<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2000
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. 22 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF [X]
1940
AMENDMENT NO. 26 [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
A. THOMAS SMITH III
GENERAL COUNSEL AND SECRETARY
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 the 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 investment
adviser generally seeks to achieve the Fund's
investment objective by investing primarily in
a 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 regulator, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary
is a criminal offense.
This prospectus is dated MARCH 29, 2000.
[VAN KAMPEN FUNDS LOGO]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 5
Investment Objective, Policies and Risks.......... 6
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 the 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.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a portfolio of medium-
and lower-grade municipal securities. The Fund's investment adviser buys and
sells securities for the Fund's portfolio with a view towards seeking a high
level of interest income exempt from federal income tax and selects securities
which it believes entail reasonable credit risk considered in relation to the
investment policies of the Fund. The Fund's investments in medium- and
lower-grade securities involves special risks as compared to investments in
higher grade securities. Lower-grade securities are commonly referred to as
"junk bonds." For a description of security ratings, see the appendix to this
prospectus.
Investment opportunities for medium- and- lower grade 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.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. The Fund invests primarily in securities with medium-
and lower-grade credit quality. Therefore, the Fund is subject to a higher level
of credit risk than a fund that invests solely in 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 expenses to protect the Fund's interest in such
securities. The credit risks and market prices of lower-grade 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 are the prices of higher-grade securities.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of debt securities tend to fall as
interest rates rise, and such declines tend to be greater among securities with
longer maturities. The Fund has no policy limiting the maturities of its
investments. To the extent the Fund invests in securities with longer
maturities, the Fund will be subject to greater market risk than a fund
investing solely in shorter term securities. Lower-grade securities may be more
volatile and decline 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 likely be reinvested by the Fund in securities bearing 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
3
<PAGE> 5
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.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques,
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and 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-grade securities in exchange for potentially higher income
- - Wish to add to their investment portfolio a fund that invests primarily in
medium- and lower-grade municipal securities.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. An investment in the Fund is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
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.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance has varied from year-to-year. The following chart shows the annual
returns of the Fund's Class A Shares over the 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>
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
1999 -1.65
</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).
4
<PAGE> 6
COMPARATIVE PERFORMANCE
As a basis for evaluating the Fund's performance and risks, the table below
shows how the Fund's performance compares with the Lehman Brothers Municipal
Bond Index,* a broad-based market index that the Fund's investment adviser
believes is an appropriate benchmark for the Fund. The Fund's 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 purchasing the securities represented by the index. Average
annual total returns are shown for the periods ended December 31, 1999 (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
Period Ended Past Past or Since
December 31, 1999 1 Year 5 Years Inception
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen High
Yield Municipal
Fund
-- Class A Shares -6.32% 5.98% 6.56%
Lehman Brothers
Municipal Bond
Index -2.06% 6.91% 6.89%
.......................................................
Van Kampen High
Yield Municipal
Fund
-- Class B Shares -6.08% 6.02% 5.13%(1)**
Lehman Brothers
Municipal Bond
Index -2.06% 6.91% 6.72%(3)
.......................................................
Van Kampen High
Yield Municipal
Fund
-- Class C Shares -3.30% 6.22% 5.08%(2)
Lehman Brothers
Municipal Bond
Index -2.06% 6.91% 5.09%(4)
.......................................................
</TABLE>
Inception dates: (1) 7/20/92, (2) 12/10/93, (3) 7/31/92, (4) 12/31/93.
* The Lehman Brothers Municipal Bond Index is an unmanaged, broad based
statistical composite of municipal bonds.
** The "Since Inception" performance for Class B Shares reflects the conversion
of such shares into Class A Shares six years after purchase. Class B Shares
purchased on or after June 1, 1996 will convert to Class A Shares eight years
after purchase. See "Purchase of Shares."
The current yield for the thirty-day period ended November 30, 1999 is 5.84% for
Class A Shares, 5.39% for Class B Shares and 5.40% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.
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.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of offering 4.75%(1) None None
price)
...............................................................
Maximum deferred sales
charge (load) (as a
percentage of the lesser
of original purchase
price or redemption
proceeds) None(2) 4.00%(3) 1.00%(4)
...............................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
...............................................................
Redemption fees None None None
...............................................................
Exchange fee None None None
...............................................................
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Management fees 0.52% 0.52% 0.52%
...............................................................
Distribution and/or
service
(12b-1) fees(5)
0.25% 1.00%(6) 1.00%(6)
...............................................................
Other expenses 0.13% 0.14% 0.13%
...............................................................
Total annual fund
operating expenses
0.90% 1.66% 1.65%
...............................................................
</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."
5
<PAGE> 7
(3) The maximum deferred sales charge is 4.00% in the first and second year
after purchase, 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."
(5) 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."
(6) 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% 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> <C>
Class A Shares $562 $748 $950 $1,530
......................................................................
Class B Shares $569 $823 $1,052 $1,763*
......................................................................
Class C Shares $268 $520 $897 $1,955
......................................................................
</TABLE>
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> <C>
Class A Shares $562 $748 $ 950 $1,530
......................................................................
Class B Shares $169 $523 $ 902 $1,763*
......................................................................
Class C Shares $168 $520 $ 897 $1,955
......................................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
INVESTMENT OBJECTIVE,
POLICIES AND RISKS
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 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.
Under normal market conditions the Fund's investment adviser generally seeks to
achieve the Fund's investment objective by investing primarily in a 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 Standard & Poors ("S&P") as BBB through CC (inclusive) for bonds or
SP-2 or lower for notes, or by Moody's Investor Services, Inc. ("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
6
<PAGE> 8
interest or principal. The Fund does not purchase securities 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.
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.
<TABLE>
<CAPTION>
S&P Moody's Meaning
- ------------------------------------------------------
<C> <S> <C>
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
......................................................
</TABLE>
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 or losses resulting from possible changes in
interest rates will not be a major consideration and 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. 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 a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. Under normal market
conditions, the Fund may invest a substantial portion of its total assets in
municipal securities that are subject to the federal alternative minimum tax.
7
<PAGE> 9
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, 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 include terms or elements similar to certain strategic
transactions described below). 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 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
Fund's Statement of Additional Information which may 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
8
<PAGE> 10
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 invests 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 nonpayment. 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 nonpayment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal securities experiencing
nonpayment 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 federal
alternative minimum tax. Accordingly, 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.
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 dividends that are exempt from federal income tax 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 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 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.
9
<PAGE> 11
RISKS OF INVESTING IN
MEDIUM- AND LOWER-GRADE
MUNICIPAL SECURITIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing primarily in a 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 which are in the
medium- and lower-grade categories generally offer higher yields than are
offered by higher-grade securities of similar maturity, but they also generally
involve greater risks, such as greater credit risk, greater market risk and
volatility, 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 investing in the
Fund.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Medium- and lower-grade securities are considered more
susceptible to nonpayment of interest and principal or default than higher-grade
securities. Increases in interest rates or changes in the economy may
significantly affect the ability of issuers of medium- and lower-grade
securities to pay interest and to repay principal, to meet projected financial
goals or to obtain additional financing. In the event that an issuer of
securities held by the Fund experiences difficulties in the timely payment of
principal and 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 securities relate. Further, the Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of interest or the repayment of principal on its portfolio holdings
and the Fund may be unable to obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. The value of debt securities generally varies inversely
with changes in prevailing interest rates. When interest rates decline, the
value of a portfolio invested in debt securities generally can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested in
debt securities generally can be expected to decline. Debt securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than debt securities with shorter maturities. While the Fund has no
policy limiting the maturities of the individual debt securities in which it may
invest, the Fund's investment adviser seeks to manage fluctuations in net asset
value resulting from changes in interest rates by actively managing the
portfolio maturity structure. Secondary market prices of medium- and lower-grade
securities generally are less sensitive to changes in interest rates and are
more sensitive to general adverse economic changes or specific developments with
respect to the particular issuers than are the secondary market prices of
higher-grade securities. A significant increase in interest rates or a general
economic downturn could severely disrupt the market for medium- and lower-grade
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 securities as compared with higher-grade securities. In addition,
changes in credit risks, 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 medium-and lower-grade securities in the Fund and
thus in the net asset value of the Fund. Adverse publicity and investor
perceptions, whether or not based on rational analysis, may affect the value,
volatility and liquidity of medium- and lower-grade 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
10
<PAGE> 12
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.
The Fund may invest in securities not producing immediate cash income, including
zero-coupon securities or pay-in-kind securities, when their effective yield
over comparable instruments producing cash income make these investments
attractive. Prices on non-cash-paying instruments may be more sensitive to
changes in the issuer's financial condition, fluctuation in interest rates and
market demand/supply imbalances than cash-paying securities with similar credit
ratings, and thus may be more speculative. In addition, the accrued interest
income earned on such instruments is included in investment company taxable
income, thereby increasing the required minimum distributions to shareholders
without providing the corresponding cash flow with which to pay such
distributions. The Fund's investment adviser will weigh these concerns against
the expected total returns from such instruments.
Many medium- and lower-grade securities are not listed for trading on any
national securities exchange and many issuers of medium- and lower-grade
securities choose not to have a rating assigned to their obligations by any
nationally recognized statistical rating organization. As a result, the Fund's
portfolio may consist of a higher portion of unlisted or unrated securities as
compared with an investment company that invests solely in higher-grade
securities. Unrated securities are usually not as attractive to as many buyers
as are rated securities, a factor which may make unrated securities less
marketable. These factors may have the effect of limiting the availability of
the securities for purchase by the Fund and may also limit the ability of the
Fund to sell such securities at their fair value either to meet redemption
requests or in response to changes in the economy or the financial markets.
Further, to the extent the Fund owns or may acquire illiquid or restricted
medium-and lower-grade securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain medium- and lower-grade
issuers may be less extensive than other issuers. In its analysis, the Fund's
investment adviser may consider the credit ratings of recognized rating
organizations in evaluating securities although the investment adviser does not
rely primarily on these ratings. Ratings evaluate only the safety of principal
and interest payments, not the market value risk. In addition, ratings are
general and not absolute standards of quality, and credit ratings are subject to
the risk that the creditworthiness of an issuer may change and the rating
agencies may fail to change such ratings in a timely fashion. A rating downgrade
does not require the Fund to dispose of a security. The Fund's investment
adviser continuously monitors the issuers of securities held in the Fund.
Because of the number of investment considerations involved in investing in
medium- and lower-grade securities, to the extent the Fund invests in such
securities, achievement of the Fund's investment objective may be more dependent
upon the Fund's investment adviser's credit analysis than is the case with
investing in higher-grade securities.
11
<PAGE> 13
New or proposed laws may have an impact on the market for medium- and
lower-grade securities. The Fund's investment adviser is unable at this time to
predict what effect, if any, legislation may have on the market for medium- and
lower-grade securities.
Special tax considerations are associated with investing in certain medium- and
lower-grade securities, such as zero-coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute substantially all of its income its shareholders to qualify
for pass-through treatment under federal income tax law and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
The table below sets forth the percentages of the Fund's assets during the
fiscal year ended November 30, 1999 invested in the various ratings categories
based on the higher of the S&P and Moody's ratings 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 fiscal year computed on a
monthly basis.
<TABLE>
<CAPTION>
Unrated Securities of
Rated Securities Comparable Quality
Rating (As a Percentage of (As a Percentage of
Category Portfolio Value) Portfolio Value)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA/Aaa 2.71% 1.77%
....................................................................
AA/Aa 1.44% 0.09%
....................................................................
A/A 1.74% 0.43%
....................................................................
BBB/Baa 5.67% 21.95%
....................................................................
BB/Ba 5.20% 44.47%
....................................................................
B/B 0.76% 13.14%
....................................................................
CCC/Caa 0.15% 0.34%
....................................................................
CC/Ca --% --%
....................................................................
C/C --% 0.09%
....................................................................
D --% 0.05%
....................................................................
Percentage
of Rated and
Unrated
Securities 17.67% 82.33%
....................................................................
</TABLE>
The percentage of the Fund's assets invested in securities of various grades may
vary from time to time from those listed 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 Fund's Statement of Additional Information.
OTHER INVESTMENTS AND RISK FACTORS
The Fund may engage in repurchase agreements with broker-dealers, banks and
other financial institutions 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 Fund's Statement of
Additional Information.
The Fund 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 for other reasons. The Fund's portfolio turnover is shown under
the heading "Financial Highlights." The portfolio turnover rate may vary from
year to year. A high portfolio turnover rate (100% or more) increases a fund's
transactions costs (including brokerage commissions or dealer costs), and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than if a fund had a lower portfolio turnover rate. Increases in a fund's
transaction costs would adversely impact the fund's performance. 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 on a temporary basis hold cash or invest 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"). In taking such a defensive position, the Fund would not be
pursuing and may not achieve its investment objective.
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 $90 billion under management or supervision as of
December 31, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,700 unit investment trusts are professionally
distributed by leading authorized dealers 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,
Oakbrook Terrace, Illinois 60181-5555.
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 at 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 the average daily net assets of
the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- ------------------------------------------------------
<S> <C> <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 effective advisory fee rate was 0.52% of the
Fund's average daily net assets for the Fund's fiscal year ended November 30,
1999.
13
<PAGE> 15
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 paid for each calendar month as soon as practicable after the end of that
month.
Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Fund. The
Fund pays all charges and expenses of its day-to-day operations, including
service fees, distribution fees, custodian fees, legal and independent
accountant fees, the cost of reports and proxies to shareholders, compensation
of trustees of the Trust (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments) and all other ordinary 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> <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, the Subadviser and the
Distributor have adopted Codes of Ethics designed to recognize the fiduciary
relationship among the Fund, the Adviser, the Subadviser, the Distributor and
their respective 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. A
group of analysts located strategically throughout the country support Mr.
Godlin. 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 $1,000 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Minimum
investment amounts may be waived by the Distributor for plans involving periodic
investments.
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 generally 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) each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan and service plan (each as described below) under
which its distribution fee and/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
14
<PAGE> 16
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 except on any day on which no purchase or redemption orders are
received or there is not a sufficient degree of trading in the Fund's portfolio
securities such that the Fund's net asset value per share might be materially
affected. The Fund's Board of Trustees reserves the right to calculate the net
asset value per share and adjust the offering price more frequently than once
daily if deemed desirable. 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 in accordance with procedures established by the Board
of Trustees of the Fund. 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. Under the Distribution Plan and the Service Plan, the Fund pays
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 and the maintenance of such shareholders' accounts.
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. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution fees and service fees and other expenses of the Fund 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
of the Fund applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza,
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 for investors ("brokers"). "Dealers" and
"brokers" are sometimes referred to herein as "authorized dealers."
Shares may be purchased on any business day by completing the account
application form and forwarding the account 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 by
selecting the correct Fund number on the account application. Sales personnel of
authorized dealers distributing the Fund's shares are entitled to receive
compensation for selling such shares and may receive differing
15
<PAGE> 17
compensation for selling Class A Shares, Class B Shares or Class C Shares.
The offering price for shares is based upon 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.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
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 Investor Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
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 may impose 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.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares of the Fund.
16
<PAGE> 18
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent 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> <C> <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 gain dividends. 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 each purchase of Class B Shares
until the time of redemption of such shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the shares being redeemed first are any shares in
the shareholder's Fund account that are not subject to a contingent deferred
sales charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares of the
Fund.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent 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 gain dividends. 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 applies to a
redemption, it is assumed that the shares being redeemed first are any shares in
the shareholder's Fund account that are not subject to a contingent deferred
sales charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares of the
Fund. 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.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, including Class B Shares
received from reinvestment of dividends through the dividend reinvestment plan,
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, including Class B Shares received from reinvestment of
dividends through the dividend reinvestment plan, 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, including Class C
Shares received from the reinvestment of distributions through the dividend
reinvestment plan,
17
<PAGE> 19
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 capital gain dividends
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) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawal under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if reinvestment is made within 180 days after the 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 or no 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 pay 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 currently owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the 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
18
<PAGE> 20
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 backdating provisions, an
adjustment will be made at the expiration of the Letter of Intent to give effect
to the lower sales charge. Such adjustment in sales charge will be used to
purchase additional shares. 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 specified 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 or no 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 investment 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.
In order to obtain these special benefits, all dividends and other distributions
from the Fund must be reinvested in additional shares and there can not be 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 Morgan Stanley
Dean Witter & Co. and any of its subsidiaries 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 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.
19
<PAGE> 21
(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 nonprofit 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 January 1, 2000, that (1) the
total plan assets are at least $1 million 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 January 1, 2000 based on net asset
value purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value. 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. For purchases on February 1, 1997 and thereafter, a commission will be
paid on purchases 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 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 above
on purchases made
20
<PAGE> 22
under options 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/trustee of a
retirement plan account may involve additional fees charged by the dealer or
custodian/trustee.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. 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 which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss may 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 218256, Kansas City, MO 64121-8256. The request for redemption
should indicate the number of shares or dollar amount to be redeemed, the Fund
name and 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 request to be in proper form.
In some cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed must be properly endorsed for transfer and must accompany the
redemption request. In the event a redemption is requested by and registered to
a corporation, partnership, trust, fiduciary, estate or other legal entity
owning shares of the Fund, generally 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. Retirement plan
distribution requests should be sent to the custodian/trustee to be forwarded to
Investor Services. Contact the custodian/trustee 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 after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. 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
21
<PAGE> 23
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the account application
form. For accounts that are not established with telephone redemption
privileges, a shareholder may call the Fund at (800) 341-2911 to request that a
copy of the Telephone Redemption Authorization form be sent to the shareholder
for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Shares may also be redeemed by phone through FundInfo(R)
(automatic phone system) which is accessible 24 hours a day, seven days a week
at (800) 847-2424. 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, none of Van Kampen
Investments, Investor Services or 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 most
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 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 provided to the
shareholder and such 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 distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of net
investment income. The Fund's present policy, which may be changed at any time
by the Fund's Board of Trustees, is to declare daily and distribute monthly all
or substantially all of its net investment income 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 GAIN DIVIDENDS. 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. The Fund distributes any capital gains to
shareholders at least annually. As in the case of dividends, capital gain
dividends are
22
<PAGE> 24
automatically reinvested in additional shares of the Fund at the next determined
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 gain dividends 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 gain dividends
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 account application or prior to any
declaration, instruct that dividends and/or capital gain dividends be paid in
cash, be reinvested in the Fund at net asset value, or be invested in another
Participating Fund at net asset value.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to debit the shareholder's bank
account on a regular basis to invest predetermined 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 not in escrow may write
checks against such shareholder's account 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, a supply of checks (redemption drafts)
will be sent to the Class A shareholder. Checks can be written to the order of
any person in any amount of $100 or more.
When a check is presented to the custodian bank, State Street Bank and Trust
Company (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 Shares
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 redemption or 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 by
the Bank and neither shall incur any liability for such amendment or termination
or for effecting redemptions to pay checks reasonably believed to be genuine or
for returning or not paying on checks which have not been accepted for any
reason. Retirement plans and accounts that are subject to backup withholding are
not eligible for the check writing privilege.
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 prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from any authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for 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
23
<PAGE> 25
of the Adviser. It is the policy of the Adviser under normal circumstances not
to approve such requests.
When shares that are subject to a contingent deferred sales charge 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. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the 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 of shares of one Participating Fund and purchases
of shares of another Participating Fund. The sale may result in a gain or loss
for federal income tax purposes. If the shares sold 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, by contacting the telephone transaction line at (800)
421-5684, through FundInfo(R) (automated phone system) at (800) 847-2424, or
through the internet at www.vankampen.com. A shareholder automatically has these
exchange privileges unless the shareholder indicates otherwise by checking the
applicable box on the account application form. 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,
none of Van Kampen Investments, Investor Services or 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 gain dividend 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 and other Participating Funds may
restrict exchanges by shareholders engaged in excessive trading by limiting or
disallowing the exchange privilege to such shareholders. For further information
on these restrictions, see the Fund's Statement of Additional Information. 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 of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the fund which the shareholder is
purchasing 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.
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 and its
subsidiaries, including 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
24
<PAGE> 26
through the internet. If reasonable procedures are employed, none of Van Kampen
Investments, Investor Services or the Fund will be liable for following
instructions received 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 federal 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 federal 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 or continued by a shareholder to purchase or
carry shares of the Fund is not deductible for federal income tax purposes if
the Fund distributes exempt-interest dividends during the shareholder's taxable
year. If a shareholder receives an exempt-interest dividend with respect to any
shares and such shares are held for six months or less, any 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 income will consist of
tax-exempt interest, a significant portion of the Fund's income may consist of
investment company taxable income (generally taxable income and net short-term
capital gain) . Distributions of investment company taxable income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain (which is the excess of net long-term capital
gain over net short-term capital loss) 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. 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 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
25
<PAGE> 27
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 may be 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 sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss. Any recognized capital
gains may be taxed at different rates depending on how long the shareholder held
such 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 federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least an amount equal to the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income, the Fund
will not be required to pay federal income taxes on an income it distributes to
shareholders. If the Fund distributes less than an amount equal to 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 such undistributed amounts.
The federal income tax discussion set forth 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 even though a portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes. 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 federal, state and local levels. Prospective investors should consult their
own tax advisers 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.
26
<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
Year Ended November 30,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $11.664 $11.454 $11.139 $11.18 $10.44
-------- -------- -------- ------- -------
Net Investment Income.............. .686 .699 .729 .735 .74
Net Realized and Unrealized
Gain/Loss........................ (.720) .217 .312 (.041) .7475
-------- -------- -------- ------- -------
Total from Investment Operations..... (.034) .916 1.041 .694 1.4875
Less Distributions from and in Excess
of Net Investment Income........... .674 .706 .726 .735 .7475
-------- -------- -------- ------- -------
Net Asset Value, End of the Period... $10.956 $11.664 $11.454 $11.139 $11.18
======== ======== ======== ======= =======
Total Return(a)...................... (.37%) 8.28% 9.63% 6.47% 14.65%
Net Assets at End of the Period (In
millions).......................... $970.0 $905.0 $779.9 $621.0 $516.3
Ratio of Expenses to Average Net
Assets(b).......................... .90% .91% .95% 1.01% .98%
Ratio of Net Investment Income to
Average Net Assets(c).............. 6.03% 6.01% 6.50% 6.64% 6.81%
Portfolio Turnover................... 22% 26% 29% 23% 26%
<CAPTION>
Class B Shares
Year Ended November 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $11.658 $11.452 $11.136 $11.18 $10.43
-------- -------- -------- ------- ------
Net Investment Income.............. .606 .612 .645 .653 .66
Net Realized and Unrealized
Gain/Loss........................ (.728) .216 .313 (.046) .7535
-------- -------- -------- ------- ------
Total from Investment Operations..... (.122) .828 .958 .607 1.4135
Less Distributions from and in Excess
of Net Investment Income........... .590 .622 .642 .651 .6635
-------- -------- -------- ------- ------
Net Asset Value, End of the Period... $10.946 $11.658 $11.452 $11.136 $11.18
======== ======== ======== ======= ======
Total Return(a)...................... (1.11%) 7.41% 8.82% 5.67% 13.89%
Net Assets at End of the Period (In
millions).......................... $416.2 $451.9 $425.6 $323.8 $233.9
Ratio of Expenses to Average Net
Assets(b).......................... 1.66% 1.67% 1.71% 1.77% 1.73%
Ratio of Net Investment Income to
Average Net Assets(c).............. 5.27% 5.26% 5.74% 5.88% 6.03%
Portfolio Turnover................... 22% 26% 29% 23% 26%
<CAPTION>
Class C Shares
Year Ended November 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $11.646 $11.440 $11.126 $11.17 $10.42
------- -------- ------- ------- ------
Net Investment Income.............. .595 .613 .644 .652 .66
Net Realized and Unrealized
Gain/Loss........................ (.717) .215 .312 (.045) .7535
------- -------- ------- ------- ------
Total from Investment Operations..... (.122) .828 .956 .607 1.4135
Less Distributions from and in Excess
of Net Investment Income........... .590 .622 .642 .651 .6635
------- -------- ------- ------- ------
Net Asset Value, End of the Period... $10.934 $11.646 $11.440 $11.126 $11.17
======= ======== ======= ======= ======
Total Return(a)...................... (1.20%) 7.42% 8.82% 5.68% 13.79%
Net Assets at End of the Period (In
millions).......................... $125.2 $110.6 $91.3 $50.0 $31.1
Ratio of Expenses to Average Net
Assets(b).......................... 1.65% 1.67% 1.70% 1.77% 1.72%
Ratio of Net Investment Income to
Average Net Assets(c).............. 5.27% 5.25% 5.69% 5.86% 5.98%
Portfolio Turnover................... 22% 26% 29% 23% 26%
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
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 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 opinion of the
creditworthiness of an obligor with respect to a specific financial 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 obligor 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; and
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.
1. 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: Debt rated "C" is currently highly vulnerable to nonpayment. 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.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. MUNICIPAL NOTES
An S&P note rating reflects the liquidity factors 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 considered short-term in the relevant market.
Ratings are graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of change in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase or sell or hold a
security in as much as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any
A- 2
<PAGE> 31
rating and may on occasion, rely on unaudited financial information. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information or based on other circumstances.
4. 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:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
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 market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that 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.
A- 3
<PAGE> 32
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.
- -- 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.
A- 4
<PAGE> 33
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
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
President
A. Thomas Smith III*
Vice President and Secretary
Edward C. Wood, III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
Stephen L. Boyd*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
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
FUNDINFO(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 915
Boston, MA 02109
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 218256
Kansas City, MO 64121-8256
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 29, 2000
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 to
shareholders. The annual report explains the
market conditions and investment strategies
affecting the Fund's performance during its
last fiscal year.
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's Public
Reference Room in Washington, DC or on the
EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address (public [email protected]), or by writing
the Public Reference section of the SEC,
Washington, DC 20549-0102.
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act File No. is 811-4746.
HYM PRO 3/00
<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 the
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 investment adviser generally seeks
to achieve the Fund's investment objective by investing primarily in a 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, Policies and Risks.................... B-4
Investment Restrictions..................................... B-14
Trustees and Officers....................................... B-16
Investment Advisory Agreement............................... B-25
Other Agreements............................................ B-26
Distribution and Service.................................... B-26
Transfer Agent.............................................. B-30
Portfolio Transactions and Brokerage Allocation............. B-30
Shareholder Services........................................ B-32
Redemption of Shares........................................ B-35
Contingent Deferred Sales Charge-Class A.................... B-35
Waiver of Class B and Class C Contingent Deferred Sales
Charges................................................... B-36
Taxation.................................................... B-38
Fund Performance............................................ B-42
Other Information........................................... B-47
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-50
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MARCH 29, 2000.
<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. ("Morgan Stanley Dean Witter"). The principal
office of the Fund, the Adviser, the Distributor and Van Kampen Investments is
located at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555. The
principal office of Investor Services is located at 7501 Tiffany Springs
Parkway, Kansas City, Missouri 64153.
Morgan Stanley Dean Witter is a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
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 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
B-2
<PAGE> 38
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 Trust 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 a majority 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, 2000 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 2000 of Shares Ownership
-------------------------- ------------- --------- ----------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith Inc........ 5,085,780 A 6.00%
For the Sole Benefit of its Customers 4,496,181 B 12.09%
Attn: Fund Administration 1,698,853 C 15.06%
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Edward Jones & Co.............................. 5,307,904 A 6.26%
Attn: Mutual Fund
201 Progress PKWY
Maryland HTS. MO 63043-3009
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following disclosure supplements the disclosure set forth under the
same caption in the Prospectus and does 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.
Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(hereinafter collectively called
B-4
<PAGE> 40
"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 the underlying obligation and thus participates on the
same basis as the institution in such
B-5
<PAGE> 41
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 may be deemed to be a loan of money or property. Such
additional securities should be
B-6
<PAGE> 42
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 Fund may pay for a stand-by commitment either
separately in cash or by paying a higher
B-7
<PAGE> 43
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.
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
B-8
<PAGE> 44
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 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.
B-9
<PAGE> 45
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contact.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contract. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movements, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.
B-10
<PAGE> 46
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 purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included in initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as the sale of a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks
B-11
<PAGE> 47
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 engage in repurchase agreements with broker-dealers, banks and
other financial institutions 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 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 broker-dealers, banks and other financial institutions deemed to
be creditworthy by the Adviser under guidelines approved by the Fund's Board of
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. The Fund does not bear the risk of a decline in
value of the underlying security unless the seller defaults under its repurchase
obligation. In the event of 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.
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
B-12
<PAGE> 48
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 permitting 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 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
marked-to-market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. government, its agencies or
instrumentalities) may have maturity dates exceeding one year.
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.
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 for which market quotations are not readily available
are valued at fair value as determined in good faith by the Adviser in
accordance with procedures approved by the Fund's Board of 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 typically 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
B-13
<PAGE> 49
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 (such as "no-action" letter
relief)from the provisions of the 1940 Act, as amended from time to time.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without shareholder 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. With
respect to the limitation on illiquid securities and borrowings, the percentage
limitations apply at the time of purchase and on an ongoing basis. 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;
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
B-14
<PAGE> 50
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;
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
B-15
<PAGE> 51
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 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).
B-16
<PAGE> 52
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of
1632 Morning Mountain Road the funds in the Fund Complex. Co-founder, and
Raleigh, NC 27614 prior to August 1996, Chairman, Chief Executive
Date of Birth: 07/14/32 Officer and President, MDT Corporation (now
Age: 67 known as Getinge/Castle, Inc., a subsidiary of
Getinge Industrier AB), a company which
develops, manufactures, markets and services
medical and scientific equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological
53 Monarch Bay Drive company. Trustee/Director of each of the funds
Dana Point, CA 92629 in the Fund Complex. Prior to January 1999,
Date of Birth: 09/16/38 Chairman and Chief Executive Officer of The
Age: 61 Allstate Corporation ("Allstate") and Allstate
Insurance Company. Prior to January 1995,
President and Chief Executive Officer of
Allstate. Prior to August 1994, various
management positions at Allstate.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an
Sears Tower executive search firm. Trustee/Director of each
233 South Wacker Drive of the funds in the Fund Complex. Prior to
Suite 7000 1997, Partner, Ray & Berndtson, Inc., an
Chicago, IL 60606 executive recruiting and management consulting
Date of Birth: 06/03/48 firm. Formerly, Executive Vice President of ABN
Age: 51 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.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of
11 DuPont Circle, N.W. the United States, an independent U.S.
Washington, D.C. 20016 foundation created to deepen understanding,
Date of Birth: 02/29/52 promote collaboration and stimulate exchanges
Age: 48 of practical experience between Americans and
Europeans. Trustee/Director of each of the
funds in the Fund Complex. Formerly, advisor to
the Dennis Trading Group Inc., a managed
futures and option company that invests money
for individuals and institutions. Prior to
1992, President and Chief Executive Officer,
Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
</TABLE>
B-17
<PAGE> 53
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset
Two World Trade Center Management of Morgan Stanley Dean Witter since
66th Floor December 1998. President and Director since
New York, NY 10048 April 1997 and Chief Executive Officer since
Date of Birth: 08/13/53 June 1998 of Morgan Stanley Dean Witter
Age: 46 Advisors Inc. and Morgan Stanley Dean Witter
Services Company Inc. Chairman, Chief Executive
Officer and Director of Morgan Stanley Dean
Witter Distributors Inc. since June 1998.
Chairman and Chief Executive Officer since June
1998, and Director since January 1998, of
Morgan Stanley Dean Witter Trust FSB. Director
of various Morgan Stanley Dean Witter
subsidiaries. President of the Morgan Stanley
Dean Witter Funds and Discover Brokerage Index
Series since May 1999. Trustee/Director of each
of the funds in the Fund Complex. Previously
Chief Strategic Officer of Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean
Witter Services Company Inc. and Executive Vice
President of Morgan Stanley Dean Witter
Distributors Inc. April 1997-June 1998, Vice
President of the Morgan Stanley Dean Witter
Funds and Discover Brokerage Index Series May
1997-April 1999, and Executive Vice President
of Dean Witter, Discover & Co.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company
Winter Park, FL 32789 and registered investment adviser in the State
Date of Birth: 02/13/36 of Florida. President and owner, Nelson Ivest
Age: 64 Brokerage Services Inc., a member of the
National Association of Securities Dealers,
Inc. and Securities Investors Protection Corp.
Trustee/Director of each of the funds in the
Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer
1 Parkview Plaza of Van Kampen Investments. Chairman, Director
P.O. Box 5555 and Chief Executive Officer of the Advisers,
Oakbrook Terrace, IL 60181-5555 the Distributor, Van Kampen Advisors Inc. and
Date of Birth: 02/02/46 Van Kampen Management Inc. Director and officer
Age: 54 of certain other subsidiaries of Van Kampen
Investments. Trustee/Director and President of
each of the funds in the Fund Complex. Trustee,
President and Chairman of the Board of other
investment companies advised by the Advisers
and their affiliates, and Chief Executive
Officer of Van Kampen Exchange Fund. Prior to
May 1998, Executive Vice President and Director
of Marketing at Morgan Stanley Dean Witter and
Director of Dean Witter Discover & Co. and Dean
Witter Realty. Prior to 1996, Director of Dean
Witter Reynolds Inc.
</TABLE>
B-18
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director
One ServiceMaster Way (since 1994) of The ServiceMaster Company, a
Downers Grove, IL 60515 business and consumer services company.
Date of Birth: 07/08/44 Director of Illinois Tool Works, Inc., a
Age: 55 manufacturing company and the Urban Shopping
Centers Inc., a retail mall management company.
Trustee, University of Notre Dame.
Trustee/Director of each of the funds in the
Fund Complex. Prior to 1998, Director of Stone
Smurfit Container Corp., a paper manufacturing
company. From May 1996 through February 1997 he
was President, Chief Executive Officer and
Chief Operating Officer of Waste Management,
Inc., an environmental services company, and
from November 1984 through May 1996 he was
President and Chief Operating Officer of Waste
Management, Inc.
Fernando Sisto............................ Professor Emeritus. Prior to August 1996, a
155 Hickory Lane George M. Bond Chaired Professor with Stevens
Closter, NJ 07624 Institute of Technology, and prior to 1995,
Date of Birth: 08/02/24 Dean of the Graduate School, Stevens Institute
Age: 75 of Technology. Director, Dynalysis of
Princeton, 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 counsel
Chicago, IL 60606 to the funds in the Fund Complex, and other
Date of Birth: 08/22/39 investment companies advised by the Advisers or
Age: 60 Van Kampen Management Inc. Trustee/Director of
each of the funds in the Fund Complex, and
Trustee/Managing General Partner of other
investment companies advised by the Advisers or
Van Kampen Management Inc.
Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy
2101 Constitution Ave., N.W. of Sciences/National Research Council, an
Room 206 independent, federally chartered policy
Washington, D.C. 20418 institution, since 1993. Director of Neurogen
Date of Birth: 12/27/41 Corporation, a pharmaceutical company, since
Age: 58 January 1998. Director of the German Marshall
Fund of the United States, Trustee of Colorado
College, and Vice Chair of the Board of the
Council for Excellence in Government. Trustee/
Director of each of the funds in the Fund
Complex. Prior to 1993, Executive Director of
the Commission on Behavioral and Social
Sciences and Education at the National Academy
of Sciences/National Research Council. From
1980 through 1989, Partner of Coopers &
Lybrand.
</TABLE>
B-19
<PAGE> 55
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Paul G. Yovovich.......................... Private investor. Director of 3Com Corporation,
Sears Tower which provides information access products and
233 South Wacker Drive network system solutions, COMARCO, Inc., a
Suite 9700 wireless communications products company and
Chicago, IL 60606 APAC Customer Services, Inc., a provider of
Date of Birth: 10/29/53 outsourced customer contact services.
Age: 46 Trustee/Director of each of the funds in the
Fund Complex. Prior to May 1996, President of
Advance Ross Corporation, an international
transaction services and pollution control
equipment manufacturing company.
</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. Merin and
Powers are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter or its affiliates.
B-20
<PAGE> 56
OFFICERS
Messrs. Smith, Santo, Hegel, Sullivan, and Wood 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>
A. Thomas Smith III.................. Executive Vice President, General Counsel,
Date of Birth: 12/14/56 Secretary and Director of Van Kampen Investments,
Vice President and Secretary the Advisers, Van Kampen Advisors Inc., Van Kampen
Age: 43 Management Inc., the Distributor, American Capital
Contractual Services, Inc., Van Kampen Exchange
Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of
Illinois Inc. and Van Kampen System Inc. Vice
President and Secretary/Vice President, Principal
Legal Officer and Secretary of other investment
companies advised by the Advisers or their
affiliates. Vice President and Secretary of each of
the funds in the Fund Complex. Prior to January
1999, Vice President and Associate General Counsel
to New York Life Insurance Company ("New York
Life"), and prior to March 1997, Associate General
Counsel of New York Life. Prior to December 1993,
Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior
Associate, Willkie Farr & Gallagher. Prior to
January 1989, Staff Attorney at the Securities and
Exchange Commission, Division of Investment
Management, Office of Chief Counsel.
Michael H. Santo..................... Executive Vice President, Chief Administrative
Date of Birth: 10/22/55 Officer and Director of Van Kampen Investments, the
Vice President Advisers, the Distributor, Van Kampen Advisors
Age: 44 Inc., Van Kampen Management Inc. and Van Kampen
Investor Services Inc., and serves as a Director or
Officer of certain other subsidiaries of Van Kampen
Investments. Vice President of each of the funds in
the Fund Complex and certain other investment
companies advised by the Advisers and their
affiliates. Prior to 1998, Senior Vice President
and Senior Planning Officer for Individual Asset
Management of Morgan Stanley Dean Witter and its
predecessor since 1994. From 1990-1994, First Vice
President and Assistant Controller in Dean Witter's
Controller's Department.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van
Date of Birth: 06/25/56 Kampen Management Inc. and Van Kampen Advisors Inc.
Vice President Vice President of each of the funds in the Fund
Age: 43 Complex and certain other investment companies
advised by the Advisers or their affiliates. Prior
to September 1996, Director of McCarthy, Crisanti &
Maffei, Inc, a financial research company.
</TABLE>
B-21
<PAGE> 57
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Stephen L. Boyd...................... Vice President and Chief Investment Officer for
Date of Birth: 11/16/40 Equity Investments of the Advisers. Vice President
Vice President of each of the funds in the Fund Complex and
Age: 59 certain other investment companies advised by the
Advisers or their affiliates. Prior to October
1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February
1998, Senior Vice President of Van Kampen American
Capital Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp. and Van Kampen
American Capital Management, Inc.
John L. Sullivan..................... Senior Vice President of Van Kampen Investments and
Date of Birth: 08/20/55 the Advisers. Vice President, Chief Financial
Vice President, Chief Financial Officer and Treasurer of each of the funds in the
Officer and Treasurer Fund Complex and certain other investment companies
Age: 44 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
Age: 44 Distributor. Vice President of each of the funds in
the Fund Complex and certain 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 61 operating funds in the Fund Complex. 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 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 provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes 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 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 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.
B-22
<PAGE> 58
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.
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 $3,189 $40,303 $60,000 $126,000
Jerry D. Choate(1) 1999 2,273 0 60,000 88,700
Linda Hutton Heagy 1995 3,189 5,045 60,000 126,000
R. Craig Kennedy 1995 3,189 3,571 60,000 125,600
Jack E. Nelson 1995 3,189 21,664 60,000 126,000
Phillip B. Rooney 1997 2,989 7,787 60,000 113,400
Fernando Sisto 1984 3,189 72,060 60,000 126,000
Wayne W. Whalen 1995 3,189 15,189 60,000 126,000
Suzanne H. Woolsey(1) 1999 2,273 0 60,000 88,700
Paul G. Yovovich 1998 3,189 2,845 60,000 126,000
</TABLE>
- ------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Choate and Ms. Woolsey became members of the Board of Trustees
for the Fund
B-23
<PAGE> 59
and other funds in the Fund Complex on May 26, 1999 and therefore do not
have a full year of information to report.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended November 30, 1999. The
following trustees deferred compensation from the Fund during the fiscal
year ended November 30, 1999: Mr. Branagan, $3,189; Mr. Choate, $1,567; Ms.
Heagy, $3,189; Mr. Kennedy, $1,594; Mr. Nelson, $3,189; Mr. Rooney, $2,989;
Mr. Sisto, $1,594; Mr. Whalen, $3,189; and Mr. Yovovich, $3,189. 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, 1999 is as follows: Mr. Branagan, $12,318; Mr.
Caruso, $2,251; Mr. Choate, $1,567; Mr. Gaughan, $221; Ms. Heagy, $3,189;
Mr. Kennedy, $1,594; Mr. Miller, $3,571; Mr. Nelson, $21,628; Mr. Robinson,
$7,793; Mr. Rooney, $10,734; Mr. Sisto, $8,143; Mr. Whalen, $15,904; and Mr.
Yovovich, $3,571. The deferred compensation plan is described above the
Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the trustees for the funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds 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 of the funds in the Fund Complex as of December 31, 1999 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, 1999. 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 $279,250 during the calendar year
ended December 31, 1999.
B-24
<PAGE> 60
The Fund, the Adviser, the Subadviser and the Distributor have adopted
Codes of Ethics (collectively, the "Code of Ethics") that set forth general and
specific standards relating to the securities trading activities of their
employees. The Code of Ethics does not prohibit employees from acquiring
securities that may be purchased or held by the Fund, but is intended to ensure
that all employees conduct their personal transactions in a manner that does not
interfere with the portfolio transactions of the Fund or other Van Kampen funds,
or that such employees take unfair advantage of their relationship with the
Fund. Among other things, the Code of Ethics prohibits certain types of
transactions absent prior approval, imposes various trading restrictions (such
as time periods during which personal transactions may or may not be made) and
requires quarterly reporting of securities transactions and other reporting
obligations. All reportable securities transactions and other required reports
are to be reviewed by appropriate personnel for compliance with the Code of
Ethics. Additional restrictions apply to portfolio managers, traders, research
analysts and others who may have access to nonpublic information about the
trading activities of the Fund or other Van Kampen funds or who otherwise are
involved in the investment advisory process. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate personnel.
As of March 1, 2000, 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
strategy and implement the Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund, renders periodic reports to the Board of Trustees and
permits its officers and employees to serve without compensation as trustees of
the Trust or officers of the Fund if elected to such positions. The Fund,
however, bears the cost of its day-to-day operations, including service fees,
distribution fees, custodian fees, legal and independent accountant fees, the
costs of reports and proxies to shareholders, compensation of trustees of the
Trust (other than those who are affiliated persons of the Adviser, Distributor
or Van Kampen Investments), 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 in the
absence of willful misfeasance, bad faith, negligence or reckless disregard of
its obligations and duties under the Advisory Agreement.
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
B-25
<PAGE> 61
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 a 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.
During the fiscal years ended November 30, 1999, 1998 and 1997, the Adviser
received $7,836,200, $7,402,600 and $5,726,536, respectively, in advisory fees
from the Fund after fee waivers of $0, $0 and $1,500, respectively.
OTHER AGREEMENTS
Accounting Services Agreement. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
to the Fund supplementary to those provided by the custodian. Such services are
expected to enable the Fund to more closely monitor and maintain its accounts
and records. The Fund pays all costs and expenses related to such services,
including all salary and related benefits of accounting personnel, as well as
the overhead and expenses of office space and the equipment necessary to render
such services. The Fund shares together with the other Van Kampen funds in the
cost of providing such services with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and the
remaining 75% of such costs based proportionately on their respective net assets
per fund.
During the fiscal years ended November 30, 1999, 1998 and 1997, Advisory
Corp. received approximately $345,500, $352,200 and $240,500, respectively, in
accounting services fees from the Fund.
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
B-26
<PAGE> 62
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 a
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 years
are shown in the chart below.
<TABLE>
<CAPTION>
Total Amounts
Underwriting Retained by
Commissions Distributor
------------ -----------
<S> <C> <C>
Fiscal Year Ended November 30, 1999..................... $ 3,383,063 $ 245,613
Fiscal Year Ended November 30, 1998..................... $ 3,096,411 $ 352,187
Fiscal Year Ended November 30, 1997..................... $ 5,273,143 $ 659,053
</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 the Fund may impose a contingent deferred sales
charge of 1.00% on certain redemptions made within one year of the purchase. A
commission or 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 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
B-27
<PAGE> 63
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.
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
or other Van Kampen Funds. 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 quarterly sales of shares of the Fund and other Van
Kampen funds and increases in net assets of the Fund and other Van Kampen funds
over specified thresholds. 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.
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 the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares and 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
B-28
<PAGE> 64
intermediaries that have entered into sub-agreements with the Distributor and
sell shares of the Fund are referred to herein as "financial intermediaries."
Certain financial intermediaries may be prohibited under law from providing
certain underwriting or distribution services. If a financial intermediary were
prohibited from acting in any capacity or providing any of the described
services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a financial intermediary would result in any material adverse consequences
to the Fund.
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
For Class A Shares in any given year in which the Plans are in effect, the
Plans generally provide for the Fund to pay the Distributor the lesser of (i)
the amount of the Distributor's actual expenses incurred during such year less
any deferred sales charges (if any) it received during such year (the "actual
net expenses") or (ii) the distribution and service fees at the rates specified
in the Prospectus (the "plan fees"). Therefore, to the extent the Distributor's
actual net expenses in a given year are less than the plan fees for such year,
the Fund only pays the actual net expenses. Alternatively, to the extent the
Distributor's actual net expenses in a given year exceed the plan fees for such
year, the Fund only pays the plan fees for such year. For Class A Shares, there
is no carryover of any unreimbursed actual net expenses to succeeding years.
The Plans for Class B Shares and Class C Shares are similar to the Plans
for Class A Shares, except that any actual net expenses which exceed plan fees
for a given year are carried forward and are eligible for payment in future
years by the Fund so long as the Plans remain in effect. Thus, for each of the
Class B Shares and Class C Shares, in any given year in which the Plans are in
effect, the Plans generally provide for the Fund to pay the Distributor the
lesser of (i) the applicable amount of the Distributor's actual net expenses
incurred during such year for such class of shares plus any actual net expenses
from prior years that are still unpaid by the Fund for such class of shares or
(ii) the applicable plan fees for such class of shares. Except as may be
mandated by applicable law, the Fund does not impose any limit with respect to
the number of years into the future that such unreimbursed actual net expenses
may be carried forward (on a Fund level basis). These unreimbursed actual net
expenses may or may not be recovered through plan fees or contingent deferred
sales charges in future years.
B-29
<PAGE> 65
Because of fluctuation in net asset value, the plan fees 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, 1999, there were $21,431,420 and $956,542 of
unreimbursed distribution-related expenses with respect to Class B Shares and
Class C Shares, respectively, representing 5.15% and 0.77% of the Fund's net
assets attributable to Class B Shares and Class C Shares, respectively. If the
Plans are 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, 1999, the Fund's aggregate expenses
under the Plans for Class A Shares were $2,292,268 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 Class A
shareholders and for administering the Class A Share Plans. For the fiscal year
ended November 30, 1999, the Fund's aggregate expenses paid under the Plans for
Class B Shares were $4,101,856 or 1.00% of the Class B Shares' average daily net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $3,004,919 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B Shares of the Fund and $1,096,937
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,
1999, the Fund's aggregate expenses paid under the Plans for Class C Shares were
$1,042,985 or 1.00% of the Class C Shares' average daily net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$292,177 for commissions and transaction fees paid to financial intermediaries
in respect of sales of Class C Shares of the Fund and $750,808 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 218256, Kansas
City, MO 64121-8256.
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 Board of Trustees of the Fund.
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
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<PAGE> 66
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.
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,
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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 & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Fund's Board of Trustees has adopted certain policies incorporating the
standards of Rule 17e-1 issued by the SEC under the 1940 Act which require 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, 1999........... $4,320 -- --
Fiscal year ended November 30, 1998........... $8,520 -- --
Fiscal year ended November 30, 1997........... $6,200 -- --
Fiscal year 1999 Percentages:
Commissions with affiliate to total
commissions.............................. 0% 0%
Value of brokerage transactions with
affiliate to total transactions.......... 0% 0%
</TABLE>
During the fiscal year ended November 30, 1999, the Fund paid $0 in
brokerage commissions on transactions totaling $0 to brokers selected primarily
on the basis of research services to the Adviser.
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
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<PAGE> 68
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 (as defined in
the prospectus) will receive statements quarterly from Investor Services showing
any reinvestments of dividends and capital gain dividends 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 gain dividends and systematic purchases or
redemptions. Additional shares may be purchased at any time 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 an exchange or
redemption of the shares represented by the certificate. In addition, if such
certificates are lost the shareholder must write to Van Kampen Funds Inc. c/o
Investor Services, PO Box 218256, Kansas City, MO 64121-8256, 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
the fee for replacing the lost certificate equal to no more than 1.50% 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 Money Purchase and Profit Sharing
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE("ACH") DEPOSITS
Shareholders can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemption proceeds 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 redemption proceeds 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 or by calling (800) 341-2911 or (800) 421-2833
for the hearing impaired).
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<PAGE> 69
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request, by completing the appropriate
section of the account application form or by calling (800) 341-2911, ((800)
421-2833 for the hearing impaired), elect to have all dividends and capital gain
dividends 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
A shareholder may establish a monthly, quarterly, semiannual or annual
withdrawal plan if the shareholder owns shares in a single account valued at
$10,000 or more at the next determined net asset value per share at the time the
plan is established. If a shareholder owns shares in a single account valued at
$5,000 or more at the next determined net asset value per share at the time the
plan is established, the shareholder may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides orderly use of the entire account,
not only the income but also the capital, if necessary. Each payment represents
the proceeds of a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for regular 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 systematic
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.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of periodic payment. Dividends and capital gain dividends on shares held
in accounts with systematic withdrawal plans are reinvested in additional shares
at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gain dividends, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Redemptions 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 upon 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
All shareholders are limited to eight exchanges per fund during a rolling
365-day period.
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<PAGE> 70
Exchange privileges will be suspended on a particular fund if more than
eight exchanges out of that fund are made during a rolling 365-day period. If
exchange privileges are suspended, subsequent exchange requests during the
stated period will not be processed. Exchange privileges will be restored when
the account history shows fewer than eight exchanges in the rolling 365-day
period.
This policy does not apply to money market funds, systematic exchange plans
or employer-sponsored retirement plans.
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 made 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 New York Stock Exchange
(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) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines 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 and a gain or loss for federal income tax purposes upon
the sale of portfolio securities so received in payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-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 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
B-35
<PAGE> 71
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 being
redeemed first are any shares in the shareholder's account not subject to a
contingent deferred sales charge followed by shares held the longest in the
shareholder's account. 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 gain
dividends.
WAIVER OF CLASS B AND CLASS C
CONTINGENT DEFERRED SALES CHARGES
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 ("CDSC-Class B and C"). 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 Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.
In cases of 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 CDSC-Class B and C 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
B-36
<PAGE> 72
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), the financial hardship of the
employee pursuant to U.S. Treasury Regulations Section 1.401(k)-1(d)(2) or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the systematic
withdrawal 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 sent to the designated payee of record. 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 systematic withdrawal plan. The
CDSC-Class B and C will be waived on redemptions made under the systematic
withdrawal plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the systematic withdrawal 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 systematic withdrawal plan and the ability to offer the
systematic withdrawal 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. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" in the Prospectus.
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 value of 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
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<PAGE> 73
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.
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 OF THE FUND.
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 an amount equal to the sum of (i) 90% of its investment company taxable
income (generally, taxable income and net short-term capital gain, which is the
excess of net long-term capital gain over net short-term capital loss), and (ii)
90% of its net tax-exempt interest income, and meets certain other requirements,
it will not be required to pay federal income taxes on any income it distributes
to shareholders. The Fund intends to distribute at least the minimum amount
necessary to satisfy the 90% distribution requirement. The Fund will not be
subject to federal income tax on any net capital gain 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).
B-38
<PAGE> 74
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, affect the holding period of the securities held by the Fund and alter the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.
DISTRIBUTIONS TO SHAREHOLDERS
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 exempt from federal income tax
under Section 103(a) of the Code.
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
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<PAGE> 75
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.
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 income will consist of
tax-exempt interest, a significant portion may consist of investment company
taxable income. Distributions of the Fund's investment company taxable income
are taxable to shareholders as ordinary income to the extent of the Fund's
earnings and profits, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net capital gains as 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 maximum 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
B-40
<PAGE> 76
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. Distributions from
the Fund generally will not be eligible for the corporate dividends received
deduction. 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.
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) may 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 maximum 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 investing in the Fund 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. The
maximum long-term capital gains rate for corporations is 35%.
B-41
<PAGE> 77
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.
INFORMATION REPORTING
The Fund must report annually to the IRS and to each shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
with respect to such dividends.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors and shareholders 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.
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 gain dividends during the period are
reinvested in Fund shares at net asset value; and that any applicable contingent
deferred sales charge has been paid. The Fund's total return will vary depending
on market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are
B-42
<PAGE> 78
made to reflect any income taxes payable by shareholders on dividends and
capital gain dividends paid by the Fund.
Average annual total return quotations 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 contingent deferred sales charge
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 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 contingent deferred sales charge. Because of the
differences in sales charges and distribution fees, the total returns for each
class of shares will differ.
B-43
<PAGE> 79
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 and discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top sector holdings and largest holdings and other Fund
information, 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 whether shareholders purchased their fund shares
in direct or sales force distribution channels. The study showed that investors
working with a professional representative have tended over time to earn higher
returns than those who invested directly. The performance of the funds purchased
by the investors in the Dalbar study and the conclusions based thereon are not
necessarily indicative of future performance of such funds or conclusions that
may result from similar studies in the future. The Fund may 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 and rating 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
B-44
<PAGE> 80
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
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return.
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 cover of this Statement of Additional Information.
CLASS A SHARES
The Fund's average annual 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, 1999 was -5.09%, (ii) the five-year period ended November 30, 1999
was 6.58% and (iii) the ten-year period ended November 30, 1999 was 6.73%; and
(iv) the approximately 14 years period from January 2, 1986 (the commencement of
investment operations) to November 30, 1999 was 6.65%.
The Fund's yield with respect to the Class A Shares for the 30 day period
ending November 30, 1999 was 5.84%. The Fund's current distribution rate with
respect to the Class A Shares for the month ending November 30, 1999 (calculated
in the manner described in the Prospectus) was 5.84%. The Fund's taxable
equivalent distribution rate with respect to the Class A Shares for the month
ending November 30, 1999 was 9.13%.
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, 1999 was 144.85%.
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, 1999 was 156.98%.
CLASS B SHARES
The average annual total return, assuming payment of the contingent
deferred sales charge for with respect to the Class B of the Fund Shares for (i)
the one-year period
B-45
<PAGE> 81
ended November 30, 1999 was -4.86%, (ii) the five-year period ended November 30,
1999 was 6.59% and (iii) the approximately seven-year, four month period of July
20, 1992 (the commencement of distribution for Class B Shares of the Fund)
through November 30, 1999 was 5.89%.
The Fund's yield with respect to the Class B Shares for the 30 day period
ending November 30, 1999 was 5.39%. The Fund's current distribution rate with
respect to the Class B Shares for the month ending November 30, 1999 was 5.37%.
The Fund's taxable equivalent distribution rate with respect to the Class B
Shares for the month ending November 30, 1999 was 8.39%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge, with respect to the Class B Shares from
July 20, 1992 (the commencement of distribution for Class B Shares of the Fund)
to November 30, 1999 (as calculated in the manner described in the Prospectus)
was 52.42%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge for Class B Shares from July 20, 1992 (the
commencement of distribution for Class B Shares of the Fund) to November 30,
1999 was 52.42%.
CLASS C SHARES
The Fund's average annualized total return, assuming payment of the
contingent deferred sales charge, for Class C Shares of the Fund for (i) the
one-year period ended November 30, 1999 was -2.13% and (ii) the five-year period
ended November 30, 1999 was 6.79% and (iii) the approximately five-year, eleven
month period from December 10, 1993 (the commencement of distribution for Class
C Shares of the Fund) to November 30, 1999 was 5.33%.
The Fund's yield with respect to the Class C Shares for the 30 day period
ending November 30, 1999 was 5.40%. The Fund's current distribution rate with
respect to the Class C Shares for the month ending November 30, 1999 was 5.38%.
The Fund's taxable equivalent distribution rate with respect to the Class C
Shares for the month ending November 30, 1999 was 8.41%.
The Fund's cumulative non-standardized total return, including payment of
the contingent deferred sales charge for Class C Shares from December 10, 1993
(the commencement of distribution for Class C Shares of the Fund) to November
30, 1999 was 36.39%.
The Fund's cumulative non-standardized total return, excluding payment of
the contingent deferred sales charge for Class C Shares from December 10, 1993
(the commencement of distribution for Class C Shares of the Fund) to November
30, 1999 was 36.39%.
These results are based on historical earnings and asset value fluctuations
and are not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objectives and policies as well as
the risks incurred in the Fund's investment practices.
B-46
<PAGE> 82
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. The custodian also provides
accounting services to the Fund.
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-47
<PAGE> 83
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,
1999, 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
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
January 21, 2000
F-1
<PAGE> 84
PORTFOLIO OF INVESTMENTS
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 97.7%
ALABAMA 1.0%
$1,000 Alabama Special Care Facs Fin Auth
Montgomery Rev....................... 6.300% 06/01/24 $ 900,780
5,000 Alabama St Indl Dev Auth Solid Waste
Disp Rev Pine City Fiber Co.......... 6.450 12/01/23 4,828,650
2,000 Alabama St Space Science Exhibit
Commission Ctfs Partn................ 6.875 10/01/24 1,905,980
750 Vincent, AL Indl Dev Brd Shelby Motel
Group Inc Proj....................... 10.500 09/01/16 731,175
4,000 West Jefferson Cnty, AL Amusement &
Pub Pk Auth First Mtg Visionland
Proj................................. 6.375 02/01/29 3,197,520
3,255 West Jefferson Cnty, AL Amusement &
Pub Pk Auth First Mtg Visionland Proj
(Prerefunded @ 12/01/06)............. 8.000 12/01/26 3,905,284
--------------
15,469,389
--------------
ALASKA 0.7%
5,000 Alaska St Hsg Fin Corp Genl Mtg Ser A
(MBIA Insd).......................... 6.000 06/01/49 4,781,650
3,000 Juneau, AK City & Borough Nonrecourse
Rev.................................. 6.875 12/01/25 2,855,730
2,250 Seward, AK Rev AK Sealife Cent
Proj................................. 7.650 10/01/16 2,295,450
--------------
9,932,830
--------------
ARIZONA 2.2%
1,190 Casa Grande, AZ Indl Dev Auth Rfdg... 8.250 12/01/15 1,200,841
2,843 Chandler, AZ Indl Dev Auth Rev
Chandler Fin Cent Proj Ser 1986
(c).................................. 7.250 12/01/16 2,160,811
3,000 Flagstaff, AZ Indl Dev Auth Rev Sr
Living Cmnty Northern AZ Ser A....... 6.200 09/01/28 2,632,530
5,500 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev (d)............. 6.625 07/01/33 5,160,265
3,000 Maricopa Cnty, AZ Indl Dev Auth Sr
Living Fac Rev....................... 7.750 04/01/15 3,014,310
2,500 Peoria, AZ Indl Dev Auth Rev Sierra
Winds Life Ser A Rfdg................ 6.500 08/15/31 2,282,400
1,000 Phoenix, AZ Indl Dev Auth Airport Fac
Rev America West Airls Inc Proj...... 6.250 06/01/19 949,328
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 85
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$3,000 Pima Cnty, AZ Indl Dev Auth
Multi-Family Rev (e)................. 6.625% 10/01/28 $ 2,845,050
2,000 Pima Cnty, AZ Indl Dev Auth Rev La
Posada at Park Cent Ser A............ 7.000 05/15/27 1,969,960
3,600 Pima Cnty, AZ Indl Dev Auth Sr Living
Catalina Vlg Rev Ser A............... 6.500 07/01/29 3,025,728
1,025 Pinal Cnty, AZ Indl Dev Auth Casa
Grande Regl Med Cent Proj Ser A...... 8.125 12/01/22 1,082,769
475 Pinal Cnty, AZ Indl Dev Auth Casa
Grande Regl Med Cent Proj Ser B...... 8.125 12/01/22 501,771
2,115 Red Hawk Canyon Cmnty Facs Dist No 2
AZ Dist Assmt Rev.................... 6.500 12/01/12 2,004,131
1,035 Scottsdale, AZ Indl Dev Auth Rev
First Mtg Westminster Vlg Ser A
Rfdg................................. 8.000 06/01/11 1,104,821
2,000 Scottsdale, AZ Indl Dev Auth Rev
First Mtg Westminster Vlg Ser A
Rfdg................................. 8.250 06/01/15 2,148,480
1,845 Tuscon, AZ Indl Dev Auth Rev Clarion
Santa Rita Hotel Ser A Rfdg (e)...... 6.375 12/01/16 1,703,876
--------------
33,787,071
--------------
ARKANSAS 0.3%
4,065 Jackson Cnty, AR Hlthcare Fac Brd
First Mtg Hosp Rev Newport Hosp &
Clinic Inc........................... 7.375 11/01/11 3,985,976
--------------
CALIFORNIA 5.3%
1,255 Abag Fin Auth For Nonprofit Corps CA
Ctfs Partn........................... 6.375 11/15/15 1,184,293
1,455 Abag Fin Auth For Nonprofit Corps CA
Ctfs Partn........................... 6.375 11/15/28 1,321,955
1,210 California Edl Fac Auth Rev Pacific
Graduate Sch of Psych................ 7.600 11/01/21 1,242,489
2,315 California Edl Fac Auth Rev Pacific
Graduate Sch of Psych................ 8.000 11/01/21 2,432,810
1,000 California Hlth Facs Fin Auth Rev
Hospital of The Good Samaritan....... 7.000 09/01/21 1,006,380
5,000 California Statewide Cmntys Dev Auth
Spl Fac United Airls Ser A........... 5.700 10/01/33 4,495,400
2,850 Contra Costa Cnty, CA Multi-Family
Hsg Rev.............................. 6.750 12/01/30 2,691,739
2,000 Corona, CA Ctfs Partn Vista Hosp Sys
Inc Ser B............................ 9.500 07/01/20 1,845,520
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$2,500 Corona, CA Ctfs Partn Vista Hosp Sys
Inc Ser C............................ 8.375% 07/01/11 $ 2,332,900
2,250 Culver City, CA Redev Fin Auth Rev
Subordinated Tax Allocation Ser B
Rfdg................................. 6.250 11/01/25 2,193,548
1,500 Davis, CA Pub Fac Fin Auth Loc Agy
Rev.................................. 6.600 09/01/25 1,507,830
1,500 Folsom, CA Spl Tax Cmnty Fac Dist No
7 Rfdg............................... 7.250 09/01/21 1,572,585
1,000 Fontana, CA Spl Tax Cmnty Facs Dist
11 Ser A Rfdg........................ 6.500 09/01/28 941,240
2,000 Fontana, CA Spl Tax Cmnty Facs Dist
11 Ser B............................. 6.500 09/01/28 1,882,480
2,660 Fresno, CA Ctfs Partn................ 8.500 05/01/16 2,751,717
840 Healdsburg, CA Ctfs Partn Nuestro
Hosp Inc............................. 6.250 11/01/08 793,086
2,500 Healdsburg, CA Ctfs Partn Nuestro
Hosp Inc............................. 6.375 11/01/28 2,199,875
975 Indio, CA Pub Fin Auth Rev Tax
Increment............................ 6.500 08/15/27 960,716
4,530 Lake Elsinore, CA Pub Fin Auth Loc
Agy Rev.............................. 7.100 09/01/20 4,636,999
1,500 Los Angeles, CA Cmnty Fac Dist Spl
Tax No 3 Cascades Business Pk........ 6.400 09/01/22 1,469,040
4,500 Millbrae, CA Residential Fac Rev
Magnolia of Millbrae Proj Ser A...... 7.375 09/01/27 4,539,105
1,000 Moreno Vly, CA Spl Tax Towngate Cmnty
Fac Dist 87-1........................ 7.125 10/01/23 1,025,800
2,000 Perris, CA Pub Fin Auth Loc Agy Rev
Ser D................................ 7.875 09/01/25 2,123,860
1,500 Rancho Cucamonga, CA Cmnty Fac Dist
Spl Tax No 88-2...................... 8.250 09/01/19 1,719,045
100 Rancho Cucamonga, CA Cmnty Fac Dist
Spl Tax No 88-2...................... 8.000 09/01/20 113,774
2,965 Reedley, CA Ctfs Partn............... 7.500 10/01/26 3,045,351
3,105 Richmond, CA Redev Agy Multi-Family
Rev Ser A............................ 7.500 09/01/23 3,165,237
3,850 Riverside Cnty, CA Air Force Vlg West
Inc Ser A Rfdg (Prerefunded @
06/15/02) (a)........................ 8.125 06/15/20 4,265,261
4,000 Sacramento, CA City Fin Auth Rev Sr
Convention Cntr Hotel Ser A.......... 6.250 01/01/30 3,725,720
1,945 Sacramento, CA Spl Tax Cmnty Fac Dist
No 97-1 Ser A........................ 6.700 09/01/17 1,971,802
2,000 Sacramento, CA Spl Tax Cmnty Fac Dist
No 97-1 Ser A........................ 6.750 09/01/27 2,010,480
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$2,500 San Bernardino, CA Assoc Cmntys Fin
Auth Hlthcare Ctfs Partn............. 6.900% 05/01/27 $ 2,191,075
3,120 San Jose, CA Multi-Family Hsg Rev
Helzer Courts Apts Ser A (e)......... 6.400 12/01/41 2,867,436
1,900 San Luis Obispo, CA Ctfs Partn Vista
Hosp Sys Inc......................... 8.375 07/01/29 1,717,657
1,995 Simi Valley, CA Cmnty Dev Agy Coml
Sycamore Plaza II Rfdg............... 6.000 09/01/12 2,028,037
2,000 Vallejo, CA Ctfs Partn Touro Univ.... 7.250 06/01/16 2,008,500
2,000 Ventura, CA Port Dist Ctfs Partn..... 6.375 08/01/28 1,891,940
--------------
79,872,682
--------------
COLORADO 3.4%
2,000 Arvada, CO Multi-Family Rev Hsg
Arvada Nightingale Proj Rfdg......... 6.250 12/01/18 1,881,600
1,060 Berry Creek Metro Dist CO Rfdg....... 7.300 12/01/12 1,099,326
1,767 Bowles Metro Dist CO (Prerefunded @
12/01/05)............................ 7.750 12/01/15 2,010,599
1,000 Colorado Hlth Fac Auth Rev Baptist
Home Assn Ser A...................... 6.250 08/15/13 962,090
2,250 Colorado Hlth Fac Auth Rev Baptist
Home Assn Ser A...................... 6.375 08/15/24 2,053,642
1,225 Colorado Hlth Fac Auth Rev Sr Living
Fac Eaton Terrace Ser A.............. 6.800 07/01/09 1,198,822
3,250 Colorado Hlth Fac Auth Rev Sr Living
Fac Eaton Terrace Ser A.............. 7.250 07/01/22 3,117,660
1,500 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj................... 9.000 01/01/25 1,668,975
2,000 Colorado Hlth Fac Auth Rev Shalom Pk
Proj Rfdg & Impt..................... 7.250 12/15/25 2,027,820
1,100 Colorado Hlth Facs Auth Hlth &
Residential Care Facs Rev............ 6.000 07/01/29 947,518
2,000 Colorado Hsg Fin Auth Single Family
Pgm Sr B 2........................... 6.800 04/01/30 2,108,000
1,250 Cordillera Metro Dist, CO Eagle Cnty
(Prerefunded @ 12/01/04)............. 8.250 12/01/13 1,460,450
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$3,000 Cottonwood Wtr & Sanitation Dist CO
Ser A Rfdg........................... 7.750% 12/01/20 $ 3,080,580
1,055 Denver, CO City & Cnty Indl Dev Rev
Jewish Cmnty Cent Proj............... 7.375 03/01/09 1,116,644
1,130 Denver, CO City & Cnty Indl Dev Rev
Jewish Cmnty Cent Proj............... 7.500 03/01/14 1,189,212
815 Denver, CO City & Cnty Indl Dev Rev
Jewish Cmnty Cent Proj............... 7.875 03/01/19 864,764
1,815 Denver, CO Urban Renewal Auth Tax
Increment Rev South Bdwy/Montgomery
Ward................................. 8.500 05/01/16 1,960,381
2,000 Eagle Cnty, CO Air Term Corp Rev Arpt
Term Proj............................ 7.500 05/01/21 2,068,840
1,900 Eagle Riverview Affordable Hsg Corp,
CO Multi-Family Rev.................. 6.300 07/01/29 1,802,568
1,735 Eaglebend, CO Affordable Hsg Corp
Multi-Family Rev Hsg Proj............ 6.400 07/01/17 1,729,431
1,500 Eaglebend, CO Affordable Hsg Corp
Multi-Family Rev Hsg Proj............ 6.450 07/01/21 1,494,705
2,500 Hyland Hills, CO Metro Pk & Rec Dist
Spl Rev Ser A (Prerefunded @
12/15/02)............................ 8.625 12/15/12 2,834,625
3,990 Lafayette, CO Indl Dev Rev Rocky
Medium Term Note Instr Proj Ser A.... 7.000 10/01/18 3,697,693
500 Lafayette, CO Indl Dev Rev Rocky
Medium Term Note Instr Proj Ser B.... 6.125 10/01/08 479,815
905 Landmark Metro Dist, CO (Prerefunded
@ 06/01/00).......................... 8.750 12/01/05 932,367
4,220 Northern Metro Dist, CO Adams Cnty
Rfdg (e)............................. 6.500 12/01/16 4,258,571
140 Skyland Metro Dist, CO Gunnison Cnty
Rfdg (Var Rate Cpn).................. 8.250 12/01/08 99,826
750 Snowmass Vlg, CO Multi-Family Hsg Rev
Ser A Rfdg........................... 8.000 09/01/14 776,655
660 Superior, CO Metro Dist No 2 Ser A
Rfdg................................. 7.250 12/01/02 687,205
2,000 Telluride, CO Hsg Auth Hsg Rev
Shandoka Apts Proj Rfdg.............. 7.875 06/01/17 2,067,960
--------------
51,678,344
--------------
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 89
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONNECTICUT 1.6%
$ 500 Connecticut St Dev Auth Mystic
Marinelife Aquar Proj A.............. 7.000% 12/01/27 $ 507,495
2,110 Connecticut St Dev Auth First Mtg
Gross Rev Hlthcare Proj CT Baptist
Homes Inc Proj....................... 8.750 09/01/12 2,369,213
1,500 Connecticut St Dev Auth First Mtg
Gross Rev Hlthcare Proj CT Baptist
Homes Inc Proj....................... 9.000 09/01/22 1,693,650
1,325 Connecticut St Dev Auth Hlthcare Rev
Indpt Living Proj Ser B (Prerefunded
@ 07/01/03).......................... 8.000 07/01/17 1,488,002
3,360 Connecticut St Dev Auth Indl Dev Rev
Watson Foods Co Inc Proj............. 5.900 06/01/28 3,086,933
2,500 Connecticut St Hlth & Edl Fac Auth
Rev Tolland Cnty Hlthcare Inc Ser
A.................................... 9.200 07/01/21 2,662,725
2,000 Connecticut St Hlth & Edl Fac Auth
Rev Tolland Cnty Hlthcare Inc Ser
A.................................... 6.875 07/01/27 1,952,780
300 Connecticut St Hlth & Edl Facs Auth
Rev.................................. 6.875 07/01/17 301,542
5,000 Greenwich, CT Hsg Auth Multi-Family
Rev Hsg Greenwich Close Ser A (a).... 6.350 09/01/27 4,708,350
1,690 Greenwich, CT Hsg Auth Multi-Family
Rev Hsg Greenwich Close Ser B........ 7.500 09/01/27 1,608,643
1,400 Manchester, CT Redev Agy Multi-Family
Mtg Rev Bennet Hsg Dev Rfdg.......... 7.200 12/01/18 1,439,662
2,070 New Haven, CT Indl Fac Rev Adj Govt
Cent Thermal Energies................ 7.250 07/01/09 2,088,858
--------------
23,907,853
--------------
DELAWARE 0.6%
2,215 Delaware St Econ Dev Auth Indl Dev
Rev First Mtg Dover Hlthcare Rfdg.... 7.875 04/01/08 2,307,233
940 Delaware St Econ Dev Auth Rev
Osteopathic Hosp Assn of DE Ser A
(Prerefunded @ 07/01/04)............. 9.500 01/01/22 1,126,167
2,055 Sussex Cnty, DE Assisted Living Fac
Rev Heritage At Milford Proj......... 7.250 07/01/29 2,010,772
3,500 Wilmington, DE Multi-Family Rent Rev
Hsg Electra Arms Sr Assoc Proj....... 6.250 06/01/28 3,181,745
--------------
8,625,917
--------------
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 90
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DISTRICT OF COLUMBIA 0.3%
$1,545 District of Columbia Rev Methodist
Home Issue........................... 6.000% 01/01/29 $ 1,331,929
3,500 District of Columbia Rev Natl Pub
Radio Ser A.......................... 7.700 01/01/23 3,681,650
--------------
5,013,579
--------------
FLORIDA 8.8%
990 Arbor Greene Cmnty Dev Dist FL Spl
Assmt Rev............................ 6.300 05/01/19 939,550
645 Atlantic Beach, FL Rev Fleet Landing
Proj Ser A Rfdg & Impt............... 7.500 10/01/02 693,878
2,085 Atlantic Beach, FL Rev Fleet Landing
Proj Ser A Rfdg & Impt............... 7.875 10/01/08 2,419,163
1,500 Bay Cnty, FL Hosp Sys Rev Bay Med
Cent Proj Rfdg (Prerefunded @
10/01/04)............................ 8.000 10/01/12 1,699,425
500 Bay Cnty, FL Hosp Sys Rev Bay Med
Cent Proj Rfdg (Prerefunded @
10/01/04)............................ 8.000 10/01/19 579,640
1,980 Bayside Impt Cmnty Dev Dist, FL Ser
A.................................... 6.300 05/01/18 1,871,793
350 Bayside Impt Cmnty Dev Dist, FL Ser
B.................................... 6.375 05/01/18 331,849
970 Bobcat Trail Cmnty, FL Dev Dist Cap
Impt Rev............................. 6.750 05/01/04 964,646
1,300 Bobcat Trail Cmnty, FL Dev Dist Cap
Impt Rev............................. 7.500 05/01/19 1,319,383
3,335 Boca Raton, FL Hsg Auth Mtg Hsg Rev
First Lien Banyan Place Sr Living Ser
A.................................... 7.150 04/01/31 3,133,533
910 Boca Raton, FL Hsg Auth Mtg Hsg Rev
Second Lien Banyan Place Sr Living
Ser B................................ 8.700 10/01/32 870,597
2,840 Championsgate Cmnty Dev Dist, FL Cap
Impt Rev Ser A....................... 6.250 05/01/20 2,661,307
150 Charlotte Cnty, FL Indl Dev Auth Rev
Beverly Enterprises Rfdg............. 10.000 06/01/11 160,718
1,260 Collier Cnty, FL Indl Dev Auth
Retirement Rental Hsg Rev............ 10.750 03/01/03 1,352,018
4,285 Fishhawk Cmnty, FL Dev Dist Spl Assmt
Rev.................................. 7.625 05/01/18 4,424,005
4,000 Florida Hsg Fin Corp Rev Hsg Beacon
Hill Apts Ser C...................... 6.610 07/01/38 3,762,240
4,000 Florida Hsg Fin Corp Rev Hsg Cypress
Trace Apts Ser G..................... 6.600 07/01/38 3,779,600
4,000 Florida Hsg Fin Corp Rev Hsg
Westbrook Apts Ser U1................ 6.450 01/01/39 3,647,720
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 91
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$5,000 Florida Hsg Fin Corp Rev Hsg
Westchase Apts Ser B (a)............. 6.610% 07/01/38 $ 4,724,750
795 Fort Walton Beach, FL Indl Dev Rev
First Mtg Fort Walton Beach Venture
Proj................................. 10.500 12/01/16 813,706
1,000 Heritage Harbor Cmnty Dev Dist FL Rev
Recntl............................... 7.750 05/01/19 958,880
1,000 Heritage Harbor Cmnty Dev Dist FL Rev
Spl Assmt Ser A...................... 6.700 05/01/19 970,910
960 Hernando Cnty, FL Indl Dev Rev
Beverly Enterprises Rfdg............. 10.000 09/01/11 1,035,293
3,000 Hialeah Gardens, FL Indl Dev Rev
Waterford Convalescent Ser A Rfdg.... 8.250 12/01/14 3,172,920
1,500 Homestead, FL Indl Dev Rev Brookwood
Gardens Cent Proj Ser A Rfdg......... 8.250 12/01/14 1,586,460
1,260 Lake Bernadette, FL Cmnty Dev Dist
Spl Assmt Rev Ser A.................. 8.000 05/01/17 1,300,874
2,385 Lake Saint Charles, FL Cmnty Dev Dist
Spl Assmt Rev........................ 7.875 05/01/17 2,454,737
2,350 Largo, FL Sun Coast Hlth Sys Rev
Hosp................................. 6.300 03/01/20 2,142,307
680 Lee Cnty, FL Indl Dev Auth Econ Rev
Encore Nursing Cent Partn Rfdg....... 8.125 12/01/07 719,991
5,000 Leon Cnty, FL Edl Facs Auth Rev
Southgate Residence Hall Ser A
Rfdg................................. 6.750 09/01/28 4,842,400
4,055 Mount Dora, FL Hlth Fac Auth Hlth
Rev.................................. 7.125 08/15/21 4,060,231
1,000 North Springs, FL Impt Dist Spl Assmt
Rev.................................. 7.000 05/01/19 1,016,740
2,590 Northern Palm Beach Cnty, FL Impt
Dist Wtr Ctl & Impt Unit Dev 16
Rfdg................................. 7.500 08/01/24 2,590,596
3,000 Northern Palm Beach Cnty, FL Impt
Dist Wtr Ctl & Impt Unit Dev......... 7.200 08/01/16 3,150,300
2,500 Northern Palm Beach Cnty, FL Impt
Dist Wtr Ctl & Impt Unit Dev......... 7.300 08/01/27 2,638,275
2,000 Orange Cnty, FL Hlth Fac Auth Rev
Westminster Community Care........... 6.600 04/01/24 1,862,880
1,000 Orange Cnty, FL Hlth Fac Auth Rev
Westminster Community Care........... 6.500 04/01/12 972,260
400 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr
Rfdg................................. 8.125 07/01/06 419,096
</TABLE>
See Notes to Financial Statements
F-9
<PAGE> 92
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<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 $ 2,221,325
1,325 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr
Rfdg................................. 8.625 07/01/20 1,464,059
1,250 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr
Rfdg................................. 8.750 07/01/26 1,374,862
8,000 Orange Cnty, FL Hlth Facs Auth Rev
Hosp Regl Hlthcare Sys Ser E......... 6.000 10/01/26 7,745,600
2,360 Orange Cnty, FL Hsg Fin Auth Hsg
Alhambra Trace Apts Proj Ser C....... 7.375 04/01/28 2,241,906
2,440 Orange Cnty, FL Hsg Fin Auth
Multi-Family Rev Mtg Hands Inc Proj
Ser A................................ 7.875 10/01/15 2,596,965
2,285 Orange Cnty, FL Hsg Fin Auth
Multi-Family Rev Mtg Hands Inc Proj
Ser A................................ 8.000 10/01/25 2,445,887
395 Orange Cnty, FL Indl Dev Auth Rev
Beverly Enterprises Proj Rfdg........ 9.250 08/01/10 420,466
2,995 Overoaks, FL Cmnty Dev Dist Cap Impt
Rev.................................. 8.250 05/01/17 3,170,387
3,000 Pinellas Cnty, FL Edl Fac Auth Rev
College Harbor Proj Ser A............ 8.250 12/01/21 3,079,380
1,000 Piney Z Cmnty Dev Dist FL Cap Impt
Rev Ser A............................ 7.250 05/01/19 990,170
1,200 Piney Z Cmnty Dev Dist FL Cap Impt
Rev Ser B............................ 6.500 05/01/02 1,184,808
750 Plantation, FL Hlth Fac Auth Rev
Covenant Retirement Cmnty Inc
(Prerefunded @ 12/01/02)............. 7.750 12/01/22 828,307
250 Santa Rosa Cnty, FL Indl Dev Auth Rev
First Mtg Sandy Ridge Care Cent...... 10.500 04/01/16 252,885
1,500 Sarasota Cnty, FL Hlth Fac Auth Hlth
Fac Sunnyside Pptys.................. 6.700 07/01/25 1,368,765
1,000 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Jewish Hsg Council.......... 7.375 07/01/16 916,110
1,000 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Manatee Jewish Rfdg......... 7.000 07/01/16 944,140
1,000 St John's Cnty, FL Indl Dev Auth
Hlthcare Rev Bayview Proj Ser A...... 7.100 10/01/16 1,012,610
2,000 St John's Cnty, FL Indl Dev Auth
Hlthcare Rev Bayview Proj Ser A...... 7.100 10/01/26 2,029,180
</TABLE>
See Notes to Financial Statements
F-10
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$2,230 Tamarac, FL Indl Dev Rev Sun Belt
Precision Prods Inc.................. 6.500% 08/01/17 $ 2,157,525
1,645 Tampa Palms, FL Open Space & Tran
Cmnty Dev Dist Rev Cap Impt Area 7
Proj................................. 8.500 05/01/17 1,751,530
2,150 Tampa Palms, FL Open Space & Transn
Cmnty Dev Dist Rev Cap Impt Area 7
Proj................................. 7.500 05/01/18 2,205,599
3,000 Tampa, FL Hosp Rev Cap Impt H Lee
Moffitt Ser A........................ 5.750 07/01/29 2,774,040
3,000 University Square Cmnty Dev Dist, FL
Capital Impt Rev..................... 6.750 05/01/20 2,978,430
710 Volusia Cnty, FL Indl Dev Auth
Bishops Glen Proj Rfdg............... 7.125 11/01/06 776,406
1,760 Volusia Cnty, FL Indl Dev Auth
Bishops Glen Proj Rfdg............... 7.500 11/01/16 1,962,259
2,000 Volusia Cnty, FL Indl Dev Auth
Bishops Glen Proj Rfdg............... 7.625 11/01/26 2,325,180
1,680 Westchase East Cmnty, FL Dev Dist Cap
Impt Rev............................. 7.500 05/01/17 1,732,046
1,960 Westchase East Cmnty, FL Dev Dist Cap
Impt Rev............................. 7.300 05/01/18 2,009,902
--------------
133,005,400
--------------
GEORGIA 2.1%
1,100 Americus Sumter Cnty, GA Hosp Auth
Rev South GA Methodist Ser A Rfdg.... 6.250 05/15/19 1,002,683
1,000 Americus Sumter Cnty, GA Hosp Auth
Rev South GA Methodist Ser A Rfdg.... 6.375 05/15/29 904,690
1,640 Athens Clarke Cnty, GA Residential
Care Fac for the Elderly Auth Rev.... 6.350 10/01/17 1,536,910
1,720 Athens Clarke Cnty, GA Residential
Care Fac for the Elderly Auth Rev.... 6.375 10/01/27 1,565,492
3,000 Atlanta, GA Urban Residential Fin
Auth Multi-Family Mtg Rev Ser C...... 2.400 04/01/26 450,000
3,000 Atlanta, GA Urban Residential Fin
Auth Multi-Family Hsg Renaissance on
Peachtree Apts Proj Ser 85........... 8.500 12/01/10 3,269,520
</TABLE>
See Notes to Financial Statements
F-11
<PAGE> 94
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$3,300 Atlanta, GA Urban Residential Fin
Auth Multi-Family Rev Proj Ser A..... 6.750% 07/01/30 $ 3,132,723
375 Coweta Cnty, GA Residential Care Fac
For The Elderly Auth Rev First Lien
Wesley Woods Ser A................... 7.625 10/01/06 395,404
1,500 Coweta Cnty, GA Residential Care Fac
For The Elderly Auth Rev First Lien
Wesley Woods Ser A................... 8.200 10/01/16 1,629,930
1,500 Coweta Cnty, GA Residential Care Fac
For The Elderly Auth Rev First Lien
Wesley Woods Ser A................... 8.250 10/01/26 1,633,965
500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj............ 6.000 10/01/08 470,380
1,500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj............ 6.250 10/01/18 1,349,145
1,500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj............ 6.375 10/01/28 1,328,085
3,000 Fulton Cnty, GA Dev Auth Spec Fac Rev
Delta Airls Inc Proj................. 5.450 05/01/23 2,573,880
1,520 Fulton Cnty, GA Hsg Auth Multi-Family
Hsg Rev.............................. 6.375 02/01/08 1,477,516
4,000 Fulton Cnty, GA Hsg Auth Multi-Family
Hsg Rev.............................. 6.500 02/01/28 3,797,200
1,175 Fulton Cnty, GA Residential Care Fac
Elderly Auth Rev..................... 6.900 07/01/19 1,093,467
1,810 Fulton Cnty, GA Residential Care Sr
Lien RHA Asstd Living Ser A.......... 7.000 07/01/29 1,665,815
300 Richmond Cnty, GA Dev Auth Nursing
Home Rev Beverly Enterprises GA Proj
Rfdg................................. 8.750 06/01/11 320,763
2,500 Rockdale Cnty, GA Dev Auth Solid
Waste Disp Visy Paper Inc Proj....... 7.500 01/01/26 2,590,850
--------------
32,188,418
--------------
HAWAII 0.2%
805 Hawaii Cnty, HI Impt Dist No 17 Spl
Assmt Kaloko Subdivision............. 9.500 08/01/11 844,332
3,205 Hawaii St Dept Trans Spl Fac
Continental Airls Inc................ 5.625 11/15/27 2,740,371
--------------
3,584,703
--------------
</TABLE>
See Notes to Financial Statements
F-12
<PAGE> 95
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS 7.6%
$1,475 Bedford Park, IL Tax Increment Rev
71st & Cicero Proj Rfdg.............. 7.375% 01/01/12 $ 1,531,507
1,445 Bedford Park, IL Tax Increment Rev
Mark IV Proj (Prerefunded @
03/01/02)............................ 9.750 03/01/12 1,618,097
930 Bedford Park, IL Tax Increment Rev Sr
Lien Bedford City Sq Proj............ 9.250 02/01/12 1,012,937
2,720 Broadview, IL Tax Increment Rev Sr
Lien................................. 8.250 07/01/13 3,117,582
250 Carol Stream, IL First Mtg Rev
Windsor Park Manor Proj.............. 7.000 12/01/13 251,338
2,000 Carol Stream, IL First Mtg Rev
Windsor Park Manor Proj.............. 7.200 12/01/14 2,032,020
1,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Ser A.... 8.200 12/01/24 1,128,140
540 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Ser A.... 7.875 11/01/25 561,557
3,500 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc................. 8.500 05/01/18 3,612,630
1,500 Chicago, IL Tax Increment............ 7.250 01/01/14 1,546,905
3,000 Clay Cnty, IL Hosp Rev............... 5.900 12/01/28 2,553,510
3,000 Crestwood, IL Tax Increment Rev
Rfdg................................. 7.250 12/01/08 3,115,080
2,000 Godfrey, IL Rev United Methodist Vlg
Ser A................................ 5.875 11/15/29 1,686,760
500 Hodgkins, IL Tax Increment Ser A
Rfdg................................. 9.500 12/01/09 552,595
4,000 Hodgkins, IL Tax Increment Ser A
Rfdg................................. 7.625 12/01/13 4,254,040
3,000 Hoopeston, IL Hosp Cap Impt Rev
Hoopeston Cmnty Mem Hosp Rfdg........ 6.550 11/15/29 2,761,560
3,500 Huntley, IL Increment Alloc Rev
Huntley Redev Proj Ser A............. 8.500 12/01/15 3,893,435
3,000 Huntley, IL Spl Svc Area No 10 Ser
A.................................... 6.500 03/01/29 2,829,870
2,450 Huntley, IL Spl Svc Area No 6........ 6.750 02/01/25 2,359,473
1,000 Huntley, IL Spl Svc Area No 7........ 6.300 03/01/28 917,040
500 Illinois Dev Fin Auth Econ Dev Rev
Latin School of Chicago Proj......... 5.650 08/01/28 450,260
2,470 Illinois Dev Fin Auth Hlth Fac Rev
Cmnty Living Options................. 7.125 03/01/10 2,547,311
</TABLE>
See Notes to Financial Statements
F-13
<PAGE> 96
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 625 Illinois Dev Fin Auth Rev Cmnty Fac
Clinic Altgeld Proj.................. 8.000% 11/15/06 $ 657,431
1,750 Illinois Dev Fin Auth Rev Cmnty Fac
Clinic Altgeld Proj.................. 8.000 11/15/16 1,834,630
2,000 Illinois Dev Fin Auth Rev Debt
Restructure-East Saint Louis......... 7.375 11/15/11 2,184,020
4,000 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj...................... 7.500 08/15/26 4,130,800
1,500 Illinois Edl Facs Auth Rev Lifelink
Corp Oblig Group Rfdg................ 5.850 02/15/20 1,298,775
4,295 Illinois Edl Facs Auth Rev Lifelink
Corp Oblig Group Rfdg................ 5.700 02/15/24 3,599,682
2,000 Illinois Hlth Fac Auth Rev Central
Baptist Home Proj.................... 7.125 11/15/29 1,950,440
1,475 Illinois Hlth Fac Auth Rev Covenant
Retirement Cmntys Ser A.............. 7.600 12/01/12 1,581,554
240 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Ser A.................... 7.125 08/15/17 244,714
3,000 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Ser A Rfdg............... 7.400 08/15/23 3,102,450
2,250 Illinois Hlth Fac Auth Rev Fairview
Residence Rockford A................. 6.500 08/15/29 2,066,648
2,000 Illinois Hlth Fac Auth Rev OSF
Healthcare Sys....................... 6.250 11/15/29 1,951,040
3,250 Illinois Hlth Fac Auth Rev Covenant
Retirement Cmntys Ser A.............. 7.500 01/01/11 3,162,282
445 Illinois Hlth Fac Auth Rev Hinsdale
Ser C................................ 9.500 11/15/19 477,004
1,700 Illinois Hlth Fac Auth Rev Lifelink
Corp Oblig Group Ser B (Prerefunded @
02/15/05)............................ 8.000 02/15/25 1,949,152
4,000 Illinois Hlth Fac Auth Rev Lutheran
Home & Svcs Proj Ser A............... 7.500 08/15/26 4,107,160
1,000 Illinois Hlth Facs Auth Rev Bohemian
Tabor Hills Ser B Rfdg............... 5.900 11/15/24 859,540
8,944 Illinois St Real Estate Lease Ctfs
(a) (c).............................. 7.116 06/15/18 10,075,863
1,135 Jackson Park Hosp Fndtn Chicago, IL
Jackson Park Hosp.................... 9.000 03/01/05 1,073,903
</TABLE>
See Notes to Financial Statements
F-14
<PAGE> 97
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 995 Loves Park, IL First Mtg Rev Hoosier
Care Proj Ser A...................... 7.125% 06/01/34 $ 929,678
1,810 Mill Creek Wtr Reclamation Dist IL
Sew Rev.............................. 8.000 03/01/10 1,958,746
1,080 Mill Creek Wtr Reclamation Dist IL
Wtrwks Rev........................... 8.000 03/01/10 1,168,754
2,480 Palatine, IL Tax Increment Rev
Rand/Dundee Cent Proj (Prerefunded @
01/01/07)............................ 7.750 01/01/17 2,833,648
765 Peoria, IL Spl Tax Weaverridge Spl
Svc Area............................. 7.625 02/01/08 797,444
2,050 Peoria, IL Spl Tax Weaverridge Spl
Svc Area............................. 8.050 02/01/17 2,167,424
4,100 Robbins, IL Res Recov Rev............ 8.375 10/15/16 2,182,840
1,265 Round Lake Beach, IL Tax Increment
Rev Rfdg............................. 7.200 12/01/04 1,331,438
2,500 Round Lake Beach, IL Tax Increment
Rev Rfdg............................. 7.500 12/01/13 2,660,125
2,750 Saint Charles, IL Indl Dev Rev
Tri-City Cent Proj................... 7.500 11/01/13 2,796,228
3,915 Saint Charles, IL Multi-Family Hsg
Rev Bonds Wessel Court Proj.......... 7.600 04/01/24 3,961,745
2,000 Saint Charles, IL Spl Svc Area No
21................................... 6.625 03/01/28 1,843,620
--------------
115,272,425
--------------
INDIANA 2.6%
450 Carmel, IN Retirement Rental Hsg Rev
Beverly Enterprises Inc Proj Rfdg.... 8.750 12/01/08 483,984
1,100 Crawfordsville, IN Redev Comm Dist
Tax Increment Rev.................... 7.350 02/01/17 1,079,375
1,430 Delaware Cnty, IN Redev Dist Tax
Increment Rev........................ 6.875 02/01/18 1,375,975
2,500 East Chicago, IN Solid Waste Disposal
Rev USG Corp Proj.................... 6.375 08/01/29 2,412,725
2,626 Indiana Dev Fin Auth Indl Dev Rev
Unr-Rohn Inc Proj (e)................ 7.500 03/01/11 2,741,203
500 Indiana Hlth Fac Auth Cmnty
Hartsfield Vlg Proj Ser A............ 6.250 08/15/14 469,935
2,000 Indiana Hlth Fac Auth Cmnty
Hartsfield Vlg Proj Ser A............ 6.375 08/15/27 1,818,560
1,500 Indiana Hlth Fac Auth Saint Anthony
Home................................. 7.000 05/15/17 1,501,980
1,000 Indiana Hlth Fac Auth Saint Anthony
Home................................. 7.250 05/15/24 1,010,410
2,495 Indiana Hlth Fac Fin Auth Rev Hoosier
Care Proj Ser A...................... 7.125 06/01/34 2,331,203
</TABLE>
See Notes to Financial Statements
F-15
<PAGE> 98
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$2,950 Indiana Hlth Fac Fin Auth Rev Metro
Hlth/IN Inc Proj..................... 6.300% 12/01/23 $ 2,607,593
3,000 Indiana Hlth Fac Fin Auth Rev Metro
Hlth/IN Inc Proj..................... 6.400 12/01/33 2,617,260
8,270 Indianapolis, IN Arpt Auth Rev Spl
Fac United Airls Proj Ser A.......... 6.500 11/15/31 8,079,459
2,000 South Bend, IN Econ Dev Rev Ser A.... 6.250 11/15/29 1,777,520
175 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/10 72,391
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/11 51,569
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/12 45,800
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/13 42,290
125 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/14 37,546
125 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/15 34,669
125 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev........................ * 12/30/16 32,011
435 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent................ 7.300 01/01/02 427,892
980 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent................ 7.500 01/01/07 935,351
1,405 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent................ 7.750 01/01/12 1,314,757
2,045 Valparaiso, IN Econ Dev Rev First Mtg
Whispering Pines Cent................ 8.000 01/01/17 1,890,705
400 Wells Cnty, IN Hosp Auth Rev Caylor
Nickel Med Cent Inc Rfdg............. 8.500 04/15/03 424,704
3,600 Wells Cnty, IN Hosp Auth Rev Caylor
Nickel Med Cent Inc Rfdg............. 8.750 04/15/12 3,931,992
--------------
39,548,859
--------------
</TABLE>
See Notes to Financial Statements
F-16
<PAGE> 99
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
IOWA 0.8%
$2,000 Bremer Cnty, IA Hlthcare &
Residential Fac Rev.................. 7.250% 11/15/29 $ 1,962,780
1,500 Cedar Rapids, IA Rev First Mtg
Cottage Grove........................ 5.875 07/01/28 1,269,900
3,000 Iowa Fin Auth Cmnty Provider Rev Boys
& Girls Home Family Proj............. 6.250 12/01/28 2,601,570
2,770 Iowa Fin Auth Multi-Family Rev Hsg
Park West Proj Rfdg.................. 8.000 10/01/23 2,801,246
2,265 Iowa Fin Auth Retirement Fac
Presbyterian Homes Mill Pond......... 6.000 10/01/33 1,917,979
1,000 Palo Alto Cnty, IA Hosp Rev Palo Alto
Cnty Hosp Proj....................... 6.000 08/01/28 864,830
--------------
11,418,305
--------------
KANSAS 0.6%
1,000 Lawrence, KS Coml Dev Rev Holiday Inn
Sr Ser A............................. 8.000 07/01/16 1,050,400
2,000 Lenexa, KS Hlthcare Fac Rev Lakeview
Vlg Ser B............................ 6.250 05/15/26 1,854,220
3,000 Manhattan, KS Coml Dev Rev Holiday
Inn Sr Ser A Rfdg.................... 8.000 07/01/16 3,151,200
3,125 Shawnee Cnty, KS Rev United Methodist
Homes Inc Ser A Rfdg................. 6.125 11/15/19 2,833,188
1,000 Wichita, KS Hlthcare Facs Rev
Larksfield Place Ser I............... 5.875 05/15/27 849,650
--------------
9,738,658
--------------
KENTUCKY 0.3%
1,195 Kenton Cnty, KY Arpt Brd Arpt Rev Spl
Fac Delta Airls Proj Ser A........... 8.100 12/01/15 1,218,996
1,000 Kenton Cnty, KY Aprt Brd Spl Mesaba
Aviation Inc Proj Ser A.............. 6.625 07/01/19 974,590
2,000 Kenton Cnty, KY Arpt Brd Spl Fac Rev
Mesaba Aviation Inc Proj Ser A....... 6.700 07/01/29 1,934,500
--------------
4,128,086
--------------
LOUISIANA 1.8%
4,700 Hodge, LA Util Rev (a)............... 9.000 03/01/10 4,821,260
1,135 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev............................. 7.500 05/26/06 1,107,522
2,000 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev............................. 8.000 05/26/16 2,001,800
</TABLE>
See Notes to Financial Statements
F-17
<PAGE> 100
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$4,000 Lake Charles, LA Harbor & Terminal
Dist Port Fac Rev Trunkline Lng Co
Rfdg................................. 7.750% 08/15/22 $ 4,370,280
200 Louisiana Hsg Fin Agy Rev
Multi-Family Hsg Plantation Ser A.... 7.200 01/01/03 199,762
4,675 Louisiana Hsg Fin Agy Rev
Multi-Family Hsg Plantation Ser A.... 7.125 01/01/28 4,413,200
570 Louisiana Pub Fac Auth Rev Indl Dev
Beverly Enterprises Inc Rfdg......... 8.250 09/01/08 604,308
1,000 Louisiana Pub Facs Auth Rev
Progressive Hlthcare................. 6.375 10/01/20 898,170
1,000 Louisiana Pub Facs Auth Rev
Progressive Hlthcare................. 6.375 10/01/28 871,500
1,400 Port New Orleans, LA Indl Dev Rev
Avondale Inds Inc Proj Rfdg.......... 8.250 06/01/04 1,474,298
2,500 Saint James Parish, LA Solid Waste
Disp Rev Kaiser Alum Proj............ 7.750 08/01/22 2,620,700
3,000 Saint Tammany, LA Pub Trust Fin Auth
Rev Christwood Proj Rfdg............. 5.700 11/15/28 2,483,610
500 West Feliciana Parish, LA Pollutn Ctl
Rev Gulf States Util Co Proj Ser A... 7.500 05/01/15 527,995
1,000 West Feliciana Parish, LA Pollutn Ctl
Rev Gulf States Util Co Proj Ser B... 9.000 05/01/15 1,043,550
--------------
27,437,955
--------------
MAINE 0.3%
3,200 Maine Fin Auth Solid Waste Disposal
Rev Boise Cascade Corp Proj.......... 7.900 06/01/15 3,293,568
1,500 Maine Vets Homes ME Rev.............. 7.750 10/01/20 1,593,195
--------------
4,886,763
--------------
MARYLAND 1.5%
1,250 Anne Arundel Cnty, MD Spl Tax Dist
Arundel Mills Proj (b)............... 7.100 07/01/29 1,249,125
2,000 Anne Arundel Cnty, MD Spl Tax Dist
Farmington Vlg Proj Ser A............ 6.250 06/01/25 1,830,500
2,500 Baltimore Cnty, MD Mtg Rev Shelter
Elder Care Ser A..................... 7.250 11/01/29 2,360,575
</TABLE>
See Notes to Financial Statements
F-18
<PAGE> 101
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MARYLAND (CONTINUED)
$1,750 Baltimore Cnty, MD Nursing Fac
Eastpoint Rehab & Nursing Cent Ser
A.................................... 6.750% 04/01/28 $ 1,563,800
2,000 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser A
Rfdg................................. 7.550 06/01/17 2,075,120
2,500 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser B
Rfdg................................. 7.500 06/01/15 2,585,450
1,500 Frederick Cnty, MD Spl Olbig Urbana
Cmnty Dev Auth....................... 6.625 07/01/25 1,434,195
2,000 Maryland St Econ Dev Corp Afco Cargo
BWI LLC Proj......................... 6.500 07/01/24 1,939,080
1,175 Montgomery Cnty, MD Econ Dev
Editorial Projs In Edl Ser A (e)..... 6.250 09/01/08 1,110,410
3,730 Montgomery Cnty, MD Econ Dev
Editorial Projs In Edl Ser A (e)..... 6.400 09/01/28 3,368,414
850 Prince Georges Cnty, MD Hosp Rev
(f).................................. 6.375 01/01/23 348,500
3,000 Prince Georges Cnty, MD Spl Oblig Spl
Assmt Woodview Ser A................. 8.000 07/01/26 3,271,680
--------------
23,136,849
--------------
MASSACHUSETTS 7.6%
5,530 Massachusetts St Dev Fin Agy New
England Cntr For Children............ 6.000 11/01/19 4,877,226
1,090 Massachusetts St Dev Fin Agy Rev
Boston Architectural Cent............ 6.100 09/01/18 1,000,500
1,445 Massachusetts St Dev Fin Agy Rev
Boston Architectural Cent............ 6.250 09/01/28 1,307,291
1,425 Massachusetts St Dev Fin Agy Rev
Greater Lynn Mental Hlth Ser B....... 6.375 06/01/18 1,301,082
5,000 Massachusetts St Dev Fin Agy Rev
Hlthcare Fac Alliance Ser A.......... 7.100 07/01/32 4,824,750
2,410 Massachusetts St Dev Fin Agy Rev
Lexington Montessori Sch Issue....... 6.625 08/01/29 2,326,469
3,000 Massachusetts St Hlth & Edl
Christopher House Ser A Rfdg......... 6.875 01/01/29 2,841,600
1,440 Massachusetts St Hlth & Edl Fac Auth
Rev Indpt Living Ser A............... 8.100 07/01/18 1,620,173
</TABLE>
See Notes to Financial Statements
F-19
<PAGE> 102
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$2,000 Massachusetts St Indl Fin Agy
Assisted Living Fac Rev.............. 8.000% 09/01/27 $ 2,115,700
2,000 Massachusetts St Indl Fin Agy
Assisted Living Fac Rev.............. 7.500 12/01/27 2,042,780
1,000 Massachusetts St Indl Fin Agy First
Mtg Pilgrim Inc Proj................. 6.500 10/01/15 913,690
2,000 Massachusetts St Indl Fin Agy
Trustees Deerfield Academy........... 6.750 10/01/28 1,790,380
4,000 Massachusetts St Indl Fin Agy
Hlthcare Fac Rev Metro Hlth Fndtn Inc
Proj Ser A........................... 6.750 12/01/27 3,833,080
675 Massachusetts St Indl Fin Agy Indl
Rev Beverly Enterprises
Inc/Gloucester & Lexington Proj
Rfdg................................. 8.000 05/01/02 682,081
800 Massachusetts St Indl Fin Agy Indl
Rev Beverly Enterprises
Inc/Gloucester & Lexington Proj
Rfdg................................. 8.375 05/01/09 847,248
6,000 Massachusetts St Indl Fin Agy Rev Gtr
Lynn Mental Hlth (a)................. 6.375 06/01/18 5,458,380
500 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent.............. 8.000 12/01/06 531,280
1,000 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent.............. 8.375 12/01/13 1,108,540
3,000 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent.............. 8.500 12/01/20 3,339,150
2,555 Massachusetts St Indl Fin Agy Rev
East Boston Neighborhood Proj........ 7.500 07/01/16 2,425,027
2,560 Massachusetts St Indl Fin Agy Rev
East Boston Neighborhood Proj........ 7.625 07/01/26 2,429,440
710 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc................... 8.000 11/01/06 754,737
3,900 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc (e)............... 9.250 11/01/11 4,129,866
1,230 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc................... 8.375 11/01/13 1,385,312
2,165 Massachusetts St Indl Fin Agy Rev
Evergreen Cent Inc................... 8.500 11/01/20 2,460,436
1,005 Massachusetts St Indl Fin Agy Rev
First Mtg Evanswood Bethzatha Ser A
Rfdg................................. 7.400 01/15/09 983,754
</TABLE>
See Notes to Financial Statements
F-20
<PAGE> 103
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$2,000 Massachusetts St Indl Fin Agy Rev
First Mtg Evanswood Bethzatha Ser A
Rfdg................................. 7.625% 01/15/14 $ 1,957,560
2,000 Massachusetts St Indl Fin Agy Rev
First Mtg Evanswood Bethzatha Ser A
Rfdg................................. 7.875 01/15/20 1,970,000
1,410 Massachusetts St Indl Fin Agy Rev
First Mtg Loomis House & Vlg Proj.... 7.400 07/01/12 1,597,065
1,530 Massachusetts St Indl Fin Agy Rev
First Mtg Loomis House & Vlg Proj.... 7.500 07/01/17 1,740,375
690 Massachusetts St Indl Fin Agy Rev
First Mtg Loomis House & Vlg Proj
(Prerefunded @ 07/01/05)............. 7.250 07/01/07 777,278
1,000 Massachusetts St Indl Fin Agy Rev
First Mtg Reeds Landing Proj......... 7.750 10/01/00 1,000,620
8,300 Massachusetts St Indl Fin Agy Rev
First Mtg Reeds Landing Proj (a)..... 8.625 10/01/23 8,948,479
1,700 Massachusetts St Indl Fin Agy Rev
First Mtg Stone Institute & Newton... 7.700 01/01/14 1,772,658
1,760 Massachusetts St Indl Fin Agy Rev
Glenmeadow Retirement Cmnty Ser C
(Prerefunded @ 02/15/06)............. 8.250 02/15/08 2,084,650
1,000 Massachusetts St Indl Fin Agy Rev
Glenmeadow Retirement Cmnty Ser C
(Prerefunded @ 02/15/06)............. 8.625 02/15/26 1,200,200
2,795 Massachusetts St Indl Fin Agy Rev Gtr
Lynn Mental Hlth..................... 6.200 06/01/08 2,656,256
3,615 Massachusetts St Indl Fin Agy Rev Gtr
Lynn Mental Hlth (Prerefunded @
06/01/04)............................ 8.800 06/01/14 4,469,369
3,945 Massachusetts St Indl Fin Agy Rev
Hillcrest Edl Cent Inc Proj.......... 6.375 07/01/29 3,732,246
2,850 Massachusetts St Indl Fin Agy Rev
Hillcrest Edl Cent Inc Proj
(Prerefunded @ 07/01/05)............. 8.450 07/01/18 3,209,328
740 Massachusetts St Indl Fin Agy Rev
Hillcrest Edl Cent Inc Proj
(Prerefunded @ 07/01/05)............. 8.000 07/01/05 807,118
115 Massachusetts St Indl Fin Agy Rev
Hillcrest Edl Cent Inc Proj
(Prerefunded @ 07/07/00)............. 7.500 07/01/00 115,930
1,085 Massachusetts St Indl Fin Agy Rev
HMES Issue........................... 7.000 09/01/12 1,056,096
</TABLE>
See Notes to Financial Statements
F-21
<PAGE> 104
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<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 $ 3,298,069
2,600 Massachusetts St Indl Fin Agy Rev
Montserrat College Art Issue Ser A... 7.000 12/01/27 2,441,816
1,910 Massachusetts St Indl Fin Agy Rev NE
Cent for Autism (Prerefunded @
11/01/00) (e)........................ 9.000 11/01/05 2,028,897
4,910 Massachusetts St Indl Fin Agy Rev NE
Cent for Autism (Prerefunded @
11/01/00) (e)........................ 9.500 11/01/15 5,237,301
2,000 Massachusetts St Indl Fin Agy Rev
Orchard Cove Issue (Prerefunded @
05/01/02)............................ 9.000 05/01/22 2,249,740
2,000 Massachusetts St Indl Fin Agy Rev Sr
Living Fac Forge Hill Proj........... 6.750 04/01/30 1,729,220
1,820 Massachusetts St Indl Fin Agy Rev
Waarc Inc Proj (Prerefunded @
09/01/05)............................ 7.750 09/01/25 2,104,157
--------------
115,514,400
--------------
MICHIGAN 1.5%
1,000 Detroit, MI Loc Dev Fin Auth Tax
Increment Sr Ser B (d)............... 6.700 05/01/21 974,340
3,500 Detroit, MI Loc Dev Fin Auth Ser C... 6.850 05/01/21 3,433,920
1,060 Dickinson Cnty, MI Mem Hosp Sys Hosp
Rev.................................. 7.625 11/01/05 1,150,026
1,000 Dickinson Cnty, MI Mem Hosp Sys Hosp
Rev.................................. 8.000 11/01/14 1,148,110
2,390 Meridian, MI Econ Dev Corp First Mtg
Burcham Hills Ser A Rfdg............. 7.500 07/01/13 2,446,619
3,430 Meridian, MI Econ Dev Corp First Mtg
Burcham Hills Ser A Rfdg............. 7.750 07/01/19 3,554,474
500 Michigan St Hosp Fin Auth Rev Hosp
Genesys Hlth Sys Ser A Rfdg
(Prerefunded @ 10/01/05)............. 7.500 10/01/07 576,510
1,500 Michigan St Hosp Fin Auth Rev Hosp
Genesys Hlth Sys Ser A Rfdg
(Prerefunded @ 10/01/05)............. 8.100 10/01/13 1,773,810
2,700 Michigan St Hosp Fin Auth Rev Hosp
Henry Ford Hlth Ser A Rfdg........... 5.250 11/15/25 2,307,798
</TABLE>
See Notes to Financial Statements
F-22
<PAGE> 105
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$1,026 Michigan St Strategic Fd Ltd Oblig
Rev Great Lakes Pulp & Fiber Proj
(d).................................. 8.000% 12/01/27 $ 718,012
4,000 Michigan St Strategic Fd Solid Waste
Disp Rev Genesee Pwr Station Proj.... 7.500 01/01/21 4,174,480
--------------
22,258,099
--------------
MINNESOTA 2.5%
1,750 Albertville, MN Multi-Family Rev Hsg
Cottages Albertville Proj A.......... 6.750 09/01/29 1,716,768
1,020 Austin, MN Multi-Family Rev Hsg
Cedars of Austin Proj Rfdg........... 7.500 04/01/17 1,037,269
2,000 Austin, MN Multi-Family Rev Hsg
Cedars of Austin Proj Rfdg........... 7.500 04/01/18 2,033,860
1,955 Brooklyn Cent MN Multi-Family Hsg Rev
Four Courts Apts Proj Ser A Rfdg..... 7.400 12/01/15 1,971,735
1,220 Brooklyn Cent MN Multi-Family Hsg Rev
Four Courts Apts Proj Ser A Rfdg..... 7.500 06/01/25 1,230,407
1,460 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Pf Ser A.............. 6.000 10/01/28 1,259,133
1,495 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser B............ 6.000 10/01/33 1,278,360
750 Chisago City, MN Hlth Fac Rev Part
Pleasant Heights Proj Ser A Rfdg..... 7.300 07/01/25 770,760
3,000 Columbia Heights, MN Multi-Family
Crest View Corp Proj................. 6.000 03/01/33 2,570,430
2,700 Dakota Cnty, MN Hsg & Redev.......... 6.250 05/01/29 2,505,519
1,200 Maplewood, MN Hlthcare Fac Rev VOA
Care Cent Proj....................... 7.450 10/01/16 1,239,612
1,950 Minneapolis, MN Hlthcare Fac Rev
Ebenezer Society Proj Ser A.......... 7.200 07/01/23 1,953,802
1,000 Minneapolis, MN Hlthcare Fac Rev
Saint Olaf Residence Inc Proj........ 7.100 10/01/23 1,001,990
350 Minneapolis, MN Multi-Family Rev Hsg
Belmont Apts Proj.................... 7.250 11/01/16 350,879
1,320 Minneapolis, MN Multi-Family Rev Hsg
Belmont Apts Proj (a)................ 7.625 11/01/27 1,325,372
</TABLE>
See Notes to Financial Statements
F-23
<PAGE> 106
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINNESOTA (CONTINUED)
$3,040 New Brighton, MN Rental Hsg Rev
Polynesian Vlg Apts Proj Ser A
Rfdg................................. 7.500% 10/01/17 $ 3,094,294
760 New Hope, MN Multi-Family Rev Hsg
Broadway Lanel Proj.................. 7.750 09/01/07 770,024
2,320 New Hope, MN Multi-Family Rev Hsg
Broadway Lanel Proj.................. 8.000 09/01/18 2,342,875
785 North Saint Paul, MN Multi-Family Rev
Hsg Cottages North St Paul Rfdg...... 9.000 02/01/09 818,237
2,220 North Saint Paul, MN Multi-Family Rev
Hsg Cottages North St Paul Rfdg...... 9.250 02/01/22 2,312,197
2,255 Northfield, MN Hlthcare Facs Rev
Three Links Care Cent Proj........... 5.875 04/01/29 1,911,067
1,000 Saint Paul, MN Port Auth Hotel Fac
Rev Radisson Kellogg Proj Ser 2...... 7.375 08/01/29 992,470
500 Shoreview, MN Sr Hsg Rev Shoreview Sr
Residence Proj....................... 7.250 02/01/26 486,800
2,000 Spring Lake Park, MN Multi-Family Hsg
Cottages Spring Lake Rfdg (LOC: Zapp
Natl Bank St Cloud).................. 8.375 01/01/22 2,003,420
1,000 Winona, MN Hsg Rev Saint Anne Hospice
Inc.................................. 6.750 07/01/27 955,490
--------------
37,932,770
--------------
MISSISSIPPI 0.5%
950 Lowndes Cnty, MS Hosp Rev Golden
Triangle Med Cent Rfdg............... 8.500 02/01/10 973,104
1,615 Mississippi Business Fin Corp MS
Pollutn Ctl Rev Sys Energy Res Inc
Proj................................. 5.875 04/01/22 1,432,650
2,200 Mississippi Dev Bank Spl Oblig
Diamond Lakes Utils Ser A Rfdg....... 6.250 12/01/17 2,145,550
2,780 Ridgeland, MS Urban Renewal Rev The
Orchard Ltd Proj Ser A Rfdg.......... 7.750 12/01/15 2,880,664
--------------
7,431,968
--------------
MISSOURI 1.8%
2,755 Ellisville, MO Indl Dev Auth Rev Rfdg
& Impt Gambrill Gardens Proj......... 6.200 06/01/29 2,435,007
1,000 Ferguson, MO Tax Increment Rev
Crossings at Halls Ferry Proj........ 7.250 04/01/07 985,110
</TABLE>
See Notes to Financial Statements
F-24
<PAGE> 107
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$2,000 Ferguson, MO Tax Increment Rev
Crossings at Halls Ferry Proj........ 7.625% 04/01/17 $ 1,952,820
1,000 Ferguson, MO Tax Increment Rev
Crossings at Halls Ferry Proj........ 7.625 04/01/18 975,790
3,610 Good Shepard Nursing Home Dist MO
Nursing Home Fac Rev Rfdg............ 5.900 08/15/23 3,117,957
2,705 Jefferson Cnty, MO Indl Dev Auth Indl
Rev Cedars Hlthcare Cent Proj Ser A
Rfdg................................. 8.250 12/01/15 2,862,891
3,000 Kansas City, MO Multi-Family Hsg Rev
Vlg Green Apts Proj.................. 6.250 04/01/30 2,825,460
1,075 Missouri St Hlth & Edl Fac Bethesda
Hlth Group Inc Proj Ser A Rfdg....... 7.500 08/15/12 1,150,250
3,000 Perry Cnty, MO Nursing Home Rev
Rfdg................................. 5.900 03/01/28 2,547,210
1,615 Saint Louis, MO Tax Increment Rev
Scullin Redev Area Ser A............. 10.000 08/01/10 1,928,455
3,325 Saline Cnty, MO Indl Dev Auth Hlth
Facs Rev John Fitzgibbon Mem Hosp
Inc.................................. 6.500 12/01/28 2,939,366
3,600 Valley Park, MO Indl Dev Auth Sr Hsg
Rev Cape Albeon Proj................. 6.150 12/01/33 3,286,872
--------------
27,007,188
--------------
MONTANA 0.2%
2,825 Montana St Brd Invt Res Recovery Rev
Yellowstone Energy L P Proj.......... 7.000 12/31/19 2,780,845
--------------
NEVADA 0.7%
1,000 Boulder City, NV Hosp Rev Boulder
City Hosp Inc Proj Rfdg.............. 5.850 01/01/22 862,080
3,075 Clark Cnty, NV Assisted Living
Homestead Boulder City Proj.......... 6.500 12/01/27 2,836,257
1,490 Henderson, NV Loc Impt Dist No
T-10................................. 7.500 08/01/15 1,535,609
985 Las Vegas, NV Spl Impt Dist No 505
Elkhorn Springs...................... 8.000 09/15/13 1,020,903
</TABLE>
See Notes to Financial Statements
F-25
<PAGE> 108
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEVADA (CONTINUED)
$1,210 Nevada St Dept Commerce Hlth Fac Rev
Washoe Convalescent Cent Proj Rfdg... 8.125% 06/01/03 $ 1,241,012
3,000 Washoe Cnty, NV Impt Bonds Spl Assmt
Dist No 23........................... 6.500 11/01/17 3,062,700
--------------
10,558,561
--------------
NEW HAMPSHIRE 2.8%
435 New Hampshire Higher Edl & Hlth Fac
Auth Rev Colby-Sawyer College
Issue................................ 7.200 06/01/12 451,861
2,565 New Hampshire Higher Edl & Hlth Fac
Auth Rev Colby-Sawyer College
Issue................................ 7.500 06/01/26 2,698,252
4,965 New Hampshire Higher Edl & Hlth Fac
Auth Rev Daniel Webster College Issue
Rfdg (Prerefunded @ 07/01/04)........ 7.625 07/01/16 5,603,797
1,035 New Hampshire Higher Edl & Hlth Fac
Auth Rev First Mtg Odd Fellows Home
Rfdg................................. 8.000 06/01/04 1,061,382
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev First Mtg Odd Fellows Home
Rfdg................................. 9.000 06/01/14 2,301,780
1,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage
Heights.............................. 7.350 01/01/18 1,035,260
4,825 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage
Heights.............................. 7.450 01/01/25 4,979,400
2,295 New Hampshire Higher Edl & Hlth Fac
Auth Rev Hlthcare Visiting Nurse
(e).................................. 7.250 09/01/23 2,315,494
1,370 New Hampshire Higher Edl & Hlth Fac
Auth Rev Monadock Cmnty Hosp Issue
(Prerefunded @ 10/01/00)............. 9.125 10/01/20 1,451,529
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev New London Hosp Assn Proj... 7.500 06/01/05 2,145,220
3,355 New Hampshire Higher Edl & Hlth Fac
Auth Rev Vly Regl Hosp (e)........... 7.350 04/01/23 3,370,131
2,000 New Hampshire Higher Edl & Hlth Facs
Auth Rev............................. 6.125 03/01/19 1,853,980
4,845 New Hampshire Higher Edl & Hlth Facs
Auth Rev............................. 6.300 07/01/29 4,409,434
1,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Riverwoods at Exeter Ser
A.................................... 6.500 03/01/23 930,430
</TABLE>
See Notes to Financial Statements
F-26
<PAGE> 109
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE (CONTINUED)
$3,860 New Hampshire St Business Fin Auth
Elec Fac Rev Plymouth Cogeneration... 7.750% 06/01/14 $ 3,955,110
3,000 New Hampshire St Business Fin Auth
Rev Alice Peck Day Health Systems Ser
A.................................... 7.000 10/01/29 2,864,610
1,325 New Hampshire St Hsg Fin Auth Single
Family Rev........................... 5.900 07/01/28 1,275,763
--------------
42,703,433
--------------
NEW JERSEY 4.9%
4,990 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig (a).................. 8.400 04/01/24 5,390,298
4,500 Camden Cnty, NJ Impt Auth Lease Rev
Kaighn PT Marine Term Ser A (a)...... 8.000 06/01/27 4,815,900
1,000 New Jersey Econ Dev Auth Econ Dev
Rev.................................. 6.750 07/01/19 968,940
500 New Jersey Econ Dev Auth Econ Dev Rev
Green Acres Manor Inc Ser A Rfdg..... 8.000 01/01/09 515,380
1,000 New Jersey Econ Dev Auth Econ Dev Rev
Green Acres Manor Inc Ser A Rfdg..... 8.250 01/01/17 1,033,330
415 New Jersey Econ Dev Auth Econ Dev Rev
Zirbser Greenbriar Inc Ser A Rfdg.... 7.375 07/15/03 425,309
915 New Jersey Econ Dev Auth Econ Dev Rev
Zirbser Greenbriar Inc Ser A Rfdg.... 7.750 07/15/08 943,136
250 New Jersey Econ Dev Auth First Mtg
Cranes Mill Ser A.................... 7.000 02/01/10 252,750
1,500 New Jersey Econ Dev Auth First Mtg
Cranes Mill Ser A.................... 7.375 02/01/17 1,551,735
3,500 New Jersey Econ Dev Auth First Mtg
Cranes Mill Ser A.................... 7.500 02/01/27 3,626,035
500 New Jersey Econ Dev Auth First Mtg
Gross Rev Burnt Tavern Convalescent
Ser A Rfdg........................... 9.000 11/15/13 528,505
840 New Jersey Econ Dev Auth First Mtg
Gross Rev Stone Arch Nursing Home
Proj Rfdg............................ 8.750 12/01/10 892,072
1,000 New Jersey Econ Dev Auth First Mtg
Gross Rev The Evergreens (Prerefunded
@ 10/01/02).......................... 9.250 10/01/22 1,140,290
875 New Jersey Econ Dev Auth Rev First
Mtg Gross Rev The Evergreens Rfdg.... 5.875 12/01/27 744,494
</TABLE>
See Notes to Financial Statements
F-27
<PAGE> 110
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$1,000 New Jersey Econ Dev Auth Holt Hauling
& Warehsg Rev Ser G Rfdg............. 8.400% 12/15/15 $ 1,058,180
3,000 New Jersey Econ Dev Auth Meridian
Assisted Living Rev Proj............. 6.750 08/01/30 2,729,280
500 New Jersey Econ Dev Auth Rev First
Mtg Fellowship Vlg Proj Ser A
(Prerefunded @ 01/01/05)............. 8.500 01/01/10 590,185
1,000 New Jersey Econ Dev Auth Rev First
Mtg Fellowship Vlg Proj Ser A
(Prerefunded @ 01/01/05)............. 9.250 01/01/25 1,212,840
975 New Jersey Econ Dev Auth Rev First
Mtg Millhouse Proj Ser A............. 8.250 04/01/10 1,049,080
2,060 New Jersey Econ Dev Auth Rev First
Mtg Millhouse Proj Ser A............. 8.500 04/01/16 2,229,600
1,860 New Jersey Econ Dev Auth Rev First
Mtg Winchester Gardens Ser A......... 7.500 11/01/05 1,906,091
1,100 New Jersey Econ Dev Auth Rev First
Mtg Winchester Gardens Ser A......... 8.500 11/01/16 1,200,947
1,500 New Jersey Econ Dev Auth Rev First
Mtg Winchester Gardens Ser A......... 8.625 11/01/25 1,643,460
1,945 New Jersey Econ Dev Auth Rev Kullman
Assoc Proj Ser A..................... 6.125 06/01/18 1,797,763
2,500 New Jersey Econ Dev Auth Rev Sr
Living Fac Esplandade Near........... 7.000 06/01/39 2,314,450
4,500 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A Rfdg........... 6.000 05/15/28 3,893,490
855 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A................ 8.000 05/15/02 910,319
750 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A................ 8.000 05/15/04 837,060
2,560 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A (Prerefunded @
05/15/06)............................ 8.750 05/15/26 3,134,208
5,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj........... 6.625 09/15/12 5,164,200
5,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj........... 6.250 09/15/19 4,791,600
</TABLE>
See Notes to Financial Statements
F-28
<PAGE> 111
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$5,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj........... 6.250% 09/15/29 $ 4,695,450
2,500 New Jersey Hlthcare Fac Fin Auth Rev
Care Institute Inc Cherry Hill
Proj................................. 7.750 07/01/10 2,499,025
3,100 New Jersey Hlthcare Fac Fin Auth Rev
Raritan Bay Med Cent Issue Rfdg...... 7.250 07/01/14 3,035,706
950 New Jersey St Edl Fac Auth Rev
Caldwell College Ser A............... 7.250 07/01/25 980,314
4,000 New Jersey St Edl Fac Auth Rev
Felician College of Lodi Ser D....... 7.375 11/01/22 4,152,560
--------------
74,653,982
--------------
NEW MEXICO 1.6%
4,460 Albuquerque, NM Retirement Fac Rev La
Vida Liena Proj Ser A Rfdg
(Prerefunded @ 02/01/03)............. 8.850 02/01/23 5,061,877
5,000 Albuquerque, NM Retirement Fac Rev La
Vida Liena Proj Ser B Rfdg........... 6.600 12/15/28 4,483,950
2,970 Bernalillo Cnty, NM Multi-Family Hsg
Brentwood Gardens Apt B 1............ 6.600 10/15/28 2,791,859
1,570 Bernalillo Cnty, NM Multi-Family Rev
Hsg Sr Solar Villas Apts Ser F....... 7.250 10/15/22 1,525,522
3,000 Farmington, NM Pollutn Ctl Rev Public
Svc Co NM Proj Ser A................. 6.600 10/01/29 2,964,960
2,000 New Mexico Regional Hsg Auth Region
VI Multi-Family Rev.................. 6.750 06/15/29 1,904,420
2,500 New Mexico St Hosp Equip Ln Council
Hosp Rev Mem Med Cent Inc Proj....... 5.500 06/01/28 2,119,275
2,920 RHA Hsg Dev Corp NM Multi-Family Rev
Mtg Woodleaf Apts Proj Ser A Rfdg.... 7.125 12/15/27 2,805,536
670 Santa Fe, NM Indl Rev Casa Real
Nursing Home Rfdg.................... 9.750 01/01/13 701,075
--------------
24,358,474
--------------
</TABLE>
See Notes to Financial Statements
F-29
<PAGE> 112
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 4.1%
$1,000 Amherst, NY Indl Dev Agy Sr Rev
Sharrey Zedek Proj Ser A (b)......... 7.000% 12/01/24 $ 980,020
1,500 Amherst, NY Indl Dev Agy Sr Rev
Sharrey Zedek Proj Ser A (b)......... 7.000 12/01/34 1,434,270
2,000 Bethlehem, NY Indl Dev Agy Sr Hsg Rev
Van Allen Proj Ser A................. 6.875 06/01/39 1,855,400
1,340 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev Woodcrest Estates
Fac Ser A............................ 6.250 12/01/23 1,204,821
2,000 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev Woodcrest Estates
Fac Ser A............................ 6.375 12/01/37 1,784,300
2,000 Castle Rest Residential Hlthcare Fac
NY Rev Hlthcare Fac Ser B............ 8.000 08/01/10 1,948,760
1,210 Clifton Springs, NY Hosp & Clinic Ser
A Rfdg & Impt........................ 7.650 01/01/12 1,290,997
4,800 Islip, NY Cmnty Dev Agy Cmnty Dev Rev
NY Institute of Technology Rfdg
(a).................................. 7.500 03/01/26 5,072,976
1,350 Monroe Cnty, NY Indl Dev Agy Rev Indl
Dev Empire Sports Proj Ser A......... 6.250 03/01/28 1,249,047
1,000 Mount Vernon, NY Indl Dev Agy Civic
Fac Rev.............................. 6.200 06/01/29 900,720
6,000 New York City Indl Dev Agy Laguardia
Assoc LP Proj Rfdg................... 6.000 11/01/28 5,541,900
3,500 New York City Indl Dev Agy Civic Fac
Rev Cmnty Res Developmentally
Disabled............................. 7.500 08/01/26 3,641,295
3,960 New York City Indl Dev Agy Civic Fac
Rev Our Lady of Mercy Med Cent Pkg
Corp Proj............................ 8.500 12/30/22 4,271,256
1,500 New York City Indl Dev Civic Touro
College Proj Ser A................... 6.350 06/01/29 1,419,075
4,000 New York St Mtg Agy Rev Homeowner Mtg
Ser 84............................... 5.950 04/01/30 3,879,560
2,665 Newark-Wayne Cmnty Hosp Inc NY Hosp
Rev Ser A............................ 7.600 09/01/15 2,789,029
2,000 North Syracuse, NY Hsg Auth Rev Janus
Park Proj............................ 8.000 06/01/14 1,895,440
1,250 Oneida Cnty, NY Indl Dev Agy Civic
Fac Saint Elizabeth Med Ser A........ 5.875 12/01/29 1,060,912
</TABLE>
See Notes to Financial Statements
F-30
<PAGE> 113
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 650 Onondaga Cnty, NY Indl Dev Agy Civic
Fac Rev Iroquois Nursing Home Ser
B.................................... 7.000% 02/01/09 $ 617,181
675 Oswego Cnty, NY Indl Dev Agy Civic
Fac Rev.............................. 7.000 02/01/12 634,210
1,500 Peekskill, NY Indl Dev Agy Sr Drum
Hill Sr Living Proj.................. 6.375 10/01/28 1,344,480
1,275 Rensselaer Cnty, NY Indl Dev Agy East
Greenbush Cntr Proj Ser A Rfdg (e)... 7.000 02/01/11 1,209,019
1,480 Rensselaer Cnty, NY Indl Dev Agy East
Greebush Cntr Proj Ser B Rfdg (e).... 7.000 02/01/11 1,409,330
2,300 Rockland Cnty, NY Indl Dev Agy Civic
Fac Rev Dominican College Proj (e)... 6.250 05/01/28 2,105,374
2,000 Saratoga Cnty, NY Indl Dev Agy Sr Hsg
Rev.................................. 6.875 06/01/39 1,853,020
1,000 Suffolk Cnty, NY Indl Dev Agy Civic
Fac Rev.............................. 7.250 01/01/20 975,180
2,000 Suffolk Cnty, NY Indl Dev Agy Civic
Fac Rev.............................. 7.250 01/01/30 1,924,300
1,500 Suffolk Cnty, NY Indl Dev Agy Cont
Care Retirement Cmnty Rev (b)........ 7.250 11/01/28 1,499,865
3,100 Suffolk Cnty, NY Indl Dev Agy Indl
Dev Rev Spellman High Voltage Fac Ser
A.................................... 6.375 12/01/17 2,918,774
400 Syracuse, NY Hsg Auth Rev Sub Proj
Loretto Rest Ser B................... 7.500 08/01/10 385,760
695 Ulster Cnty, NY Indl Dev Agy Civic
Fac Rev.............................. 6.250 06/01/08 670,314
1,000 Ulster Cnty, NY Indl Dev Agy Civic
Fac Rev.............................. 6.400 06/01/14 950,770
1,000 Ulster Cnty, NY Indl Dev Agy Civic
Fac Rev.............................. 6.450 06/01/24 919,600
--------------
61,636,955
--------------
NORTH CAROLINA 0.3%
5,000 Charlotte, NC Spl Fac Rev Charlotte
Douglas Int Rfdg..................... 5.600 07/01/27 4,094,900
--------------
NORTH DAKOTA 0.5%
2,610 Devils Lake, ND Hlthcare Facs Rev &
Impt Lk Reg Lutheran Rfdg............ 6.100 10/01/23 2,299,593
3,000 Grand Forks, ND Sr Hsg Rev Spl Term
4000 Vly Square Proj................. 6.250 12/01/34 2,661,600
2,000 Grand Forks, ND Sr Hsg Rev Spl Term
4000 Vly Square Proj................. 6.375 12/01/34 1,806,440
--------------
6,767,633
--------------
</TABLE>
See Notes to Financial Statements
F-31
<PAGE> 114
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 3.1%
$1,500 Athens Cnty, OH Hosp Fac Rev
O'Bleness Mem Hosp Proj.............. 7.100% 11/15/23 $ 1,511,475
3,800 Cleveland, OH Arpt Spl Rev
Continental Airls Inc Proj........... 5.375 09/15/27 3,158,142
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev
Jennings Hall........................ 7.200 11/15/14 1,017,790
1,500 Cuyahoga Cnty, OH Hlthcare Fac Rev
Jennings Hall........................ 7.300 11/15/23 1,535,745
2,500 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty Ser A Rfdg... 7.250 11/15/13 2,519,500
3,000 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty Ser A Rfdg... 7.250 11/15/18 3,023,400
1,195 Cuyahoga Cnty, OH Multi-Family Rev
Hsg Mtg Colonnade Apts Ser A Rfdg.... 7.500 12/01/17 1,151,705
2,305 Cuyahoga Cnty, OH Multi-Family Rev
Hsg Mtg Colonnade Apts Ser A Rfdg.... 7.750 12/01/28 2,207,937
2,500 Cuyahoga Cnty, OH Multi-Family Rev
Hsg Park Lane Apts Proj Ser A........ 8.250 07/01/28 2,575,000
3,000 Dayton, OH Spl Facs Rev Afco Cargo
Day LLC Proj......................... 6.300 04/01/22 2,831,880
295 Fairfield, OH Econ Dev Rev Beverly
Enterprises Inc Proj Rfdg............ 8.500 01/01/03 305,278
2,205 Hamilton Cnty, OH Multi-Family Rev
Hsg Garden Hill Washington Park
Apts................................. 7.750 10/01/21 2,269,893
1,370 Harrison, OH Harrison Ave Kmart Proj
Ser A................................ 8.125 12/01/02 1,416,991
1,000 Madison Cnty, OH Hosp Impt Rev
Madison Cnty Hosp Proj Rfdg.......... 6.250 08/01/18 903,630
2,465 Madison Cnty, OH Hosp Impt Rev
Madison Cnty Hosp Proj Rfdg.......... 6.400 08/01/28 2,201,023
5,000 Montgomery Cnty, OH Hlthcare Fac
Rev.................................. 6.250 02/01/22 4,512,850
1,000 North Canton, OH Hlthcare Facs Rev
The Waterford at Saint Luke Proj
(Prerefunded @ 11/15/02)............. 8.625 11/15/21 1,126,170
3,000 Ohio St Solid Waste Rev CSC Ltd
Proj................................. 8.500 08/01/22 2,927,400
2,000 Ohio St Solid Waste Rev Rep
Engineered Steels Proj............... 8.250 10/01/14 1,836,900
</TABLE>
See Notes to Financial Statements
F-32
<PAGE> 115
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$4,000 Ohio St Solid Waste Rev Rep
Engineered Steels Proj............... 9.000% 06/01/21 $ 3,810,360
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac
Rev Coll Cleveland Elec Ser A Rfdg... 8.000 10/01/23 2,160,540
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac
Rev Coll Toledo Edison Ser A Rfdg.... 8.000 10/01/23 2,160,540
--------------
47,164,149
--------------
OKLAHOMA 0.4%
2,830 Oklahoma Cnty, OK Fin Auth Epworth
Villa Proj Ser A Rfdg................ 7.000 04/01/25 2,722,771
2,800 Oklahoma Dev Fin Auth Rev Hilcrest
Hlthcare Sys A Rfdg.................. 5.625 08/15/29 2,294,124
500 Woodward, OK Muni Auth Hosp Rev...... 8.250 11/01/09 535,845
500 Woodward, OK Muni Auth Hosp Rev
(Prerefunded @ 11/01/00)............. 9.250 11/01/14 532,270
--------------
6,085,010
--------------
OREGON 1.0%
3,150 Clackamas Cnty, OR Hosp Fac Auth Rev
Willamette View Inc Proj Ser A (b)... 7.500 11/01/29 3,058,524
1,000 Clatsop Care Cent Hlth Dist OR Rev Sr
Hsg.................................. 6.000 08/01/14 913,450
4,000 Clatsop Care Cent Hlth Dist OR Rev Sr
Hsg.................................. 6.875 08/01/28 3,588,800
1,745 Douglas Cnty, OR Hosp Fac Auth Rev
Elderly Hsg Forest Glen Ser A........ 7.500 09/01/27 1,682,721
4,000 Oregon St Hlth Hsg Edl & Cultural
Facs Auth............................ 7.250 06/01/28 3,828,800
1,500 Salem, OR Hosp Fac Auth Rev Cap Manor
Inc.................................. 7.500 12/01/24 1,544,715
--------------
14,617,010
--------------
PENNSYLVANIA 10.2%
635 Allegheny Cnty, PA Hosp Dev Auth
Rev.................................. 7.375 08/01/04 612,775
1,945 Allegheny Cnty, PA Hosp Dev Auth Rev
Hlth Fac Allegheny Vly Sch........... 7.500 02/01/10 2,008,193
3,120 Allegheny Cnty, PA Hosp Dev Auth Rev
Hlth Fac Allegheny Vly Sch........... 7.875 02/01/20 3,286,639
2,000 Allegheny Cnty, PA Hosp Dev Hlthcare
Facs Villa Saint Joseph.............. 6.000 08/15/28 1,720,880
1,000 Allegheny Cnty, PA Indl Dev Auth
Lease Rev............................ 6.625 09/01/24 968,820
</TABLE>
See Notes to Financial Statements
F-33
<PAGE> 116
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$7,000 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Coll Toledo Edison Co Proj
Rfdg (a)............................. 7.625% 05/01/20 $ 7,519,750
4,000 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Coll Toledo Edison Co Proj
Ser A Rfdg........................... 7.750 05/01/20 4,338,000
1,000 Bucks Cnty, PA Indl Dev Auth Rev
First Mtg Hlthcare Fac Chandler...... 6.100 05/01/14 923,470
2,500 Bucks Cnty, PA Indl Dev Auth Rev
First Mtg Hlthcare Fac Chandler...... 6.300 05/01/29 2,232,150
2,000 Chartiers Vly, PA Indl & Coml Dev
Auth First Mtg Rev................... 7.400 12/01/15 2,058,140
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev
Clarion Hosp Proj (Prerefunded @
07/01/01)............................ 8.500 07/01/21 1,079,150
3,500 Cliff House Ctfs Tr Var Sts Ctfs
Partn Ser A.......................... 6.625 06/01/27 3,361,330
1,000 Crawford Cnty, PA Hosp Auth Sr Living
Fac Rev.............................. 6.250 08/15/29 935,500
1,000 Cumberland Cnty, PA Indl Dev Auth Rev
First Mtg Woods Cedar Run Ser A
Rfdg................................. 6.500 11/01/18 905,770
3,250 Cumberland Cnty, PA Indl Dev Auth Rev
First Mtg Woods Cedar Run Ser A
Rfdg................................. 6.500 11/01/28 2,832,050
4,000 Dauphin Cnty, PA Genl Auth Rev Office
& Pkg Forum Place Ser A.............. 6.000 01/15/25 3,672,840
5,500 Dauphin Cnty, PA Genl Auth Rev Office
& Pkg Riverfront Office (a).......... 6.000 01/01/25 5,050,540
4,000 Dauphin Cnty, PA Genl Auth Rev Hotel
& Conf Cent Hyatt Regency............ 6.200 01/01/29 3,725,840
870 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj (Prerefunded @
06/01/02)............................ 8.750 06/01/10 968,649
2,800 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj (Prerefunded @
06/01/02)............................ 9.250 06/01/22 3,149,496
2,500 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj Rfdg................. 7.000 06/01/26 2,461,525
2,100 Delaware Cnty, PA Auth Rev White
Horse Vlg Ser A Rfdg................. 7.500 07/01/18 2,163,315
3,500 Grove City, PA Area Hosp Auth Hlth
Fac Rev.............................. 6.625 08/15/29 3,150,280
2,000 Harrisburg, PA Auth Office & Pkg Rev
Ser A................................ 6.000 05/01/19 1,874,760
1,200 Lancaster Cnty, PA Hosp Auth Rev Hlth
Cent St Annes Home................... 6.625 04/01/28 1,108,128
</TABLE>
See Notes to Financial Statements
F-34
<PAGE> 117
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,250 Lebanon Cnty, PA Hlth Fac Auth Hlth
Cent Rev United Church of Christ
Homes Rfdg........................... 7.250% 10/01/19 $ 1,250,112
250 Lehigh Cnty, PA Genl Purp Auth Rev
First Mtg Bible Fellowship Proj...... 7.150 12/15/08 275,263
3,000 Lehigh Cnty, PA Genl Purp Auth Rev
First Mtg Bible Fellowship Proj...... 6.000 12/15/23 2,612,640
2,315 Lehigh Cnty, PA Genl Purp Auth Rev
First Mtg Bible Fellowship Proj...... 8.000 12/15/23 2,634,864
3,000 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Obligation Group........... 6.000 11/01/18 2,752,410
4,000 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Oblig Group................ 6.000 11/01/23 3,611,160
1,790 Lehigh Cnty, PA Indl Dev Auth Hlth
Fac Rev Lifepath Inc Proj............ 6.100 06/01/18 1,570,546
3,000 Lehigh Cnty, PA Indl Dev Auth Hlth
Fac Rev Lifepath Inc Proj............ 6.300 06/01/28 2,572,650
4,560 Lehigh Cnty, PA Indl Dev Auth Rev
Rfdg................................. 8.000 08/01/12 4,725,437
3,000 Luzerne Cnty, PA Indl Dev Auth Exmpt
Fac Rev PA Gas & Wtr Co Proj Ser A
Rfdg................................. 7.200 10/01/17 3,203,400
1,800 Luzerne Cnty, PA Indl Dev Auth First
Mtg Gross Rev Rfdg................... 7.875 12/01/13 1,882,836
2,500 Montgomery Cnty, PA Higher Edl & Hlth
Auth Rev............................. 6.625 07/01/19 2,307,100
1,000 Montgomery Cnty, PA Higher Edl & Hlth
Auth Rev............................. 6.750 07/01/29 916,190
3,645 Montgomery Cnty, PA Indl Dev Auth Rev
Assisted Living Ser A (Prerefunded @
05/01/03)............................ 8.250 05/01/23 4,005,381
379 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A.................................... 9.250 12/01/00 388,896
2,000 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A.................................... 6.000 12/01/10 1,962,040
500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A.................................... 7.000 12/01/10 502,425
1,500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A.................................... 7.250 12/01/15 1,525,425
</TABLE>
See Notes to Financial Statements
F-35
<PAGE> 118
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A.................................... 6.250% 12/01/17 $ 1,859,180
4,000 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A.................................... 7.400 12/01/20 4,072,280
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 2,178,171
2,500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A (Prerefunded @ 12/01/00)........... 10.250 12/01/20 2,695,050
3,505 Montgomery Cnty, PA Indl Dev Auth Rev
Hlthcare Adv Geriatric Ser A......... 8.375 07/01/23 3,710,358
645 Montgomery Cnty, PA Indl Dev Auth Rev
Pennsburg Nursing & Rehab Cent
(Prerefunded @ 03/31/04)............. 7.625 07/01/18 723,626
2,660 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy................... 7.750 09/01/14 2,785,818
1,930 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy................... 7.750 09/01/24 2,006,563
2,200 Montgomery Cnty, PA Indl Rev GDL
Farms Corp Proj Rfdg................. 6.500 01/01/20 2,055,240
2,500 Northeastern PA Hosp & Edl Auth
Hlthcare Rev......................... 7.125 10/01/29 2,490,450
2,000 Pennsylvania St Higher Edl Fac Auth
Rev Auth Allegheny Gen Hosp Ser A.... 7.125 09/01/07 1,797,000
1,000 Philadelphia, PA Auth For Indl Dev
Rev First Mtg Crime Prevention
Assoc................................ 6.125 04/01/19 938,070
4,000 Philadelphia, PA Auth for Indl Dev
Rev Coml RMK Rfdg.................... 7.750 12/01/17 4,289,640
2,000 Philadelphia, PA Auth for Indl Dev
Rev Long-Term Care Maplewood
(Prerefunded @ 07/01/04)............. 8.000 01/01/14 2,313,760
1,500 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev (f)................ 7.000 07/01/05 553,125
1,000 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev (f)................ 7.250 07/01/18 368,750
900 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev.................... 6.500 07/01/23 838,053
</TABLE>
See Notes to Financial Statements
F-36
<PAGE> 119
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,180 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev.................... 6.500% 07/01/27 $ 1,093,400
1,830 Philadelphia, PA Hosps & Higher Edl
Fac Auth Hosp Rev.................... 7.250 03/01/24 1,825,553
1,465 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Rfdg................ 7.250 01/15/17 1,491,692
3,100 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Rfdg................ 7.350 01/15/22 3,177,159
3,000 Somerset Cnty, PA Hosp Auth Rev
Somerset Cmnty Hosp Proj (Prerefunded
@ 03/01/02).......................... 7.500 03/01/17 3,193,260
2,400 Southern Chester Cnty, PA Hlth &
Higher Ed Auth Mtg Rev............... 6.300 06/01/10 2,325,792
250 Warren Cnty, PA Indl Dev Auth Beverly
Enterprises Rfdg..................... 9.000 11/01/12 266,245
2,200 Washington Cnty, PA Hosp Auth Rev
Canonsburg Genl Hosp Rfdg............ 7.350 06/01/13 2,219,030
2,500 Westmoreland Cnty, PA Indl Dev Auth
Rev Hlthcare Facs Redstone Rfdg...... 5.850 11/15/29 2,102,100
--------------
154,176,130
--------------
SOUTH CAROLINA 0.6%
710 Charleston Cnty, SC Hlth Fac Rev
First Mtg Episcopal Proj Rfdg
(Prerefunded @ 04/01/01)............. 9.750 04/01/16 769,668
3,500 Charleston Cnty, SC Indl Rev Zeigler
Coal Hldg............................ 6.950 08/10/28 3,088,435
750 South Carolina Jobs Econ Dev Auth
Hlth Fac Rev First Mtg Lutheran Homes
SC Proj (Prerefunded @ 10/01/02)..... 8.000 10/01/22 836,250
5,095 South Carolina St Hsg Fin & Dev Auth
Multi-Family Rev..................... 6.750 05/01/28 4,884,016
--------------
9,578,369
--------------
SOUTH DAKOTA 0.5%
2,500 Mobridge, SD Hlthcare Facs Rev
Mobridge Regl Hosp Proj.............. 6.500 12/01/22 2,281,250
3,000 South Dakota Hsg Dev Auth
Homeownership Mtg Ser F.............. 5.800 05/01/28 2,853,450
</TABLE>
See Notes to Financial Statements
F-37
<PAGE> 120
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH DAKOTA (CONTINUED)
$1,000 South Dakota St Hlth & Edl Fac Auth
Rev Huron Regl Med Cent.............. 7.250% 04/01/20 $ 1,057,480
1,600 Winner, SD Econ Dev Rev Winner Regl
Hlthcare Cent Rfdg................... 6.000 04/01/28 1,381,072
--------------
7,573,252
--------------
TENNESSEE 1.2%
4,950 Chattanooga, TN Indl Dev Brd Indl Rev
Dev Market St Proj Rfdg.............. 7.000 12/15/12 4,952,079
1,050 Chattanooga, TN Indl Dev Brd Indl Rev
Dev Market St Proj Rfdg.............. 7.000 12/15/12 1,050,441
3,500 Shelby Cnty, TN Hlth Edl & Hsg
Hlthcare Fac Kirby Pines Ser A....... 6.375 11/15/25 3,191,300
3,250 Springfield, TN Hlth & Edl Fac Brd
Hosp Rev Jesse Holman Jones Hosp Proj
(Prerefunded @ 04/01/06)............. 8.250 04/01/12 3,795,350
2,155 Sweetwater, TN Indl Dev Brd Mtg Rev
Wood Presbyterian Home Proj.......... 7.500 01/01/18 1,992,879
2,845 Sweetwater, TN Indl Dev Brd Mtg Rev
Wood Presbyterian Home Proj.......... 7.750 01/01/29 2,598,965
--------------
17,581,014
--------------
TEXAS 2.9%
725 Abia Dev Corp TX Arpt Facs Rev Austin
Belly Port Dev Proj Ser A............ 6.250 10/01/08 696,993
3,775 Abia Dev Corp TX Arpt Facs Rev Austin
Belly Port Dev Proj Ser A............ 6.500 10/01/23 3,526,643
1,700 Atlanta, TX Hosp Auth Hosp Fac Rev... 6.750 08/01/29 1,589,857
2,000 Austin-Bergstorm Landhost Enterprises
Inc TX Arpt Hotel Sr Ser A........... 6.750 04/01/27 1,872,740
865 Bell Cnty, TX Hlth Fac Dev Corp Rev
Hosp Proj............................ 9.250 07/01/08 892,697
3,985 Bell Cnty, TX Indl Dev Corp Solid
Waste Disposal Rev................... 7.600 12/01/17 3,725,935
500 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev American Airls Inc..... 7.500 11/01/25 518,535
1,500 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev American Airls Inc..... 7.250 11/01/30 1,578,585
</TABLE>
See Notes to Financial Statements
F-38
<PAGE> 121
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$1,250 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev Delta Airls Inc........ 7.625% 11/01/21 $ 1,310,750
2,665 De Soto, TX Hlth Fac Dev Park Manor
Sr Care.............................. 7.750 12/01/16 2,696,580
1,450 Houston, TX Arpt Sys Rev Spl Fac
Continental Airls Ser C.............. 6.125 07/15/27 1,354,996
1,500 Houston, TX Arpt Sys Rev Spl Fac
Continental Airl Term Impt Ser B..... 6.125 07/15/27 1,378,785
2,500 Lubbock, TX Hlth Facs Dev Corp Rev
First Mtg Carillon Proj Ser A........ 6.500 07/01/19 2,284,625
3,400 Meadow Parc Dev Inc TX Multi-Family
Rev Hsg Meadow Parc Apts Proj........ 6.500 12/01/30 3,169,718
750 North Central, TX Hlth Fac Dev Corp
Rev Retirement Fac NW Sr Hsg Ser A... 7.500 11/15/29 725,708
2,000 North Central, TX Hlth Fac Dev Corp
Rev Retirement Fac NW Sr Hsg Ser A... 7.250 11/15/19 1,912,800
3,205 Orange, TX Hsg Dev Corp Multi-Family
Rev Hsg Vlgs At Pine Hallow.......... 8.000 03/01/28 3,096,767
3,255 Rusk Cnty, TX Hlth Fac Corp Hosp Rev
Henderson Mem Hosp Proj Rfdg......... 7.750 04/01/13 3,390,994
500 San Antonio, TX Hlth Fac Dev Corp Rev
Encore Nursing Cent Partn............ 8.250 12/01/19 531,805
2,000 San Antonio, TX Hsg Fin Corp
Multi-Family Hsg Rev Beverly Oaks
Apts Proj Ser A...................... 7.750 02/01/27 1,964,120
1,965 San Antonio, TX Hsg Fin Corp
Multi-Family Hsg Rev Marbach Manor
Apts Proj Ser A...................... 8.125 06/01/27 1,968,557
1,500 Tarrant Cnty, TX Hlth Fac Dev Corp
Rev Mtg Cumberland Rest Ser A Rfdg... 7.000 08/15/19 1,500,975
1,401 Texas Genl Svcs Cmty Partn Interests
Office Bldg & Land Acquisition
Proj................................. 7.000 08/01/24 1,430,933
--------------
43,120,098
--------------
UTAH 0.4%
1,500 Carbon Cnty, UT Solid Waste Disposal
Rev Rfdg Laidlaw Environmentl Ser
A.................................... 7.450 07/01/17 1,568,685
500 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj............................. 7.600 09/01/06 476,030
1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj............................. 7.800 09/01/15 932,360
</TABLE>
See Notes to Financial Statements
F-39
<PAGE> 122
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH (CONTINUED)
$1,000 Tooele Cnty, UT Pollutn Ctl Rev
Laidlaw Environmentl Ser A Rfdg...... 7.550% 07/01/27 $ 1,051,670
2,000 Utah St Hsg Fin Agy Rev RHA Cmnty
Services Proj Ser A.................. 6.875 07/01/27 1,945,700
150 Utah St Hsg Fin Agy Single Family Mtg
Ser C2............................... 7.950 07/01/20 150,926
--------------
6,125,371
--------------
VERMONT 0.8%
2,050 Vermont Edl & Hlth Bldgs Fin Agy
Rev.................................. 6.500 10/01/14 2,057,893
4,130 Vermont Edl & Hlth Bldgs Fin Agy
Rev.................................. 6.625 10/01/29 4,027,369
3,000 Vermont Edl & Hlth Bldgs Fin Agy Rev
Hlthcare Fac Copley Manor Proj....... 6.250 04/01/29 2,673,450
535 Vermont Edl & Hlth Bldgs Fin Agy Rev
VT Council Dev Mental Hlth Ser A..... 6.000 12/15/09 503,644
1,030 Vermont Edl & Hlth Bldgs Fin Agy Rev
VT Council Dev Mental Hlth Ser A..... 6.125 12/15/14 952,348
1,375 Vermont Edl & Hlth Bldgs Fin Agy Rev
VT Council Dev Mental Hlth Ser A..... 6.250 12/15/19 1,251,676
--------------
11,466,380
--------------
VIRGINIA 2.4%
2,955 Alexandria, VA Indl Dev Auth Rev
Saint Coletta Sch Proj............... 7.750 10/15/26 2,967,736
235 Alexandria, VA Indl Dev Auth Rev
Saint Coletta Sch Proj............... 7.750 10/15/26 233,628
6,600 Alexandria, VA Redev & Hsg Auth 3001
Pk Cent Apts Ser A Rfdg (a).......... 6.375 04/01/34 6,117,540
380 Covington-Alleghany Cnty, VA Indl Dev
Auth Beverly Enterprises Inc Proj
Rfdg................................. 9.375 09/01/01 389,127
2,000 Dulles Town Cent Cmnty Dev Auth
Dulles Town Cent Proj................ 6.250 03/01/26 1,897,480
3,000 Fairfax Cnty, VA Redev & Hsg Auth
Multi-Family Hsg Rev................. 7.600 10/01/36 3,144,870
370 Greensville Cnty, VA Indl Dev Auth
Rev Wheeling Steel Proj Ser A........ 6.375 04/01/04 357,557
800 Greensville Cnty, VA Indl Dev Auth
Rev Wheeling Steel Proj Ser A........ 7.000 04/01/14 743,600
</TABLE>
See Notes to Financial Statements
F-40
<PAGE> 123
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA (CONTINUED)
$2,750 Hampton, VA Redev & Hsg Auth Rev
First Mtg Olde Hampton Ser A Rfdg.... 6.500% 07/01/16 $ 2,601,692
2,500 Henry Cnty, VA Indl Dev Auth Indl Dev
Rev 5Bs Inc Proj Ser A............... 7.400 09/01/17 2,462,750
1,500 Hopewell, VA Indl Dev Auth Res
Recovery Rev Stone Container Corp
Proj Rfdg............................ 8.250 06/01/16 1,599,945
4,000 Peninsula Ports Auth VA Rev Port Fac
Zeigler Coal Rfdg.................... 6.900 05/02/22 3,544,400
1,000 Pittsylvania Cnty, VA Indl Dev Auth
Rev Exempt Fac Ser A................. 7.450 01/01/09 1,050,810
5,980 Richmond, VA Redev & Hsg Auth
Multi-Family Rev Ser A Rfdg (Var Rate
Cpn)................................. 7.500 12/15/21 6,040,213
3,000 Virginia Beach, VA Dev Auth Res Care
Fac Mtg Rev (b)...................... 7.250 11/01/32 2,883,900
--------------
36,035,248
--------------
WASHINGTON 0.6%
1,900 King Cnty, WA Hsg Auth Hsg Rev
Colonial Gardens Apts Proj........... 6.200 07/01/29 1,762,203
2,500 Spokane Cnty, WA Indl Dev Corp Solid
Waste Disp Rev....................... 7.600 03/01/27 2,624,275
500 Tacoma, WA Hsg Auth Rev Hsg Wedgewood
Homes Proj........................... 6.000 02/01/28 455,690
1,680 Tacoma, WA Hsg Auth Rev Hsg Wedgewood
Homes Proj........................... 6.000 04/01/28 1,530,631
300 Tacoma, WA Hsg Auth Rev Hsg Wedgewood
Homes Proj (e)....................... 6.000 01/01/28 273,453
1,000 Tacoma, WA Hsg Auth Rev Hsg Wedgewood
Homes Proj (e)....................... 6.000 03/01/28 911,160
1,000 Vancouver, WA Hsg Auth Rev Hsg Maple
Knoll Apts Proj...................... 6.000 10/01/17 968,030
1,000 Vancouver, WA Hsg Auth Rev Hsg Maple
Knoll Apts Proj...................... 6.200 10/01/27 971,530
--------------
9,496,972
--------------
</TABLE>
See Notes to Financial Statements
F-41
<PAGE> 124
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WEST VIRGINIA 0.3%
$1,250 Randolph Cnty, WV Bldg Comm Rev
Crossover Elkins Regl Proj Rfdg...... 6.125% 07/01/23 $ 1,105,787
475 Randolph Cnty, WV Bldg Comm Rev Davis
Mem Hosp Proj Ser A Rfdg & Impt
(Prerefunded @ 11/01/01)............. 7.650 11/01/21 506,730
2,540 Weirton, WV Pollutn Ctl Rev Weirton
Steel Proj Rfdg...................... 8.625 11/01/14 2,423,389
--------------
4,035,906
--------------
WISCONSIN 1.7%
805 Baldwin, WI Hosp Rev Mtg Ser A....... 6.125 12/01/18 723,808
2,590 Baldwin, WI Hosp Rev Mtg Ser A....... 6.375 12/01/28 2,334,264
2,900 Oconto Falls, WI Cmnty Dev Oconto
Falls Tissue Inc Proj................ 7.750 12/01/22 2,955,883
285 Wisconsin Hsg & Econ Dev Auth
Homeownership Rev.................... 7.550 07/01/26 287,425
6,725 Wisconsin St Hlth & Edl Fac Auth Rev
Auroro Hlthcare Inc Ser A............ 5.600 02/15/29 5,709,525
2,000 Wisconsin St Hlth & Edl Fac Auth Rev
Clement Manor Rfdg................... 5.750 08/15/24 1,687,300
3,000 Wisconsin St Hlth & Edl Fac Auth Rev
Fh Hlthcare Dev Inc Proj............. 6.250 11/15/20 2,821,740
635 Wisconsin St Hlth & Edl Fac Auth Rev
Hess Mem Hosp Assn................... 7.200 11/01/05 641,629
2,000 Wisconsin St Hlth & Edl Fac Auth Rev
Hess Mem Hosp Assn................... 7.875 11/01/22 2,122,920
2,490 Wisconsin St Hlth & Edl Fac Auth Rev
Natl Regency of New Berlin Proj...... 8.000 08/15/25 2,655,062
3,000 Wisconsin St Hlth & Edl Milwaukee
Catholic Home Proj................... 7.500 07/01/26 3,100,980
500 Wisconsin St Hlth & Edl Rev Mem Hosp
at Oconomowoc Inc Proj............... 6.350 07/01/17 533,900
--------------
25,574,436
--------------
WYOMING 0.2%
2,620 Wyoming Cmnty Dev Auth Hsg Rev....... 6.250 06/01/27 2,639,650
--------------
</TABLE>
See Notes to Financial Statements
F-42
<PAGE> 125
PORTFOLIO OF INVESTMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U. S. VIRGIN ISLANDS 0.2%
$1,210 University of Virgin Islands Pub Fin
Auth Ser A........................... 7.500% 10/01/09 $ 1,304,573
1,965 University of Virgin Islands Pub Fin
Auth Ser A........................... 7.650 10/01/14 2,125,639
--------------
3,430,212
--------------
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $1,493,146,008)............................................. 1,473,018,477
SHORT-TERM INVESTMENTS 0.8%
(Cost $12,260,000)................................................ 12,260,000
--------------
TOTAL INVESTMENTS 98.3%
(Cost $1,505,406,008)............................................. 1,485,278,477
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%......................... 26,138,837
--------------
NET ASSETS 100.0%.................................................. $1,511,417,314
==============
</TABLE>
* Zero coupon bond
(a) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(b) Securities purchased on a when-issued or delayed delivery basis.
(c) Interest is accruing at less than the stated coupon.
(d) Payment-in-kind 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) Non-income producing security.
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
F-43
<PAGE> 126
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,505,406,008)..................... $1,485,278,477
Cash........................................................ 329,892
Receivables:
Interest.................................................. 32,195,857
Investments Sold.......................................... 12,840,197
Fund Shares Sold.......................................... 852,281
Other....................................................... 100,981
--------------
Total Assets.......................................... 1,531,597,685
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 11,441,977
Income Distributions...................................... 4,483,942
Fund Shares Repurchased................................... 2,376,442
Distributor and Affiliates................................ 841,406
Investment Advisory Fee................................... 652,432
Accrued Expenses............................................ 216,131
Trustees' Deferred Compensation and Retirement Plans........ 168,041
--------------
Total Liabilities..................................... 20,180,371
--------------
NET ASSETS.................................................. $1,511,417,314
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,539,358,218
Accumulated Undistributed Net Investment Income............. 1,271,918
Accumulated Net Realized Loss............................... (9,085,291)
Net Unrealized Depreciation................................. (20,127,531)
--------------
NET ASSETS.................................................. $1,511,417,314
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $970,019,328 and 88,540,535 shares of
beneficial interest issued and outstanding)............. $ 10.96
Maximum sales charge (4.75%* of offering price)......... .55
--------------
Maximum offering price to public........................ $ 11.51
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $416,220,388 and 38,024,205 shares of
beneficial interest issued and outstanding)............. $ 10.95
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $125,177,598 and 11,448,458 shares of
beneficial interest issued and outstanding)............. $ 10.93
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
F-44
<PAGE> 127
STATEMENT OF OPERATIONS
For the Year Ended November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 102,383,045
-------------
EXPENSES:
Investment Advisory Fee..................................... 7,836,241
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,316,653, $4,352,240 and $1,145,271,
respectively)............................................. 7,814,164
Shareholder Services........................................ 879,034
Custody..................................................... 125,210
Legal....................................................... 97,513
Trustees' Fees and Related Expenses......................... 60,140
Other....................................................... 667,215
-------------
Total Expenses.......................................... 17,479,517
-------------
NET INVESTMENT INCOME....................................... $ 84,903,528
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain/Loss:
Investments............................................... $ 6,108,871
Futures................................................... 347,310
-------------
Net Realized Gain........................................... 6,456,181
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 81,205,096
End of the Period:
Investments............................................. (20,127,531)
-------------
Net Unrealized Depreciation During the Period............... (101,332,627)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (94,876,446)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (9,972,918)
=============
</TABLE>
See Notes to Financial Statements
F-45
<PAGE> 128
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended November 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, 1999 November 30, 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 84,903,528 $ 79,466,871
Net Realized Gain.................................... 6,456,181 8,150,677
Net Unrealized Appreciation/Depreciation During the
Period............................................. (101,332,627) 16,740,775
-------------- --------------
Change in Net Assets from Operations................. (9,972,918) 104,358,323
-------------- --------------
Distributions from Net Investment Income*............ (83,189,838) (79,954,356)
Distributions in Excess of Net Investment Income*.... -0- (442,201)
-------------- --------------
Total Distributions................................ (83,189,838) (80,396,557)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... (93,162,756) 23,961,766
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 354,696,692 263,990,520
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 37,916,959 35,960,456
Cost of Shares Repurchased........................... (255,511,932) (153,186,986)
-------------- --------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 137,101,719 146,763,990
-------------- --------------
TOTAL INCREASE IN NET ASSETS......................... 43,938,963 170,725,756
NET ASSETS:
Beginning of the Period.............................. 1,467,478,351 1,296,752,595
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $1,271,918
and ($441,772), respectively)...................... $1,511,417,314 $1,467,478,351
============== ==============
</TABLE>
<TABLE>
<CAPTION>
*Distributions by Class:
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares....................................... $ (54,739,327) $ (51,028,959)
Class B Shares....................................... (22,510,591) (23,908,632)
Class C Shares....................................... (5,939,920) (5,458,966)
-------------- --------------
$ (83,189,838) $ (80,396,557)
============== ==============
</TABLE>
See Notes to Financial Statements
F-46
<PAGE> 129
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 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $11.664 $11.454 $11.139 $ 11.18 $ 10.44
------- ------- ------- ------- -------
Net Investment Income........... .686 .699 .729 .735 .74
Net Realized and Unrealized
Gain/Loss..................... (.720) .217 .312 (.041) .7475
------- ------- ------- ------- -------
Total from Investment
Operations.................... (.034) .916 1.041 .694 1.4875
Less Distributions from and in
Excess of Net Investment
Income........................ .674 .706 .726 .735 .7475
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $10.956 $11.664 $11.454 $11.139 $ 11.18
======= ======= ======= ======= =======
Total Return (a)................ (.37%) 8.28% 9.63% 6.47% 14.65%
Net Assets at End of the Period
(In millions)................. $ 970.0 $ 905.0 $ 779.9 $ 621.0 $ 516.3
Ratio of Expenses to Average Net
Assets (b).................... .90% .91% .95% 1.01% .98%
Ratio of Net Investment Income
to Average Net Assets (b)..... 6.03% 6.01% 6.50% 6.64% 6.81%
Portfolio Turnover.............. 22% 26% 29% 23% 26%
</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-47
<PAGE> 130
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 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $11.658 $11.452 $11.136 $ 11.18 $ 10.43
------- ------- ------- ------- -------
Net Investment Income........... .606 .612 .645 .653 .66
Net Realized and Unrealized
Gain/Loss..................... (.728) .216 .313 (.046) .7535
------- ------- ------- ------- -------
Total from Investment
Operations.................... (.122) .828 .958 .607 1.4135
Less Distributions from and in
Excess of Net Investment
Income........................ .590 .622 .642 .651 .6635
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $10.946 $11.658 $11.452 $11.136 $ 11.18
======= ======= ======= ======= =======
Total Return (a)................ (1.11%) 7.41% 8.82% 5.67% 13.89%
Net Assets at End of the Period
(In millions)................. $ 416.2 $ 451.9 $ 425.6 $ 323.8 $ 233.9
Ratio of Expenses to Average Net
Assets (b).................... 1.66% 1.67% 1.71% 1.77% 1.73%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.27% 5.26% 5.74% 5.88% 6.03%
Portfolio Turnover.............. 22% 26% 29% 23% 26%
</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-48
<PAGE> 131
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 C Shares 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $11.646 $11.440 $11.126 $ 11.17 $ 10.42
------- ------- ------- ------- -------
Net Investment Income............. .595 .613 .644 .652 .66
Net Realized and Unrealized
Gain/Loss....................... (.717) .215 .312 (.045) .7535
------- ------- ------- ------- -------
Total from Investment
Operations...................... (.122) .828 .956 .607 1.4135
Less Distributions from and in
Excess of Net Investment
Income.......................... .590 .622 .642 .651 .6635
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $10.934 $11.646 $11.440 $11.126 $ 11.17
======= ======= ======= ======= =======
Total Return (a).................. (1.20%) 7.42% 8.82% 5.68% 13.79%
Net Assets at End of the Period
(In millions)................... $ 125.2 $ 110.6 $ 91.3 $ 50.0 $ 31.1
Ratio of Expenses to Average
Net Assets (b).................. 1.65% 1.67% 1.70% 1.77% 1.72%
Ratio of Net Investment Income to
Average Net Assets (b).......... 5.27% 5.25% 5.69% 5.86% 5.98%
Portfolio Turnover................ 22% 26% 29% 23% 26%
</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-49
<PAGE> 132
NOTES TO FINANCIAL STATEMENTS
November 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 seek 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 67% of the Fund's
investment portfolio at the end of the period.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to
F-50
<PAGE> 133
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
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. Income and 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, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $9,025,107 which expires between November 30,
2003 and November 30, 2005. Net realized gains or losses differ for financial
reporting and tax purposes primarily as a result of the deferral of losses
relating to wash sale transactions.
At November 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $1,505,466,558; the aggregate gross unrealized
appreciation is
F-51
<PAGE> 134
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
$36,184,193 and the aggregate gross unrealized depreciation is $56,372,274,
resulting in net unrealized depreciation of $20,188,081.
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.
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, 1999, the Fund recognized expenses of
approximately $97,500 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, 1999, the Fund recognized expenses of
approximately $345,500 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended November 30,
1999, the Fund recognized expenses of approximately $675,600. Transfer 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.
F-52
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At November 30, 1999, capital aggregated $991,144,686, $420,468,715 and
$127,744,817 for Classes A, B, and C, respectively. For the year ended November
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 20,648,778 $ 233,722,916
Class B.................................. 7,393,673 83,518,334
Class C.................................. 3,318,976 37,455,442
----------- -------------
Total Sales................................ 31,361,427 $ 354,696,692
=========== =============
Dividend Reinvestment:
Class A.................................. 2,220,022 $ 25,257,877
Class B.................................. 836,714 9,525,387
Class C.................................. 276,072 3,133,695
----------- -------------
Total Dividend Reinvestments............... 3,332,808 $ 37,916,959
=========== =============
Repurchases:
Class A.................................. (11,909,062) $(135,612,380)
Class B.................................. (8,967,116) (101,266,235)
Class C.................................. (1,644,564) (18,633,317)
----------- -------------
Total Repurchases.......................... (22,520,742) $(255,511,932)
=========== =============
</TABLE>
F-53
<PAGE> 136
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
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>
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. For the year ended November 30, 1999, 4,200,418 Class B shares
automatically converted to Class A shares and are shown in the above table as
sales of Class A shares and repurchases of Class B shares. Class C shares
purchased before January 1, 1997, and any dividend reinvestment plan C shares
received thereon, automatically convert to Class A shares ten years after the
end of the calendar month in which the shares are purchased. Class C shares
purchased on or after January 1, 1997 do not posses a conversion feature. For
the year ended November 30, 1999, no Class C shares converted to Class A shares.
The CDSC will be imposed on most
F-54
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
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, 1999, Van Kampen, as distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $242,600 and CDSC on the redeemed shares of Classes B and C of
approximately $636,800. 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 $464,105,455 and $325,638,418,
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 taking delivery of a security underlying a
futures contract. In this instance the recognition of gain or loss is postponed
until the disposal of the security underlying the 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-55
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 1999
- --------------------------------------------------------------------------------
Upon entering into future contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid 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, 1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at November 30, 1998............................ -0-
Futures Opened.............................................. 540
Futures Closed.............................................. (540)
---
Outstanding at November 30, 1999............................ -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, 1999, are payments retained by Van Kampen
of approximately $3,328,300.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each Fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each Fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each Fund incurs based on its pro-rate percentage of
quarterly net assets. The Fund made no borrowings on November 30, 1999. The Fund
has not borrowed against the credit facility during the period.
F-56
<PAGE> 139
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(5)
(2) -- Form of Trustee Retirement Plan(5)
(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)(1) -- Opinion of Counsel of Skadden, Arps, Slate, Meagher & Flom
(Illinois)(2)
(2) -- Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)+
(j) -- Consent of PricewaterhouseCoopers LLP+
(k) -- Not Applicable
(l) -- Investment Letter(5)
(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) -- Not applicable
(o) -- Amended Multi-Class Plan(2)
(p) -- Form of Code of Ethics+
(q) -- Power of Attorney+
(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.
(5) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File No. 2-96030, filed
March 30, 1999.
+ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
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<PAGE> 140
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 "1933 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
1933 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 1933 Act and
will be governed by the final adjudication of such issue.
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds Inc. (the
"Distributor") and each of its trustees and officers and each person if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damages,
or expense and reasonable counsel fees) arising by reason of any person
acquiring any shares, based upon the ground that the Registration Statement,
prospectus, shareholder reports or other information filed or made public by the
Registrant (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. The Registrant does not agree to indemnify
the Distributor or hold it harmless to the extent that the statement or
omission was made in reliance upon, and in conformity with information furnished
to the Registrant by or on behalf of the Distributor. In no case is the
indemnity of the Registrant in favor of the Distributor or any person
C-2
<PAGE> 141
indemnified to be deemed to protect the Distributor or any person against any
liability to the Fund or its security holders to which the Distributor or such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the agreement.
Pursuant to the agreement by which Van Kampen Investor Services Inc.
("Investor Services") is appointed transfer agent of the Fund, the Registrant
agrees to indemnify and hold Investor Services harmless against any losses,
damages, costs, charges, payments, liabilities and expenses (including
reasonable counsel fees) arising out of or attributable to:
(1) the performance of Investor Services under the agreement provided that
Investor Services acted in good faith with due diligence and without negligence
or willful misconduct.
(2) reliance by Investor Services on, or reasonable use by, Investor
Services of information, records and documents which have been prepared on
behalf of, or have been furnished by, the Fund, or the carrying out by Investor
Services of any instructions or requests of the Fund.
(3) the offer or sale of the Fund's shares in violation of any federal or
state law or regulation or ruling by any federal agency unless such violation
results from any failure by Investor Services to comply with written
instructions from the Fund that such offers or sales were not permitted under
such law, rule or regulation.
(4) the refusal of the Fund to comply with terms of the agreement or the
Fund's lack of good faith, negligence or willful misconduct or breach of any
representation or warranty made by the Fund under the agreement provided that if
the reason for such failure is attributable to any action of the Fund's
investment adviser or distributor or any person providing accounting or legal
services to the Fund, Investor Services only will be entitled to indemnification
if such entity is otherwise entitled to the indemnification from the Fund.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" and "Investment Advisory Agreement" 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.
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 the Registrant, is the only principal underwriter for the Registrant.
The name, principal business address and positions and offices with Van Kampen
Funds Inc. of each of its 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 of the Registrant required by
Section 31(a) of the Investment Company Act of 1940 as amended 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,
or at 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 02171; (ii) by the Adviser, will be maintained
at its offices, located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace,
Illinois 60181;
C-3
<PAGE> 142
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-4
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, 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 1933 Act 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 29th
day of March, 2000.
VAN KAMPEN TAX-EXEMPT TRUST
By: /s/ A. THOMAS SMITH III
------------------------------------
A. Thomas Smith III, Secretary
Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement has been signed on March 29, 2000 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* Trustee and President
- -----------------------------------------------------
Richard F. Powers, III*
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
- -----------------------------------------------------
Jerry D. Choate
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ MITCHELL M. MERIN* Trustee
- -----------------------------------------------------
Mitchell M. Merin
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
- -----------------------------------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III March 29, 2000
- -----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>
<PAGE> 144
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 22 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
(i)(2) Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(j) Consent of PricewaterhouseCoopers LLP
(p) Form of Code of Ethics
(q) Power of Attorney
(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 (i)(2)
[Letterhead of Skadden, Arps, Slate, Meagher & Flom (Illinois)]
March 29, 2000
Van Kampen Tax-Exempt Trust
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Re: Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A for
the Van Kampen Tax-Exempt Trust
(the "Registration Statement")
(File Nos. 2-96030 and 811-4746)
------------------------------
We hereby consent to the reference to our firm under the heading "Legal
Counsel" in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom (Illinois)
<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. 22 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 21, 2000, 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 27, 2000
<PAGE> 1
EXHIBIT(p)
FORM OF
CODE OF ETHICS
I. INTRODUCTION
Each of the Van Kampen Open-End Funds listed on Schedule 1 attached hereto
(each a "Fund" and collectively the "Funds"), Van Kampen Asset Management Inc.
("Asset Management"), Van Kampen Investment Advisory Corp. ("Advisory Corp.")
(each of Asset Management and Advisory Corp. are sometimes referred herein as
the "Adviser" or collectively as the "Advisers") and Van Kampen Funds Inc. (the
"Distributor") (the Advisers and the Distributor are collectively referred to
as "Van Kampen") has adopted this Code of Ethics. The Advisers are fiduciaries
that provide investment advisory services to the Funds and private investment
management accounts, and the Distributor acts as the principal underwriter for
the Funds.
II. GENERAL PRINCIPLES
A. Shareholder and Client Interests Come First
Every trustee/director, officer and employee of a Fund and every
director, officer and employee of Van Kampen owes a fiduciary duty to
the investment account and the respective investors of such Fund or
private investment management account (collectively, the "Clients").
This means that in every decision relating to investments, such
persons must recognize the needs and interests of the Clients and be
certain that at all times the Clients' interests are placed ahead of
any personal interest of such person.
B. Avoid Actual and Potential Conflicts of Interest
The restrictions and requirements of this Code are designed to
prevent behavior which conflicts, potentially conflicts or raises the
appearance of an actual or potential conflict with the interests of
Clients. It is of the utmost importance that the personal securities
transactions of trustee/directors, officers and employees of a Fund
and directors,
1
<PAGE> 2
officers and employees of Van Kampen be conducted in a manner
consistent with both the letter and spirit of the Code, including
these principles, to avoid any actual or potential conflict of
interest or any abuse of such person's position of trust and
responsibility.
C. Avoiding Personal Benefit
Trustee/directors, officers and employees of the Funds and directors,
officers and employees of Van Kampen should ensure that they do not
acquire personal benefit or advantage as a result of the performance
of their normal duties as they relate to Clients. Consistent with the
principle that the interests of Clients must always come first is the
fundamental standard that personal advantage deriving from management
of Clients' money is to be avoided.
III. OBJECTIVE
Section 17(j) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), makes it unlawful for certain persons associated
investment companies to engage in conduct which is deceitful, fraudulent or
manipulative, or which involves false or misleading statements, in connection
with the purchase or sale of a security held or proposed to be acquired by an
investment company. In addition, Section 204A of the Investment Advisers Act of
1940, as amended (the "Investment Advisers Act"), requires investment advisers
to establish, maintain and enforce written policies and procedures designed to
prevent misuse of material non-public information. The objective of this Code
is to require trustee/directors, officers and employees of the Funds and
directors, officers and employees of Van Kampen to conduct themselves in
accordance with the general principles set forth above, as well as to prevent
trustee/directors, officers and employees of the Funds or the Distributor from
engaging in conduct prohibited by the Investment Company Act and directors,
officers and employees of the Advisers from engaging in conduct prohibited by
the Investment Company Act and the Investment Advisers Act.
IV. DEFINITIONS
A. "Access Person" means (i) any trustee/director or officer of a
Fund, (ii) any director or officer of a Fund's Adviser, (iii) any
employee of a Fund or the Fund's Adviser (or any company in a control
relationship
2
<PAGE> 3
to the Fund or Adviser) who, in connection with such person's regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Covered Security by a Client, or
whose functions relate to the making of any recommendations with
respect to such purchases or sales; (iv) any natural person in a
control relationship to the Fund or the Fund's Adviser who obtains
information concerning recommendations made to a Client with regard to
the purchase or sale of a Covered Security by such Client, and (v) any
director or officer of the Distributor, who, in the ordinary course of
business, makes, participates in or obtains information regarding, the
purchase or sale of a Covered Security by a Client for which it acts
as principal underwriter, or whose functions relate to the making of
any recommendations with respect to such purchases or sales.
B. "Beneficial Ownership" is interpreted in the same manner as it is
under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in determining whether a person is the
beneficial owner of a security for purposes of Section 16 of the 1934
Act and the rules and regulations thereunder, which includes "any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in" a security. The term "pecuniary
interest" is further defined to mean "the opportunity, directly or
indirectly, to profit or share in any profit derived from a
transaction in the subject securities." "Beneficial ownership"
includes (i) securities held by members of a person's immediate family
sharing the same household and includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law" and includes adoptive relationships
and (ii) aright to acquire securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable.
Any report required to be made by this Code may contain a statement
that the report shall not be construed as an admission by the person
making such report that he has any direct or indirect Beneficial
Ownership in the security to which the report relates.
C. "Chief Compliance Officer" is the individual set forth in Exhibit A.
3
<PAGE> 4
D. "Code of Ethics Review Committee" consists of the individuals set
forth in Exhibit A.
E. "Control" has the same meaning as in Section 2(a)(9) of the Investment
Company Act.
F. "Covered Security" refers not only to the instruments set forth in
Section 2(a)(36) of the Investment Company Act but to any instrument
into which such instrument may be converted or exchanged, any warrant
of any issuer that has issued the instrument and any option written
relating to such instrument, provided, however, that it does not
include: (a) any direct obligation of the United States Government,
(b) banker's acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements, and (c) shares issued by any open-end
investment companies registered under the Investment Company Act.
G. "Disinterested Trustee/Director" means a trustee or director of an
Fund who is not an "interested person" of such Fund within the meaning
of Section 2(a)(19) of the Investment Company Act.
H. "Employee Account" means any brokerage account or unit investment
trust account in which the Van Kampen Employee has any direct or
indirect beneficial ownership.
I. "General Counsel" is the individual set forth in Exhibit A.
J. "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer of which, immediately before the
registration, was not subject to the reporting requirements of
sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
K. "Investment Personnel" means (i) any employee of a Fund (or of any
company in a control relationship to the Fund), (ii) Portfolio
Managers, security analysts, traders and any other employees of a
Fund's Adviser (or of any company in a control relationship to the
Fund's Adviser) who, in connection with his or her regular functions
or
4
<PAGE> 5
duties, makes or participates in making investment recommendations
regarding the purchase or sale of securities by the Fund or other
Clients; and (iii) any natural person who controls a Fund or Adviser
and who obtains information concerning recommendations made to such
Fund or other Client regarding the purchase or sale of securities.
L. "Limited Offering" is an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) of
the Securities Act or pursuant to Rule 504, Rule 505 or Rule 506 under
the Securities Act.
M. "Portfolio Manager" means any person who exercises investment
discretion on behalf of an Adviser for a Client.
N. "Van Kampen Employee" includes any director, officer or employee of
Van Kampen.
V. STANDARDS OF CONDUCT FOR PERSONAL SECURITIES TRANSACTIONS
A. Van Kampen Employee Brokerage Accounts
1. All brokerage accounts of Van Kampen Employees must be maintained
through Morgan Stanley Dean Witter & Co. ("MSDW") and/or Morgan
Stanley Dean Witter Online ("MSDWO"). No other brokerage accounts
are permitted unless permission is granted by the Chief
Compliance Officer or General Counsel.
If any Van Kampen Employee maintains accounts outside MSDW or
MSDWO, such person must transfer such accounts to a MSDW branch
or MSDWO within 120 days from his or her date of hire.
a. Each Van Kampen Employee must inform the appropriate person
in the compliance department as set forth in Exhibit A, in
writing, of their MSDW and MSDWO brokerage accounts, or, if
applicable, their outside
5
<PAGE> 6
brokerage accounts. The Van Kampen compliance department
shall direct the brokerage firm to provide duplicate
confirmations and account statements to the Van Kampen
compliance department.
1) Van Kampen Employees shall notify the appropriate
persons in the Van Kampen compliance department as set
forth in Exhibit A when opening a brokerage account.
B. Pre-Clearance
1. Except as set forth below, all Van Kampen Employees must
pre-clear purchases or sales of Covered Securities in their
Employee Accounts with the appropriate person in the Van Kampen
compliance department as set forth in Exhibit A.
2. Exceptions from the Pre-Clearance Requirement.
a. Persons otherwise subject to pre-clearance are not required
to pre-clear the acquisition of the following Covered
Securities:
1) Covered Securities acquired through automatic
reinvestment plans.
2) Covered Securities acquired through employee
purchase plans.
3) Covered Securities acquired through the exercise of
rights issued by an issuer pro-rata to all holders of a
class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so
acquired.
4) Morgan Stanley Dean Witter & Co. common stock
(including exercise of stock option grants),
6
<PAGE> 7
a) The restrictions imposed by the Firm on senior
management and other persons in connection with
transactions in such stock are not affected by
this exemption.
5) Units in unit investment trusts.
3. Pre-cleared securities transactions must be effected timely.
a. All approved Covered Securities transactions must take place
on the same day that the authorization is obtained. If the
transaction is not completed on the date of clearance, a new
clearance must be obtained.
b. Purchases through an issuer direct purchase plan must be
pre-cleared on the date the purchaser writes the check to
the issuer's agent
1) Authorization for purchases through an issuer direct
purchase plan are effective until the issuer's agent
purchases the Covered Securities.
4. Pre-Clearance Procedure
a. Van Kampen Employees shall pre-clear their transactions by
submitting a Trade Authorization Form (a copy of which is
attached as Exhibit B) to the appropriate persons in the
compliance department as set forth in Exhibit A.
1) The compliance department shall pre-clear the purchase
or sale of a Covered Security if the transaction does
not violate the Code.
7
<PAGE> 8
a) The compliance department shall verify that the
transaction is in compliance with the Code.
b) The compliance department shall sign the Trade
Authorization Form.
c) The compliance department shall communicate
authorization of the trade to the Van Kampen
Employee.
d) The time at which the trade authorization is
communicated to the Van Kampen Employee shall be
documented on the Trade Authorization Form.
e) The compliance department shall maintain the
originally executed Trade Authorization Form. A
copy of the executed Trade Authorization Form will
be forwarded to the Van Kampen Employee.
f) The compliance department shall review Van Kampen
Employee duplicate confirmations and statements to
verify that all personal transactions in Covered
Securities have been properly pre-cleared.
C. Other Restrictions
1. Van Kampen Employee trades for which pre-clearance has been
obtained, including short sales and permissible option trades,
are subject to 30-day holding period from the trade date.
2. Van Kampen Employees are prohibited from trading in futures,
options on futures, and forward contacts. Van Kampen
8
<PAGE> 9
Employees may trade listed equity and index options and equity
warrants, however, there is a 30-day holding period from the
trade date. In addition, Van Kampen Employees are also prohibited
from trading in warrants or options (with the exception of listed
warrants or options) on physical commodities and currencies.
3. Van Kampen Employees shall not purchase Covered Securities during
an initial or secondary public offering.
4. Van Kampen Employees shall not enter into limit orders which
extend beyond one day.
5. Van Kampen Employees shall not participate in an investment club.
6. Van Kampen Employees shall not purchase shares of an investment
company that is managed by Van Kampen if such investment company
is not generally available to the public.
7. Van Kampen Employees shall not purchase shares of an open end
investment company that is managed by Van Kampen if as a result
of such purchase the Van Kampen Employee shall own 1% or more of
the assets of such investment company.
8. Van Kampen Employees are prohibited from the following activities
unless they have obtained prior written approval from the Code of
Ethics Review Committee:
a. Van Kampen Employees may not purchase a Covered Security in
a private placement or any other Limited Offering.
b. Van Kampen Employees may not serve on the boards of
directors of a public or private company. Requests to serve
on the board of a religious, charitable or educational
organization as set forth in Section 503(c) of the IRS Code
will generally be approved.
9
<PAGE> 10
D. Additional Responsibilities of Access Persons
In addition to the requirements set forth above, the following
prohibitions and reporting obligations are applicable to Access
Persons.
1. Access Persons shall not purchase or sell a Covered Security on a
day during which a Client has a pending purchase or sale order in
that same Covered Security.
2. Initial/Annual Reporting: Within ten days after becoming an
Access Person and thereafter, annually, each Access Person must
furnish a report to the Chief Compliance Officer showing (i) the
date of the report, (ii) the title, number of shares and
principal amount of each Covered Security owned directly or
indirectly by the Access Person on the date such person become an
Access Person (for initial reports) or as of a date no more than
30 prior to the date of the report (for annual reports) and (iii)
the name of any broker, dealer or bank with an account holding
any securities for the direct or indirect benefit of the Access
Person as of the date such person became an Access Person (for
initial reports) or as of a date no more than 30 prior to the
date of the report (for annual reports).
a. Exclusion: A Disinterested Trustee/Director who would be
required to make this report solely by reason of being a
Fund trustee/director is excluded from the initial and
annual reporting requirement for Access Persons.
3. Quarterly Reporting: On a calendar quarterly basis, each Access
Persons must furnish a report to the Chief Compliance Officer
within ten days after the end of each calendar quarter, on forms
sent to the Access Person each quarter:
a. With respect to any transactions in Covered Securities in
which the Access Person had direct or indirect Beneficial
Ownership, a report showing (i) the date of the report; (ii)
the date of the transaction, the title, the interest rate
and maturity date (if applicable), the num-
10
<PAGE> 11
ber of shares, and the principal amount of each Covered
Security involved; (iii) the nature of the transaction
(i.e., purchase, sale or any other type of acquisition or
disposition); (iv) the price at which the transaction was
effected; and (v) the name of the broker, dealer or bank
with or through which the transaction was effected; and
b. With respect to any account established by the Access Person
in which any securities were held during the quarter for
direct or indirect benefit of the Access Person, a report
showing (i) the date of the report; (ii) the name of the
broker, dealer or bank with which established the account;
and (iii) the date the account was established.
c. Exclusion: A Disinterested Trustee/Director who would be
required to make this report solely by reason of being a
Fund trustee/director is excluded from the quarterly
reporting requirement for Access Persons unless the
trustee/director knew or, in the ordinary course of
fulfilling his or her official duties as a Fund
trustee/director, should have known that during the 15-day
period immediately before or after the trustee/director's
transaction in a Covered Security, the Fund purchased or
sold the Covered Security, or the Fund or its investment
adviser considered purchasing or selling the Covered
Security.
d. Exclusion: An Access Person need not make a quarterly
transaction report if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, the Adviser and the
Distributor with respect to the Access Person in the time
period required above if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the records of
the Fund, the Adviser and the Distributor.
11
<PAGE> 12
E. Additional Responsibilities of Investment Personnel
In addition to the requirements set forth above, the following
prohibitions and reporting obligations are applicable to Investment
Personnel.
1. Investment Personnel shall not sell a Covered Security purchased
within the previous 60 calendar days from the trade date, except
that a Covered Security held for at least 30 days from the trade
date may be sold at a loss or no gain. Any profits realized on
trades executed within the 60-day holding period shall be
disgorged to the Client or a charitable organization as
determined by the Chief Compliance Officer.
2. All Investment Personnel shall disclose all personal and
beneficial Covered Securities holdings upon the commencement of
employment and thereafter on an annual basis to the compliance
department.
3. Investment Personnel of a Fund or its investment adviser must
obtain approval from the Fund or the Fund's investment adviser
before directly or indirectly acquiring beneficial ownership in
any securities in an Initial Public Offering or in a Limited
Offering.
F. Additional Responsibilities of Portfolio Managers
In addition to the requirements set forth above for Van Kampen
Employees, Access Persons and Investment Personnel, the following
additional requirements are applicable to Portfolio Managers.
12
<PAGE> 13
1. A Portfolio Manager may not buy or sell a Covered Security within
7 calendar days before or after any Client, over which such
Portfolio Manager exercises investment discretion, trades in such
Covered Security.
2. A Portfolio Manager may not purchase shares of a closed-end
investment company over which such Portfolio Manager exercises
investment discretion.
G. Insiders
1. Each Van Kampen Employee shall comply with all laws and
regulations, and prohibitions against insider trading. Trading on
or communicating material non-public information, or "inside
information," of any sort, whether obtained in the course of
research activities, through a Client relationship or otherwise,
is strictly prohibited.
2. Van Kampen Employees shall not disclose any non-public
information relating to a Client's account portfolio or
transactions or to the investment recommendations of Van Kampen,
nor shall any Van Kampen Employee disclose any non-public
information relating to the business or operations of the members
of Van Kampen, unless properly authorized to do so.
3. No Van Kampen Employee who is required to file a statement of
ownership pursuant to Section 16 of the Exchange Act may purchase
or sell or sell and purchase a company-sponsored closed-end
investment company within a six month period and realize a profit
on such transaction.
H. Exceptions
1. Notwithstanding the foregoing, the Chief Compliance Officer or
his or her designee, in keeping with the general principles and
objectives of this Code, may refuse to grant clearance of a
personal transaction in their sole discretion without being
required to specify any reason for the refusal.
13
<PAGE> 14
2. Upon proper request by a Van Kampen Employee, a Code of Ethics
Review Committee (the "Committee") will consider for relief or
exemption from any restriction, limitation or procedure contained
herein, which restriction, limitation or procedure is claimed to
cause a hardship for such Van Kampen Employee. The Chief
Compliance Officer will in his sole discretion determine whether
the request is appropriate for consideration by the Committee.
The Committee shall meet on an ad hoc basis, as deemed necessary
upon the Van Kampen Employee's written request outlining the
basis for his or her request for relief. The decision is within
the sole discretion of the Committee.
VI. ADMINISTRATION OF THE CODE
A. The administration of this Code shall be the responsibility of the
Chief Compliance Officer or his or her designee whose duties shall
include:
1. Continuously maintaining a list of all Access Persons who are
under a duty to make reports or pre-clear transactions under this
Code.
2. Providing each such person with a copy of this Code and informing
them of their duties and obligations hereunder.
3. Reviewing all quarterly securities transactions and holdings
reports required to be filed pursuant to this Code, and
maintaining a record of such review, including the name of the
compliance personnel performing the review.
4. Reviewing all initial and annual securities position reports
required to be filed pursuant to this Code, and maintaining a
record of such review, including the name of the compliance
personnel performing the review.
5. Preparing listings of all transactions effected by persons
subject to reporting requirements under the Code and comparing
all reported personal securities transactions with completed
14
<PAGE> 15
portfolio transactions of the Clients and securities being
considered for purchase or sale by Clients to determine whether a
violation of this Code may have occurred.
6. Conducting such inspections or investigations as shall reasonably
be required to detect and report any apparent violations of this
Code to any person or persons appointed by Van Kampen to deal
with such information and to the Fund's Board of
Directors/Trustees.
7. Submitting a written report, no less frequently than annually, to
the Board of Directors/Trustees of each Fund containing a
description of issues arising under the Code or procedures since
the last report, including, but not limited to, material
violations of the Code or procedures and sanctions imposed in
response to material violations.
8. Submitting a certification, no less frequently than annually, to
the Board of Directors/Trustees of each Fund from the Fund, the
respective Adviser and the Distributor that it has adopted
procedures reasonably necessary to prevent Access Persons from
violating the Code.
VII. RECORDS
The Fund, the Advisers and the Distributor shall, at its principal place
of business, maintain records of the following:
A. A copy of any code of ethics adopted by the such entity which is or
has been in effect during the past five years must be maintained in an
easily accessible place;
B. A copy of any record or report of any violation of the code of ethics
of such entity and any action taken thereon maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
15
<PAGE> 16
C. A copy of each report made by an Access Person as required by this
Code, including any information provided in lieu of the reports,
must be maintained for at least five years after the end of the
fiscal year in which the report is made or the information is
provided, the first two years in an easily accessible place;
D. A record of all persons, currently or within the past five years,
who are or were required to make reports under this Code, or who are
or were responsible for reviewing these reports, must be maintained
in an easily accessible place; and
E. A copy of each written report required to be provided to the Board
of Directors/Trustees of each Fund containing a description of
issues arising under the Code or procedures since the last report,
including, but not limited to, material violations of the Code or
procedures and sanctions imposed in response to material violations
must be maintained for at least five years after the end of the
fiscal year in which it is made, the first two years in an
easily accessible place.
F. A Fund or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by Investment Personnel of securities in an Initial
Public Offering or in a Limited Offering.
G. A copy of any decision and reasons supporting such decision to
approve a pre-clearance transaction pursuant to this Code, made
within the past five years after the end of the fiscal year in which
such approval is granted.
VIII. SANCTIONS
Upon discovering a violation of this Code, Van Kampen may impose such
sanctions as it deems appropriate, including, but not limited to, a reprimand
(orally or in writing), demotion, and suspension or termination of employment.
The General Counsel of Van Kampen, in his sole discretion, is authorized to
determine the choice of sanctions to be imposed in specific cases, including
termination of employment of any employee.
16
<PAGE> 17
IX. APPROVAL OF CODE OF ETHICS
A. Van Kampen shall provide to the Board of Directors/Trustees of each
Fund the following:
1. A copy of the Fund's Code, the Adviser's Code and the
Distributor's Code for such Board's review and approval.
2. Promptly, a copy of any amendments to such Codes.
3. Upon request, copies of any reports made pursuant to the Code by
any person as to an investment company client.
4. Immediately, without request by an investment company client, all
material information regarding any violation of the Code by any
person as to such investment company client.
5. Certification, no less frequently than annually, to the Board of
Directors/Trustees of each Fund from the Fund, the respective
Adviser and the Distributor that it has adopted procedures
reasonably necessary to prevent Access Persons from violating the
Code.
B. Prior to adopting this Code, the Board of Trustees/Directors of
each Fund, including a majority of Disinterested Trustee/Directors,
reviewed and approved this Code with respect to the Fund, each adviser
of the Fund and the principal underwriter of the Fund, including all
procedures or provisions related to the enforcement of this Code. The
Board based its approval of this Code on, among other things, (i)
certifications from the Fund, the respective Adviser and the
Distributor that it has adopted procedures reasonably necessary to
prevent violations of the Code and (ii) a determination that such Code
is adequate and contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by Rule
17j-1(b).
17
<PAGE> 18
X. EFFECTIVE DATE
All Van Kampen Employees are required to sign a copy of this Code
indicating their agreement to abide by the terms of the Code.
In addition, Van Kampen Employees will be required to certify
annually that (i) they have read and understand the terms of this Code and
recognize the responsibilities and obligations incurred by their being subject
to this Code, and (ii) they are in compliance with the requirements of the Code.
Approved this _____ day of _______________.
18
<PAGE> 1
EXHIBIT (q)
POWER OF ATTORNEY
The undersigned, being Officers and Trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust, except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania trust, and
being Officers and Directors of Van Kampen Series Fund, Inc. (the
"Corporation"), a Maryland corporation, do hereby, in the capacities shown
below, appoint Richard F. Powers, III, Stephen L. Boyd and A. Thomas Smith III,
each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with full
power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: January 28, 2000
Signature Title
--------- -----
/s/ Richard F. Powers, III President, Trustee/Director
- ---------------------------------------
Richard F. Powers, III
/s/ John L. Sullivan Vice President, Chief Financial
- --------------------------------------- Officer and Treasurer
John L. Sullivan
/s/ J. Miles Branagan Trustee/Director
- ---------------------------------------
J. Miles Branagan
/s/ Jerry D. Choate Trustee/Director
- ---------------------------------------
Jerry D. Choate
/s/ Linda Hutton Heagy Trustee/Director
- ---------------------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee/Director
- ---------------------------------------
R. Craig Kennedy
/s/ Mitchell M. Merin Trustee/Director
- ---------------------------------------
Mitchell M. Merin
/s/ Jack E. Nelson Trustee/Director
- ---------------------------------------
Jack E. Nelson
/s/ Phillip B. Rooney Trustee/Director
- ---------------------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc. D. Trustee/Director
- ---------------------------------------
Fernando Sisto, Sc. D.
/s/ Wayne W. Whalen Trustee/Director
- ---------------------------------------
Wayne W. Whalen
/s/ Suzanne H. Woolsey Trustee/Director
- ---------------------------------------
Suzanne H. Woolsey
/s/ Paul G. Yovovich Trustee/Director
- ---------------------------------------
Paul G. Yovovich
<PAGE> 2
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN EQUITY TRUST II
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
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 LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
<PAGE> 1
EXHIBIT (z)(1)
Item 27(a)
- ----------
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen California Municipal Income Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Growth Fund
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Tax Managed Equity Growth Fund
Van Kampen Technology Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 2
Van Kampen Limited Maturity Government Fund
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 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
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
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 Focus Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income 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
Van Kampen Tax Managed Global Franchise Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
* Funds that have not commenced investment operations.
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 419
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 129
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 160
New York Insured Municipals Income Trust Series 149
THE DOW(SM) STRATEGIC 10 TRUST February 2000
SERIES
THE DOW(SM) STRATEGIC 10 TRUST February 2000
TRADITIONAL
SERIES
THE DOW(SM) STRATEGIC 5 TRUST February 2000
SERIES
THE DOW(SM) STRATEGIC 5 TRUST February 2000
TRADITIONAL
SERIES
EAFE STRATEGIC 20 TRUST February 2000
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST February 2000
SERIES
NASDAQ Strategic 10 Trust February 2000 Series
Dow 30 Index Trust Series 9
Dow & Tech Strategic 10 Trust Series 3/00
Global Energy Trust Series 12
Financial Institutions Trust Series 3a
Financial Institutions Trust Series 3b
Edward Jones Select Growth Trust February 2000
Series
Internet Trust Series 19A
Internet Trust Series 19B
Morgan Stanley High-Technology 35 Index Trust Series 11A
Morgan Stanley High-Technology 35 Index Trust Series 11B
Pharmaceutical Trust Series 9A
Pharmaceutical Trust Series 9B
Telecommunications & Bandwidth Trust Series 9A
Telecommunications and Bandwidth Trust Series 9B
Semi-Conductor Trust Series 1A
Semi-Conductor Trust Series 1B
Global Wireless Trust Series 2A
Global Wireless Trust Series 2B
Roaring 2000s Trust Series 5a
Roaring 2000s Trust Series 5b
Roaring 2000s Trust Traditional Series 4
Morgan Stanley Multinational Index Trust Series 2a
Morgan Stanley Multinational Index Trust Series 2b
Software Trust Series 2A
Software Trust Series 2B
Baird Economic Outlook Trust
Natcity - Great American Equities Trust Series 3
Natcity - Great American Value Trust Series 1
Josephthal - The New Millennium Consumer Trust, Retail.com Portfolio II
</TABLE>
<PAGE> 1
EXHIBIT (z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Saucedo Executive Vice President & Houston, TX
Chief Administrative Officer
Steven M. Massoni Executive Vice President Oakbrook Terrace, IL
David Swanson Executive Vice President and Chief
Marketing Officer Oakbrook Terrace, IL
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Sr. Vice President & Chief Compliance Oakbrook Terrace, IL
Officer
Sara L. Badler Sr. Vice President, Deputy Oakbrook Terrace, IL
General Counsel & Assistant Secretary;
Assistant Secretary of the Funds
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Glenn M. Cackovic Senior Vice President Laguna Niguel, CA
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Eric J. Hargens Senior Vice President Orlando, FL
Dominic C. Martellaro Senior Vice President Oakbrook Terrace, IL
Carl Mayfield Senior Vice President Oakbrook Terrace, IL
Mark R. McClure Senior Vice President Oakbrook Terrace, IL
Robert F. Muller, Jr. Senior Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Patrick J. Woelfel Senior Vice President Oakbrook Terrace, IL
Weston B. Wetherell Senior Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds
James R. Yount Senior Vice President Mercer Island, WA
Patricia A. Bettlach 1st Vice President Chesterfield, MO
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Matthew T. Baker Vice President Oakbrook Terrace, IL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edwin Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
Michael Winston Brown Vice President Colleyville, TX
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Gina Costello Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Laurie L. Jones Vice President Oakbrook Terrace, IL
Robert Daniel Kendall Vice President Oakbrook Terrace, IL
Michael C. Kinney Vice President Oakbrook Terrace, IL
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
S. William Lehew III Vice President Charlotte, NC
Ivan R. Lowe Vice President Houston, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Carin Elizabeth Morgan Vice President Oakbrook Terrace, IL
Ted Morrow Vice President Plano, TX
Lance O'Brian Murphy Vice President Houston, TX
Peter Nicholas Vice President Beverly, MA
James A. O'Brien Vice President New York, NY
Allyn O' Connor Vice President & Assoc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Theresa Marie Renn Vice President Oakbrook Terrace, IL
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Brett Van Bortel Vice President Oakbrook Terrace, IL
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey M. Scott Vice President Oakbrook Terrace, IL
Gwen L. Shaneyfelt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Thomas J. Sauerborn Vice President New York, NY
Larry Brian Vickrey Vice President Houston, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Sharon Wells Coicou Vice President Oakbrook Terrace, IL
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Oakbrook Terrace, IL
Phillip Ciulla Asst. Vice President Oakbrook Terrace, IL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Paula Duerr Asst. Vice President Oakbrook Terrace, IL
Tammy Echevarria-Davis Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Nancy Johannsen Asst. Vice President Oakbrook Terrace, IL
Thomas Johnson Asst. Vice President New York NY
Tara Jones Asst. Vice President Oakbrook Terrace, IL
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Holly Lieberman Asst. Vice President Oakbrook Terrace, IL
Gregory Mino Asst. Vice President Oakbrook Terrace, IL
Barbara Novak Asst. Vice President Oakbrook Terrace, IL
Christopher Perozek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Katherine Scherer Asst. Vice President Oakbrook Terrace, IL
Heather Schmitt Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Laurel Shipes Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
Damienne Trippiedi Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Judy Wooley Asst. Vice President Houston, TX
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
John Yovanovic Officer Houston, TX
Richard F. Powers III Director Oakbrook Terrace, IL
Michael H. Santo Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
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