE-NAV-BEGIN> 11.452
<PER-SHARE-NII> 0.612
<PER-SHARE-GAIN-APPREC> 0.216
<PER-SHARE-DIVIDEND> (0.622)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.658
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> HIGH YIELD MUNI C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,357,523,537<F1>
<INVESTMENTS-AT-VALUE> 1,438,728,633<F1>
<RECEIVABLES> 51,806,840<F1>
<ASSETS-OTHER> 51,815<F1>
<OTHER-ITEMS-ASSETS> 61,609<F1>
<TOTAL-ASSETS> 1,490,648,897<F1>
<PAYABLE-FOR-SECURITIES> 16,120,916<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 7,049,630<F1>
<TOTAL-LIABILITIES> 23,170,546<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,788,997
<SHARES-COMMON-STOCK> 9,497,974
<SHARES-COMMON-PRIOR> 7,979,623
<ACCUMULATED-NII-CURRENT> (441,772)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,541,472)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 81,205,096<F1>
<NET-ASSETS> 110,613,467
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 96,316,419<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (16,849,548)<F1>
<NET-INVESTMENT-INCOME> 79,466,871<F1>
<REALIZED-GAINS-CURRENT> 8,150,677<F1>
<APPREC-INCREASE-CURRENT> 16,740,775<F1>
<NET-CHANGE-FROM-OPS> 104,358,323<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,458,966)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,003,857
<NUMBER-OF-SHARES-REDEEMED> (742,697)
<SHARES-REINVESTED> 257,191
<NET-CHANGE-IN-ASSETS> 19,322,814
<ACCUMULATED-NII-PRIOR> 487,485<F1>
<ACCUMULATED-GAINS-PRIOR> (23,691,720)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 7,402,566<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 16,849,548<F1>
<AVERAGE-NET-ASSETS> 102,188,921
<PER-SHARE-NAV-BEGIN> 11.40
<PER-SHARE-NII> 0.613
<PER-SHARE-GAIN-APPREC> 0.215
<PER-SHARE-DIVIDEND> (0.622)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.646
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<PAGE> 1
EXHIBIT(z)(1)
Item 27(a)
- ----------
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN BOND FUND
VAN KAMPEN CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CONVERTIBLE SECURITIES FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY TRUST
VAN KAMPEN AGGRESSIVE GROWTH FUND
VAN KAMPEN GREAT AMERICAN COMPANIES FUND
VAN KAMPEN GROWTH FUND
VAN KAMPEN MID CAP VALUE FUND
VAN KAMPEN PROSPECTOR FUND
VAN KAMPEN UTILITY FUND
VAN KAMPEN EQUITY INCOME FUND
THE EXPLORER INSTITUTIONAL TRUST
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN HIGH INCOME TRUST
VAN KAMPEN HIGH INCOME TRUST II
VAN KAMPEN INCOME TRUST
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN LIFE INVESTMENT TRUST
on behalf of its Series
ASSET ALLOCATION PORTFOLIO
COMSTOCK 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
STRATEGIC STOCK PORTFOLIO
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN MUNICIPAL INCOME TRUST
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
<PAGE> 2
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN MUNICIPAL TRUST
VAN KAMPEN NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN PACE FUND
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN PRIME RATE INCOME TRUST
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN SENIOR FLOATING RATE FUND
VAN KAMPEN SENIOR INCOME TRUST
VAN KAMPEN SERIES FUND, INC.
VAN KAMPEN AGGRESSIVE EQUITY FUND
VAN KAMPEN AMERICAN VALUE FUND
VAN KAMPEN ASIAN GROWTH FUND
VAN KAMPEN EMERGING MARKETS DEBT FUND*
VAN KAMPEN EMERGING MARKETS FUND
VAN KAMPEN EQUITY GROWTH FUND*
VAN KAMPEN EUROPEAN EQUITY FUND*
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
VAN KAMPEN GLOBAL EQUITY FUND
VAN KAMPEN GLOBAL FIXED INCOME FUND
VAN KAMPEN GLOBAL FRANCHISE FUND*
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
VAN KAMPEN GROWTH AND INCOME FUND II*
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
VAN KAMPEN INTERNATIONAL MAGNUM FUND
VAN KAMPEN JAPANESE EQUITY FUND*
VAN KAMPEN LATIN AMERICAN FUND
VAN KAMPEN MID CAP GROWTH FUND*
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND*
VAN KAMPEN VALUE FUND
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN TAX-EXEMPT TRUST
on behalf of its Series
HIGH YIELD MUNICIPAL FUND
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
VAN KAMPEN CALIFORNIA TAX FREE INCOME FUND*
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
VAN KAMPEN INSURED TAX FREE INCOME FUND
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
<PAGE> 3
VAN KAMPEN MICHIGAN TAX FREE INCOME FUND*
VAN KAMPEN MISSOURI TAX FREE INCOME FUND*
VAN KAMPEN MUNICIPAL INCOME FUND
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
VAN KAMPEN OHIO TAX FREE INCOME FUND*
VAN KAMPEN TAX FREE HIGH INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN TRUST
VAN KAMPEN HIGH YIELD FUND
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
VAN KAMPEN STRATEGIC INCOME FUND
VAN KAMPEN TRUST FOR INSURED MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE PENNSYLVANIA MUNICIPALS
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN U.S. GOVERNMENT FUND
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
on behalf of its Series
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND
* Funds have not commenced investment operations.
<PAGE> 4
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 404
California Insured Municipals Income Trust Series 178
Colorado Insured Municipals Income Trust Series 88
Connecticut Insured Municipals Income Trust Series 38
Florida Insured Municipals Income Trust Series 124
Georgia Insured Municipals Income Trust Series 88
Maryland Investors' Quality Tax-Exempt Trust Series 87
Michigan Insured Municipals Income Trust Series 153
Minnesota Insured Municipals Income Trust Series 62
Missouri Insured Municipals Income Trust Series 109
New Jersey Insured Municipals Income Trust Series 125
New York Insured Municipals Income Trust Series 147
North Carolina Investors' Quality Tax-Exempt Trust Series 96
Ohio Insured Municipals Income Trust Series 111
Pennsylvania Insured Municipals Income Trust Series 240
South Carolina Investors' Quality Tax-Exempt Trust Series 86
Tennessee Insured Municipals Income Trust Series 41
Tennessee Investors' Quality Tax Exempt Trust Series 1
Virginia Investors' Quality Tax-Exempt Trust Series 83
Van Kampen American Capital Insured Income Trust Series 73
Internet Trust Series 13
The Dow SM Strategic 10 Trust January 1999
Series
The Dow SM Strategic 10 Trust January 1999
Traditional
Series
The Dow SM Strategic 5 Trust January 1999
Series
The Dow SM Strategic 5 Trust January 1999
Traditional
Series
EAFE Strategic 20 Trust January 1999
Series
EURO Strategic 20 Trust January 1999
Series
Strategic Picks Opportunity Trust January 1999
PACT Strategic 10 Trust January 1999
Series
Great International Firms Trust Series 7
Dow 30 Index Trust Series 6
Dow 30 Index and Treasury Trust Series 8
Baby Boomer Opportunity Trust Series 6
Global Energy Trust Series 8
Brand Name Equity Trust Series 8
Edward Jones Select Growth Trust January 1999
Series
Banking Trust Series 5
Morgan Stanley High-Technology 35 Index Trust Series 5
Health Care Trust Series 4
Telecommunications Trust Series 4
Utility Trust Series 4
Financial Services Trust Series 3
Morgan Stanley Euro Tec Trust Series 2
Gruntal Global Transport Trust Series 1
Josepthal Financial Institutions Growth & Consolidation Trust Series 2001
Josepthal - Select Equity Portfolio 1
Northern Illinois Equity Value Trust Series
Euro/Pacific Strategy Series 1
</TABLE>
<PAGE> 1
================================================================================
EXHIBIT (z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Powers, Richard F. III Chairman & Chief Executive Officer Oakbrook Terrace, IL
Zimmermann, III, John H. President Oakbrook Terrace, IL
Gehman, Douglas B. Executive Vice President Houston, TX
Rybak, William R. Executive Vice President & Chief Financial Officer Oakbrook Terrace, IL
Santo, Michael H. Executive Vice President & Chief Administrative Officer Oakbrook Terrace, IL
Wolkenberg, Paul R. Executive Vice President Oakbrook Terrace, IL
Althoff, Laurence Joseph Senior Vice President & Controller Oakbrook Terrace, IL
DeMoss, Gary R. Senior Vice President Oakbrook Terrace, IL
Doyle, John E. Senior Vice President Oakbrook Terrace, IL
Golod, Richard G. Senior Vice President Annapolis, MD
Martin, Scott Evan Sen. V.P., Deputy Gen. Coun. and Sec. Oakbrook Terrace, IL
Millington, Charles G. Senior Vice President and Treasurer Oakbrook Terrace, IL
Rein, Walter E. Senior Vice President Oakbrook Terrace, IL
Saucedo, Colette M. Senior Vice President Houston, TX
Shepherd, Frederick Senior Vice President Houston, TX
Sorenson, Steven P. Senior Vice President Oakbrook Terrace, IL
Stallard, Michael L. Senior Vice President Oakbrook Terrace, IL
West, Robert Scott Senior Vice President Oakbrook Terrace, IL
Wood, Edward C, III Senior Vice President & Chief Operating Officer Oakbrook Terrace, IL
Cackovic, Glenn M. First Vice President Laguna Nigel, CA
Hargens, Eric J. First Vice President Orlando, FL
Hogaboom, David S. First Vice President Oakbrook Terrace, IL
Martellaro, Dominic C. First Vice President Danville, CA
Mayfield, Carl First Vice President Lakewood, CO
McClure, Mark R. First Vice President Oakbrook Terrace, IL
Ryan, James J. First Vice President Oakbrook Terrace, IL
Vogel, George J. First Vice President Oakbrook Terrace, IL
Woelfel, Patrick J. First Vice President Oakbrook Terrace, IL
Abreu, Robert J. Vice President New York, NY
Ambrosio, James K. Vice President Massapequa, NY
Arcara, Brian P. Vice President Buffalo, NY
Bemstiel, Scott C. Vice President Plainsboro, NJ
Bettlach, Patricia A. Vice President Chesterfield, Mo
Biegel, Carol S. Vice President Oakbrook Terrace, IL
Bisaillon, Chistopher M. Vice President Oakbrook Terrace, IL
Boos, Michal P. Vice President Oakbrook Terrace, IL
Boyne, James Joseph V.P., Associate Gen. Coun. & Asst. Sec. Oakbrook Terrace, IL
Brooks, Robert C. Vice President Oakbrook Terrace, IL
Burke, Jr., William F. Vice President Mendham, NJ
Burket, Loren Vice President Plymouth, MN
Byrum, Christine Cleary Vice President Tampa, FL
Chambers, Daniel R. Vice President Austin, TX
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Charlino, Richard J. Vice President Houston, TX
Chiaro, Deanne Margaret Vice President Oakbrook Terrace, IL
Chriske, Scott A. Vice President Plano, TX
Clavijo, German Vice President Atlanta, GA
Cloud, Eleanor M. Vice President Oakbrook Terrace, IL
Cogliandro, Dominick Vice President and Assistant Treasurer New York, NY
Colston, Michael Vice President Louisville, KY
Cummings, Suzanne Vice President Oakbrook Terrace, IL
Dalmaso, Nicholas V.P., Associate Gen. Coun. & Asst. Sec. Oakbrook Terrace, IL
Eccleston, Michael E. Vice President Oakbrook Terrace, IL
Egan, Christopher J. Vice President Oakbrook Terrace, IL
Fow, William J. Vice President Redding, CT
Foxhoven, Nicholas J. Vice President Englewood, CO
Friday, Charles Vice President Gibsonia, PA
Griffith, Timothy D. Vice President Kirkland, WA
Haas, Kyle D. Vice President Oakbrook Terrace, IL
Hamilton, Daniel Vice President Austin, TX
Hansen, John G. Vice President Oakbrook Terrace, IL
Hays, Joseph Vice President Cherry Hill, NJ
Heffington, Gregory Vice President Ft. Collins, CO
Hill, Susan Jean Vice President and Senior Attorney Oakbrook Terrace, IL
Hindelang, Thomas R. Vice President Gilbert, AZ
Hoggard, Bryn M. Vice President Houston, TX
Hughes, Michael B. Vice President Oakbrook Terrace, IL
Hunt, Robert S. Vice President Phoenix, MD
Jackson, Lowell Vice President Norcross, GA
Jajuga, Kevin G. Vice President Baltimore, MD
Johnson, Steven T. Vice President Oakbrook Terrace, IL
Klein, Dana R. Vice President Oakbrook Terrace, IL
Kohly, Frederick Vice President Miami, FL
Kowalski, David Richard Vice President & Director of Compliance Oakbrook Terrace, IL
Kozlowski, Richard D. Vice President Atlanta, GA
Lathrop, Patricia D. Vice President Tampa, FL
Laux, Brian Vice President Staten Island, NY
Leal, Tony E. Vice President Daphne, AL
Lehew III, S. William Vice President Charlotte, NC
Levinson, Eric Vice President San Francisco, CA
Linstra, Jonathan Vice President Oakbrook Terrace, IL
Lundgren, Richard M. Vice President Oakbrook Terrace, IL
Lynn, Walter Vice President Flower Mound, TX
MacAyeal, Linda S. Vice President and Senior Attorney Oakbrook Terrace, IL
Marsh, Kevin S. Vice President Bellevue, WA
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McCartney, Brooks D. Vice President Puyallup, WA
McGrath, Anne Therese Vice President Los Gatos, CA
McGrath, Maura A. Vice President New York, NY
Mills, John Vice President Kenner, LA
Morrow, Ted Vice President Dallas, TX
Muller, Jr. Robert F. Vice President Cypress, TX
Nicolas, Peter Vice President Beverly, MA
Page, Todd W. Vice President Oakbrook Terrace, IL
Parker, Gregory S. Vice President Houston, TX
Petrungaro, Christopher Vice President Oakbrook Terrace, IL
Poli, Richard J. Vice President Philadelphia, PA
Pratt, Ronald E. Vice President Marletta, GA
Prichard, Craig S. Vice President Fairlawn, OH
Reams, Daniel D. Vice President Royal Oak, MI
Rohr, Michael W. Vice President Oakbrook Terrace, IL
Rose, Jeffrey L. Vice President Houston, TX
Rothberg, Suzette N. Vice President Plymouth, MN
Rourke, Jeffrey Vice President Oakbrook Terrace, IL
Rowley, Thomas Vice President St. Louis, MO
Sabo, Heather R. Vice President Richmond, VA
Scarlata, Stephanie Vice President Bedford Corners, NY
Scherer, Andrew J. Vice President Oakbrook Terrace, IL
Schuster, Ronald J. Vice President Tampa, FL
Shaneyfelt, Gwen L. Vice President Oakbrook Terrace, IL
Shirk, Jefferey C. Vice President Swampscott, MA
Sorensen, Traci T. Vice President Oakbrook Terrace, IL
Spangler, Kimberly M. Vice President Fairfax, VA
Stabler, Darren D. Vice President Phoenix, AZ
Staniforth, Christopher Vice President Leawood, KS
Stefanec, Richard Vice President Los Angeles, CA
Stevens, James D. Vice President North Andover, MA
Strafford, William C. Vice President Granger, IN
Syswerda, Mark A. Vice President Oakbrook Terrace, IL
Tierney, John F. Vice President Oakbrook Terrace, IL
Ulvestad, Curtis L. Vice President Red Wing, MN
Volkman, Todd A. Vice President Austin, TX
Waldron, Daniel B. Vice President Oakbrook Terrace, IL
Warland, Jeff Vice President Oakbrook Terrace, IL
Wetherell, Weston B. V.P., Associate Gen. Coun. & Asst. Sec Oakbrook Terrace, IL
Wheeler, Frank L. Vice President Oakbrook Terrace, IL
Whitworth III, Harold Vice President Oakbrook Terrace, IL
Wilson, Thomas M. Vice President Oakbrook Terrace, IL
Withers, Barbara A. Vice President Oakbrook Terrace, IL
Wynn, David M. Vice President Phoenix, AZ
Yount, James R. Vice President Mercer Island, WA
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Zacchea, Patrick M. Vice President Oakbrook Terrace, IL
Becker, Scott F. Assistant Vice President Oakbrook Terrace, IL
Binder, Brian E. Assistant Vice President Oakbrook Terrace, IL
Blackwood, Joan E. Assistant Vice President Oakbrook Terrace, IL
Bronaugh, Billie J. Assistant Vice President Houston, TX
Brunk, Gregory T. Assistant Vice President Oakbrook Terrace, IL
Costello, Gina Assistant Vice President & Assistant Secretary Oakbrook Terrace, IL
Gieser, Sarah K. Assistant Vice President Oakbrook Terrace, IL
Gray, Walter C. Assistant Vice President Houston, TX
Jones, Laurie L. Assistant Vice President Houston, TX
Jordan, Robin R. Assistant Vice President Oakbrook Terrace, IL
Lowe, Ivan R. Assistant Vice President Houston, TX
Moehlman, Stuart R. Assistant Vice President Houston, TX
Norvid, Steven R. Assistant Vice President Oakbrook Terrace, IL
Putong, Christine K. Assistant Vice President & Assistant Secretary Oakbrook Terrace, IL
Robbins, David P. Assistant Vice President Oakbrook Terrace, IL
Rosen, Regina Assistant Vice President Oakbrook Terrace, IL
Salley, Pamela S. Assistant Vice President Houston, TX
Sanchez, Vanessa M. Assistant Vice President Oakbrook Terrace, IL
Sauerborn, Thomas J. Assistant Vice President New York, NY
Saxon, Bruce Assistant Vice President Oakbrook Terrace, IL
Saylor, David T. Assistant Vice President Oakbrook Terrace, IL
Schmieder, Christina L. Assistant Vice President Oakbrook Terrace, IL
Sinai, Lauren B. Assistant Vice President Oakbrook Terrace, IL
Transier, Kristen L. Assistant Vice President Houston, TX
Villarreal, David H. Assistant Vice President Oakbrook Terrace, IL
Wells, Sharon M.C. Assistant Vice President Oakbrook Terrace, IL
Napoli, Cathy Assistant Secretary Oakbrook Terrace, IL
Brown, Elizabeth M. Officer Houston, TX
Browning, John Officer Oakbrook Terrace, IL
George, Leticia Officer Houston, TX
McLaughlin, William D. Officer Houston, TX
Newman, Rebecca Officer Houston, TX
Renn, Theresa M. Officer Oakbrook Terrace, IL
Vickrey, Larry Officer Houston, TX
Yovanovic, John Officer Houston, TX
Powers, Richard F. III Director
Rybak, William R. Director
Zimmermann, III, John H. Director
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