VAN KAMPEN TAX FREE TRUST, 485APOS, 1998-11-25

VAN KAMPEN TAX FREE TRUST
485APOS, 1998-11-25

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998

REGISTRATION NOS. 2-99715
811-4386
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]

Post-Effective Amendment No. 42 [X]
and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 43 [X]
</TABLE>

VAN KAMPEN TAX FREE TRUST

(Exact Name of Registrant as Specified in Agreement and Declaration of Trust)

1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181-5555

(Address of Principal Executive Offices)

(630) 684-6000
(Registrant's Telephone Number)

Ronald A. Nyberg, Esq.
Executive Vice President,
General Counsel and Secretary,

Van Kampen Investments Inc.

1 Parkview Plaza

P.O. Box 5555

Oakbrook Terrace, IL 60181-5555

(Name and Address of Agent for Service)

Copies to:
Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, IL 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: (CHECK APPROPRIATE
BOX)

[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)

[ ] ON (DATE) PURSUANT TO PARAGRAPH (B)

[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(I)

[X] ON JANUARY 28, 1998 PURSUANT TO PARAGRAPH (A)(I)

[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(II)

[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(II) OF RULE 485

IF APPROPRIATE CHECK THE FOLLOWING:
[ ] 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.
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- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This Registration Statement contains seven Prospectuses and seven
Statements of Additional Information describing seven series of the Registrant
(the "Applicable Series"). The Registration Statement is organized as follows:

Facing Page

Prospectuses with respect to the Applicable Series, in the following order:

(i) Van Kampen Tax Free High Income Fund

(ii) Van Kampen Insured Tax Free Income Fund

(iii) Van Kampen California Insured Tax Free Fund

(iv) Van Kampen Municipal Income Fund

(v) Van Kampen Intermediate Term Municipal Income Fund

(vi) Van Kampen Florida Insured Tax Free Income Fund

(vii) Van Kampen New York Tax Free Income Fund

Statements of Additional Information with respect to the Applicable Series,
in the following order:

(i) Van Kampen Tax Free High Income Fund

(ii) Van Kampen Insured Tax Free Income Fund

(iii) Van Kampen California Insured Tax Free Fund

(iv) Van Kampen Municipal Income Fund

(v) Van Kampen Intermediate Term Municipal Income Fund

(vi) Van Kampen Florida Insured Tax Free Income Fund

(vii) Van Kampen New York Tax Free Income Fund

Part C Information

Exhibits

-------------------------

The Prospectus and Statement of Additional Information with respect to each
of Van Kampen California Tax Free Income Fund, Van Kampen Michigan Tax Free
Income Fund, Van Kampen Missouri Tax Free Income Fund and Van Kampen Ohio Tax
Free Income Fund, four other series of the Registrant, included in
Post-Effective Amendment No. 31 to the Registration Statement of the Registrant,
are included herein by reference and no changes thereto are affected hereby.

<PAGE> 3

The information in this prospectus is not complete and may be changed. The Fund
may not sell these securities until the post-effective amendment to the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities.

---------------------------------------------

VAN KAMPEN

TAX FREE HIGH INCOME FUND

---------------------------------------------

Van Kampen Tax Free High Income Fund is a mutual fund with an investment
objective to provide investors a high level of current income exempt from
federal income tax primarily through investment in a diversified portfolio of
medium and lower grade municipal securities.

---------------------------------------------

Shares of the Fund have not been approved or disapproved by the Securities
and Exchange Commission (SEC) or any state regulators, and neither the SEC nor
any state regulator has ruled on the accuracy or adequacy of this prospectus. It
is a criminal offense to state otherwise.

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 4

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 8
Investment Objective and Policies........................... 10
Investment Advisory Services................................ 19
Purchase of Shares.......................................... 20
Redemption of Shares........................................ 26
Distributions from the Fund................................. 28
Shareholder Services........................................ 29
Federal Income Taxation..................................... 30
Financial Highlights........................................ 32
Appendix--Description of Securities Ratings................. 33
</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.

2
<PAGE> 5

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide investors
a high level of current income exempt from federal income tax primarily through
investment in a diversified portfolio of medium and lower grade municipal
securities. There can be no assurance the Fund will achieve its investment
objective.

INVESTMENT STRATEGIES

Understanding Municipal Securities

Municipal securities, including
municipal bonds, municipal notes or
municipal leases, generally are
issued by state and local
governments or regional governmental
authorities to raise money for their
daily operations or special
projects. The interest received from
municipal securities generally is
exempt from federal income tax. In
addition, the interest may be exempt
from certain state or local taxes
when received from issuers who are
located in the investors' home
state, municipality or region. The
interest from certain municipal
securities is a preference item
subject to federal alternative
minimum tax.

Under normal market conditions,
the Fund's management seeks to
achieve the investment objective by
investing primarily in medium and
lower grade municipal securities
that are rated at the time of
purchase between BBB and B-
(inclusive) by Standard and Poor's
("S&P"), or between Baa and B3
(inclusive) Moody's Investors
Service, Inc. ("Moody's") or an
equivalent rating by another
nationally recognized statistical
rating organization ("NRSRO") and
comparably rated short term
securities or unrated municipal
securities believed by the Fund's
investment adviser to be of
comparable quality at the time of
purchase. Securities rated BB or
below by S&P, Ba or below by Moody's
or unrated securities of comparable
quality are commonly referred to as
"junk bonds" and involve special risks as compared to investments in
higher-grade securities (see box for an explanation of quality ratings). Under
normal market conditions, up to 20% of the Fund's total assets may be invested
in municipal securities that are subject to federal alternative minimum tax.

INVESTMENT RISKS

With its portfolio of medium and lower grade securities, the Fund has
greater risks than a fund owning higher-grade securities. Because of the
following risks, you could lose money on your investment in the Fund over the
short or long term:

- - MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This "market risk" is usually greater among securities with longer
maturities. Because the Fund does not have a policy limiting the maturities
of its investments and the Fund may own securities with longer maturities,
the Fund will be subject to greater market risk than a fund that owns
shorter-term securities.

3
<PAGE> 6

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 ratings can be
found in the Appendix to this
Prospectus.

<TABLE>
<CAPTION>
Moody's S&P Meaning
------- --- -------
<S> <C> <C>
Aaa AAA Highest quality
Aa AA High quality
A A Above-average quality
Baa BBB Average quality
----------------------------------------------------------
Ba BB Below-average quality
B B Marginal quality
Caa CCC Poor quality
Ca CC Highly speculative
C C Lowest quality
D In default
</TABLE>

Market risk is often greater
among certain types of income
securities, such as zero-coupon
bonds, which do not make regular
interest payments but are instead
bought at a discount to their
face values and paid in full upon
maturity. As interest rates
change, these bonds often
fluctuate more in price than
bonds that make regular interest
payments. Because the Fund
invests in zero-coupon bonds, it
may be subject to greater market
risk than a fund that does not
own this type of bond.

- - CREDIT RISK. Credit risk refers
to an issuer's ability to make
timely payments of interest or
principal. Because the Fund
invests primarily in securities
with medium and lower grade
credit quality, it is subject to
a higher level of credit risk
than a fund that buys only
investment grade securities. The
credit quality of "noninvestment
grade" securities is considered speculative by recognized rating agencies
with respect to the issuer's continuing ability to pay interest or principal.
The prices of lower-grade securities are more sensitive to speculative by
recognized rating agencies with respect to the issuer's continuing ability to
pay interest or principal. The prices of lower-grade securities are more
sensitive to negative corporate developments, such as a decline in profits,
or adverse economic conditions, such as a recession, than are the prices of
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 buy back, or "call", their
securities before their maturity dates. In this event, the proceeds from the
called securities would be reinvested by the Fund in securities with the new,
lower interest rates, resulting in a possible decline in the Fund's income
and distributions to shareholders.

- - MUNICIPAL SECURITIES RISK. The Fund invests primarily in municipal
securities. The yields of municipal securities may move differently and
adversely compared to the yields of the overall debt securities markets.
While the interest received from municipal securities generally is exempt
from federal income tax, the Fund may invest up to 20% of its total assets in
municipal securities subject to federal alternative minimum tax. 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.

4
<PAGE> 7

- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds. An investment in the Fund is not a deposit
of any bank or other insured depository institution. Your investment is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - seek a high level of monthly income.

- - are in a high federal income tax bracket.

- - are willing to take on substantially increased risks of medium and lower
grade securities in exchange for potentially higher income.

- - wish to add to their personal investment portfolios a Fund that invests
primarily in medium or lower grade municipal securities.

Investors should carefully consider the additional risks associated with
investment in medium or lower grade municipal securities. An investment in the
Fund may not be appropriate for all investors. The Fund is not intended to be a
complete investment program, and investors should consider their long term
investment goals and financial needs when making an investment decision about
the Fund. An investment in the Fund is intended to be a long-term investment and
should not be used as a trading vehicle.

ANNUAL PERFORMANCE

5
<PAGE> 8

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.

to come

<TABLE>
<CAPTION>
Annual Return
<S> <C>
'1989' 9.71
'1990' 3.23
'1991' 8.51
'1992' 0.08
'1993' 15.82
'1994' -4.93
'1995' 15.52
'1996' 3.21
'1997' 9.05
'1998*' 6.00
</TABLE>

The 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 differ from
the annual returns shown for the Fund's Class A Shares reflecting 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 6.09% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -5.60% (for the quarter ended March 31, 1994).

6
<PAGE> 9

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with Lehman Brothers
Municipal Bond Index, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. Average annual total returns
are shown for the one-, five-, and ten-year periods ended December 31, 1997 (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.

AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 10
YEARS OR
PAST 1 PAST 5 SINCE
YEAR YEARS INCEPTION
------ ------ ---------
<S> <C> <C> <C>
Van Kampen Tax Free High Income Fund
Class A Shares............................... 9.05% 7.44% 6.90%
Class B Shares............................... 8.23% -- 6.32% (1)
Class C Shares............................... 8.23% -- 5.69% (2)
Lehman Brothers Municipal Bond Index...........
</TABLE>

- ------------------------------------

Inception Dates: (1) 5/1/93, (2) 8/13/93.

The current yield for the thirty day period ended September 30, 1998 is
4.11% for Class A Shares, 3.55% for Class B Shares and 3.53% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

7
<PAGE> 10

---------------------------------------------

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>
Shareholder Fees
(fees paid directly from your
investment):
Maximum sales charge (load) imposed on
purchases (as a percentage of
offering price)..................... 4.75% (1) None None
Maximum deferred sales charge (load)
(as a percentage of the lesser of
original purchase price or
redemption proceeds)................ None (2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Maximum sales charge (load) imposed
reinvested dividends (as a
percentage of offering price)....... None None None
Redemption fees (as a percentage of
amount redeemed).................... None None None
Exchange fee.......................... None None None
</TABLE>

- ------------------------------------

(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares--Class A
Shares."

(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a deferred sales charge of 1.00% may be imposed on
redemptions made within one year of the purchase. See "Purchase of
Shares--Class A Shares."

8
<PAGE> 11

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees............................ 0.47% 0.47% 0.47%
Distribution and/or Service (12b-1)
Fees(1).................................. 0.24% 1.00%(2) 1.00%(2)
Other Expenses............................. 0.19% 0.19% 0.19%
Interest Expense........................... 0.02% 0.02% 0.02%
Total Annual Fund Operating Expenses....... 0.92% 1.68% 1.68%
</TABLE>

- ------------------------------------

(1) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Distribution and Service Plans."

(2) 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. Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted by National Association of
Securities Dealers, Inc. Rules.

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% annual return
each year and that the Fund's operating expenses remain the same each year
(except for the ten year amounts for Class B Shares which reflect the conversion
of Class B Shares to Class A Shares after eight years). Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- ------
<S> <C> <C> <C> <C>
Class A Shares........................... $564 $754 $ 960 $1,553
Class B Shares........................... $571 $880 $1,063 $1,785*
Class C Shares........................... $271 $530 $ 913 $1,987
</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>
Class A Shares........................... $564 $754 $960 $1,553
Class B Shares........................... $171 $530 $913 $1,785*
Class C Shares........................... $171 $530 $913 $1,987
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

9
<PAGE> 12

To facilitate comparison among funds, all funds are required by the SEC to
utilize a 5% annual return assumption. Class B Shares of the Fund acquired
through the exchange privilege are subject to the contingent deferred sales
charge schedule of the fund from which the shareholder's purchase of Class B
Shares was originally made. Accordingly, future expenses as projected could be
higher than those determined in the above table if the investor's Class B Shares
were exchanged from a fund with a higher contingent deferred sales charge. The
Fund's actual annual return and actual expenses for future periods may be
greater or less than those shown.

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

The Fund's investment objective is to provide investors a high level of
current income exempt from federal income tax primarily through investment in a
diversified portfolio of medium and lower grade municipal securities. The Fund's
investment objective is a fundamental policy and may not be changed without
shareholder approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). There are risks inherent in all investments in securities; and
accordingly there can be no assurance the Fund will achieve its investment
objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing primarily in medium and lower grade municipal
securities that are rated at the time of purchase between BBB and B- (inclusive)
by S&P or between Baa or B3 (inclusive) by Moody's or an equivalent rating by
another NRSRO and comparably rated short term securities or unrated municipal
securities believed by the Fund's investment adviser to be of comparable quality
at the time of purchase. Securities rated BB or below by S&P, Ba or below by
Moody's or unrated securities of comparable quality are commonly referred to as
"junk bonds" and involve special risks as compared to investments in
higher-grade securities. Under normal market conditions, up to 20% of the Fund's
total assets may be invested in municipal securities that are subject to
alternative minimum tax. From time to time, the Fund temporarily may invest up
to 10% of its total assets in tax exempt money market funds that invest in
securities rated comparable to those in which the Fund may invest and such
instruments will be treated as investments in municipal securities.

The Fund's investment adviser will buy and sell securities for the Fund's
portfolio with a view to seeking a high level of current income exempt from
federal income tax and will select securities which the Fund's investment
adviser believes entail reasonable credit risk considered in relation to the
investment policies of the Fund. As a result, the Fund will not necessarily
invest in the highest yielding municipal securities permitted by its investment
policies if the Fund's investment adviser determines that market risks or credit
risks associated with such investments would subject the Fund's portfolio to
undue risk. The potential for realization of capital gains resulting from
possible changes in interest rates will not be a major consideration. Other than
for tax purposes, frequency of portfolio turnover generally will not be a
limiting factor if the Fund's investment adviser considers it advantageous to
purchase or sell securities.

10
<PAGE> 13

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. Under
normal market conditions, at least 80% of the Fund's total assets will be
invested in municipal securities. The policy stated in the foregoing sentence is
a fundamental policy of the Fund and may not be changed without shareholder
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. Under normal market conditions, up to
20% of the Fund's total assets may be invested in municipal securities that are
subject to federal alternative minimum tax.

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.

Within these principal classifications of municipal securities, there are a
variety of types of municipal securities, including fixed and variable rate
securities, municipal notes, municipal leases, custodial receipts, participation
certificates and derivative municipal securities (which include terms or
elements similar in to certain strategic transactions described below). Variable
rate securities bear rates of interest that are adjusted periodically according
to formulae intended to reflect market rates of interest. The Fund also may also
invest in derivative variable rate securities, such as inverse floaters whose
rates vary inversely with changes in market rates of interest. Investment in
such securities involve special risks as compared to a fixed rate municipal
security. The extent of increases and decreases in the value of derivative
variable rate securities and the corresponding change to the net asset value of
the Fund generally will be larger than comparable changes in the value of an
equal principal amount of a fixed rate municipal security having similar credit
quality, redemption provisions and maturity. The markets for such securities may
be less developed and have less liquidity than the markets for conventional
municipal securities. The Fund will not invest more than 15% of its total assets
in derivative variable rate securities, such as inverse floaters whose rates
vary inversely with changes in market rates of interest or range floaters or
capped floaters whose rates are subject to periodic or lifetime caps. 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. 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

11
<PAGE> 14

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. Other than as set forth above, there is no limitation with respect
to the amount of the Fund's assets that may be invested in the foregoing types
of municipal securities. Certain of the municipal securities in which the Fund
may invest represent relatively recent innovations in the municipal securities
markets and the markets for such securities may be less developed than the
market for conventional fixed rate municipal securities. A more detailed
description of the types of municipal securities in which the Fund may invest is
included in the Statement of Additional Information.

Under normal market conditions, longer term municipal securities generally
provide a higher yield than shorter term municipal securities. The Fund has no
limitation as to the maturity of municipal securities in which it may invest.
The Fund's investment adviser may adjust the average maturity of the Fund's
portfolio from time to time depending on its assessment of the relative yields
available on securities of different maturities and its expectations of future
changes in interest rates.

The net asset value of the Fund will change with changes in the value of
its portfolio securities. Because the Fund will invest primarily in fixed income
municipal securities, the net asset value of the Fund can be expected to change
as general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed income securities generally can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested in fixed income securities generally can be expected to decline. The
prices of longer term municipal securities generally are more volatile with
respect to changes in interest rates than the prices of shorter term municipal
securities. Volatility may be greater during periods of general economic
uncertainty.

Municipal securities, like other debt obligations, are subject to the
credit risk of non-payment. The ability of issuers of municipal securities to
make timely payments of interest and principal may be adversely impacted in
general economic downturns and as relative governmental cost burdens are
allocated and reallocated among federal, state and local governmental units.
Such non-payment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal securities experiencing non-
payment and a potential decrease in the net asset value of the Fund. In
addition, the Fund may incur expenses to work out or restructure a distressed or
defaulted security. Securities rated below investment grade involve special
risks compared to higher grade securities. See "Lower Grade Municipal
Securities" below.

The Fund may invest up to 20% of its total assets in municipal securities
that are subject to federal alternative minimum tax. The Fund may not be a
suitable investment for investors who are already subject to the federal
alternative minimum tax or who would become subject to the federal alternative
minimum tax as a result of 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 tax exempt interest dividends might be adversely affected and
the Fund would re-evaluate its investment objective and policies and consider
changes in its structure.

12
<PAGE> 15

The Fund generally will not invest more than 25% of its total assets in any
industry nor will the Fund generally invest more than 5% of its total assets in
securities of any single issuer. Governmental issuers of municipal securities
are not considered part of any "industry." However, municipal securities backed
only by the assets and revenues of nongovernmental users may for this purpose be
deemed to be issued by such nongovernmental users, and the 25% limitation would
apply to such obligations. It is therefore possible that the Fund may invest
more than 25% of its total assets in a broader segment of the municipal
securities market, such as revenue obligations of hospitals and other health
care facilities, housing agency revenue obligations, or airport revenue
obligations if the Fund's investment adviser determines that the yields
available from obligations in a particular segment of the market justifies the
additional risks associated with a large investment in such segment. Although
such obligations could be supported by the credit of governmental users, or by
the credit of nongovernmental users engaged in a number of industries, economic,
business, political and other developments generally affecting the revenues of
such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the demand
for their services or products) may have a general adverse effect on all
municipal securities in such a market segment. The Fund reserves the right to
invest more than 25% of its total assets in industrial development bonds or 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.

MEDIUM AND LOWER GRADE MUNICIPAL SECURITIES. Under normal market
conditions, the Fund invests primarily in medium and lower grade municipal
securities that are rated at the time of purchase between BBB and B- (inclusive)
by S&P or between Baa and B3 by Moody's or an equivalent rating by another NRSRO
and comparably rated short term securities or unrated municipal securities
considered by the Fund's investment adviser to be of comparable quality at the
time of purchase. With respect to such investments, the Fund has not established
any limit on the percentage of its portfolio which may be invested in securities
in any one rating category. Securities rated BB or below by S&P, Ba or below by
Moody's or unrated securities of comparable quality are commonly referred to as
"junk bonds". Generally, medium and lower grade securities provide higher yields
than higher grade securities of similar maturity but are subject to greater
risks, such as greater credit risk, greater 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 making an investment in the Fund.

13
<PAGE> 16

principal. Lower grade securities are considered speculative by the rating
agencies with respect to the capacity of the issuer to make interest and
principal payments and both lower and medium grade securities are more
susceptible to nonpayment or default than higher grade securities. An economic
downturn or increase in interest rates could severely impact the ability of such
issuers to pay principal and interest or obtain other financing. The ratings of
S&P and Moody's represent their opinions of the quality of the securities they
undertake to rate, but not the market value risk of such securities. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Credit ratings are also subject to a risk that the rating agencies
may fail to change such ratings to reflect subsequent events in a timely
fashion. See the Appendix for a description of security ratings.

The value of all debt securities fluctuate in response to changes in
interest rates, but medium and lower grade securities generally are subject to
more market risk and volatility than higher grade securities. Medium and lower
grade securities tend to react to short-term issuer or economic developments to
a greater extent than higher grade securities, which fluctuate primarily in
response to the general level of interest rates, assuming that there has been no
change in the fundamental quality of such securities. Yields on the Fund's
portfolio securities can be expected to fluctuate over time. A significant
increase in interest rates or a general economic downturn could severely disrupt
the market for medium and lower grade municipal securities and adversely affect
the market value of such securities. Such events also could lead to a higher
incidence of default by issuers of medium and lower grade municipal securities
compared to higher grade securities. In addition, changes in credit risks,
changes in interest rates, the credit markets or periods of general economic
uncertainty can be expected to result in increased volatility in the market
price of the Fund's medium and lower grade municipal securities and thus in the
net asset value of the Fund. Medium and lower grade securities may be more
susceptible to real or perceived adverse economic conditions than higher grade
securities. A projection of an economic downturn, for example, could cause a
decline in prices of medium and lower grade securities because the advent of a
recession could lessen the ability of a such issuer to make principal and
interest payments on its securities or obtain additional financing when
necessary. In addition, recent and proposed legislation may have an adverse
impact on the market prices or liquidity for medium and lower grade municipal
securities.

The amount of available information about the financial condition of
municipal securities issuers is generally less extensive than that for corporate
issuers with publicly traded securities and the market for municipal securities
is generally considered to be less liquid than the market for corporate debt
obligations. In addition, the markets for medium and lower grade securities may
be less liquid than the markets for higher grade securities. Liquidity relates
to the ability of a fund to sell a security in a timely manner at a price which
reflects the value of that security. To the extent that there is no established
retail market for some of the medium and lower grade municipal securities in
which the Fund may invest, trading in such securities may be relatively
inactive. Prices of medium and lower grade debt securities may decline rapidly
in the event a significant number of holders decide to sell. Changes in
expectations regarding an individual issuer or medium or lower grade debt
securities generally could reduce market liquidity for such securities and make
their sale by the Fund more difficult, at least in the absence of price
concessions. The effects of adverse publicity and investor perceptions may be
more pronounced for securities for which no established retail market exists as
compared with the effects on securities for

14
<PAGE> 17

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 would 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's investment adviser seeks to minimize the risks involved in
investing in medium and lower grade municipal securities through
diversification, careful investment analysis and attention to current
developments and trends in the economy and financial and credit markets. In
purchasing and selling securities, the Fund's investment adviser evaluates the
issuers of such securities based on a number of factors, including but not
limited to the issuer's financial strength, its sensitivity to economic
conditions and trends, its revenues or earnings potential, its operating history
and management skills. Municipal securities generally are not listed for trading
on any national securities exchange, and many issuers of medium and lower grade
municipal securities choose not to have a rating assigned to their obligations
by any nationally recognized statistical rating organization. The amount of
information available about the financial condition of an issuer of unlisted or
unrated securities generally is not as extensive as that which is available with
respect to issuers of listed or rated securities. Thus, investment results of
the Fund's medium and lower grade securities may be more dependent upon the
investment adviser's credit analysis, judgment and experience than a fund
investing solely in higher grade securities.

Certain of the medium and lower grade municipal securities in which the
Fund may invest may be, subsequent to the Fund's investment in such securities,
downgraded or have their rating withdrawn by Moody's or S&P or may be deemed by
the Fund's investment adviser to be of a lower quality as a result of impairment
of the creditworthiness of the issuer of such securities or of the project the
revenues from which are the source of

15
<PAGE> 18

payment of interest and repayment of principal with respect to such securities.
The Fund may, if deemed appropriate by the Fund's investment adviser, retain a
security whose rating has been downgraded or whose rating has been withdrawn. In
such instances, the secondary market for such municipal securities may become
less liquid, with the possibility that more than 15% of the Fund's net assets
would be invested in securities which are not readily marketable. In such event,
the Fund will take reasonable and appropriate steps to reduce the percentage of
the Fund's portfolio represented by securities that are not readily marketable
to less than 15% of the Fund's net assets as soon as is reasonably practicable.

The table below sets forth the percentages of the Fund's assets invested
during the fiscal period ended September 30, 1998 in the various S&P's and
Moody's rating categories and in unrated securities determined by the Fund's
investment adviser to be of comparable quality. The percentages are based on the
dollar-weighted average of credit ratings of all municipal securities held by
the Fund during the 1998 fiscal period computed on a monthly basis.

<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1998
--------------------------------------
UNRATED
SECURITIES OF
RATED SECURITIES COMPARABLE
(AS A QUALITY (AS A
PERCENTAGE OF PERCENTAGE OF
RATING CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
--------------- ---------------- ----------------
<S> <C> <C>
AAA/Aaa......................... 29.0% 0%
AA/Aa........................... 5.8% 0%
A/A............................. 5.3% 1.0%
BBB/Baa......................... 17.5% 3.7%
BB/Ba........................... 2.3% 23.5%
B/B............................. 0% 9.7%
CCC/Caa......................... 0% 0.6%
CC/Ca........................... 0% 0%
C/C............................. 0% 0%
D............................... 0% 1.6%
Percentage of Rated and Unrated
Securities.................... 59.9% 40.1%
</TABLE>

The percentage of the Fund's assets invested in securities of various
grades may vary from time to time from those set forth above.

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 investment 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

16
<PAGE> 19

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.

OTHER INVESTMENTS AND RISK FACTORS

The Fund may purchase and sell derivative instruments such as
exchange-listed and over-the-counter put and call options on securities,
financial futures, fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and enter into various interest
rate transactions such as swaps, caps, floors or collars. Collectively, all of
the above are referred to as "Strategic Transactions." Strategic Transactions
may be used to attempt to protect against possible changes in the market value
of securities held in or to be purchased for the Fund's portfolio resulting from
securities markets fluctuations, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. Any or all of these
investment techniques may be used at any time and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the investment adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions have risks associated with
them including possible default by the other party to the transaction,
illiquidity and, to the extent the investment adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale of
portfolio securities at inopportune times or for prices other than at current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the risk management or hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not

17
<PAGE> 20

be able to close out a transaction without incurring substantial losses, if at
all. Although the contemplated use of these futures contracts and options
thereon should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The Strategic Transactions that the Fund may use and some of
their risks are described more fully in the Fund's Statement of Additional
Information. Income earned or deemed to be earned by the Fund from its Strategic
Transactions, if any, generally will be taxable income of the Fund.

The Fund may purchase and sell municipal securities on a "when issued" or
"delayed delivery" basis. 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. 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.

The Fund may invest up to 15% of the Fund's net assets in illiquid 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.

The Fund may borrow amounts up to 5% of its net assets in order to pay for
redemptions when liquidation of portfolio securities is considered
disadvantageous or inconvenient and may pledge up to 10% of its net 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 which can be obtained by investors free of charge as
described on the back cover of this prospectus.

Although the Fund does not intend to engage in substantial short-term
trading, it may sell securities without regard to the length of time they have
been held in order to take advantage of new investment opportunities or yield
differentials or otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights". The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had a lower portfolio turnover. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate.

18
<PAGE> 21

When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis a portion or all of its assets in
high-quality, short-term municipal obligations. If such high-quality, short-term
securities are not available or, in the investment adviser's judgment, do not
afford sufficient protection against adverse market conditions, the Fund may
invest in taxable obligations. Such taxable obligations may include in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, other investment grade quality income securities, prime
commercial paper, certificates of deposit, bankers' acceptances and other
obligations of domestic banks having total assets of at least $500 million, and
repurchase agreements. The effect of taking such a defensive position may be
that the Fund does not achieve its investment objective.

Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's investment adviser and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's investment adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, the Year 2000 Problem may adversely affect the
markets and the issuers of securities in which the Fund may invest which, in
turn, may adversely affect the net asset value of the Fund. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies or issuers and overall
economic uncertainty. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected.

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

THE ADVISER. Van Kampen Investment Advisory Corp. is the Fund's investment
adviser (the "Adviser"). 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 $50 billion under management or supervision. Van Kampen Investments' more
than 60 open-end and more than 35 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555.

19
<PAGE> 22

ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment
of its assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------------------------------------------------------------
<S> <C>
First $500 million......................................... 0.50%
Over $500 million.......................................... 0.45%
- ------------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
period ended September 30, 1998.

Under the Advisory Agreement, the Fund also reimburses the Adviser for the
cost of the Fund's accounting services, which include maintaining its financial
books and records and calculating its daily net asset value. Other operating
expenses paid by the Fund include service fees, distribution fees, custodial
fees, legal and accounting fees, the costs of reports and proxies to
shareholders, trustees' fees (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments) and all other business expenses
not specifically assumed by the Adviser.

From time to time, the Adviser or the Distributor may voluntarily undertake
to reduce the Fund's expenses by reducing the fees payable to them or
reimbursing other expenses of the Fund in accordance with such limitations as
the Adviser or Distributor may establish.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes
of Ethics designed to recognize the fiduciary relationship between the Fund and
the Adviser and its 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. David C. Johnson, a Senior Vice President of the
Adviser, has been primarily responsible for the day-to-day management of the
Fund's portfolio since April 1989. Mr. Johnson has been employed by the Adviser
since April 1989.

---------------------------------------------

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

20
<PAGE> 23

choose the class of shares that is most beneficial given the amount to be
invested and the length of time the investor expects to hold the shares. Initial
investments must be at least $500 for each class of shares, and subsequent
investments must be at least $25 for each class of shares. Both minimums may be
waived by the Distributor for plans involving periodic investments.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights except that (i) Class A Shares
generally bear the sales charge expenses at the time of purchase while Class B
Shares and Class C Shares bear the sales charge expenses at the time of
redemption and any expenses (including higher distribution fees and transfer
agency costs) resulting from such deferred sales charge arrangement, (ii)
generally, each class of shares has exclusive voting rights with respect to
approvals of the Rule 12b-1 distribution plan pursuant to which its distribution
fee or service fee is paid, (iii) each class of shares has different exchange
privileges, (iv) certain classes of shares are subject to a conversion feature
and (v) certain classes of shares have different shareholder service options
available.

The price of the Fund's shares is based upon the Fund's net asset value per
share. The net asset values per share of the Class A Shares, Class B Shares and
Class C Shares are generally expected to be substantially the same. In certain
circumstances, however, the per share net asset values of the classes of shares
may differ from one another, reflecting the daily expense accruals of the higher
distribution fees and transfer agency costs applicable to the Class B Shares and
Class C Shares and the differential in the dividends that may be paid on each
class of shares.

The net asset value per share for each class of shares of the Fund is
determined once daily as of 5:00 p.m. Eastern time Monday through Friday, except
on: customary business holidays, 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 reserves the right to calculate the net asset
value per share and to adjust the public offering price based thereon more
frequently than once a day 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. Portfolio
securities are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Fund.
Securities with remaining maturities of 60 days or less are valued at amortized
cost when amortized cost is determined in good faith by or under the direction
of the Board of Trustees of the Fund to be representative of the fair value at
which it is expected such securities may be resold. Any securities or other
assets for which current market quotations are not readily available are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees of the Fund.

21
<PAGE> 24

Service Plan provide that the Fund may pay distribution fees in connection with
the sale and distribution of its shares and service fees in connection with the
provision of ongoing services to shareholders of each class.

The amount of distribution and service fees varies among the classes
offered by the Fund. Because these fees are paid out of the Fund's assets on an
ongoing basis, these fees will increase the cost of your investment in the Fund.
By purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. The net income attributable to a class of shares and the
dividends payable on such class of shares will be reduced by the amount of the
distribution fees and other expenses associated with such class of shares. To
assist investors in comparing classes of shares, the tables under "Fees and
Expenses of the Fund" set forth a summary of sales charges and expenses and an
example of the sales charges and expenses 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 or investors ("brokers"). "Dealers" and
"brokers" are sometimes referred to herein as "authorized dealers."

Shares may be purchased on any business day through authorized dealers.
Shares also may be purchased by completing the application accompanying this
Prospectus and forwarding the application, through the authorized dealer, to the
shareholder service agent, Van Kampen Investor Services Inc. ("Investor
Services"), a wholly owned subsidiary of Van Kampen Investments. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A
Shares, Class B Shares or Class C Shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A Shares, Class B Shares or Class C Shares.

The price paid for shares purchased is based on the next calculation of net
asset value per share (plus sales charges, where applicable) after an order is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit orders received by them to the
Distributor so they will be received prior to such time. Orders of less than
$500 generally are mailed by the authorized dealer and processed at the offering
price next calculated after receipt by Investor Services.

Shares of the Fund may be sold in foreign countries where permissible. The
Fund and the Distributor reserve the right to refuse any order for the purchase
of shares. The Fund also reserves the right to suspend the sale of the Fund's
shares in response to conditions in the securities markets or for other reasons.

Investor accounts will automatically be credited with additional shares of
the Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 341-2911 or writing to the Fund, c/o Van Kampen Investors Services Inc.,
PO Box 418256, Kansas City, MO 64141-9256.

22
<PAGE> 25

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 Net
Size of Offering Amount
Investment Price Invested
- ------------------------------------------------------------------------------------
<S> <C> <C>
Less than $100,000.................................... 4.75% 4.99%
$100,000 but less than $250,000....................... 3.75% 3.90%
$250,000 but less than $500,000....................... 2.75% 2.83%
$500,000 but less than $1,000,000..................... 2.00% 2.04%
$1,000,000 or more.................................... * *
- ------------------------------------------------------------------------------------
</TABLE>

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price.

The Fund may spend an aggregate amount up to 0.25% per year of the average
daily net assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and Service Plan. From such amount, the Fund may spend up to
0.25% per year of the Fund's average daily net assets attributable to the Class
A Shares pursuant to the Service Plan in connection with the ongoing provision
of services to holders of such shares by the Distributor and by brokers, dealers
or financial intermediaries and in connection with the maintenance of such
shareholders' accounts.

The Fund's Statement of Additional Information contains more detailed
information about quantity discount options (such as volume discounts,
cumulative discounts and letters of intent) and other purchase programs (such as
unit investment trust reinvestments and net asset value purchase options)
available to purchasers of Class A Shares. Interested investors should contact
their authorized dealers or obtain a copy of the Statement of Additional
Information free of charge as described on the back cover of this prospectus.

23
<PAGE> 26

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- -----------------------------------------------------------------------------------
<S> <C>
First............................................... 4.00%
Second.............................................. 3.75%
Third............................................... 3.50%
Fourth.............................................. 2.50%
Fifth............................................... 1.50%
Sixth............................................... 1.00%
Seventh and After................................... None
- -----------------------------------------------------------------------------------
</TABLE>

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

The amount of the contingent deferred sales charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of shares, all payments during a month are aggregated and deemed to have been
made on the last day of the month.

In determining whether a contingent deferred sales charge is applicable to
a redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.

The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class B Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class B Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

24
<PAGE> 27

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class C Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class C Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

CONVERSION FEATURE

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares seven years after the end of the calendar month in which the shares were
purchased. Class C Shares purchased before January 1, 1997, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares ten years after the end of the calendar month in which such shares were
purchased. Such conversion will be on the basis of the relative net asset values
per share, without the imposition of any sales load, fee or other charge. The
conversion schedule applicable to a share of the Fund acquired through the
exchange privilege from another Van Kampen fund is determined by reference to
the Van Kampen fund from which such share was originally purchased.

The conversion of such shares to Class A Shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution fee and transfer agency costs with respect
to such shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the federal income tax law and (ii)
the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.

25
<PAGE> 28

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge is waived on redemptions of Class B
Shares and Class C Shares (i) within one year following the death or disability
(as disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required minimum distributions from an individual retirement
account (IRA) or certain other retirement plan distributions, (iii) pursuant to
the Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares and (v) effected pursuant to the right of the Fund to involuntarily
liquidate a shareholder's account as described herein under "Redemption of
Shares." The contingent deferred sales charge also is waived on redemptions of
Class C Shares as it relates to the reinvestment of redemption proceeds in
shares of the same class of the Fund within 180 days after redemption. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Statement of Additional Information or contact your authorized
dealer.

---------------------------------------------

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 above under "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 though an authorized dealer or a custodian of a retirement
plan account may involve additional fees charged by the dealer or custodian.

Except as specified below under "Telephone Redemptions," payment for shares
redeemed generally will be made by check mailed within seven days after
acceptance by Investor Services of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. If the shares to be redeemed have
been recently purchased by check, Investor Services may delay the redemption
until it confirms the purchase check has cleared, which may take up to 15 days.
A taxable gain or loss will be recognized by the shareholder upon redemption of
shares.

WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of
shares by written request in proper form sent directly to Van Kampen Investor
Services Inc., P.O. Box 418256, Kansas City, Missouri 64141-9256. The request
for redemption should indicate the number of shares to be redeemed, the class
designation of such shares and the shareholder's account number. The redemption
request must be signed by all persons in whose names the shares are registered.
Signatures must conform exactly to the account registration. If the proceeds of
the redemption exceed $50,000, or if the proceeds are not to be paid to the
record owner at the record address, or if the record address has changed within
the previous 30 days, signature(s) must be guaranteed by one of the following: a
bank or trust company; a broker-dealer; a credit union; a national securities
exchange,

26
<PAGE> 29

registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to Investor Services. In the case of shareholders holding certificates, the
certificates for the shares being redeemed properly endorsed for transfer must
accompany the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior
120 days must accompany the redemption request. IRA redemption requests should
be sent to the IRA custodian to be forwarded to Investor Services. Contact the
IRA custodian for further information.

In the case of written redemption requests sent directly to Investor
Services, the redemption price is the net asset value per share next determined
after the request in proper form is received by Investor Services.

AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 unless transmitted via the FUNDSERV network. The
redemption price for such shares is the net asset value next calculated after an
order in proper form is received by an authorized dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of authorized dealers to transmit redemption
requests received by them to the Distributor so they will be received prior to
such time. Redemptions completed through an authorized dealer may involve
additional fees charged by the dealer.

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other

27
<PAGE> 30

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
with a value on the date of the notice of redemption less than the minimum
initial investment as specified in this Prospectus. At least 60 days advance
written notice of any such involuntary redemption will be given and the
shareholder will be given an opportunity to purchase the required value of
additional shares at the next determined net asset value without sales charge.
Any involuntary redemption may only occur if the shareholder account is less
than the minimum initial investment due to shareholder redemptions.

---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

In addition to any increase in the value of shares which the Fund may
achieve, shareholders may receive two kinds of return from the Fund: dividends
and capital gains distributions. Investors will be entitled to begin receiving
dividends on their shares on the business day after Investor Services receives
payments for such shares. However, shares become entitled to dividends on the
day Investor Services receives payment for the shares either through a fed wire
or NSCC settlement. Shares remain entitled to dividends through the day such
shares are processed for payment on redemption.

DIVIDENDS. Interest earned from investments is the Fund's main source of
income. Under the Fund's present policy, which may be changed at any time by the
Board of Trustees, distributions of all or substantially all of this income,
less expenses, are declared daily and paid monthly as dividends to shareholders.
Dividends are automatically applied to purchase additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.

The per share dividends on Class B Shares and Class C Shares may be lower
than the per share dividends on Class A Shares as a result of the higher
distribution fees and transfer agency costs applicable to such classes of
shares.

CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. As in the
case of dividends, capital gains distributions are automatically

28
<PAGE> 31

reinvested in additional shares of the Fund at net asset value unless the
shareholder instructs otherwise.

---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

Listed below are some of the shareholder services the Fund offers to
investors. For a more complete description of the Fund's shareholder services,
such as investment accounts, share certificates, retirement plans, automated
clearing house deposits, dividend diversification, exchange privileges, and the
systematic withdrawal plan, please refer to the Statement of Additional
Information or contact your authorized dealer.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable record date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize Investor Services to charge a bank account on
a regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.

CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund
for which certificates have not been issued and which are in a non-escrow status
may appoint Investor Services as agent by completing the Authorization for
Redemption by Check form and the appropriate section of the application and
returning the form and the application to Investor Services. Once the form is
properly completed, signed and returned to the agent, a supply of checks drawn
on State Street Bank and Trust Company (the "Bank") will be sent to the Class A
shareholder. These checks may be made payable by the Class A shareholder to the
order of any person in any amount of $100 or more.

When a check is presented to the Bank for payment, full and fractional
Class A Shares required to cover the amount of the check are redeemed from the
shareholder's Class A account by Investor Services at the next determined net
asset value. Check writing redemptions represent the sale of Class A Shares. Any
gain or loss realized on the sale of shares is a taxable event. See "Redemption
of Shares."

Checks will not be honored for redemption of Class A Shares held less than
15 calendar days, unless such Class A Shares have been paid for by bank wire.
Any Class A Shares for which there are outstanding certificates may not be
redeemed by check. If the amount of the check is greater than the 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

29
<PAGE> 32

at any time by the Fund or the Bank. Retirement plans and accounts that are
subject to backup withholding are not eligible for the privilege. A "stop
payment" system is not available on these checks.

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

The Fund intends to invest in sufficient tax-exempt municipal securities to
permit payment of "exempt-interest dividends" (as defined under applicable
federal income tax law). Exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. Exempt-interest dividends are included in determining what
portion, if any, of a person's social security and railroad retirement benefits
will be includable in gross income subject to federal income tax.

Under applicable federal income tax law, the interest on certain municipal
securities may be an item of tax preference subject to the alternative minimum
tax. The Fund may invest a portion of its assets in municipal securities subject
to this provision so that a portion of its exempt-interest dividends may be an
item of tax preference to the extent such dividends represent interest received
from such municipal securities. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax.

Although exempt-interest dividends from the Fund generally may be treated
by shareholders as interest excluded 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 investor's tax
circumstances. For example, exempt-interest dividends may not be excluded 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 short-term capital
loss on the sale or exchange of the shares will be disallowed to the extent of
the amount of such exempt-interest dividend.

30
<PAGE> 33

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 so designated cannot exceed, however, the amount
of interest exempt from tax under Section 103 of the Code received by the Fund
during the year over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. Since the percentage of dividends which are
"exempt-interest" dividends is determined on an average annual method for the
fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend,
Fund distributions generally will not qualify for the dividends received
deduction for corporations.

The sale or exchange of shares is a taxable transaction for federal income
tax purposes. 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. Any capital gains may be taxed at different
rates depending on how long the shareholder held it shares.

The Fund is required, in certain circumstances, to withhold 31% of
dividends and certain other payments, including redemptions, paid to
shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain required certifications or who are otherwise subject to backup
withholding.

The Fund intends to qualify as a regulated investment company under the
federal income tax law. If the Fund so qualifies and distributes each year to
its shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than 98% of its ordinary income or
less than 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 state and local levels. Prospective investors should consult
their own tax advisers regarding the specific federal tax consequences of
purchasing, holding, exchanging or selling shares, as well as the effects of
state, local and foreign tax law and any proposed tax law changes.

31
<PAGE> 34

---------------------------------------------

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 KPMG Peat Marwick 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.

32
<PAGE> 35

---------------------------------------------

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):

A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of payment--capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with the terms
of the obligation:

2. Nature of and provisions of the obligation:

3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditor's rights.

LONG-TERM DEBT--INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
meet its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small
degree. Capacity to meet its financial commitment on the obligation is very
strong.

A: Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. Capacity to meet its financial commitment on the obligation is
still strong.

BBB: Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to meet its financial commitment on the obligation.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective

33
<PAGE> 36

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.

C: The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

D: Debt rated "D" is in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk C such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

MOODY'S INVESTORS SERVICE--A brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

34
<PAGE> 37

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to B. The modifier 1 indicates that the issue
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

35
<PAGE> 38

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

36
<PAGE> 39

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--CALL

YOUR BROKER OR (800) 341-2911

DEALERS-FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER-(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424

VAN KAMPEN TAX FREE HIGH INCOME FUND

1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Tax Free High Income Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713

Attn: Van Kampen Tax Free High Income Fund

Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 40

---------------------------------------------

TAX FREE HIGH INCOME FUND

---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

You can ask questions or obtain a free copy of the Fund's reports or its
Statement of Additional Information by calling 1-800-341-2911 from 7:00 a.m. to
7:00 p.m., Central time, Monday through Friday. Telecommunications Device for
the Deaf users may call 1-800-421-2833. A free copy of the Fund's reports can
also be ordered from our web site at www.vankampen.com.

Information about the Fund, including its reports and Statement of
Additional Information, has been filed with the Securities and Exchange
Commission (SEC). It can be reviewed and copied at the SEC Public Reference Room
in Washington, DC or online at the SEC's web site (http://www.sec.gov). For more
information, please call the SEC at 1-800-SEC-0330. You can also request these
materials by writing the Public Reference Section of the SEC, Washington DC,
20549-6009, and paying a duplication fee.

VAN KAMPEN FUNDS LOGO

Investment Company Act File No. 811-4386
<PAGE> 41

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE FUND
MAY NOT SELL THESE SECURITIES UNTIL THE POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES.

---------------------------------------------

VAN KAMPEN
INSURED TAX FREE
INCOME FUND
---------------------------------------------

Van Kampen Insured Tax Free Income Fund is a mutual fund with an investment
objective to provide investors a high level of current income exempt from
federal income tax, with liquidity and safety of principal, primarily through
investment in a diversified portfolio of insured municipal securities.

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 42

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 7
Investment Objective and Policies........................... 9
Investment Advisory Services................................ 16
Purchase of Shares.......................................... 17
Redemption of Shares........................................ 22
Distributions from the Fund................................. 24
Shareholder Services........................................ 25
Federal Income Taxation..................................... 26
Financial Highlights........................................ 29
</TABLE>

2
<PAGE> 43

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide investors
a high level of current income exempt from federal income tax, with liquidity
and safety of principal, primarily through investment in a diversified portfolio
of insured municipal securities. There can be no assurance the Fund will achieve
its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing substantially all of the Fund's assets in a
portfolio of municipal securities that are insured at the time of purchase as to
timely payment of both principal and interest by a top-rated private insurance
company. Under normal market conditions, up to 20% of the Fund's total assets
may be invested in municipal securities that are subject to federal alternative
minimum tax. Under normal market conditions, up to 10% of the Fund's total
assets may be invested in tax-exempt money market funds which are not insured.

Understanding Municipal Securities

Municipal securities, including municipal bonds, municipal notes or municipal
leases, generally are issued by state and local governments or regional
governmental authorities to raise money for their daily operations or special
projects. The interest received from municipal securities generally is exempt
from to federal income tax. In addition, the interest may be exempt from certain
state or local taxes when received from issuers who are located in the
investors' home state, municipality or region. The interest from certain
municipal securities is a preference item subject to federal alternative minimum
tax.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in
the Fund over the short or long term:

Generally, the Fund's municipal securities are insured as to timely payment
of both principal and interest by a top-rated private insurance company. This
insurance does not, however, guarantee that the prices of these securities
will remain stable during interest rate changes.

3
<PAGE> 44

- - CREDIT RISK. Credit risk refers to an issuer's ability to make timely
payments of interest or principal. Credit risk should be low for the Fund
because it invests substantially all of its assets in insured municipal
securities.

- - CALL RISK. If interest rates fall, it is possible that issuers of municipal
securities with high interest rates will buy back, or "call," their
securities before their maturity dates. In this event, the proceeds from the
called securities would be reinvested by the Fund in securities with the new,
lower interest rates, resulting in a possible decline in the Fund's income
and distributions to shareholders.

- - MUNICIPAL SECURITIES RISK. The Fund invests substantially all of its assets
in insured municipal securities. The yields of municipal securities, or of
insured 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 up to 20% of its total assets in municipal
securities subject to federal alternative minimum tax. 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 fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.

An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - seek monthly income.

- - are in a high federal income tax bracket.

- - wish to add to their personal investment portfolios a Fund that invests
substantially all of its assets in insured municipal securities.

An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment and should not be used as a trading vehicle.

4
<PAGE> 45

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past ten calendar years, as well
as its best and worst quarter during that period. 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.
To come

<TABLE>
<CAPTION>
Annual Return
<S> <C>
'1989 9.37
'1990 7.07
'1991 10.62
'1992 9.51
'1993 12.32
'1994 -6.31
'1995 17.49
'1996 3.64
'1997 8.19
'1998 5.61
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly
return was 7.35% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -6.08% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with Lehman Brothers
Municipal Bond Index, a broad-based index market that the Fund's management
believes is an applicable benchmark for the Fund. Average annual total returns
are shown for the one-, five-, and ten-year periods ended December 31, 1997 (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.

5
<PAGE> 46

AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 10
YEARS OR
PAST 1 PAST 5 SINCE
YEAR YEARS INCEPTION
------ ------ ---------
<S> <C> <C> <C>
Van Kampen Insured Tax Free Income Fund
Class A Shares............................... 8.19 % 6.75 % 8.17 %
Class B Shares............................... 7.36 % -- 5.22 %(1)
Class C Shares............................... 7.36 % -- 4.82 %(2)
Lehman Brothers Municipal Bond Index...........
</TABLE>

- ------------------------------------

(1) Inception dates: (1) 5/1/93, (2) 8/13/93.

The current yield for the thirty day period ended September 30, 1998 is
3.11% for Class A Shares, 2.49% for Class B Shares and 2.51% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

6
<PAGE> 47

---------------------------------------------

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>
Shareholder Fees
(fees paid directly from your
investment):
Maximum sales charge (load) imposed on
purchases (as a percentage of
offering price)..................... 4.75% (1) None None
Maximum deferred sales charge (load)
(as a percentage of the lesser of
original purchase price or
redemption proceeds)................ None (2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Maximum sales charge (load) imposed
reinvested dividends (as a
percentage of offering price)....... None None None
Redemption fees (as a percentage of
amount redeemed).................... None None None
Exchange fee.......................... None None None
</TABLE>

- ------------------------------------

(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."

7
<PAGE> 48

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees.............................. 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1)
Fees(1).................................... 0.24% 1.00% (2) 1.00% (2)
Other Expenses............................... 0.16% 0.16% 0.16%
Total Annual Fund Operating Expenses......... 0.90% 1.66% 1.66%
</TABLE>

- ------------------------------------

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $562 $748 $ 950 $1,530
Class B Shares........................... $569 $873 $1,052 $1,763*
Class C Shares........................... $269 $523 $ 902 $1,965
</TABLE>

8
<PAGE> 49

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- ------
<S> <C> <C> <C> <C>
Class A Shares........................... $562 $748 $950 $1,530
Class B Shares........................... $169 $523 $902 $1,763*
Class C Shares........................... $169 $523 $902 $1,965
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

The Fund's investment objective is to provide investors a high level of
current income exempt from federal income tax, with liquidity and safety of
principal, primarily through investment in a diversified portfolio of insured
municipal securities. The Fund's investment objective is a fundamental policy
and may not be changed without shareholder approval of the holders of a majority
of the Fund's outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). There are risks inherent in
all investments in securities; and accordingly there can be no assurance the
Fund will achieve its investment objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing substantially all of the Fund's assets in
municipal securities that are insured at the time of purchase as to timely
payment of both principal and interest by an entity whose claims-paying ability
is rated AAA by Standard and Poor's ("S&P"), or Aaa by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO"). Under normal market
conditions, up to 20% of the Fund's total assets may be invested in municipal
securities that are subject to alternative minimum tax. From time to time, the
Fund temporarily may invest up to 10% of its total assets in tax exempt money
market funds, which are not insured, and such instruments will be treated as
investments in municipal securities.

9
<PAGE> 50

policies if the Fund's investment adviser determines that market risks or credit
risks associated with such investments would subject the Fund's portfolio to
undue risk. The potential for realization of capital gains resulting from
possible changes in interest rates will not be a major consideration. Other than
for tax purposes, frequency of portfolio turnover generally will not be a
limiting factor if the Fund's investment adviser considers it advantageous to
purchase or sell securities.

MUNICIPAL SECURITIES

10
<PAGE> 51

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. Other than as set forth above, there is no
limitation with respect to the amount of the Fund's assets that may be invested
in the foregoing types of municipal securities. Certain of the municipal
securities in which the Fund may invest represent relatively recent innovations
in the municipal securities markets and the markets for such securities may be
less developed than the market for conventional fixed rate municipal securities.
A more detailed description of the types of municipal securities in which the
Fund may invest is included in the Statement of Additional Information.

Although the Fund invests substantially all of its assets in municipal
securities that are insured at the time or purchase as to timely payment of both
principal and interest, municipal securities, like other debt obligations, are
subject to the credit risk of non-payment. The ability of issuers of municipal
securities to make timely payments of interest and principal may be adversely
impacted in general economic downturns and as relative governmental cost burdens
are allocated and reallocated among federal, state and local governmental units.
Such non-payment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal securities experiencing non-
payment and a potential decrease in the net asset value of the Fund. In
addition, the Fund may incur expenses to work out or restructure a distressed or
defaulted security.

11
<PAGE> 52

become subject to the federal alternative minimum tax as a result of an
investment in the Fund.

INSURED MUNICIPAL SECURITIES

12
<PAGE> 53

securities covered thereby remain outstanding and the insurer remains in
business, regardless of whether the Fund ultimately disposes of such municipal
securities. Portfolio Insurance may be purchased by the Fund with respect to
municipal securities which the Fund intends to purchase or already owns and
would generally terminate when the municipal security is sold by the Fund or
redeemed. There is no limitation on the percentage of the Fund's assets that may
be invested in municipal securities insured by any given insurer.

Original Issue Insurance, Secondary Market Insurance and Portfolio
Insurance generally do not insure payment on an accelerated basis, the payment
of any redemption premium or the market value of the Fund's portfolio
securities. Such insurance also does not insure against nonpayment of principal
or interest on municipal securities resulting from the insolvency, negligence or
any other act or omission of the trustee or other paying agent for such
obligations.

The Fund invests in municipal securities insured by insurers whose
claims-paying ability is rated AAA by S&P, Aaa by Moody's or the equivalent by
another NRSRO at the time of the Fund's investment. A subsequent downgrade by
S&P, Moody's or another NRSRO of an insurer's claims-paying ability may result
in increased credit risk of the municipal securities insured by such insurer and
may result in a downgrade of the rating assigned to the municipal securities
insured by such insurer. The securities could experience a decrease in market
price as a result of such a downgrade. In the event the ratings assigned to such
municipal securities decline to below investment grade, such municipal
securities would probably become less liquid or even illiquid. There can be no
assurance that an insurer will be able to honor its obligations with respect to
municipal securities in the Fund's portfolio. For more information on insurance
and a description of S&P's and Moody's claims-paying ability ratings of
insurers, see the Statement of Additional Information.

OTHER INVESTMENTS AND RISK FACTORS

13
<PAGE> 54

including possible default by the other party to the transaction, illiquidity
and, to the extent the investment adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale of portfolio securities at
inopportune times or for prices other than at current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the Fund
to hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the risk management or hedging instrument may be greater than gains in the
value of the Fund's position. In addition, futures and options markets may not
be liquid in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information. Income
earned or deemed to be earned by the Fund from its Strategic Transactions, if
any, generally will be taxable income of the Fund.

14
<PAGE> 55

When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis a portion or all of its assets in
high-quality, short-term municipal obligations. Furthermore, if such
high-quality, short-term securities are not available or, in the investment
adviser's judgment, do not afford sufficient protection against adverse market
conditions, the Fund may invest in taxable obligations. Such taxable obligations
may include in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, other investment grade quality income securities,
prime commercial paper, certificates of deposit, bankers' acceptances and other
obligations of domestic banks having total assets of at least $500 million, and
repurchase agreements. The effect of taking such a defensive position may be
that the Fund does not achieve its investment objective.

15
<PAGE> 56

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

THE ADVISER

Van Kampen Investment Advisory Corp. is the Fund's investment adviser (the
"Adviser"). 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 $50
billion under management or supervision. Van Kampen Investments' more than 60
open-end and more than 35 closed-end funds and more than 2,500 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
Van Kampen Funds Inc., the distributor of the Fund (the "Distributor") and the
sponsor of the funds mentioned above, is also a wholly owned subsidiary of Van
Kampen Investments. Van Kampen Investments is an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. The Adviser's principal office is
located at 1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555.

ADVISORY AGREEMENT

The Fund retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under an
investment advisory agreement between the Adviser and the Fund (the "Advisory
Agreement"), the Fund pays the Adviser a monthly fee computed based upon an
annual rate applied to average daily net assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------------------------------------------------------------
<S> <C>
First $500 million....................................... 0.525%
Next $500 million........................................ 0.500%
Next $500 million........................................ 0.475%
Over $1,500 million...................................... 0.450%
- ------------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
period ended September 30, 1998.

16
<PAGE> 57

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

PORTFOLIO MANAGEMENT. Joseph A. Piraro, a Vice President of the Adviser,
has been primarily responsible for the day-to-day management of the Fund's
portfolio since May 1992. Mr. Piraro has been employed by the Adviser since 1992
and was previously employed by First Chicago Capital Markets.

---------------------------------------------

PURCHASE OF SHARES
---------------------------------------------

GENERAL

The Fund offers three classes of shares designated as Class A Shares, Class
B Shares and Class C Shares. By offering three classes of shares, the Fund
permits each investor to choose the class of shares that is most beneficial
given the amount to be invested and the length of time the investor expects to
hold the shares. Initial investments must be at least $500 for each class of
shares, and subsequent investments must be at least $25 for each class of
shares. Both minimums may be waived by the Distributor for plans involving
periodic investments.

17
<PAGE> 58

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 Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund also has adopted a
service plan (the "Service Plan") with respect to each class of its shares. The
Distribution Plan and the Service Plan provide that the Fund may pay
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.

Shares may be purchased on any business day through authorized dealers.
Shares also may be purchased by completing the application accompanying this
Prospectus and

18
<PAGE> 59

forwarding the application, through the authorized dealer, to the shareholder
service agent, Van Kampen Investor Services Inc. ("Investor Services"), a
wholly-owned subsidiary of Van Kampen Investments. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A Shares, Class B
Shares or Class C Shares. Sales personnel of authorized dealers distributing the
Fund's shares and other persons entitled to receive compensation for selling
such shares may receive differing compensation for selling Class A Shares, Class
B Shares or Class C Shares.

CLASS A SHARES

Class A Shares Sales Charge Schedule

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

20
<PAGE> 61

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

21
<PAGE> 62

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.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

---------------------------------------------

REDEMPTION OF SHARES
---------------------------------------------

22
<PAGE> 63

may take up to 15 days. A taxable gain or loss will be recognized by the
shareholder upon redemption of shares.

23
<PAGE> 64

and the Fund employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen Investments, Investor Services nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. Telephone redemptions may not be available if the
shareholder cannot reach Investor Services by telephone, whether because all
telephone lines are busy or for any other reason; in such case, a shareholder
would have to use the Fund's other redemption procedure previously described.
Requests received by Investor Services prior to 4:00 p.m., New York time, will
be processed at the next determined net asset value per share. These privileges
are available for all accounts other than retirement accounts or accounts with
shares represented by certificates. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.

---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

24
<PAGE> 65

to purchase additional shares of the Fund at the next determined net asset value
unless the shareholder instructs otherwise.

---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

25
<PAGE> 66

When a check is presented to the Bank for payment, full and fractional
Class A Shares required to cover the amount of the check are redeemed from the
share holder's Class A account by Investor Services at the next determined net
asset value. Check writing redemptions represent the sale of Class A Shares. Any
gain or loss realized on the sale of shares is a taxable event. See "Redemption
of Shares."

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

26
<PAGE> 67

months or less, any short-term capital loss on the sale or exchange of the
shares will be disallowed to the extent of the amount of such exempt-interest
dividend.

While the Fund expects that a major portion of its net investment income
(consisting generally of tax-exempt interest, taxable income and net short-term
capital gains) will constitute tax-exempt interest, a significant portion of the
Fund's net investment income may consist of taxable income. Distributions of
such taxable income are taxable to shareholders as ordinary income to the extent
of the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains (which are the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable to shareholders as long-term capital gains, whether paid in
cash or reinvested in additional shares, and regardless of how long the shares
of the Fund have been held by such shareholders. Such capital gain dividends may
be taxed at different rates depending on how long the Fund held the securities.
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 so designated cannot exceed,
however, the amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. Since the percentage of dividends
which are "exempt-interest" dividends is determined on an average annual method
for the fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend,
Fund distributions generally will not qualify for the dividends received
deduction for corporations.

27
<PAGE> 68

98% of its ordinary income or less than 98% of its capital gain net income, then
the Fund will be subject to a 4% excise tax on such undistributed amounts.

28
<PAGE> 69

---------------------------------------------

FINANCIAL HIGHLIGHTS
---------------------------------------------

29
<PAGE> 70

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--CALL

YOUR BROKER OR (800) 341-2911

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424
VAN KAMPEN INSURED
TAX FREE INCOME FUND
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Insured
Tax Free Income Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Insured
Tax Free Income Fund

Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 71

---------------------------------------------

INSURED TAX FREE
INCOME FUND
---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

VAN KAMPEN FUNDS LOGO
Investment Company File Act No. 811-4386
<PAGE> 72

---------------------------------------------

VAN KAMPEN

CALIFORNIA INSURED TAX FREE

FUND

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 73

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 7
Investment Objective and Policies........................... 9
Investment Advisory Services................................ 17
Purchase of Shares.......................................... 18
Redemption of Shares........................................ 23
Distributions from the Fund................................. 25
Shareholder Services........................................ 26
California Taxation......................................... 27
Federal Income Taxation..................................... 27
Financial Highlights........................................ 30
</TABLE>

2
<PAGE> 74

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide only
California investors a high level of current income exempt from federal and
California income taxes, with liquidity and safety of principal, primarily
through investment in a diversified portfolio of insured California municipal
securities. The Fund is designed for investors who are residents of California
for tax purposes. There can be no assurance the Fund will achieve its investment
objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing substantially all of the Fund's assets in a
portfolio of California municipal securities that are insured at the time of
purchase as to timely payment of both principal and interest by a top-rated
private insurance company. Distributions to corporations may be subject to
California franchise tax or California corporate income tax. Under normal market
conditions, up to 20% of the Fund's total assets may be in vested in municipal
securities that are subject to federal alternative minimum tax. Under normal
market conditions, up to 10% of the Fund's total assets may be invested in
tax-exempt money market funds which are not insured.

Understanding Municipal Securities

Municipal securities, including municipal bonds, municipal notes or municipal
leases, generally are issued by state and local governments or regional
governmental authorities to raise money for their daily operations or special
projects. The interest received from municipal securities generally is exempt
from federal income tax. In addition, the interest may be exempt from certain
state or local taxes when received from issuers who are located in the
investors' home state, municipality or region. The interest from certain
municipal securities is a preference item subject to federal alternative minimum
tax.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in
the Fund over the short or long term:

3
<PAGE> 75

- - MUNICIPAL SECURITIES RISK. The Fund invests substantially of its assets in
insured municipal securities. The yields of municipal securities, or of
insured municipal securities, may move differently and adversely compared to
the yields of the overall debt securities markets the Fund. While the
interest received from municipal securities generally is exempt from federal
income tax, the Fund may invest up to 20% of its total assets in municipal
securities subject to federal alternative minimum tax. 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.

- - STATE-SPECIFIC RISKS. Because the Fund invests substantially of its assets in
a portfolio of California municipal securities, the Fund is more susceptible
to political, economic, regulatory or other factors affecting issuers of
California municipal securities than a fund that does not limit its
investments to such issuers.

- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - seek monthly income.

- - are in a high federal income tax bracket.

- - are subject to California income tax.

- - wish to add to their personal investment portfolios a Fund that invests
substantially all of its assets in insured California municipal securities.

An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long

4
<PAGE> 76

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 should not be used as a trading vehicle.

ANNUAL PERFORMANCE

<TABLE>
<CAPTION>
Annual Return
<S> <C>
'1989 9.22
'1990 7.44
'1991 9.98
'1992 10.08
'1993 14.56
'1994 -8.64
'1995 18.21
'1996 4.20
'1997 8.93
'1998 6.38
</TABLE>

During the ten-year period shown in the bar chart, the highest quarterly
return was 7.63% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -7.62% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with the Lehman
Brothers Municipal Bond Index, a broad-based market index that the Fund's
management believes is an applicable benchmark for the Fund. Average annual
total returns are shown for the one-, five-, and ten-year periods ended December
31, 1997 (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.

5
<PAGE> 77

AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 10
YEARS OR
PAST 1 PAST 5 SINCE
YEAR YEARS INCEPTION
------ ------ ---------
<S> <C> <C> <C>
Van Kampen California Insured Tax Free Income
Fund
Class A Shares............................... 8.93 % 7.02 % 8.22 %
Class B Shares............................... 8.19 % -- 5.34 %(1)
Class C Shares............................... 8.19 % -- 4.77 %(2)
Lehman Brothers Municipal Bond Index
</TABLE>

- ------------------------------------

Inception dates: (1) 5/1/93, (2) 8/13/93.

The current yield for the thirty day period ended September 30, 1998 is
3.46% for Class A Shares, 2.81% for Class B Shares and 2.83% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

6
<PAGE> 78

---------------------------------------------

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>
Shareholder Fees
(fees paid directly from your
investment):
Maximum sales charge (load) imposed
on purchases (as a percentage of
offering price).................... 3.25% (1) None None
Maximum deferred sales charge (load)
(as a percentage of the lesser of
original purchase price or
redemption proceeds)............... None (2) Year Year
1--3.00% 1--1.00%
Year After--None
2--2.50%
Year
3--2.00%
Year
4--1.00%
After--None
Maximum sales charge (load) imposed
reinvested dividends (as a
percentage of offering price)...... None None None
Redemption fees (as a percentage of
amount redeemed)................... None None None
Exchange fee......................... None None None
</TABLE>

- ------------------------------------

(1) Reduced for purchases of $25,000 and over. See "Purchase of Shares--Class A
Shares."

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees............................ 0.48% 0.48% 0.48%
Distribution and/or Service (12b-1)
Fees(1).................................. 0.24% 1.00%(2) 1.00%(2)
Other Expenses............................. 0.16% 0.16% 0.15%
Total Annual Fund Operating Expenses....... 0.88% 1.64% 1.63%
</TABLE>

- ------------------------------------

7
<PAGE> 79

1.00% of the average daily net assets attributable to such class of shares. See
"Distribution and Service Plans."

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $412 $597 $ 797 $1,374
Class B Shares........................... $467 $717 $ 892 $1,549*
Class C Shares........................... $266 $514 $ 887 $1,933
</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>
Class A Shares........................... $412 $597 $ 797 $1,374
Class B Shares........................... $167 $517 $ 892 $1,549*
Class C Shares........................... $166 $514 $ 887 $1,933
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

8
<PAGE> 80

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

The Fund's investment objective is to provide only California investors a
high level of current income exempt from federal and California income taxes,
with liquidity and safety of principal, primarily through investment in a
diversified portfolio of insured California municipal securities. The Fund is
designed for investors who are residents of California for tax purposes. The
Fund's investment objective is a fundamental policy and may not be changed
without shareholder approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; and accordingly there can be no assurance the Fund will achieve its
investment objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing substantially all of the Fund's assets in
California municipal securities that are insured at the time of purchase as to
timely payment of both principal and interest by an entity whose claims-paying
ability is rated AAA by Standard and Poor's ("S&P"), or Aaa by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO"). Under normal market
conditions, up to 20% of the Fund's total assets may be invested in municipal
securities that are subject to alternative minimum tax. From time to time, the
Fund temporarily may invest up to 10% of its total assets in tax exempt money
market funds, which are not insured, and such instruments will be treated as
investments in municipal securities.

California municipal securities are municipal securities, the interest on
which, in the opinion of bond counsel or other counsel to the issuers of such
securities, is, at the time of purchase, exempt from federal and California
income taxes. Distribution to corporations subject to the California franchise
tax will be included in such corporations' gross income for purposes of
determining the California franchise tax. In addition, corporations subject to
the California corporate income tax may, in certain circumstances, be subject to
such taxes with respect to distributions from the Fund. Accordingly, an
investment in shares of the Fund may not be appropriate for corporations subject
to either tax.

The Fund's investment adviser will buy and sell securities for the Fund's
portfolio with a view to seeking a high level of current income exempt from
federal and California income taxes and will select 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 California municipal securities
permitted by its investment policies if the Fund's investment adviser determines
that market risks or credit risks associated with such investments would subject
the Fund's portfolio to undue risk. The potential for realization of capital
gains resulting from possible changes in interest rates will not be a major
consideration. Other than for tax purposes, frequency of portfolio turnover
generally will not be a limiting factor if the Fund's investment adviser
considers it advantageous to purchase or sell securities.

9
<PAGE> 81

MUNICIPAL SECURITIES

10
<PAGE> 82

11
<PAGE> 83

INSURED MUNICIPAL SECURITIES

The Fund invests substantially all of its assets in a portfolio of
municipal securities that are insured at the time of investment as to timely
payment of both principal and interest by a top-rated private insurance company.
Such insurance could be provided as: Original Issue Insurance, Secondary Market
Insurance or Portfolio Insurance. Original Issue Insurance is purchased with
respect to a particular issue of municipal securities by the issuer thereof or a
third party in conjunction with the original issue of such municipal securities.
Secondary Market Insurance is purchased by the Fund or a third party subsequent
to the time of original issuance of a municipal security. Both Original Issue
Insurance and Secondary Market Insurance remain in effect as long as the
municipal securities covered thereby remain outstanding and the insurer remains
in business, regardless of whether the Fund ultimately disposes of such
municipal securities. Portfolio Insurance may be purchased by the Fund with
respect to municipal securities which the Fund intends to purchase or already
owns and would generally terminate when the municipal security is sold by the
Fund or redeemed. There is no limitation on the percentage of the Fund's assets
that may be invested in municipal securities insured by any given insurer.

12
<PAGE> 84

from the insolvency, negligence or any other act or omission of the trustee or
other paying agent for such obligations.

SPECIAL CONSIDERATIONS REGARDING CALIFORNIA MUNICIPAL SECURITIES

The Fund invests substantially all of its assets in a portfolio of
California municipal securities, which are municipal securities 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 and California
income taxes. Because the Fund invests substantially all of its assets in a
portfolio of California municipal securities, the Fund is more susceptible to
political, economic, regulatory or other factors affecting issuers of California
municipal securities than a fund which does not limit its investments to such
issuers. These risks include possible legislative, state constitutional or
regulatory amendments that may affect the ability of state and local governments
or regional governmental authorities to raise money to pay principal and
interest on their municipal securities. Economic, fiscal and budgetary
conditions throughout the state may also influence the Fund's performance.

The following information is a summary of a more detailed description of
certain factors affecting California municipal securities which is contained in
the Statement of Additional Information. Investors should obtain a copy of the
Statement of Additional Information for the more detailed discussion of such
factors. Such information is derived from certain official statements of the
State of California published in connection with the issuance of specific
California municipal securities, as well as from other publicly available
documents. Such information has not been independently verified by the Fund and
may not apply to all California municipal securities acquired by the Fund. The
Fund assumes no responsibility for the completeness or accuracy of such
information.

California state and local government obligations may be adversely affected
by political and economic conditions and developments within the State of
California and the nation as a whole. With respect to an investment in the Fund,
through popular initiative and legislative activity, the ability of the State of
California and its local governments to raise money through property taxes and
to increase spending has been the subject of considerable debate and change in
recent years. Various State Constitutional amendments, for example, have been
adopted which have the effect of limiting property tax and spending increases,
while legislation has sometimes added to these limitations and has at

13
<PAGE> 85

other times sought to reduce their impact. To date, these Constitutional,
legislative and budget developments do not appear to have severely decreased the
ability of the State and local governments to pay principal and interest on
their obligations. It can be expected that similar types of State legislation or
Constitutional proposals will continue to be introduced. The impact of future
developments in these areas is unclear.

From 1990 until 1994, the State experienced the worst economic, fiscal and
budget conditions since the 1930's. The recession seriously affected State tax
revenues and caused increased expenditures for health and welfare programs. As a
result, the State faced several budget imbalances and used up many of its
available cash resources. Accordingly, rating agencies have reduced the State's
credit ratings several times during recent years.

Although revenue obligations of the State of California or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the portfolio of the Fund or the ability of the
respective obligors to make timely payments of principal and interest on such
obligations.

The value of California municipal instruments may also be affected by
general conditions in the money markets or the municipal bond markets, the
levels of federal income tax rates, the supply of tax-exempt bonds, the credit
quality and rating of the issues and perceptions with respect to the level of
interest rates.

There can be no assurance that there will not be a decline in economic
conditions or that particular California municipal securities in the portfolio
of the Fund will not be adversely affected by any such changes.

More detailed information concerning California municipal securities and
the State of California is included in the Statement of Additional Information.

OTHER INVESTMENTS AND RISK FACTORS

14
<PAGE> 86

techniques and instruments. Strategic Transactions have risks associated with
them including possible default by the other party to the transaction,
illiquidity and, to the extent the investment adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale of
portfolio securities at inopportune times or for prices other than at current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the risk management or hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information. Income earned or deemed to be earned by the Fund from
its Strategic Transactions, if any, generally will be taxable income of the
Fund.

15
<PAGE> 87

When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis a portion or all of its assets in
high-quality, short-term California municipal obligations. If such municipal
obligations are not available or, in the investment adviser's judgment, do not
afford sufficient protection against adverse market conditions, the Fund may
invest in high-quality municipal securities of issuers other than issuers of
California municipal securities. Furthermore, if such high-quality securities
are not available or, in the investment adviser's judgment, do not afford
sufficient protection against adverse market conditions, the Fund may invest in
taxable obligations. Such taxable obligations may include in securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, other
investment grade quality income securities, prime commercial paper, certificates
of deposit, bankers' acceptances and other obligations of domestic banks having
total assets of at least $500 million, and repurchase agreements. The effect of
taking such a defensive position may be that the Fund does not achieve its
investment objective.

16
<PAGE> 88

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- -------------------------------------------------------------------------------
<S> <C>
First $100 million.................................... 0.500%
Next $150 million..................................... 0.450%
Next $250 million..................................... 0.425%
Over $500 million..................................... 0.400%
- -------------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
period ended September 30, 1998.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

17
<PAGE> 89

---------------------------------------------

PURCHASE OF SHARES
---------------------------------------------

GENERAL

18
<PAGE> 90

net asset value per share and to adjust the public offering price based thereon
more frequently than once a day 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. Portfolio
securities are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Fund.
Securities with remaining maturities of 60 days or less are valued at amortized
cost when amortized cost is determined in good faith by or under the direction
of the Board of Trustees of the Fund to be representative of the fair value at
which it is expected such securities may be resold. Any securities or other
assets for which current market quotations are not readily available are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees of the Fund.

19
<PAGE> 91

receive compensation for selling such shares may receive differing compensation
for selling Class A Shares, Class B Shares or Class C Shares.

CLASS A SHARES

Class A Shares of the Fund are sold at net asset value plus an initial
maximum sales charge of up to 3.25% of the offering price (or 3.36% of the net
amount invested), reduced on investments of $25,000 or more as follows:

Class A Shares Sales Charge Schedule

<TABLE>
<CAPTION>
As % of As % of Net
Size of Offering Amount
Investment Price Invested
- ------------------------------------------------------------------------------------
<S> <C> <C>
Less than $25,000..................................... 3.25% 3.36%
$25,000 but less than $250,000........................ 2.75% 2.83%
$250,000 but less than $500,000....................... 1.75% 1.78%
$500,000 but less than $1,000,000..................... 1.50% 1.52%
$1,000,000 or more.................................... * *
- ------------------------------------------------------------------------------------
</TABLE>

20
<PAGE> 92

Plan in connection with the ongoing provision of services to holders of such
shares by the Distributor and by brokers, dealers or financial intermediaries
and in connection with the maintenance of such shareholders' accounts.

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within four years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- -----------------------------------------------------------------------------------
<S> <C>
First............................................... 3.00%
Second.............................................. 2.50%
Third............................................... 2.00%
Fourth.............................................. 1.00%
Fifth and After..................................... None
- -----------------------------------------------------------------------------------
</TABLE>

The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class B Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund

21
<PAGE> 93

may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class B Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

22
<PAGE> 94

Fund's dividends or distributions constituting "preferential dividends" under
the federal income tax law and (ii) the conversion of shares does not constitute
a taxable event under federal income tax law. The conversion may be suspended if
such an opinion is no longer available and such shares might continue to be
subject to the higher aggregate fees applicable to such shares for an indefinite
period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

---------------------------------------------

REDEMPTION OF SHARES
---------------------------------------------

23
<PAGE> 95

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.

24
<PAGE> 96

available if the shareholder cannot reach Investor Services by telephone,
whether because all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the Fund's other redemption procedure
previously described. Requests received by Investor Services prior to 4:00 p.m.,
New York time, will be processed at the next determined net asset value per
share. These privileges are available for all accounts other than retirement
accounts or accounts with shares represented by certificates. If an account has
multiple owners, Investor Services may rely on the instructions of any one
owner.

---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

25
<PAGE> 97

---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

When a check is presented to the Bank for payment, full and fractional
Class A Shares required to cover the amount of the check are redeemed from the
share holder's Class A account by Investor Services at the next determined net
asset value. Check writing redemptions represent the sale of Class A Shares. Any
gain or loss realized on the sale of shares is a taxable event. See "Redemption
of Shares."

26
<PAGE> 98

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 share holder may be subject to additional charges. A
Class A shareholder may not liquidate the entire account by means of a check.
The check writing privilege may be terminated or suspended at any time by the
Fund or the Bank. Retirement plans and accounts that are subject to backup
withholding are not eligible for the privilege. A "stop payment" system is not
available on these checks.

---------------------------------------------

CALIFORNIA TAXATION

---------------------------------------------

Under existing California income tax law, if at the close of each quarter
of the Fund's taxable year at least 50% of the value of its total assets
consists of obligations that, when held by individuals, pay interest that is
exempt from tax under California law, shareholders of the Fund who are subject
to the California personal income tax will not be subject to such tax on
distributions with respect to their shares of the Fund to the extent that such
distributions are attributable to such tax-exempt interest from such obligations
(less expenses applicable thereto). If such distributions are received by a
corporation subject to the California franchise tax, however, the distributions
will be includable in its gross income for purposes of determining its
California franchise tax. Corporations subject to the California corporate
income tax may be subject to such taxes with respect to distributions from the
Fund. Accordingly, an investment in shares of the Fund may not be appropriate
for corporations subject to either tax. Under California personal property tax
law, securities owned by the Fund and any interest thereon are exempt from such
personal property tax.

Any proceeds paid to the Fund under the insurance policy which represents
matured interest on defaulted obligations should be exempt from California
personal income tax if, and to the same extent as, such interest would have been
exempt if paid by the issuer of such defaulted obligations. Recent amendments to
California tax laws substantially incorporate those provisions of the Code
governing the treatment of regulated investment companies.

The state tax discussion set forth above is for general information only.
Prospective investors should consult their own tax advisers regarding the
specific state tax consequences of holding and disposing of shares, as well as
the effects of federal, local and foreign tax law and any proposed tax law
changes.

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

27
<PAGE> 99

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.

28
<PAGE> 100

are "exempt-interest" dividends is deter mined on an average annual method for
the fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend,
Fund distributions generally will not qualify for the dividends received
deduction for corporations.

The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their own tax advisers
regarding the specific federal tax consequences of purchasing, holding,
exchanging or selling shares, as well as the effects of state, local and foreign
tax law and any proposed tax law changes.

29
<PAGE> 101

---------------------------------------------

FINANCIAL HIGHLIGHTS
---------------------------------------------

30
<PAGE> 102

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--CALL

YOUR BROKER OR (800) 341-2911

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424

VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND

1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256

Attn: Van Kampen California Insured Tax Free Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713

Attn: Van Kampen California Insured Tax Free Fund

Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 103

---------------------------------------------

CALIFORNIA INSURED

TAX FREE FUND

---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

VAN KAMPEN FUNDS LOGO

Investment Company Act File No. 811-4386
<PAGE> 104

---------------------------------------------

VAN KAMPEN

MUNICIPAL INCOME FUND

---------------------------------------------

Van Kampen Municipal Income Fund is a mutual fund with an investment
objective to provide investors a high level of current income exempt from
federal income tax, consistent with preservation of capital. The Fund's
management seeks to achieve the investment objective by investing primarily in a
portfolio of municipal securities that are rated investment grade at the time of
purchase.

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 105

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 7
Investment Objective and Policies........................... 9
Investment Advisory Services................................ 17
Purchase of Shares.......................................... 18
Redemption of Shares........................................ 23
Distributions from the Fund................................. 25
Shareholder Services........................................ 25
Federal Income Taxation..................................... 26
Financial Highlights........................................ 28
Appendix--Description of Securities Ratings................. 29
</TABLE>

2
<PAGE> 106

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide investors
a high level of current income exempt from federal income tax, consistent with
preservation of capital. There can be no assurances the Fund will achieve its
investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 80% of the Fund's total assets in a
portfolio of municipal securities that are rated investment grade at the time of
purchase. Investment grade securities are securities rated BBB or higher by
Standard and Poor's ("S&P"), or Baa or higher by Moody's Investors Service, Inc.
("Moody's") or an equivalent rating by another nationally recognized statistical
rating organization ("NRSRO") and comparably rated short term securities. Under
normal market conditions, up to 20% of the Fund's total assets may consist of
municipal securities rated below investment grade (but not rated lower than B-
by S&P or B3 by Moody's) and comparably rated short term securities or unrated
municipal securities believed by the Fund's investment adviser to be of
comparable quality at the time of purchase. Securities rated BB or below by S&P,
Ba or below by Moody's or unrated securities of comparable quality are commonly
referred to as "junk bonds" and involve special risks as compared to investments
in higher-grade securities (see box for an explanation of quality ratings). The
Fund may invest a substantial portion of its assets in municipal securities that
are subject to federal alternative minimum tax.

Understanding Municipal Securities

Municipal securities, including municipal bonds, municipal notes or
municipal leases, generally are issued by state and local governments or
regional governmental authorities to raise money for their daily operations or
special projects. The interest received from municipal securities generally is
exempt from federal income tax. In addition, the interest may be exempt from
certain state or local taxes when received from issuers who are located in the
investors' home state, municipality or region. The interest from certain
municipal securities is a preference item subject to federal alternative minimum
tax.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in
the Fund over the short or long term:

3
<PAGE> 107

- - CREDIT RISK. Credit risk refers to an issuer's ability to make timely
payments of interest or principal. Because the Fund may invest up to 20% of
its total assets in securities with below investment grade credit quality, it
is subject to a higher level of credit risk than a fund that buys only
investment grade securities. The credit quality of "noninvestment grade"
securities is considered speculative by recognized rating agencies with
respect to the issuer's continuing ability to pay interest or principal. The
prices of lower-grade securities are more sensitive to negative corporate
developments, such as a decline in profits, or adverse economic conditions,
such as a recession, than are the prices of higher grade securities.

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 ratings can be found in
the Appendix to this Prospectus.

<TABLE>
<CAPTION>
MOODY'S S&P MEANING
------- --- -------
<S> <C> <C>
Aaa AAA Highest quality
Aa AA High quality
A A Above-average quality
Baa BBB Average quality
Ba BB Below-average quality
B B Marginal quality
Caa CCC Poor quality
Ca CC Highly speculative
C C Lowest quality
D In default
</TABLE>

- - 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
assets in municipal securities subject to federal alternative minimum tax.
The Fund may not be a suitable investment for investors who are already
subject to the federal alternative minimum tax or who would become subject to
the federal alternative minimum tax as a result of 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.

4
<PAGE> 108

- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - Seek monthly income.

- - Are in a high federal income tax bracket.

- - Wish to add to their personal investment portfolios a Fund that invests
primarily in municipal securities.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past nine calendar years, as well
as its best and worst quarter during that period. 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.
BAR GRAPH

<TABLE>
<CAPTION>
Annual Return
<S> <C>
'1990*' 2.57
'1991' 13.98
'1992' 9.69
'1993' 12.20
'1994' -6.37
'1995' 15.61
'1996' 4.07
'1997' 9.14
'1998**' 5.62
</TABLE>

5
<PAGE> 109

Class B Shares and Class C Shares would differ from the annual returns shown for
the Fund's Class A Shares reflecting differences in the expenses borne by each
class of shares.

During the nine-year period shown in the bar chart, the highest quarterly
return was 7.04% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -6.87% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with Lehman Brothers
Municipal Bond Index, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. Average annual total returns
are shown for the one- and five-year periods ended December 31, 1997 and the
period from the inception date for each class of shares to December 31, 1997
(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.

AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 1 PAST 5 SINCE
YEAR YEARS INCEPTION
------ ------ ---------
<S> <C> <C> <C>
Van Kampen Municipal Income Fund
Class A Shares............................... 9.14% 6.64% 7.99%(1)
Class B Shares............................... 8.27% 5.85% 5.82%(2)
Class C Shares............................... 8.34% -- 4.80%(3)
Lehman Brothers Municipal Bond Index...........
</TABLE>

- ------------------------------------

Inception Dates: (1) 8/1/90, (2) 8/24/92, (3) 8/13/93.

The current yield for the thirty day period ended September 30, 1998 is
3.94% for Class A Shares, 3.34% for Class B Shares and 3.31% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

6
<PAGE> 110

---------------------------------------------

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.

- ------------------------------------

(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares--Class A
Shares."

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees............................ 0.48% 0.48% 0.48%
Distribution and/or Service (12b-1) Fees
(1)...................................... 0.23% 1.00%(2) 1.00%(2)
Other Expenses............................. 0.16% 0.17% 0.17%
Total Annual Fund Operating Expenses....... 0.87% 1.65% 1.65%
</TABLE>

- ------------------------------------

7
<PAGE> 111

to 1.00% of the average daily net assets attributable to such class of shares.
See "Distribution and Service Plans."

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $560 $739 $ 934 $1,497
Class B Shares........................... $568 $870 $1,047 $1,746*
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>
Class A Shares........................... $560 $739 $934 $1,497
Class B Shares........................... $168 $520 $897 $1,746*
Class C Shares........................... $168 $520 $897 $1,955
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

8
<PAGE> 112

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

The Fund's investment objective is to provide investors a high level of
current income exempt from federal income tax, consistent with preservation of
capital. The Fund's investment objective is a fundamental policy and may not be
changed without shareholder approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). There are risks inherent in all investments in
securities; and accordingly there can be no assurance the Fund will achieve its
investment objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 80% of the Fund's total assets in
municipal securities that are rated investment grade at the time of purchase.
Investment grade securities are securities rated BBB or higher by S&P, Baa or
higher by Moody's or an equivalent rating by another NRSRO and comparably rated
short term securities. Under normal market conditions, up to 20% of the Fund's
total assets may consist of municipal securities rated below investment grade
(but not rated lower than B- by S&P or B3 by Moody's) and comparably rated short
term securities or unrated municipal securities believed by the Fund's
investment adviser to be of comparable quality at the time of purchase.
Securities rated BB or below by S&P, Ba or below by Moody's or unrated
securities of comparable quality are commonly referred to as "junk bonds" and
involve special risks as compared to investments in higher-grade securities. The
Fund may invest a substantial portion of its total assets in municipal
securities that are subject to alternative minimum tax. From time to time, the
Fund temporarily may invest up to 10% of its total assets in tax exempt money
market funds and such instruments will be treated as investments in municipal
securities.

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. Under
normal market conditions, at least 80% of the Fund's total assets will be
invested in municipal securities. The policy stated in the foregoing sentence is
a fundamental policy of the Fund and may not be changed without shareholder
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. The Fund may invest a substantial
portion of its assets in municipal securities that are subject to federal
alternative minimum tax.

9
<PAGE> 113

10
<PAGE> 114

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.

Municipal securities, like other debt obligations, are subject to the
credit risk of non-payment. The ability of issuers of municipal securities to
make timely payments of interest and principal may be adversely impacted in
general economic downturns and as relative governmental cost burdens are
allocated and reallocated among federal, state and local governmental units.
Such non-payment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal securities experiencing
non-payment and a potential decrease in the net asset value of the Fund. In
addition, the Fund may incur expenses to work out or restructure a distressed or
defaulted security. Securities rated below investment grade involve special
risks compared to higher grade securities. See "Lower Grade Municipal
Securities" below.

The Fund may invest a substantial portion of its assets in municipal
securities that are subject to federal alternative minimum tax. The Fund may not
be a suitable investment for investors who are already subject to the federal
alternative minimum tax or who would become subject to the federal alternative
minimum tax as a result of an investment in the Fund.

11
<PAGE> 115

on all municipal securities in such a market segment. The Fund reserves the
right to invest more than 25% of its total assets in industrial development
bonds or 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.

LOWER GRADE MUNICIPAL SECURITIES

Under normal market conditions, the Fund may invest up to 20% of its total
assets in municipal securities rated below investment grade (but not lower than
B- by S&P or B3 by Moody's) and comparably rated short term securities or in
unrated municipal securities considered by the Fund's investment adviser to be
of comparable quality at the time of purchase. With respect to such investments,
the Fund has not established any limit on the percentage of its portfolio which
may be invested in securities in any one rating category. Securities rated BB or
below by S&P, Ba or below by Moody's or unrated securities of comparable quality
are commonly referred to as "junk bonds". Investors should carefully consider
the risks of owning shares of a fund which invests in lower grade municipal
securities before making an investment in the Fund.

Generally, lower grade securities provide a higher yield than higher grade
securities of similar maturity but are subject to greater credit risk. The
higher yield on such securities held by the Fund reflects the greater credit
risk that the financial condition of the issuer or adverse changes in general
economic conditions, or both, may impair the ability of the issuer to make
payments of income and principal. Lower grade securities are considered
speculative with respect to the capacity of the issuer to make interest and
principal payments. The ratings of S&P and Moody's and represent their opinions
of the quality of the securities they undertake to rate, but not the market
value risk of such securities. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Credit ratings are also
subject to a risk that the rating agencies may fail to change such ratings to
reflect subsequent events in a timely fashion. See the Appendix for a
description of security ratings.

Lower grade securities generally are subject to more market risk than
higher grade securities. The market value of lower grade securities may
fluctuate more than the market value of higher grade securities, since the
former tend to reflect short-term issuer or economic developments to a greater
extent than higher grade securities, which fluctuate primarily in response to
the general level of interest rates, assuming that there has been no change in
the fundamental quality of such securities. A significant increase in interest
rates or a general economic downturn could severely disrupt the market for lower
grade municipal securities and adversely affect the market value of such
securities. Such events also could lead to a higher incidence of defaults by
issuers of lower grade municipal securities compared to higher grade securities.
In addition, changes in interest rates and periods of economic uncertainty can
be expected to result in increased volatility in the market price of the
municipal securities in the Fund's portfolio and thus in the net asset

12
<PAGE> 116

value of the Fund. Lower grade securities may be more susceptible to real or
perceived adverse economic conditions than higher grade securities. A projection
of an economic downturn, for example, could cause a decline in prices of lower
grade securities because the advent of a recession could lessen the ability of a
such issuer to make principal and interest payments on its securities or obtain
additional financing when necessary.

The markets for lower grade securities may be less liquid than the markets
for higher grade securities. To the extent that there is no established retail
market for some of the lower grade municipal securities in which the Fund may
invest, trading in such securities may be relatively inactive. Prices of lower
grade debt securities may decline rapidly in the event a significant number of
holders decide to sell. Changes in expectations regarding an individual issuer
or 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. 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 and the ability of the issuers to repay principal
and interest. 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 and in the absence of
readily available market quotations for 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
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. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.

In the event that an issuer of securities held by the Fund experiences
difficulties in the timely payment of principal or interest and such issuer
seeks to restructure the terms of its borrowings, the Fund may incur additional
expenses and may determine to invest additional assets with respect to such
issuer or the project or projects to which the Fund's portfolio securities
relate. Further, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain full recovery thereof. The Fund's investment adviser seeks to minimize
the risks involved in investing in lower grade municipal securities through
diversification, careful investment analysis and attention to current
developments and trends in the economy and financial and credit markets. In
purchasing and selling securities, the Fund's investment adviser evaluates the
issuers of such securities based on a number of factors, including but not
limited to the issuer's financial strength, its revenues or earnings potential,
its operating history and management skills. Municipal securities generally are
not listed for trading on any national securities exchange, and many issuers of
lower grade municipal securities choose not to have a rating assigned to their
obligations by any nationally recognized statistical rating organization. The
amount of information available about the financial condition of an issuer of
unlisted or unrated securities generally is not as extensive as that which is
available with respect to issuers of listed or rated securities. Investment
results of the Fund's lower grade securities may be more dependent upon the
investment adviser's credit analysis than the results from investments in higher
grade securities.

13
<PAGE> 117

<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998
---------------------------------------------
UNRATED
SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
(AS A PERCENTAGE (AS A PERCENTAGE
RATING CATEGORY OF PORTFOLIO VALUE) OF PORTFOLIO VALUE)
- -------------------------------------------------------------------------
<S> <C> <C>
AAA/Aaa...................
AA/Aa.....................
A/A.......................
BBB/Baa...................
BB/Ba.....................
B/B.......................
CCC/Caa...................
CC/Ca.....................
C/C.......................
D.........................
Percentage of Rated and
Unrated Securities......
- -------------------------------------------------------------------------
</TABLE>

The percentage of the Fund's assets invested in securities of various
grades may vary from time to time from those set forth above.

OTHER INVESTMENTS AND RISK FACTORS

14
<PAGE> 118

15
<PAGE> 119

16
<PAGE> 120

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------------------------------------------------------------
<S> <C>
First $500 million.................................... 0.50%
Over $500 million..................................... 0.45%
- ------------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's
fiscal period ended September 30, 1998.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

17
<PAGE> 121

restrictions. Persons with access to certain sensitive information are subject
to pre-clearance and other procedures designed to prevent conflicts of interest.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice President of the
Adviser, has been primarily responsible for the day-to-day management of the
Fund's portfolio since August 1990. Mr. Johnson has been employed by the Adviser
since April 1989.

---------------------------------------------

PURCHASE OF SHARES
---------------------------------------------

GENERAL

18
<PAGE> 122

securities with similar characteristics in accordance with procedures
established in good faith by the Board of Trustees of the Fund. Securities with
remaining maturities of 60 days or less are valued at amortized cost when
amortized cost is determined in good faith by or under the direction of the
Board of Trustees of the Fund to be representative of the fair value at which it
is expected such securities may be resold. Any securities or other assets for
which current market quotations are not readily available are valued at their
fair value as determined in good faith under procedures established by and under
the general supervision of the Board of Trustees of the Fund.

Shares may be purchased on any business day through authorized dealers.
Shares also may be purchased by completing the application accompanying this
Prospectus and forwarding the application, through the authorized dealer, to the
shareholder service agent, Van Kampen Investor Services Inc. ("Investor
Services"), a wholly-owned subsidiary of Van Kampen Investments. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A
Shares, Class B Shares or Class C Shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A Shares, Class B Shares or Class C Shares.

19
<PAGE> 123

less than $500 generally are mailed by the authorized dealer and processed at
the offering price next calculated after receipt by Investor Services.

Investor accounts will automatically be credited with additional shares of
the Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 421-5666 or writing to the Fund, c/o Van Kampen Investors Services Inc.,
PO Box 418256, Kansas City, MO 64141-9256.

CLASS A SHARES

Class A Shares Sales Charge Schedule

20
<PAGE> 124

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no

21
<PAGE> 125

sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no sales charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions. It is presently the
policy of the Distributor not to accept any order for Class C Shares in an
amount of $1 million or more because it ordinarily will be more advantageous for
an investor making such an investment to purchase Class A Shares.

CONVERSION FEATURE

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares six years after the end of the calendar month in which the shares were
purchased. Class C Shares purchased before January 1, 1997, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares ten years after the end of the calendar month in which such shares were
purchased. Such conversion will be on the basis of the relative net asset values
per share, without the imposition of any sales load, fee or other charge. The
conversion schedule applicable to a share 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.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

liquidate a shareholder's account as described herein under "Redemption of
Shares." The contingent deferred sales charge also is waived on redemptions of
Class C Shares as it relates to the reinvestment of redemption proceeds in
shares of the same class of the Fund within 180 days after redemption. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Statement of Additional Information or contact your authorized
dealer.
---------------------------------------------

REDEMPTION OF SHARES

---------------------------------------------

23
<PAGE> 127

the redemption request. IRA redemption requests should be sent to the IRA
custodian to be forwarded to Investor Services. Contact the IRA custodian for
further information.

24
<PAGE> 128

involuntary redemption will be given and the shareholder will be given an
opportunity to purchase the required value of additional shares at the next
determined net asset value without sales charge. Any involuntary redemption may
only occur if the shareholder account is less than the minimum initial
investment due to shareholder redemptions.
---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

25
<PAGE> 129

instruct that dividends be paid in cash and capital gains distributions be
reinvested at net asset value, or that both dividends and capital gains
distributions be paid in cash.

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

26
<PAGE> 130

27
<PAGE> 131

capital gains may be taxed at different rates depending on how long the
shareholder held it shares.

---------------------------------------------

FINANCIAL HIGHLIGHTS
---------------------------------------------

28
<PAGE> 132

---------------------------------------------

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):

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, in varying degrees, on the following considerations:

1. Likelihood of payment--capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with
the terms of the obligation:

2. Nature of and provisions of the obligation:

3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditor's
rights.

LONG-TERM DEBT--INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
meet its financial commitment on the obligation is extremely strong.

AA: Debt rated "AA" differs from the highest rated issues only in small
degree. Capacity to meet its financial commitment on the obligation is very
strong.

SPECULATIVE GRADE

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

29
<PAGE> 133

economic conditions which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

C: The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

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

30
<PAGE> 134

interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

31
<PAGE> 135

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--
CALL YOUR BROKER

OR (800) 341-2911

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424

VAN KAMPEN MUNICIPAL

INCOME FUND

1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Municipal
Income Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Municipal
Income Fund

Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 136

---------------------------------------------

MUNICIPAL INCOME FUND

---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

VAN KAMPEN FUNDS LOGO

Investment Company Act File No. 811-4386
<PAGE> 137

---------------------------------------------

VAN KAMPEN

INTERMEDIATE TERM MUNICIPAL

INCOME FUND
---------------------------------------------

Van Kampen Intermediate Term Municipal Income Fund is a mutual fund with an
investment objective to provide investors a high level of current income exempt
from federal income tax, consistent with preservation of capital. The Fund's
management seeks to achieve the investment objective by investing primarily in a
portfolio of municipal securities that are rated investment grade at the time of
purchase and the Fund's management seeks to maintain the dollar-weighted average
maturity of the portfolio between three and ten years.

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 138

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 8
Investment Objective and Policies........................... 9
Investment Advisory Services................................ 19
Purchase of Shares.......................................... 20
Redemption of Shares........................................ 25
Distributions from the Fund................................. 27
Shareholder Services........................................ 28
Federal Income Taxation..................................... 29
Financial Highlights........................................ 32
Appendix--Description of Securities Ratings................. 33
</TABLE>

2
<PAGE> 139

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

INVESTMENT STRATEGIES
Understanding Municipal Securities

Under normal market conditions,
the Fund's management seeks to
achieve the investment objective by
investing at least 65% of the Fund's
total assets in a portfolio of
municipal securities that are rated
investment grade at the time of
purchase. Investment grade
securities are securities rated BBB
or higher by Standard and Poor's
("S&P"), or Baa or higher by Moody's
Investors Service, Inc. ("Moody's")
or an equivalent rating by another
nationally recognized statistical
rating organization ("NRSRO") and
comparably rated short term
securities. The remainder of the
Fund's total assets may consist of
municipal securities rated below
investment grade and comparably
rated short term securities or
unrated municipal securities
believed by the Fund's investment adviser to be of comparable quality at the
time of purchase. Securities rated BB or below by S&P, Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities (see box for an explanation of quality ratings). Under normal market
conditions, the Fund's management seeks to maintain the dollar-weighted average
maturity of the portfolio between three and ten years. The Fund may invest a
substantial portion of its assets in municipal securities that are subject to
federal alternative minimum tax.

3
<PAGE> 140

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in
the Fund over the short or long term:

UNDERSTANDING QUALITY
RATINGS

<TABLE>
<CAPTION>
Moody's S&P Meaning
------- --- -------
<S> <C> <C>
Aaa AAA Highest quality
Aa AA High quality
A A Above-average quality
Baa BBB Average quality
Ba BB Below-average quality
B B Marginal quality
Caa CCC Poor quality
Ca CC Highly speculative
C C Lowest quality
D In default
</TABLE>

- - MARKET RISK. The prices of income
securities tend to fall as
interest rates rise. This "market
risk" is usually greater among
securities with longer
maturities. Because the Fund's
management seeks to maintain a
dollar-weighted average maturity
of the portfolio between three
and ten years, the Fund generally
will be subject to greater market
risk than a fund that owns only
shorter-term securities but less
market risk than a fund that owns
only longer-term securities.

- - CREDIT RISK. Credit risk refers
to an issuer's ability to make
timely payments of interest or
principal. Because the Fund may
invest up to 35% of its total
assets in securities with below
investment grade credit quality,
it is subject to a higher level
of credit risk than a fund that
buys only investment grade
securities. The credit quality of
"noninvestment grade" securities is considered speculative by recognized
rating agencies with respect to the issuer's continuing ability to pay
interest or principal. The prices of lower-grade securities are more
sensitive to negative corporate developments, such as a decline in profits,
or adverse economic conditions, such as a recession, than are the prices of
higher grade securities.

4
<PAGE> 141

already subject to the federal alternative minimum tax or who would become
subject to the federal alternative minimum tax as a result of an investment in
the Fund. In addition, there could be changes in applicable tax laws or tax
treatments that reduce or eliminate the current federal income tax exemption
on municipal securities or otherwise adversely affect the current federal or
state tax status of municipal securities.

- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - seek monthly income.

- - are in a high federal income tax bracket.

- - wish to add to their personal investment portfolios a Fund that invests
primarily in municipal securities and seeks to maintain an average portfolio
maturity of intermediate term.

ANNUAL PERFORMANCE

5
<PAGE> 142

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.
BAR CHART

<TABLE>
<CAPTION>
Annual Return
<S> <C>
'1993 7.75
'1994 -3.32
'1995 15.31
'1996 4.27
'1997 8.08
'1998 5.36
</TABLE>

During the six-year period shown in the bar chart, the highest quarterly
return was 6.43% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -4.02% (for the quarter ended March 31, 1994).

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with Lehman Brothers
Municipal Bond Index, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. Average annual total returns
are shown for the one-year period ended December 31, 1997 and the period from
inception of each class of shares to December 31, 1997 (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.

6
<PAGE> 143

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED
DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 1 SINCE
YEAR INCEPTION
------ ---------
<S> <C> <C>
Van Kampen Intermediate Term Municipal Income Fund
Class A Shares........................................ 8.08% --
Class B Shares........................................ 7.23% --
Class C Shares........................................ 7.23% --
Lehman Brothers Municipal Bond Index....................
</TABLE>

- ------------------------------------

Inception Dates: (1) 5/28/93, (2) 10/19/93.

The current yield for the thirty day period ended September 30, 1998 is
4.15% for Class A Shares, 3.52% for Class B Shares and 3.50% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

7
<PAGE> 144

---------------------------------------------

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>
Shareholder Fees
(fees paid directly from your
investment):
Maximum sales charge (load) imposed on
purchases (as a percentage of
offering price)..................... 3.25% (1) None None
Maximum deferred sales charge (load)
(as a percentage of the lesser of
original purchase price or
redemption proceeds)................ None (2) Year Year
1--3.00% 1--1.00%
Year After--None
2--2.50%
Year
3--2.00%
Year
4--1.00%
After--None
Maximum sales charge (load) imposed
reinvested dividends (as a
percentage of offering price)....... None None None
Redemption fees (as a percentage of
amount redeemed).................... None None None
Exchange fee.......................... None None None
</TABLE>

- ------------------------------------

(1) Reduced for purchases of $25,000 and over. See "Purchase of Shares--Class A
Shares."

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees............................ 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1)
Fees(1).................................. 0.25% 1.00%(2) 1.00%(2)
Other Expenses............................. 0.55% 0.56% 0.56%
Total Annual Fund Operating Expenses....... 1.30% 2.06% 2.06%
</TABLE>

- ------------------------------------

8
<PAGE> 145

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $453 $724 $1,016 $1,844
Class B Shares........................... $509 $846 $1,109 $2,197*
Class C Shares........................... $257 $487 $ 841 $1,837
</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>
Class A Shares........................... $453 $724 $1,016 $1,844
Class B Shares........................... $209 $646 $1,109 $2,197*
Class C Shares........................... $157 $487 $ 841 $1,837
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

9
<PAGE> 146

approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities; and
accordingly there can be no assurance the Fund will achieve its investment
objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 65% of the Fund's total assets in
municipal securities that are rated investment grade at the time of purchase.
Investment grade securities are securities rated BBB or higher by S&P, Baa or
higher by Moody's or an equivalent rating by another NRSRO and comparably rated
short term securities. Under normal market conditions the remainder of the
Fund's total assets may consist of municipal securities rated below investment
grade and comparably rated short term securities or unrated municipal securities
believed by the Fund's investment adviser to be of comparable quality at the
time of purchase. Securities rated BB or below by S&P, Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities. The Fund may invest a substantial portion of its assets in municipal
securities that are subject to alternative minimum tax. From time to time, the
Fund temporarily may invest up to 10% of its total assets in tax exempt money
market funds and such instruments will be treated as investments in municipal
securities.

Under normal market conditions, the Fund's management seeks to maintain the
dollar-weighted average maturity of the portfolio between three and ten years.
The Fund has no limitations as to the maturity of individual municipal
securities in which the Fund may invest. Generally, a portfolio of municipal
securities having intermediate dollar-weighted average maturity tends to produce
a higher level of income than a portfolio of municipal securities having a
shorter dollar-weighted average maturity and has less net asset value volatility
than a portfolio of municipal securities having a longer dollar-weighted average
maturity, although such differences cannot be assured. In addition, market
prices of municipal securities with intermediate maturities generally fluctuate
more in response to changes in interest rates than do market prices of municipal
securities with shorter maturities but generally fluctuate less than market
prices of municipal securities with longer maturities. Based on the foregoing,
the Fund's investment adviser believes that under current market conditions the
yield and price characteristics of a municipal securities portfolio with a
dollar-weighted average maturity of three to ten years generally offer an
attractive balance between income and interest rate risk. In certain market
conditions, however, such a portfolio may be less attractive because of
differences in yield between municipal securities of different maturities due to
supply and demand forces, monetary and tax policies and investor expectations.
In the event of sustained market conditions that make it less desirable to
maintain a dollar-weighted average portfolio maturity of three to ten years, the
Board of Trustees of the Fund, in consultation with the Fund's investment
adviser, may change the investment policy of the Fund with respect to the
dollar-weighted average maturity of the portfolio.

10
<PAGE> 147

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. Under
normal market conditions, at least 80% of the Fund's total assets will be
invested in municipal securities. The policy stated in the foregoing sentence is
a fundamental policy of the Fund and may not be changed without shareholder
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. The Fund may invest a substantial
portion of its assets in municipal securities that are subject to federal
alternative minimum tax.

11
<PAGE> 148

Under normal market conditions, longer term municipal securities generally
provide a higher yield than shorter term municipal securities. Under normal
market conditions, the Fund's management seeks to maintain a dollar-weighted
average maturity of the portfolio between three and ten years. The Fund has no
limitation as to the maturity of individual municipal securities in which it may
invest. As previously discussed, the Fund 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 Fund may invest a substantial portion of its assets in municipal
securities that are subject to federal alternative minimum tax. The Fund may not
be a suitable investment for

12
<PAGE> 149

investors who are already subject to the federal alternative minimum tax or who
would become subject to the federal alternative minimum tax as a result of an
investment in the Fund.

LOWER GRADE MUNICIPAL SECURITIES

Under normal market conditions, the Fund may invest up to 35% of its total
assets in municipal securities rated below investment grade and comparably rated
short term securities or in unrated municipal securities considered by the
Fund's investment adviser to be of comparable quality at the time of purchase.
With respect to such investments, the Fund has not established any limit on the
percentage of its portfolio which may be invested in securities in any one
rating category. Securities rated BB or below by S&P, Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds". Generally, lower grade securities provide higher yields than higher
grade

13
<PAGE> 150

securities of similar maturity but are subject to 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 lower grade municipal securities
before making an investment in the Fund.

The higher yield on such securities held by the Fund reflects the greater
credit risk that the financial condition of the issuer or adverse changes in
general economic conditions, or both, may impair the ability of the issuer to
make payments of income and principal. Lower grade securities are considered
speculative by the rating agencies with respect to the capacity of the issuer to
make interest and principal payments and are more susceptible to nonpayment or
default than higher grade securities. An economic downturn or increase in
interest rates could severely impact the ability of such issuers to pay
principal and interest or obtain other financing. The ratings of S&P and Moody's
represent their opinions of the quality of the securities they undertake to
rate, but not the market value risk of such securities. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Credit ratings are also subject to a risk that the rating agencies may fail to
change such ratings to reflect subsequent events in a timely fashion. See the
Appendix for a description of security ratings.

The value of all debt securities fluctuate in response to changes in
interest rates, but lower grade securities generally are subject to more market
risk and volatility than higher grade securities. Lower grade securities tend to
react to short-term issuer or economic developments to a greater extent than
higher grade securities, which fluctuate primarily in response to the general
level of interest rates, assuming that there has been no change in the
fundamental quality of such securities. Yields on the Fund's portfolio
securities can be expected to fluctuate over time. A significant increase in
interest rates or a general economic downturn could severely disrupt the market
for lower grade municipal securities and adversely affect the market value of
such securities. Such events also could lead to a higher incidence of default by
issuers of lower grade municipal securities compared to higher grade securities.
In addition, changes in credit risks, changes in interest rates, the credit
markets or periods of general economic uncertainty can be expected to result in
increased volatility in the market price of the Fund's lower grade municipal
securities and thus in the net asset value of the Fund. Lower grade securities
may be more susceptible to real or perceived adverse economic conditions than
higher grade securities. A projection of an economic downturn, for example,
could cause a decline in prices of lower grade securities because the advent of
a recession could lessen the ability of a such issuer to make principal and
interest payments on its securities or obtain additional financing when
necessary. In addition, recent and proposed legislation may have an adverse
impact on the market prices or liquidity for lower grade municipal securities.

14
<PAGE> 151

such securities may be relatively inactive. Prices of lower grade debt
securities may decline rapidly in the event a significant number of holders
decide to sell. Changes in expectations regarding an individual issuer or 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 would 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
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's investment adviser seeks to minimize the risks involved in
investing in lower grade municipal securities through diversification, careful
investment analysis and attention to current developments and trends in the
economy and financial and credit markets. In purchasing and selling securities,
the Fund's investment adviser evaluates the issuers of such securities based on
a number of factors, including but not limited to the issuer's financial
strength, its sensitivity to economic conditions and trends, its revenues or
earnings potential, its operating history and management skills. Municipal
securities generally are not listed for trading on any national securities
exchange, and many issuers of lower grade municipal securities choose not to
have a rating assigned to their obligations by any nationally recognized
statistical rating organization. The amount of information available about the
financial condition of an issuer of unlisted or unrated securities generally is
not as extensive as that which is available with respect to issuers of listed or
rated securities. Thus, investment results of the Fund's lower grade securities
may be more dependent upon the investment adviser's credit analysis, judgment
and experience than a fund investing solely in higher grade securities.

15
<PAGE> 152

Certain of the lower grade municipal securities in which the Fund may
invest may be, subsequent to the Fund's investment in such securities,
downgraded or have their rating withdrawn by Moody's or S&P or may be deemed by
the Fund's investment adviser to be of a lower quality as a result of impairment
of the creditworthiness of the issuer of such securities or of the project the
revenues from which are the source of payment of interest and repayment of
principal with respect to such securities. The Fund may, if deemed appropriate
by the Fund's investment adviser, retain a security whose rating has been
downgraded or whose rating has been withdrawn. In such instances, the secondary
market for such municipal securities may become less liquid, with the
possibility that more than 15% of the Fund's net assets would be invested in
securities which are not readily marketable. In such event, the Fund will take
reasonable and appropriate steps to reduce the percentage of the Fund's
portfolio represented by securities that are not readily marketable to less than
15% of the Fund's net assets as soon as is reasonably practicable.

<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998
--------------------------------------------
UNRATED
SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING (AS A PERCENTAGE OF (AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
-------- ------------------- -------------------
<S> <C> <C>
AAA/Aaa...............
AA/Aa.................
A/A...................
BBB/Baa...............
BB/Ba.................
B/B...................
CCC/Caa...............
CC/Ca.................
C/C...................
D.....................
Percentage of Rated
and Unrated
Securities..........
</TABLE>

The percentage of the Fund's assets invested in securities of various
grades may vary from time to time from those set forth above.

OTHER INVESTMENTS AND RISK FACTORS

16
<PAGE> 153

various interest rate transactions such as swaps, caps, floors or collars.
Collectively, all of the above are referred to as "Strategic Transactions."
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets fluctuations, to protect the
Fund's unrealized gains in the value of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Any or all of these investment techniques may be used at
any time and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the investment
adviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions have risks associated with them including possible default by the
other party to the transaction, illiquidity and, to the extent the investment
adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale of portfolio securities at inopportune times or for prices other
than at current market values, limit the amount of appreciation the Fund can
realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the risk management
or hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information. Income
earned or deemed to be earned by the Fund from its Strategic Transactions, if
any, generally will be taxable income of the Fund.

17
<PAGE> 154

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. 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.

18
<PAGE> 155

addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest which, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------------
<S> <C>
First $500 million..................................... 0.50%
Over $500 million...................................... 0.45%
- ---------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
period ended September 30, 1998.

19
<PAGE> 156

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

PORTFOLIO MANAGEMENT. Timothy D. Haney, a Vice President of the Adviser,
has been primarily responsible for the day-to-day management of the Fund's
portfolio since January 1997. Mr. Haney has been employed by the Adviser since
August 1988.

---------------------------------------------

PURCHASE OF SHARES
---------------------------------------------

GENERAL

20
<PAGE> 157

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.

21
<PAGE> 158

Shares may be purchased on any business day through authorized dealers.
Shares also may be purchased by completing the application accompanying this
Prospectus and forwarding the application, through the authorized dealer, to the
shareholder service agent, Van Kampen Investor Services Inc. ("Investor
Services"), a wholly-owned subsidiary of Van Kampen Investments. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A
Shares, Class B Shares or Class C Shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A Shares, Class B Shares or Class C Shares.

CLASS A SHARES

Class A Shares Sales Charge Schedule

<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- -----------------------------------------------------------------------------------
<S> <C> <C>
Less than $25,000...................................... 3.25% 3.36%
$25,000 but less than $250,000......................... 2.75% 2.83%
$250,000 but less than $500,000........................ 1.75% 1.78%
$500,000 but less than $1,000,000...................... 1.50% 1.52%
$1,000,000 or more..................................... * *
- -----------------------------------------------------------------------------------
</TABLE>

22
<PAGE> 159

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.

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within four years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage
of Dollar Amount
Year Since Purchase Subject to Charge
- -----------------------------------------------------------------------------------
<S> <C>
First................................................. 3.00%
Second................................................ 2.50%
Third................................................. 2.00%
Fourth................................................ 1.00%
Fifth and After....................................... None
- -----------------------------------------------------------------------------------
</TABLE>

23
<PAGE> 160

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares six years after the end of the calendar month in which the shares were
purchased. Class C Shares purchased before January 1, 1997, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares ten years after the end of the calendar month in which such shares were
purchased. Such conversion will be on the basis of the relative net asset values
per share, without the imposition of any sales load, fee or other charge. The
conversion schedule applicable to a

24
<PAGE> 161

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.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

---------------------------------------------

REDEMPTION OF SHARES
---------------------------------------------

25
<PAGE> 162

may take up to 15 days. A taxable gain or loss will be recognized by the
shareholder upon redemption of shares.

26
<PAGE> 163

---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

27
<PAGE> 164

to purchase additional shares of the Fund at the next determined net asset value
unless the shareholder instructs otherwise.

---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

28
<PAGE> 165

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

29
<PAGE> 166

months or less, any short-term capital loss on the sale or exchange of the
shares will be disallowed to the extent of the amount of such exempt-interest
dividend.

30
<PAGE> 167

98% of its ordinary income or less than 98% of its capital gain net income, then
the Fund will be subject to a 4% excise tax on such undistributed amounts.

31
<PAGE> 168

---------------------------------------------

FINANCIAL HIGHLIGHTS
---------------------------------------------

32
<PAGE> 169

---------------------------------------------

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):

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, 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:

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.

SPECULATIVE GRADE

33
<PAGE> 170

protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

C: The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

MOODY'S INVESTORS SERVICE--A brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

34
<PAGE> 171

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.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

35
<PAGE> 172

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

36
<PAGE> 173

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 341-2911

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424

VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND

1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256

Attn: Van Kampen Intermediate Term Municipal Income Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713

Attn: Van Kampen Intermediate Term Municipal Income Fund

Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG Peat Marwick LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 174

---------------------------------------------

INTERMEDIATE TERM MUNICIPAL
INCOME FUND
---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

VAN KAMPEN FUNDS LOGO

Investment Company Act File No. 811-4386

<PAGE> 175

---------------------------------------------

VAN KAMPEN
FLORIDA INSURED TAX FREE INCOME FUND
---------------------------------------------

Van Kampen Florida Insured Tax Free Income Fund is a mutual fund with an
investment objective to provide investors a high level of current income exempt
from federal income tax and Florida intangible personal property taxes,
consistent with preservation of capital. The Fund is designed for investors who
are residents of Florida for tax purposes. The Fund's management seeks to
achieve the investment objective by investing primarily in a portfolio of
Florida municipal securities that are insured at the time of purchase as to
timely payment of both principal and interest by a top-rated private insurance
company.

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 176

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 7
Investment Objective and Policies........................... 9
Investment Advisory Services................................ 17
Purchase of Shares.......................................... 18
Redemption of Shares........................................ 24
Distributions from the Fund................................. 26
Shareholder Services........................................ 27
Florida Taxation............................................ 28
Federal Income Taxation..................................... 29
Financial Highlights........................................ 31
</TABLE>

2
<PAGE> 177

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide investors
a high level of current income exempt from federal income tax and Florida
intangible personal property taxes, consistent with preservation of capital. The
Fund is designed for investors who are residents of Florida for tax purposes.
There can be no assurance the Fund will achieve its investment objective.

INVESTMENT STRATEGIES

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 80% of the Fund's total assets in a
portfolio of Florida municipal securities that are insured at the time of
purchase as to timely payment of both principal and interest by a top-rated
private insurance company. Under normal market conditions, up to 20% of the
Fund's total assets may consist of uninsured Florida municipal securities rated
"investment grade" at the time of purchase by a nationally recognized
statistical rating organization. Under normal market conditions, up to 20% of
the Fund's total assets may be invested in municipal securities that are subject
to federal alternative minimum tax.

Understanding Municipal Securities

Municipal securities, including municipal bonds, municipal notes or
municipal leases, generally are issued by state and local governments or
regional governmental authorities to raise money for their daily operations or
special projects. The interest received from municipal securities generally is
exempt from federal income tax. In addition, the interest may be exempt from
certain state or local taxes when received from issuers who are located in the
investors' home state, municipality or region. The interest from certain
municipal securities is a preference item subject to federal alternative minimum
tax.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in
the Fund over the short or long term:

- - MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This "market risk" is usually greater among securities with longer
maturities. Because the Fund does not have a policy limiting the maturities
of its investments and the Fund expects to own securities with longer
maturities, the Fund will be subject to greater market risk than a fund that
owns shorter-term securities.

3
<PAGE> 178

- - CREDIT RISK. Credit risk refers to an issuer's ability to make timely
payments of interest or principal. Credit risk should be low for the Fund
because it invests primarily in insured municipal securities.

- - MUNICIPAL SECURITIES RISK. The Fund invests primarily in insured municipal
securities. The yields of municipal securities, or of insured 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
up to 20% of its total assets in municipal securities subject to federal
alternative minimum tax. 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.

- - NON-DIVERSIFICATION RISKS. The Fund is classified as a "non-diversified"
fund, which means the Fund may invest a greater portion of its assets in a
more limited number of issuers than a "diversified" fund. As a result, the
Fund may be subject to greater risk than a diversified fund because changes
in the financial condition or market assessment of a single issuer may cause
greater fluctuations in the value of the Fund's shares.

- - STATE-SPECIFIC RISKS. Because the Fund invests primarily in a portfolio of
Florida municipal securities, the Fund is more susceptible to political,
economic, regulatory or other factors affecting issuers of Florida municipal
securities than a fund that does not limit its investments to such issuers.

- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - Seek monthly income.

- - Are in a high federal income tax bracket.

- - Are subject to Florida intangible personal property tax.

4
<PAGE> 179

- - Wish to add to their personal investment portfolios a Fund that invests
primarily in insured Florida municipal securities.

ANNUAL PERFORMANCE

One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past five calendar years, as well
as its best and worst quarter during that period. 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.
[BAR GRAPH]

ANNUAL RETURN FOR CLASS A SHARES

<TABLE>
<CAPTION>
Years Annual Return
<S> <C>
1994* -1.47%
1995 16.29%
1996 4.37%
1997 8.72%
1998** 6.26%
</TABLE>

*The return for 1994 is for the period from July 29, 1994 (commencement of
investment operations) to December 31, 1994.
**The return for 1998 is for the nine month period ended September 30, 1998.

During the five-year period shown in the bar chart, the highest quarterly
return was 6.75% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -2.37% (for the quarter ended March 31, 1996).

5
<PAGE> 180

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with Lehman Brothers
Municipal Bond Index, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. Average annual total returns
are shown for the one-year period ended December 31, 1997 and the period from
the inception date for each class of shares to December 31, 1997 (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.

AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 1 SINCE
YEAR INCEPTION
------ ---------
<S> <C> <C>
Van Kampen Florida Insured Tax Free Income Fund
Class A Shares........................................ 8.72% 7.96%(1)
Class B Shares........................................ 7.91% 7.17%(1)
Class C Shares........................................ 7.97% 7.23%(1)
Lehman Brothers Municipal Bond Index....................
</TABLE>

- ------------------------------------

Inception Date: (1) 7/29/94.

The current yield for the thirty day period ended September 30, 1998 is
4.19% for Class A Shares, 3.63% for Class B Shares and 3.64% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

6
<PAGE> 181

---------------------------------------------

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>
Shareholder Fees
(fees paid directly from your
investment):
Maximum sales charge (load) imposed on
purchases (as a percentage of
offering price)..................... 4.75% (1) None None
Maximum deferred sales charge (load)
(as a percentage of the lesser of
original purchase price or
redemption proceeds)................ None (2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Maximum sales charge (load) imposed
reinvested dividends (as a
percentage of offering price)....... None None None
Redemption fees (as a percentage of
amount redeemed).................... None None None
Exchange fee.......................... None None None
</TABLE>

- ------------------------------------

(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares--Class A
Shares."

7
<PAGE> 182

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- -------- --------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees(1)......................... 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1)
Fees(2).................................. 0.25% 1.00%(3) 1.00%(3)
Other Expenses(1).......................... 0.55% 0.55% 0.53%
Total Annual Fund Operating Expenses(1).... 1.30% 2.05% 2.03%
</TABLE>

- ------------------------------------

(1) The Fund's investment adviser is currently waiving or reimbursing all or a
portion of the Fund's Management Fees and Other Expenses such that actual
Total Annual Fund Operating Expenses for the fiscal period ended September
30, 1998 were 0.60%, 1.35% and 1.32% for Class A Shares, Class B Shares and
Class C Shares, respectively.

(2) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Distribution and Service Plans."

(3) 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. Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted by National Association of
Securities Dealers, Inc. Rules.

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $601 $868 $1,154 $1,968
Class B Shares........................... $608 $993 $1,253 $2,187*
Class C Shares........................... $306 $637 $1,093 $2,358
</TABLE>

8
<PAGE> 183

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $601 $868 $1,154 $1,968
Class B Shares........................... $208 $643 $1,103 $2,187*
Class C Shares........................... $206 $637 $1,093 $2,358
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

The Fund's investment objective is to provide investors a high level of
current income exempt from federal income tax and Florida intangible personal
property taxes, consistent with preservation of capital. The Fund is designed
for investors who are residents of Florida for tax purposes. The Fund's
investment objective is a fundamental policy and may not be changed without
shareholder approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). There are risks inherent in all investments in securities; and
accordingly there can be no assurance the Fund will achieve its investment
objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 80% of the Fund's total assets in
Florida municipal securities that are insured at the time of purchase as to
timely payment of both principal and interest by an entity whose claims-paying
ability is rated AAA by Standard and Poor's ("S&P"), or Aaa by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO"). Under normal market
conditions, up to 20% of the Fund's total assets may consist of uninsured
Florida municipal securities rated investment grade at the time of investment.
Investment grade securities are securities rated BBB or higher by S&P, Baa or
higher by Moody's or an equivalent rating by another NRSRO and comparably rated
short term securities. Under normal market conditions, up to 20% of the Fund's
total assets may be invested in municipal securities that are subject to the
alternative minimum tax. From time to time, the Fund temporarily may invest up
to 10% of its total assets in tax exempt money market funds and such instruments
will be treated as investments in municipal securities.

9
<PAGE> 184

The Fund's investment adviser will buy and sell securities for the Fund's
portfolio with a view to seeking a high level of current income exempt from
federal income tax and Florida intangible personal property taxes and will
select 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 Florida
municipal securities permitted by its investment policies if the Fund's
investment adviser determines that market risks or credit risks associated with
such investments would subject the Fund's portfolio to undue risk. The potential
for realization of capital gains resulting from possible changes in interest
rates will not be a major consideration. Other than for tax purposes, frequency
of portfolio turnover generally will not be a limiting factor if the Fund's
investment adviser considers it advantageous to purchase or sell securities.

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. Florida
municipal securities are municipal securities 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 Florida intangible personal property taxes.
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in Florida municipal securities. The policy stated in the foregoing
sentence is a fundamental policy of the Fund and may not be changed without
shareholder approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the 1940 Act. Under normal market conditions,
up to 20% of the Fund's total assets may be invested in municipal securities
that are subject to federal alternative minimum tax.

10
<PAGE> 185

in the value of an equal principal amount of a fixed rate municipal security
having similar credit quality, redemption provisions and maturity. The markets
for such securities may be less developed and have less liquidity than the
markets for conventional municipal securities. The Fund will not invest more
than 20% of its total assets in derivative variable rate securities, such as
inverse floaters whose rates vary inversely with changes in market rates of
interest or range floaters or capped floaters whose rates are subject to
periodic or lifetime caps. 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. 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. Other than as set
forth above, there is no limitation with respect to the amount of the Fund's
assets that may be invested in the foregoing types of municipal securities.
Certain of the municipal securities in which the Fund may invest represent
relatively recent innovations in the municipal securities markets and the
markets for such securities may be less developed than the market for
conventional fixed rate municipal securities. A more detailed description of the
types of municipal securities in which the Fund may invest is included in the
Statement of Additional Information.

Under normal market conditions, longer term municipal securities generally
provide a higher yield than shorter term municipal securities, and therefore the
Fund generally expects to invest primarily in longer term municipal securities.
The Fund will, however, invest in shorter term municipal securities when it
believes market conditions warrant such investments.

Although the Fund invests primarily in municipal securities that are
insured at the time or purchase as to timely payment of both principal and
interest, municipal securities, like other debt obligations, are subject to the
credit risk of non-payment. The ability of issuers of municipal securities to
make timely payments of interest and principal may be adversely impacted in
general economic downturns and as relative governmental cost burdens are
allocated and reallocated among federal, state and local governmental units.

11
<PAGE> 186

Such non-payment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal securities experiencing
non-payment and a potential decrease in the net asset value of the Fund. In
addition, the Fund may incur expenses to work out or restructure a distressed or
defaulted security.

The Fund generally will not invest more than 25% of its total assets in any
industry. Governmental issuers of municipal securities are not considered part
of any "industry." However, municipal securities backed only by the assets and
revenues of nongovernmental users may for this purpose be deemed to be issued by
such nongovernmental users, and the 25% limitation would apply to such
obligations. It is therefore possible that the Fund may invest more than 25% of
its total assets in a broader segment of the municipal securities market, such
as revenue obligations of hospitals and other health care facilities, housing
agency revenue obligations, or airport revenue obligations if the Fund's
investment adviser determines that the yields available from obligations in a
particular segment of the market justifies the additional risks associated with
a large investment in such segment. Although such obligations could be supported
by the credit of governmental users, or by the credit of nongovernmental users
engaged in a number of industries, economic, business, political and other
developments generally affecting the revenues of such users (for example,
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products)
may have a general adverse effect on all municipal securities in such a market
segment.

INSURED MUNICIPAL SECURITIES

The Fund invests primarily in a portfolio of municipal securities that are
insured at the time of investment as to timely payment of both principal and
interest by a top-rated private insurance company. Such insurance could be
provided as: Original Issue Insurance, Secondary Market Insurance or Portfolio
Insurance. Original Issue Insurance is purchased with respect to a particular
issue of municipal securities by the issuer thereof or a third party in
conjunction with the original issue of such municipal securities. Secondary
Market Insurance is purchased by the Fund or a third party subsequent to the
time of original

12
<PAGE> 187

issuance of a municipal security. Both Original Issue Insurance and Secondary
Market Insurance remain in effect as long as the municipal securities covered
thereby remain outstanding and the insurer remains in business, regardless of
whether the Fund ultimately disposes of such municipal securities. Portfolio
Insurance may be purchased by the Fund with respect to municipal securities
which the Fund intends to purchase or already owns and would generally terminate
when the municipal security is sold by the Fund or redeemed. There is no
limitation on the percentage of the Fund's assets that may be invested in
municipal securities insured by any given insurer.

SPECIAL CONSIDERATIONS REGARDING FLORIDA MUNICIPAL SECURITIES

The Fund invests primarily in a portfolio of Florida municipal securities,
which are municipal securities 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 Florida intangible personal property taxes. Because the
Fund invests primarily in a portfolio of Florida municipal securities, the Fund
is more susceptible to political, economic, regulatory or other factors
affecting issuers of Florida municipal securities than a fund which does not
limit its investments to such issuers. These risks include possible legislative,
state constitutional or regulatory amendments that may affect the ability of
state and local governments or regional governmental authorities to raise money
to pay principal and interest on their municipal securities. Economic, fiscal
and budgetary conditions throughout the state may also influence the Fund's
performance.

The following information is a summary of a more detailed description of
certain factors affecting Florida municipal securities which is contained in the
Statement of Additional Information. Investors should obtain a copy of the
Statement of Additional Information for the more detailed discussion of such
factors. Such information is derived from certain official statements of the
State of Florida published in connection with the

13
<PAGE> 188

issuance of specific Florida municipal securities, as well as from other
publicly available documents. Such information has not been independently
verified by the Fund and may not apply to all Florida municipal securities
acquired by the Fund. The Fund assumes no responsibility for the completeness or
accuracy of such information.

Florida state and local government obligations may be adversely affected by
political and economic conditions and developments within the State of Florida
and the nation as a whole.

Florida's economic outlook is projected generally to reflect the national
economic outlook and is expected to experience steady if unspectacular growth
over the next couple of years. Historically, Florida's unemployment rate has
generally tracked below that of the nation; however, beginning with the
recession in the early 1990's, the trend reversed. Since 1995, the state's
unemployment rate has again been below or about the same as the nation's. The
unemployment rate for Florida in 1997 was 4.8% while the national rate in 1997
was 4.9%. Florida's unemployment rate is forecasted at 4.6% for fiscal year
1997-98 and 4.8% for fiscal year 1998-99. For the State's fiscal year ended June
30, 1997, receipts from the sales and use tax, the greatest single source of tax
revenue to the State of Florida, were $12,089 million, an increase of 5.5% from
fiscal year 1995-96.

Tourism is one of Florida's most important industries. Approximately 47
million people visited the State in 1997. By the end of fiscal year 1998-99,
49.7 million domestic and international tourists are expected to have visited
the state. In 1999-2000, tourist arrivals should approximate 50.6 million.

County and municipal governments in Florida depend primarily upon ad
valorem property taxes, sales, motor fuel and other local excise taxes and
miscellaneous revenue sources, including revenues from utilities services.
Florida school districts derive substantially all of their revenues from local
property taxes. The overall level of revenue from these sources is in part
dependent upon the local, state and national economies. Local government
obligations held by the Fund may constitute general obligations or may be
special obligations payable solely from one or more specified revenue sources.
The ability of the local governments to repay their obligations on a timely
basis will be dependent upon the continued strength of the revenues pledged and
of the overall fiscal status of the local government.

Voters at the general election in November 1994 approved an amendment to
the Constitution of the State of Florida limiting future state revenues. It is
unclear what effect, if any, such amendment would have on state or local
government debt obligations.

The value of Florida municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
federal income tax rates, the supply of tax-exempt bonds, the credit quality and
rating of the issues and perceptions with respect to the level of interest
rates.

There can be no assurance that there will not be a decline in economic
conditions or that particular Florida municipal securities in the portfolio of
the Fund will not be adversely affected by any such changes.

More detailed information concerning Florida municipal securities and the
State of Florida is included in the Statement of Additional Information.

14
<PAGE> 189

OTHER INVESTMENTS AND RISK FACTORS

The Fund may purchase and sell municipal securities on a "when issued" or
"delayed delivery" basis. No income accrues to the Fund on municipal securities
in connection with

15
<PAGE> 190

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. 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.

When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis a portion or all of its assets in
high-quality, short-term Florida municipal obligations. If such municipal
obligations are not available or, in the investment adviser's judgment, do not
afford sufficient protection against adverse market conditions, the Fund may
invest in high-quality, municipal securities of issuers other than issuers of
Florida municipal securities. Furthermore, if such high-quality securities are
not available or, in the investment adviser's judgment, do not afford sufficient
protection against adverse market conditions, the Fund may invest in taxable
obligations. Such taxable obligations may include in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, other
investment grade quality income securities, prime commercial paper, certificates
of deposit, bankers' acceptances and other obligations of domestic banks having
total assets of at least $500 million, and repurchase agreements. The effect of
taking such a defensive position may be that the Fund does not achieve its
investment objective.

16
<PAGE> 191

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------------------------------------------------------------
<S> <C>
First $500 million.................................... 0.50%
Over $500 million..................................... 0.45%
- ------------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
period ended September 30, 1998.

17
<PAGE> 192

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

PORTFOLIO MANAGEMENT. Thomas M. Byron, a Vice President of the Adviser, has
been primarily responsible for the day-to-day management of the Fund's portfolio
since January 1997. Prior to January 1997, Mr. Byron was manager of the Unit
Investment Trust Purchasing Desk and assumed buying responsibilities for all
national tax-free and taxable unit trusts for the Adviser since April 1994.
Prior to April 1994, Mr. Byron was responsible for buying the state unit
investment trusts for the Adviser. Mr. Byron has been employed by the Adviser
since 1981.

---------------------------------------------

PURCHASE OF SHARES
---------------------------------------------

GENERAL

18
<PAGE> 193

arrangement, (ii) generally, each class of shares has exclusive voting rights
with respect to approvals of the Rule 12b-1 distribution plan pursuant to which
its distribution fee or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.

19
<PAGE> 194

assist investors in comparing classes of shares, the tables under "Fees and
Expenses of the Fund" set forth a summary of sales charges and expenses and an
example of the sales charges and expenses applicable to each class of shares.

Shares may be purchased on any business day through authorized dealers.
Shares also may be purchased by completing the application accompanying this
Prospectus and forwarding the application, through the authorized dealer, to the
shareholder service agent, Van Kampen Investor Services Inc. ("Investor
Services"), a wholly-owned subsidiary of Van Kampen Investments. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A
Shares, Class B Shares or Class C Shares. Sales personnel of authorized dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A Shares, Class B Shares or Class C Shares.

20
<PAGE> 195

CLASS A SHARES

Class A Shares Sales Charge Schedule

21
<PAGE> 196

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

22
<PAGE> 197

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

23
<PAGE> 198

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

---------------------------------------------

REDEMPTION OF SHARES
---------------------------------------------

24
<PAGE> 199

registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.

25
<PAGE> 200

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.

---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

26
<PAGE> 201

reinvested in additional shares of the Fund at net asset value unless the
shareholder instructs otherwise.

---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

27
<PAGE> 202

time by the Fund or the Bank. Retirement plans and accounts that are subject to
backup withholding are not eligible for the privilege. A "stop payment" system
is not available on these checks.

---------------------------------------------

FLORIDA TAXATION
---------------------------------------------

The following Florida tax discussion is based on the advice of Squire,
Sanders & Dempsey L.L.P., special counsel to the Fund for Florida tax matters.

Under existing Florida law, shares of the Fund will not be subject to the
Florida intangible personal property tax for any year if, on the last business
day of the previous calendar year, the Fund's portfolio consisted solely of (1)
notes, bonds and other obligations issued by the State of Florida or its
municipalities, counties, and other taxing districts, or by the United States
Government and its agencies, or by the governments of Puerto Rico, Guam or the
U.S. Virgin Islands, or (2) other intangible personal property exempt from the
Florida intangible personal property tax. (FOR THIS PURPOSE, OBLIGATIONS ISSUED
BY A NONPROFIT CORPORATION FORMED UNDER THE GENERAL NONPROFIT CORPORATION LAW OF
A STATE ARE NOT EXEMPT FROM THE FLORIDA INTANGIBLE PERSONAL PROPERTY TAX EVEN IF
THEY ARE CONSIDERED FOR FEDERAL INCOME TAX PURPOSES TO BE OBLIGATIONS ISSUED "ON
BEHALF OF" A GOVERNMENTAL UNIT THE INTEREST ON WHICH IS EXEMPT FROM FEDERAL
INCOME TAX.) Shares of the Fund will generally be subject to the Florida
intangible personal property tax for any year if, on the last business day of
the previous calendar year, the Fund's portfolio consists of any asset that is
not exempt from the Florida intangible property tax.

The State of Florida and its political subdivisions do not impose income
taxes on individuals, and therefore individual shareholders of the Fund will not
be subject to a Florida income tax on distributions from the Fund or on gain
from the sale or other disposition of shares of the Fund.

Corporations (and certain other entities treated as corporations under the
Florida Income Tax Code) that are subject to the Florida income tax will be
taxable on distributions from the Fund and on gain from the sale or other
disposition of shares of the Fund to the extent such income or gain is allocated
or apportioned to Florida. Accordingly, investment in shares of the Fund may not
be appropriate for such corporations.

The transfer of shares of the Fund will not be subject to the Florida
documentary stamp tax. Shares of the Fund will be included in assets subject to
Florida estate tax.

Under current Florida tax law, the Florida intangible personal property tax
rate is $2.00 per $1,000 of taxable intangible property. Shareholders subject to
taxation in a state other than Florida may realize a lower after-tax rate of
return than Florida shareholders if the dividends distributed by the Fund are
not exempt from taxation in such other state.

The state tax discussion set forth above is for general information only.
Prospective investors should consult their own tax advisers regarding the
specific state tax

28
<PAGE> 203

consequences of holding and disposing of shares, as well as the effects of
federal, local and foreign tax law and any proposed tax law changes.

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

The following federal income tax discussion is based on the advice of
Skadden, Arps, Slate, Meagher & Flom (Illinois).

29
<PAGE> 204

been held by such shareholders. Such capital gain dividends may be taxed at
different rates depending on how long the Fund held the securities.
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 so designated cannot exceed,
however, the amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. Since the percentage of dividends
which are "exempt-interest" dividends is determined on an average annual method
for the fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend,
Fund distributions generally will not qualify for the dividends received
deduction for corporations.

30
<PAGE> 205

---------------------------------------------

FINANCIAL HIGHLIGHTS
---------------------------------------------

31
<PAGE> 206

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 341-2911

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424

VAN KAMPEN FLORIDA INSURED
TAX FREE INCOME FUND
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Florida Insured
Tax Free Income Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street,
P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Florida Insured
Tax Free Income Fund

Legal Counsel:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 207

---------------------------------------------

FLORIDA INSURED TAX FREE
INCOME FUND
---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

VAN KAMPEN FUNDS LOGO

Investment Company Act File No. 811-4386

<PAGE> 208

---------------------------------------------

VAN KAMPEN

NEW YORK TAX FREE INCOME FUND

---------------------------------------------

Van Kampen New York Tax Free Income Fund is a mutual fund with an
investment objective to provide investors a high level of current income exempt
from federal, New York State and New York City income taxes, consistent with
preservation of capital. The Fund is designed for investors who are residents of
New York for tax purposes. The Fund's management seeks to achieve the investment
objective by investing primarily in a portfolio of New York municipal securities
that are rated investment grade at the time of purchase.

---------------------------------------------

THIS PROSPECTUS IS DATED JANUARY , 1999.
<PAGE> 209

---------------------------------------------

TABLE OF CONTENTS
---------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................... 3
Fees and Expenses of the Fund............................... 8
Investment Objective and Policies........................... 10
Investment Advisory Services................................ 20
Purchase of Shares.......................................... 21
Redemption of Shares........................................ 26
Distributions from the Fund................................. 28
Shareholder Services........................................ 29
New York Taxation........................................... 30
Federal Income Taxation..................................... 30
Financial Highlights........................................ 33
Appendix -- Description of Securities Ratings............... 34
</TABLE>

2
<PAGE> 210

---------------------------------------------

RISK/RETURN SUMMARY
---------------------------------------------

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide investors
a high level of current income exempt from federal, New York State and New York
City income taxes, consistent with preservation of capital. The Fund is designed
for investors who are residents of New York for tax purposes. There can be no
assurance that the Fund will achieve its investment objective.

INVESTMENT STRATEGIES

Understanding Municipal Securities

Under normal market conditions,
the Fund's management seeks to
achieve the investment objective by
investing at least 80% of the Fund's
total assets in a portfolio of New
York municipal securities that are
rated investment grade at the time
of purchase. Investment grade
securities are securities rated BBB
or higher by Standard and Poor's,
("S&P"), or Baa or higher by Moody's
Investors Service, Inc. ("Moody's")
or an equivalent rating by another
nationally recognized statistical
rating organization ("NRSRO") and
comparably rated short term
securities. Under normal market
conditions, up to 20% of the Fund's
total assets may consist of New York
municipal securities rated below
investment grade (but not rated
lower than B- by S&P or B3 by Moody's) and comparably rated short term
securities or unrated New York municipal securities believed by the Fund's
investment adviser to be of comparable quality at the time of purchase.
Securities rated BB or below by S&P, Ba or below by Moody's or unrated
securities of comparable quality are commonly referred to as "junk bonds" and
involve special risks as compared to investments in higher-grade securities (see
box for an explanation of quality ratings). Under normal market conditions, up
to 20% of the Fund's total assets may be invested in municipal securities that
are subject to federal alternative minimum tax.

INVESTMENT RISKS

Because of the following risks, you could lose money on your investment in
the Fund over the short or long term:

- - MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This "market risk" is usually greater among securities with longer
maturities. Because the Fund does not have a policy limiting the maturities
of its investments and the Fund expects to own securities with longer
maturities, the Fund will be subject to greater market risk than a fund that
owns shorter-term securities.

3
<PAGE> 211

UNDERSTANDING QUALITY
RATINGS

- - CREDIT RISK. Credit risk refers
to an issuer's ability to make
timely payments of interest or
principal. Because the Fund may
invest up to 20% of its total
assets in securities with below
investment grade credit quality,
it is subject to a higher level
of credit risk than a fund that
buys only investment grade
securities. The credit quality of
"noninvestment grade" securities
is considered speculative by
recognized rating agencies with
respect to the issuer's
continuing ability to pay
interest or principal. The prices
of lower-grade securities are
more sensitive to negative
corporate developments, such as a
decline in profits, or adverse
economic conditions, such as a
recession, than are the prices of
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.

- - STATE-SPECIFIC RISKS. Because the Fund invests primarily in a portfolio of
New York municipal securities, the Fund is more susceptible to political,
economic, regulatory or

4
<PAGE> 212

other factors affecting issuers of New York municipal securities than a fund
that does not limit its investments to such issuers.

- - MANAGER RISK. As with any fund, the Fund's management may not be successful
in selecting the best-performing securities and the Fund's performance may
lag behind that of similar funds.

INVESTOR PROFILE

In light of its objective and investment strategies, the Fund may be
appropriate for investors who:

- - seek monthly income.

- - are in a high federal income tax bracket.

- - are subject to New York State or New York City income taxes

- - wish to add to their personal investment portfolios a Fund that invests
primarily in New York municipal securities.

ANNUAL PERFORMANCE

5
<PAGE> 213

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.
TO COME

<TABLE>
<CAPTION>
Annual Return
<S> <C>
'1994*' -2.93
'1995' 17.33
'1996' 5.14
'1997' 10.92
'1998**' 7.12
</TABLE>

During the five-year period shown in the bar chart, the highest quarterly
return was 7.67% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -2.08% (for the quarter ended March 31, 1996).

6
<PAGE> 214

COMPARATIVE PERFORMANCE

This table shows how the Fund's performance compares with Lehman Brothers
Municipal Bond Index, a broad-based market index that the Fund's management
believes is an applicable benchmark for the Fund. Average annual total returns
are shown for the one-year period ended December 31, 1997 and the period from
the inception date for each class of shares to December 31, 1997 (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.

AVERAGE ANNUAL TOTAL RETURNS FOR
THE PERIODS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PAST 1 SINCE
YEAR INCEPTION
------ ---------
<S> <C> <C>
Van Kampen New York Tax Free Income Fund
Class A Shares........................................ 10.92% 8.63%(1)
Class B Shares........................................ 10.07% 7.83%(1)
Class C Shares........................................ 10.07% 7.83%(1)
Lehman Brothers Municipal Bond Index....................
</TABLE>

- ------------------------------------

Inception Date: (1) 7/29/94.

The current yield for the thirty day period ended September 30, 1998 is
4.71% for Class A Shares, 4.19% for Class B Shares and 4.20% for Class C Shares.
Investors can obtain the current yield of the Fund for each class of shares by
calling (800) 341-2911.

7
<PAGE> 215

---------------------------------------------

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.

- ------------------------------------

(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares--Class A
Shares."

8
<PAGE> 216

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):
Management Fees(1).......................... 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1)
Fees(2)................................... 0.25% 1.00%(3) 1.00%(3)
Other Expenses(1)........................... 0.58% 0.59% 0.58%
Total Annual Fund Operating Expenses(1)..... 1.43% 2.19% 2.18%
</TABLE>

- ------------------------------------

(1) The Fund's investment adviser is currently waiving or reimbursing all or a
portion of the Fund's Management Fees and Other Expenses such that actual
Total Annual Fund Operating Expenses for the fiscal period ended September
30, 1998 were 0.39%, 1.14% and 1.14% for Class A Shares, Class B Shares and
Class C Shares, respectively.

Example:

This Example is intended to help you compare the cost of investing in the
Fund with the costs of investing in other mutual funds.

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ ------
<S> <C> <C> <C> <C>
Class A Shares........................... $614 $ 906 $1,219 $2,107
Class B Shares........................... $622 $1,035 $1,325 $2,331*
Class C Shares........................... $321 $ 682 $1,169 $2,513
</TABLE>

9
<PAGE> 217

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
<S> <C> <C> <C> <C>
Class A Shares.......................... $614 $906 $1,219 $2,107
Class B Shares.......................... $222 $685 $1,175 $2,331*
Class C Shares.......................... $221 $682 $1,169 $2,513
</TABLE>

- ------------------------------------

* Based on conversion to Class A Shares after eight years.

---------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
---------------------------------------------

The Fund's investment objective is to provide investors a high level of
current income exempt from federal, New York State and New York City income
taxes, consistent with preservation of capital. The Fund is designed for
investors who are residents of New York for tax purposes. The Fund's investment
objective is a fundamental policy and may not be changed without shareholder
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). There are risks inherent in all investments in securities; and
accordingly there can be no assurance the Fund will achieve its investment
objective.

Under normal market conditions, the Fund's management seeks to achieve the
investment objective by investing at least 80% of the Fund's total assets in New
York municipal securities that are rated investment grade at the time of
purchase. Investment grade securities are securities rated BBB or higher by S&P,
Baa or higher by Moody's or an equivalent rating by another NRSRO and comparably
rated short term securities. Under normal market conditions, up to 20% of the
Fund's total assets may consist of New York municipal securities rated below
investment grade (but not rated lower than B- by S&P or B3 by Moody's) and
comparably rated short term securities or unrated New York municipal securities
believed by the Fund's investment adviser to be of comparable quality at the
time of purchase. Securities rated BB or below by S&P, Ba or below by Moody's or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared to investments in higher-grade
securities. Under normal market conditions, up to 20% of the Fund's total assets
may be invested in municipal securities that are subject to alternative minimum
tax. From time to time, the Fund temporarily may invest up to 10% of its total
assets in tax exempt money market funds and such instruments will be treated as
investments in municipal securities.

10
<PAGE> 218

The Fund's investment adviser will buy and sell securities for the Fund's
portfolio with a view to seeking a high level of current income exempt from
federal, New York State and New York City income taxes and will select
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 New York municipal
securities permitted by its investment policies if the Fund's investment adviser
determines that market risks or credit risks associated with such investments
would subject the Fund's portfolio to undue risk. The potential for realization
of capital gains resulting from possible changes in interest rates will not be a
major consideration. Other than for tax purposes, frequency of portfolio
turnover generally will not be a limiting factor if the Fund's investment
adviser considers it advantageous to purchase or sell securities.

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. New
York municipal securities are municipal securities 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 New York State and New York City individual
income tax. Under normal market conditions, at least 80% of the Fund's total
assets will be invested in New York municipal securities. The policy stated in
the foregoing sentence is a fundamental policy of the Fund and may not be
changed without shareholder approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. Under normal market
conditions, up to 20% of the Fund's total assets may be invested in municipal
securities that are subject to federal alternative minimum tax.

11
<PAGE> 219

Under normal market conditions, longer term municipal securities generally
provide a higher yield than shorter term municipal securities and therefore the
Fund generally expects to invest primarily in longer term municipal securities.
The Fund will, however, invest in shorter term municipal securities when it
believes market conditions warrant such investments.

12
<PAGE> 220

payment and a potential decrease in the net asset value of the Fund. In
addition, the Fund may incur expenses to work out or restructure a distressed or
defaulted security. Securities rated below investment grade involve special
risks compared to higher grade securities. See "Lower Grade Municipal
Securities" below.

LOWER GRADE MUNICIPAL SECURITIES

Under normal market conditions, the Fund may invest up to 20% of its total
assets in municipal securities rated below investment grade (but not lower than
B- by S&P or B3 by Moody's) and comparably rated short term securities or in
unrated New York municipal securities considered by the Fund's investment
adviser to be of comparable quality at the time of purchase. With respect to
such investments, the Fund has not established any limit on the percentage of
its portfolio which may be invested in securities in any one rating category.
Securities rated BB or below by S&P, Ba or below by Moody's

13
<PAGE> 221

or unrated securities of comparable quality are commonly referred to as "junk
bonds". Generally, lower grade securities provide higher yields than higher
grade securities of similar maturity but are subject to greater risks, such as
greater credit risk, greater 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 lower grade
municipal securities before making an investment in the Fund.

14
<PAGE> 222

for some of the lower grade municipal securities in which the Fund may invest,
trading in such securities may be relatively inactive. Prices of lower grade
debt securities may decline rapidly in the event a significant number of holders
decide to sell. Changes in expectations regarding an individual issuer or 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 would 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
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.

15
<PAGE> 223

dependent upon the investment adviser's credit analysis, judgment and experience
than a fund investing solely in higher grade securities.

<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1998
-------------------------------------------
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE
(AS A PERCENTAGE QUALITY (AS A
RATING OF PORTFOLIO PERCENTAGE OF
CATEGORY VALUE) PORTFOLIO VALUE)
- -------------------------- ------------------- ------------------
<S> <C> <C>
AAA/Aaa................... 31.6% 0%
AA/Aa..................... 4.6% 0%
A/A....................... 11.8% 0%
BBB/Baa................... 40.2% 2.4%
BB/Ba..................... 0% 6.7%
B/B....................... 0% 2.7%
CCC/Caa................... 0% 0%
CC/Ca..................... 0% 0%
C/C....................... 0% 0%
D......................... 0% 0%
----- -----
Percentage of Rated and
Unrated Securities...... 88.2% 11.8%
===== =====
</TABLE>

The percentage of the Fund's assets invested in securities of various
grades may vary from time to time from those set forth above.

SPECIAL CONSIDERATIONS REGARDING NEW YORK MUNICIPAL SECURITIES. Investors
should be aware of certain factors that might affect the financial condition of
the issuers of New York municipal securities. The State of New York has

16
<PAGE> 224

historically been one of the wealthiest states in the nation. For decades,
however, the economy of the State of New York has grown more slowly than that of
the nation as a whole, and the result has been a gradual erosion of the State's
relative economic affluence. New York City, for example, has faced greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in New York City.

The State of New York has for many years had a very high state and local
tax burden. The burden of state and local taxation, in combination with the many
other causes of regional economic dislocations, has contributed to the decisions
of some businesses and individuals to relocate outside, or not locate within,
the State of New York.

There can be no assurance that the State of New York and its political
subdivisions will not face substantial potential budget gaps in future years
resulting from a significant disparity between tax revenues projected from a
lower recurring receipts base and the spending required to maintain programs at
current levels. To address any potential budgetary imbalance, the State of New
York and such subdivisions may need to take significant actions to align
recurring receipts and disbursements in future fiscal years.

Although revenue obligations of the State of New York or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the portfolio of the Fund or the ability of the
respective obligors to make timely payments of principal and interest on such
obligations.

More detailed information concerning New York municipal securities and the
State of New York is included in the Statement at Additional Information.

OTHER INVESTMENTS AND RISK FACTORS

17
<PAGE> 225

extent the investment adviser's view as to certain market movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale of portfolio securities at
inopportune times or for prices other than at current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the Fund
to hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the risk management or hedging instrument may be greater than gains in the
value of the Fund's position. In addition, futures and options markets may not
be liquid in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information. Income
earned or deemed to be earned by the Fund from its Strategic Transactions, if
any, generally will be taxable income of the Fund.

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

18
<PAGE> 226

Information which can be obtained by investors free of charge as described on
the back cover of this prospectus.

When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis a portion or all of its assets in
high-quality, short-term New York municipal obligations. If such municipal
obligations are not available or, in the investment adviser's judgment, do not
afford sufficient protection against adverse market conditions, the Fund may
invest in high-quality municipal securities of issuers other than issuers of New
York municipal securities. Furthermore, if such high-quality securities are not
available or, in the investment adviser's judgment, do not afford sufficient
protection against adverse market conditions, the Fund may invest in taxable
obligations. Such taxable obligations may include in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, other
investment grade quality income securities, prime commercial paper, certificates
of deposit, bankers' acceptances and other obligations of domestic banks having
total assets of at least $500 million, and repurchase agreements. The effect of
taking such a defensive position may be that the Fund does not achieve its
investment objective.

19
<PAGE> 227

---------------------------------------------

INVESTMENT ADVISORY SERVICES
---------------------------------------------

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------------
<S> <C>
First $500 million..................................... 0.60%
Over $500 million...................................... 0.50%
- ---------------------------------------------------------------------------
</TABLE>

Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of % of the Fund's average net assets for the Fund's fiscal
period ended September 30, 1998.

The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").

20
<PAGE> 228

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. David C. Johnson, a Senior Vice President of the
Adviser, supervises the Adviser's municipal securities practice and coordinates
the Adviser's investment policy regarding such securities. Mr. Johnson has been
employed by the Adviser since April 1989. Dennis S. Pietrzak, a Vice President
of the Adviser, has been primarily responsible for the day-to-day management of
the Fund's portfolio since August 1995. Mr. Pietrzak has been employed by the
Adviser since August, 1995. Prior to joining the Adviser, Mr. Pietrzak was
employed by Merrill Lynch where he was in charge of municipal underwriting and
trading in Merrill Lynch's Midwest region.

---------------------------------------------

PURCHASE OF SHARES
---------------------------------------------

GENERAL

21
<PAGE> 229

value per share might be materially affected. The Fund reserves the right to
calculate the net asset value per share and to adjust the public offering price
based thereon more frequently than once a day 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. Portfolio securities are valued by using market quotations, prices
provided by market makers or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees of the Fund.
Securities with remaining maturities of 60 days or less are valued at amortized
cost when amortized cost is determined in good faith by or under the direction
of the Board of Trustees of the Fund to be representative of the fair value at
which it is expected such securities may be resold. Any securities or other
assets for which current market quotations are not readily available are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees of the Fund.

22
<PAGE> 230

personnel of authorized dealers distributing the Fund's shares and other persons
entitled to receive compensation for selling such shares may receive differing
compensation for selling Class A Shares, Class B Shares or Class C Shares.

CLASS A SHARES

Class A Shares Sales Charge Schedule

23
<PAGE> 231

Fund's average daily net assets attributable to the Class A Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

CLASS B SHARES

Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within six years of purchase as shown in the
table as follows:

Class B Shares Sales Charge Schedule

24
<PAGE> 232

CLASS C SHARES

Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.

The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

CONVERSION FEATURE

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvest ment plan shares received thereon, automatically convert to Class A
Shares eight years after the end of the calendar month in which the shares were
purchased. Class B Shares purchased before June 1, 1996, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares seven years after the end of the calendar month in which the shares were
purchased. Class C Shares purchased before January 1, 1997, and any dividend
reinvestment plan shares received thereon, automatically convert to Class A
Shares ten years after the end of the calendar month in which such shares were
purchased. Such conversion will be on the basis of the relative net asset values
per share, without the imposition of any sales load, fee or other charge. The
conversion schedule applicable to a share 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.

25
<PAGE> 233

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

---------------------------------------------

REDEMPTION OF SHARES
---------------------------------------------

26
<PAGE> 234

27
<PAGE> 235

recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.

---------------------------------------------

DISTRIBUTIONS FROM THE FUND
---------------------------------------------

28
<PAGE> 236

---------------------------------------------

SHAREHOLDER SERVICES
---------------------------------------------

29
<PAGE> 237

writing redemptions represent the sale of Class A Shares. Any gain or loss
realized on the sale of shares is a taxable event. See "Redemption of Shares."

---------------------------------------------

NEW YORK TAXATION

---------------------------------------------

The discussion under this heading applies only to shareholders of the Fund
that are residents of New York for New York tax purposes. Individual
shareholders will not be subject to New York State or New York City income tax
on distributions attributable to interest on New York municipal securities.
Individual shareholders will be subject to New York State or New York City
income tax on distributions attributable to other income of the Fund (including
net capital gain), and gain on the sale of shares of the Fund. Corporations
should note that all or a part of any distribution from the Fund, and gain on
the sale of shares of the Fund, may be subject to the New York State corporate
franchise tax and the New York City general corporation tax.

Under currently applicable New York State law, the highest marginal New
York State income tax rate imposed on individuals for taxable years beginning
after 1996 is 6.85%. The highest marginal New York City income tax rate
currently imposed on individuals is 4.46%. In addition, individual taxpayers
with New York adjusted gross income in excess of $100,000 must pay a
supplemental tax to recognize the benefit of graduated tax rates. Shareholders
subject to taxation in a state other than New York will realize a lower
after-tax rate of return if distributions from the Fund are not exempt from
taxation in such other state.

---------------------------------------------

FEDERAL INCOME TAXATION
---------------------------------------------

Under applicable federal income tax law, the interest on certain municipal
securities may be an item of tax preference subject to the alternative minimum
tax. The Fund may
30
<PAGE> 238

invest a 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 securities.
Accordingly, investment in the Fund could cause shareholders to be subject to
(or result in an increased liability under) the alternative minimum tax.

While the Fund expects that a major portion of its net investment income
(consisting generally of tax-exempt interest, taxable income and net short-term
capital gains) will constitute tax-exempt interest, a significant portion of the
Fund's net investment income may consist of taxable income. Distributions of
such taxable income are taxable to shareholders as ordinary income to the extent
of the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains (which are the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable to shareholders as long-term capital gains, whether paid in
cash or reinvested in additional shares, and regardless of how long the shares
of the Fund have been held by such shareholders. Such capital gain dividends may
be taxed at different rates depending on how long the Fund held the securities.
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 so designated cannot exceed,
however, the amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. Since the percentage of dividends
which are "exempt-interest" dividends is determined on an average annual method
for the fiscal year, the percent age 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

31
<PAGE> 239

during the period covered by the dividend, Fund distributions generally will not
qualify for the dividends received deduction for corporations.

32
<PAGE> 240

---------------------------------------------

FINANCIAL HIGHLIGHTS
---------------------------------------------

33
<PAGE> 241

---------------------------------------------

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):

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, 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:

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.

SPECULATIVE GRADE

34
<PAGE> 242

characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment.

C: The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

MOODY'S INVESTORS SERVICE--A brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

35
<PAGE> 243

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue. Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

36
<PAGE> 244

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

37
<PAGE> 245

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 341-2911

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)--
(800) 421-2833

FOR AUTOMATED TELEPHONE
SERVICES--(800) 847-2424

VAN KAMPEN NEW YORK TAX FREE INCOME FUND
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Investment Adviser:
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Distributor:
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
Oakbrook Terrace, IL 60181-5555

Transfer Agent:
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen New York Tax Free Income Fund

Custodian:
STATE STREET BANK AND
TRUST COMPANY
225 West Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen New York Tax Free Income Fund

Legal Counsel:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants:
KPMG PEAT MARWICK LLP
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 246

---------------------------------------------

NEW YORK TAX FREE INCOME FUND
---------------------------------------------

A Statement of Additional Information, which contains more details about
the Fund, is incorporated by reference in its entirety into this prospectus.

You will find additional information about the Fund in its annual and
semiannual reports, which explain the market conditions and investment
strategies affecting the Fund's recent performance.

VAN KAMPEN FUNDS LOGO

Investment Company Act File No. 811-4386
<PAGE> 247

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES.

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN TAX FREE HIGH INCOME FUND

The Fund is organized as a diversified series of the Van Kampen Tax Free
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. A Prospectus may be obtained without charge by
writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, 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 Objectives and Policies.......................... B-3
Investment Restrictions..................................... B-12
Description of Municipal Securities Ratings................. B-13
Trustees and Officers....................................... B-19
Investment Advisory and Other Services...................... B-29
Distribution and Service.................................... B-30
Transfer Agent.............................................. B-33
Portfolio Transactions and Brokerage Allocation............. B-33
Share Purchase Programs..................................... B-34
Shareholder Services........................................ B-37
Redemption of Shares........................................ B-40
Contingent Deferred Sales Charge-Class A.................... B-40
Waiver of Class B and Class C Contingent Deferred Sales
Charge ("CDSC-Class B and C")............................. B-41
Taxation.................................................... B-42
Fund Performance............................................ B-45
Other Information........................................... B-48
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.
B-1
<PAGE> 248

GENERAL INFORMATION

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust (the "Declaration
of Trust") dated May 10, 1995. The Declaration of Trust permits the Trustees to
create one or more separate investment portfolios and issue a series of shares
for each portfolio. The Trustees can further sub-divide each series of shares
into one or more classes of shares for each portfolio.

The Trust was originally organized in 1985 under the name Van Kampen
Merritt Tax Free Trust as a Massachusetts business trust (the "Massachusetts
Trust"). The Massachusetts Trust was reorganized into the Trust under the name
Van Kampen American Capital Tax Free Trust on 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 Fund was originally organized in 1985 as a Maryland corporation under
the name Van Kampen Merritt Tax Free High Income Fund Inc. and was reorganized
in 1987 under the name Van Kampen Merritt Tax Free High Income Fund as a
sub-trust of the Massachusetts Trust. The Fund was reorganized as a series of
the Trust under the name Van Kampen American Capital Tax Free High Income Fund
on July 31, 1995. On July 14, 1998, the Fund adopted its current name.

Van Kampen Investment Advisory Corp. (the "Adviser"), Van Kampen Funds Inc.
(the "Distributor"), and Van Kampen Investor Services Inc. ("Investor Services")
are wholly owned subsidiaries of Van Kampen Investments Inc. ("Van Kampen
Investments"), which is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The principal office of the Trust, the Fund, the Adviser, the
Distributor and Van Kampen Investments is located at 1 Parkview Plaza, Oakbrook
Terrace, Illinois 60181-5555.

Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.

The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series and further sub-divided 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 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.

B-2
<PAGE> 249

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 two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").

In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares pay 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.

As of January , 1999, no person was known by the Fund to own
beneficially or to hold of record 5% or more of the outstanding Class A Shares,
Class B Shares or Class C Shares of the Fund, except as follows:

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit
plans and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.

MUNICIPAL SECURITIES

Municipal securities include long-term obligations, which often are called
municipal bonds, as well as shorter term municipal notes, municipal leases, and
tax exempt commercial paper. Under normal market conditions, longer term
municipal securities generally provide a higher yield than shorter term
municipal securities, and therefore the Fund generally expects to be invested
primarily in longer term municipal securities. The Fund will, 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

B-3
<PAGE> 250

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.

Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of state and local
governments or authorities used to finance the acquisition of equipment and
facilities. Lease obligations generally do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged. A lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. A risk exists that the municipality will not, or will be unable
to, appropriate money in the future in the event of political changes, changes
in the economic viability of the project, general economic changes or for other
reasons. In addition to the "non-appropriation" risk, these securities represent
a relatively new type of financing that has not yet developed the depth of
marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by an assignment of the
lessee's interest in the leased property, management and/or disposition of the
property in the event of foreclosure could be costly, time consuming and result
in unsatisfactory recoupment of the Fund's original investment. Additionally,
use of the leased property may be limited by state or local law to a specified
use thereby further limiting ability to rent. There is no limitation on the
percentage of the Fund's assets that may be invested in "non-appropriation"
lease obligations. In evaluating such lease obligations, the Adviser will
consider such factors as it deems appropriate, which factors may include (a)
whether the lease can be cancelled, (b) the ability of the lease obligee to
direct the sale of the underlying assets, (c) the general creditworthiness of
the lease obligor, (d) the likelihood that the municipality will discontinue
appropriating funding for the leased property in the event such property is no
longer considered essential by the municipality, (e) the legal recourse of the
lease obligee in the event of such a failure to appropriate funding and (f) any
limitations which are imposed on the lease obligor's ability to utilize
substitute property or services than those covered by the lease obligation.

Also included in the term municipal securities are participation
certificates issued by state and local governments or authorities to finance the
acquisition of equipment and facilities. They may represent participations in a
lease, an installment purchase contract, or a conditional sales contract.

The Fund may purchase floating and variable rate demand notes, which are
municipal securities normally having a stated maturity in excess of one year,
but which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such notes normally has a corresponding
right, after a given period, to prepay at its discretion upon notice to the
noteholders the outstanding principal amount of the notes plus accrued interest.
The interest rate on a floating rate demand note is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is adjusted
automatically at specified intervals.

The Fund also may invest up to 15% of its total assets in derivative
variable rate municipal securities such as inverse floaters whose rates vary
inversely with changes in market rates of interest or range floaters or capped
floaters whose rates are subject to periodic or lifetime caps. Derivative
variable rate securities may pay a rate of interest determined by applying a
multiple to the variable rate. The extent of increases and decreases in the
value of derivative variable rate securities in response to changes in market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity.

B-4
<PAGE> 251

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 guarantee
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 considered speculative with respect to the
capacity to pay interest or repay principal in accordance with their terms.

STRATEGIC TRANSACTIONS

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates and broad or specific market movements) or to manage the effective
maturity or duration of the Fund's fixed-income securities. Such strategies are
generally accepted by modern portfolio managers and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell derivative instruments such as exchange-listed and
over-the-counter put and call options on securities, financial futures, interest
rate indices and other financial instruments, purchase and sell financial
futures contracts and options thereon, or enter into various interest rate
transactions such as swaps, caps, floors or collars (collectively, all the above
are called "Strategic Transactions"). Strategic Transactions may be used to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Fund's portfolio resulting from securities
markets fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities.

B-5
<PAGE> 252

numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of futures and options transactions should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an increase
in value of such position. Finally, the daily variation margin requirements for
futures contracts would create a greater ongoing potential financial risk than
would purchases of options, where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce net asset value, and possibly income, and such losses can be greater than
if the Strategic Transactions had not been utilized. Income earned or deemed to
be earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund.

GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.

"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only enter into OTC options that have a buy-back provision permitting
the Fund to require the Counterparty to close the option at a formula price
within seven days. The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from S&P or "P-1"
from Moody's or an equivalent rating from any other NRSRO. The staff of the SEC
currently takes the position that, in general, OTC options on securities other
than U.S. Government securities purchased by the Fund, and portfolio securities
"covering" the amount of the Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Fund's limitation on illiquid securities
described herein.

If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

the Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold. In the event of exercise of a call option
sold by the Fund with respect to securities not owned by the Fund, the Fund may
be required to acquire the underlying security at a disadvantageous price in
order to satisfy its obligation with respect to the call option.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and corporate debt securities (whether or not it holds the above
securities in its portfolio.) The Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.

GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial
futures contracts or purchase or sell put and call options on such futures as a
hedge against anticipated interest rate or fixed-income market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The purchase of a futures
contract creates a firm obligation by the Fund, as purchaser, to take delivery
from the seller the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that 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 and obligates the seller to deliver such
option.

The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except
for closing transactions) for other than bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options thereon would exceed 5% of the Fund's
total assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The segregation requirements with
respect to futures contracts and options thereon are described below.

B-8
<PAGE> 255

an amount of cash if the closing level of the index upon which the option is
based exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
making up the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.

COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions and any combination of futures, options and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which the Fund may enter are interest rate and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid securities at least equal to the current amount of the obligation must
be segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash and liquid securities sufficient to purchase
and deliver the securities if the call is exercised. A call option sold by the
Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate cash and liquid securities equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate cash and liquid
securities equal to the exercise price.

OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash and liquid
securities equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out cash and liquid securities equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, and the Fund will segregate
an amount of cash and liquid securities equal to the full value of the option.
OTC options settling with physical delivery, or with an election of either
physical delivery or cash settlement, will be treated the same as other options
settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash and liquid securities sufficient to meet its obligation to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract.

With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of cash and liquid securities with a value equal to the Fund's net obligation,
if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated cash and
liquid securities, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating cash and liquid
securities if the Fund held a futures or forward contract, it could purchase a
put option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction no segregation is required, but if it
terminates prior to such time, cash and liquid securities equal to any remaining
obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of the Code for qualification as a regulated investment
company.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

generally available on municipal securities when delivery occurs may be higher
or lower than yields on the municipal securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, 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. 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.

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.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate (the lesser of
the value of the securities purchased or securities sold divided by the average
value of the securities held in the Fund's portfolio excluding all securities
whose maturities at acquisition were one year or less) is shown in the table of
"Financial Highlights" in the Prospectus. A high portfolio turnover rate (100%
or more) increases the Fund's transaction costs, including brokerage
commissions, and may result in the realization of more short-term capital gains
than if the Fund had a lower portfolio turnover. The turnover rate will not be a
limiting factor, however, if the Adviser deems portfolio changes appropriate.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Fund's Trustees. Ordinarily, the Fund would invest in restricted
securities only when it receives the issuer's commitment to register the
securities without expense to the Fund. However, registration and underwriting
expenses (which may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the Fund. Restricted securities which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A Securities are liquid include, among other things, a
security's trading history, the availability of reliable pricing information,
the number of dealers making quotes or making a market in such security and the
number of potential purchasers in the market for such security. For purposes
hereof, investments by the Fund in securities of other investment companies will
not be considered investments in restricted securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.

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<PAGE> 258

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting shares, which is defined by the 1940 Act as the lesser of (i)
67% or more of the voting securities present in person or by proxy at the
meeting, if the holders of more than 50% of the outstanding voting securities
are present in person or by proxy; or (ii) more than 50% of the outstanding
voting securities. The Fund may not:

1. Purchase any securities (other than tax exempt obligations guaranteed by
the United States Government or by its agencies or instrumentalities), if
as a result more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or if as a
result the Fund would hold more than 10% of the outstanding voting
securities of any single issuer, 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.

2. Invest more than 25% of its assets in a single industry; however, the Fund
may from time to time invest more than 25% of its assets in a particular
segment of the municipal bond market; however, the Fund will not invest
more than 25% of its assets in industrial development bonds in a single
industry, and 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.

3. Borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the total asset value of the Fund, or mortgage,
pledge or hypothecate any assets except in connection with a borrowing and
in amounts not in excess of 10% of the total asset value of the Fund.
Borrowings may not be made for investment leverage, but only to enable the
Fund to satisfy redemption requests where liquidation of portfolio
securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings exceed 5% of the total asset value of the
Fund. Notwithstanding this investment restriction, the Fund may enter into
"when issued" and "delayed delivery" transactions.

4. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of, or the Fund's interest with respect to, the
securities owned by the Fund.

5. Buy any securities "on margin." The deposit of initial or maintained
margin in connection with interest rate or other financial futures or
index contracts or related options is not considered the purchase of a
security on margin.

6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options, except as hedging
transactions in accordance with the requirements of the Securities and
Exchange Commission and the Commodity Futures Trading Commission.

7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in their respective portfolios.

8. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to securities owned by the Fund would be deemed
to constitute such control or participation and 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.

9. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and 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.

10. Invest in equity interests in oil, gas or other mineral exploration of
development programs.

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<PAGE> 259

11. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the securities the Fund may invest in are considered to be
interest in real estate, commodities or commodity contracts or to the
extent the Fund exercises its rights under agreements relating to such
securities (in which case the Fund may own, hold, foreclose, liquidate or
otherwise dispose of real estate acquired as a result of a default on a
mortgage), and except to the extent the options and futures and index
contracts in which such Funds may invest for hedging and risk management
purposes are considered to be commodities or commodities contracts.

As long as the percentage restrictions described above are satisfied at the
time of the investment or borrowing, the Fund will be considered to have abided
by those restrictions even if, at a later time, a change in values or net assets
causes an increase or decrease in percentage beyond that allowed.

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform any 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 default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
</TABLE>

B-13
<PAGE> 260
<TABLE>
<S> <C>
BB, B, Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as
CCC, CC, C having significant speculative characteristics with respect
to capacity to pay interest and repay principal. 'BB'
indicates the lowest degree of speculation and 'C' the
highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.

BB Debt rated 'BB' has less vulnerability to default than other
speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity
to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied 'BBB-' rating.

B Debt rated 'B' is more vulnerable to default than debt rated
"BB" but currently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal.
The 'B' rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied 'BB' or
'BB-' rating.

CCC Debt rated 'CCC' is currently vulnerable to default, and is
dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial,
or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied 'B' or 'B-'
rating.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

C The 'C' rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has
been taken, but debt service payments are continued. The
rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-'
debt rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if debt service
payments are jeopardized.
</TABLE>

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing
within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

I The letter "i" indicates the rating is implied. Such ratings
are assigned only on request to entities that do not have
specific debt issues to be rated. In addition, implied
ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings
on governments represent the sovereign ceiling or upper
limit for ratings on specific debt issues of entities
domiciled in the country.
</TABLE>

B-14
<PAGE> 261
<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

P The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion
of the project. This rating, however, while addressing
credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor
should exercise his own judgement with respect to such
likelihood and risk.
*Continuance of the rating is contingent upon S&P's receipt
of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

NR Indicates that no public rating has been requested, that
there is insufficient information on which to base a rating,
or that S&P does not rate a particular type of obligation as
a matter of policy.
</TABLE>

Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. MUNICIPAL NOTES

A S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating.

The following criteria will be used in making that assessment.

-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).

-- Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

<TABLE>
<S> <C>
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.
</TABLE>

B-15
<PAGE> 262

3. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from
'A-1' for the highest quality obligations to 'D' for the lowest. These
categories are as follows:

<TABLE>
<S> <C>
A-1 This highest category 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 changes 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
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.

A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P
by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of, such information.
</TABLE>

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 are used to
denote 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 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 MUNICIPAL BONDS

<TABLE>
<S> <C>
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 risk
appear somewhat larger than the Aaa securities.
</TABLE>

B-16
<PAGE> 263
<TABLE>
<S> <C>
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 payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.

BA Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may
be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

CON (..) Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally and designated with the prefix "Con" followed
by the rating in parentheses. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches the
parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of
condition.

(P) (..) When applied to forward delivery bonds, indicates that the
rating is provisional pending the delivery of the bonds. The
rating may be revised prior to delivery if changes occur in
the legal documents or the underlying credit quality of the
bonds.

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from AA to B. The modifier 1
indicates that the company ranks in the higher end of its
generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating
category.
</TABLE>

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

B-17
<PAGE> 264

Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis: if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.

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 broadbased 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,
not 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 (for related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

B-18
<PAGE> 265

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory 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, will
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 related supported institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

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 Corp., 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 American Capital Exchange Fund).

TRUSTEES

B-19
<PAGE> 266

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of Van Kampen Investments, the
2800 Post Oak Blvd. Advisers, the Distributor and Investor Services. Director
Houston, TX 77056 or officer of certain other subsidiaries of Van Kampen
Date of Birth: 10/19/39 Investments. Chairman of River View International Inc.
Chairman of the Board of Governors and the Executive
Committee of the Investment Company Institute. Prior to
July of 1998, Director and Chairman of Van Kampen
Investments Inc. Prior to November 1996, President, Chief
Executive Officer and a Director of Van Kampen
Investments Inc. Trustee/Director of each of the funds in
the Fund Complex and Trustee of other funds advised by
the Advisers or Van Kampen Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services company. Director of
Downers Grove, IL 60515 Illinois Tool Works, Inc., a manufacturing company; the
Date of Birth: 07/08/44 Urban Shopping Centers Inc., a retail mall management
company; and Stone Container Corp., a paper manufacturing
company. Trustee, University of Notre Dame. Formerly,
President and Chief Executive Officer, Waste Management,
Inc., an environmental services company, and prior to
that President and Chief Operating Officer, Waste
Management, Inc. Trustee/Director of each of the funds in
the Fund Complex.

Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.

Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers or
Van Kampen Management Inc.
</TABLE>

B-20
<PAGE> 267

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com Corporation,
233 South Wacker Drive APAC Teleservices, Inc., COMARCO, Inc., Applied Language
Suite 9700 Technologies, Focal Communications, and Lante
Chicago, IL 60606 Corporation. Limited Partner of Evercore Partners, LLP.
Date of Birth: 10/29/53 Trustee/Director of each of the Funds in the Fund
Complex.
</TABLE>

- ---------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter & Co. or its affiliates.

B-21
<PAGE> 268

OFFICERS

Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181.
The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and a Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and a
President Director of the Advisers, Van Kampen Advisors Inc., and
Van Kampen Management Inc. Prior to July of 1998, Director
and Executive Vice President of Van Kampen Investments
Inc. Prior to April of 1998, President and a Director of
Van Kampen Merritt Equity Advisors Corp. Prior to April of
1997, Mr. McDonnell was a Director of Van Kampen Merritt
Equity Holdings Corp. Prior to September of 1996, Mr.
McDonnell was Chief Executive Officer and Director of MCM
Group, Inc., McCarthy, Crisanti & Maffei, Inc. and
Chairman and Director of MCM Asia Pacific Company, Limited
and MCM (Europe) Limited. Prior to July of 1996, Mr.
McDonnell was President, Chief Operating Officer and
Trustee of VSM Inc. and VCJ Inc. President of each of the
funds in the Fund Complex. President, Chairman of the
Board and Trustee/Managing General Partner of other
investment companies advised by the Advisers or their
affiliates.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Prior to July
Vice President of 1996, Mr. Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of McCarthy, Crisanti
& Maffei, Inc. Vice President of each of the funds in the
Fund Complex and certain other investment companies
advised by the Advisers or their affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
</TABLE>

B-22
<PAGE> 269

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and
Secretary of Van Kampen Investments Inc. Prior to April of
1998, Executive Vice President, General Counsel and
Director of Van Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, he was Executive Vice President, General
Counsel and a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996, he was General
Counsel of McCarthy, Crisanti & Maffei, Inc. Prior to July
of 1996, Mr. Nyberg was Executive Vice President and
General Counsel of VSM Inc. and Executive Vice President
and General Counsel of VCJ Inc. Vice President and
Secretary of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding,
Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-23
<PAGE> 270

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.
Huey P. Falgout, Jr.................. Vice President, Assistant Secretary and Senior Attorney of
Date of Birth: 11/15/63 Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior Vice
Assistant Secretary President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy
General Counsel and Assistant Secretary of Van Kampen
Investments Inc. Prior to April of 1998, Van Kampen
Merritt Equity Advisors Corp. Prior to April of 1997,
Senior Vice President, Deputy General Counsel and
Secretary of Van Kampen American Capital Services, Inc.
and Van Kampen Merritt Holdings Corp. Prior to September
of 1996, Mr. Martin was Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei, Inc., and prior
to July of 1996, he was Senior Vice President, Deputy
General Counsel and Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by the
Advisers or their affiliates.
</TABLE>

B-24
<PAGE> 271

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Michael Robert Sullivan.............. Assistant Vice President of the Advisers. Assistant
Date of Birth: 03/30/33 Controller of each of the funds in the Fund Complex and
Assistant Controller 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 64 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Van Kampen Series Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Van Kampen Series Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of Van Kampen Investments,
the Advisers or the Distributor (each a "Non-Affiliated Trustee") is compensated
by an annual retainer and meeting fees for services to the funds in the Fund
Complex. Each fund in the Fund Complex (except the money market series of the MS
Funds) provides a deferred compensation plan to its Non-Affiliated Trustees that
allows trustees/directors to defer receipt of their compensation and earn a
return on such deferred amounts. Deferring compensation has the economic effect
as if the Non-Affiliated Trustee reinvested his or her compensation into the
funds. Each fund in the Fund Complex (except the money market series of the MS
Funds) provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met as more fully described below.

Effective January 1, 1998, the trustees adopted a standardized compensation
and benefits program for each fund in the Fund Complex. The compensation of each
Non-Affiliated Trustee includes an annual retainer in an amount equal to $50,000
per calendar year, due in four quarterly installments on the first business day
of each quarter. Payment of the annual retainer is allocated among the funds in
the Fund Complex (except the money market series of the MS Funds) on the basis
of the relative net assets of each fund as of the last business day of the
preceding calendar quarter. Effective January 1, 1998, the compensation of each
Non-Affiliated Trustee includes a per meeting fee from each fund in the Fund
Complex (except the money market series of the MS Funds) in the amount of $200
per quarterly or special meeting attended by the Non-Affiliated Trustee, due on
the date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.

For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.

For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee.

B-25
<PAGE> 272

Each Non-Affiliated Trustee receives a per meeting fee from each VK Fund in the
amount of $125 per special meeting attended by the Non-Affiliated Trustee, due
on the date of such meeting, plus reasonable expenses incurred by the
Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.

For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.

Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
PENSION OR ESTIMATED MAXIMUM COMPENSATION
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan $30,328 $60,000 $111,197
Linda Hutton Heagy 3,141 60,000 111,197
R. Craig Kennedy 2,229 60,000 111,197
Jack E. Nelson 15,820 60,000 104,322
Jerome L. Robinson* 32,020 15,750 107,947
Phillip B. Rooney 0 60,000 74,697
Dr. Fernando Sisto 60,208 60,000 111,197
Wayne W. Whalen 10,788 60,000 111,197
</TABLE>

- ---------------

(1) Persons designated with an asterisk an currently members of the Board of
Trustees. Mr. Robinson retired from the Board of Trustees on December 31,
1997. Mr. Phillip B. Rooney became a member of the Board of Trustees
effective April 14, 1997 and thus does not have a full fiscal year of
information to report.

B-26
<PAGE> 273

Mr. Paul G. Yovovich became a member of the Board of Trustees effective
October 22, 1998 and thus does not have a full fiscal year of information to
report. Trustees not eligible for compensation or retirement benefits are
not shown in the table.

(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Trust's fiscal period ended September 30, 1998.
The detail of aggregate compensation before deferral for each series,
including the Fund, is shown in Table A below. The detail of amounts
deferred for each series, including the Fund, is shown in Table B below.
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 detail of cumulative
deferred compensation (including interest) owed to current Trustees by each
series, including the Fund, is shown in Table C below. The deferred
compensation plan is described above the Compensation Table.

(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for their respective fiscal years ended in 1998. The retirement
plan is described above the Compensation Table.

(4) For Mr. Robinson, this is the sum of the actual annual benefits payable by
the operating investment companies in the Fund Complex as of the date of
their retirement for each year of the 10-year period since such trustee's
retirement. For the remaining trustees, this is the sum of the estimated
maximum annual benefits payable by the operating investment companies in the
Fund Complex for each year of the 10-year period commencing in the year of
such trustee's anticipated retirement. The Retirement Plan is described
above the Compensation Table. Each Non-Affiliated Trustee of the Board of
Trustees has served as a member of the Board of Trustees since he or she was
first appointed or elected in the year set forth in Table D below.

(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1998 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1998. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
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 $ during the
calendar year ended December 31, 1998.

As of January , 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.

B-27
<PAGE> 274

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund................... 9/30 0
Tax Free High Income
Fund................... 9/30 0
California Insured Tax
Free Income Fund....... 9/30 0
Municipal Income Fund.... 9/30 0
Intermediate Term
Municipal Income
Fund................... 9/30 0
Florida Insured Tax Free
Income Fund............ 9/30 0
New York Tax Free Income
Fund................... 9/30 0
Trust Total............ 0
</TABLE>

*In 1998, the Fund changed its fiscal year-end from December 31 to September
30. Accordingly, the information reported in this column represents information
for the nine-month fiscal period ended September 30, 1998.

TABLE B

1997 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
TRUSTEE
FISCAL -------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund...... 9/30
Tax Free High Income Fund......... 9/30
California Insured Tax Free
Fund............................ 9/30
Municipal Income Fund............. 9/30
Intermediate Term Municipal Income
Fund............................ 9/30
Florida Insured Tax Free Income
Fund............................ 9/30
New York Tax Free Income Fund..... 9/30
Trust Total.....................

<CAPTION>
TRUSTEE
--------
FUND NAME YOVOVICH
--------- --------
<S> <C>
Insured Tax Free Income Fund...... 0
Tax Free High Income Fund......... 0
California Insured Tax Free
Fund............................ 0
Municipal Income Fund............. 0
Intermediate Term Municipal Income
Fund............................ 0
Florida Insured Tax Free Income
Fund............................ 0
New York Tax Free Income Fund..... 0
Trust Total..................... 0
</TABLE>

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund................... 12/31 0
Tax Free High Income
Fund................... 12/31 0
California Insured Tax
Free Fund.............. 12/31 0
Municipal Income Fund.... 12/31 0
Intermediate Term
Municipal Income
Fund................... 12/31 0
Florida Insured Tax Free
Income Fund............ 12/31 0
New York Tax Free Income
Fund................... 12/31 0
Trust Total............ 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
------------------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY ROBINSON SISTO WHALEN YOVOVICH
- --------- -------- ----- ------- ------ ------ -------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund.............. 1995 1995 1993 1984 1997 1992 1995 1984 1998
Tax Free High Income Fund................. 1995 1995 1993 1985 1997 1992 1995 1985 1998
California Insured Tax Free Income Fund... 1995 1995 1993 1985 1997 1992 1995 1985 1998
Municipal Income Fund..................... 1995 1995 1993 1990 1997 1992 1995 1990 1998
Intermediate Term Municipal Income Fund... 1995 1995 1993 1993 1997 1993 1995 1993 1998
Florida Insured Tax Free Income Fund...... 1995 1995 1994 1994 1997 1994 1995 1994 1998
New York Tax Free Income Fund............. 1995 1995 1994 1994 1997 1994 1995 1994 1998
</TABLE>

B-28
<PAGE> 275

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. See
"Accounting Services Agreement" below. The Fund also pays distribution fees,
service fees, custodian fees, legal and auditing fees, the costs of reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any error of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.

Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.50% on the first $500 million of
average daily net assets and 0.45% on the average daily net assets over $500
million.

The Fund's average net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.

The Advisory Agreement also provides that, in the event the annual expenses
of the Fund for any fiscal year exceed the most stringent limit in any state in
which the Fund's shares are offered for sale, 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.

The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, the Adviser received $ , $4,318,581 and
$3,953,376, respectively, in advisory fees from the Fund.

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. 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 cost based proportionally on their respective net assets
per fund.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Advisory Corp. received $ , $166,000
and $39,200, respectively, in accounting services fees from the Fund.

B-29
<PAGE> 276

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
Legal Services Agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Fund for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Van Kampen Investments received $ ,
$22,700 and $27,100, respectively, in legal 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 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 the affirmative vote of a majority of the Fund's outstanding
voting securities and (b) by the affirmative vote of a majority of Trustees who
are not parties to the Distribution and Service Agreement or interested persons
of any party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 90 days'
written notice. Total underwriting commissions on the sale of shares of the Fund
for the last three fiscal periods are shown in the chart below.

<TABLE>
<CAPTION>
TOTAL UNDER- AMOUNTS
WRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------ --------------
<S> <C> <C>
Fiscal Period Ended September 30, 1998......................
Fiscal Year Ended December 31, 1997......................... $2,853,738 $312,163
Fiscal Year Ended December 31, 1996......................... $3,152,458 $365,176
</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 TO
AS % OF NET DEALERS AS
AS % OF AMOUNT A % OF
SIZE OF INVESTMENT OFFERING 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>

- ---------------

B-30
<PAGE> 277

directly out of the Distributor's assets (and not out of the Fund's assets) to
authorized dealers who initiate and are responsible for purchases of $1
million or more computed based on a percentage of the dollar value of such
shares sold as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.

With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.

Proceeds from any deferred sales charge and any distribution fees on Class
B Shares and Class C Shares of the Fund are paid to the Distributor and are used
by the Distributor to defray its distribution related expenses in connection
with the sale of the Fund's shares, such as the payment to authorized dealers
for selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of the Fund's Class C Shares annually commencing in
the second year after purchase.

In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund. Fees may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. In some instances additional compensation or
promotional incentives may be offered to brokers, dealers or financial
intermediaries that have sold or may sell significant amounts of shares during
specified periods of time. The Distributor may provide additional compensation
to Edward D. Jones & Co. or an affiliate thereof based on a combination of its
sales of shares and increases in assets under management. All of the foregoing
payments are made by the Distributor out of its own assets. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor will pay for shares
or the amount that a Fund will receive from such sale.

Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.

B-31
<PAGE> 278

intermediaries who are acting as brokers (collectively, "Selling Agreements")
that may provide for their customers or clients certain services or assistance,
which may include, but not be limited to, processing purchase and redemption
transactions, establishing and maintaining shareholder accounts regarding the
Fund, and such other services as may be agreed to from time to time and as may
be permitted by applicable statute, rule or regulation. Brokers, dealers and
financial intermediaries that have entered into sub-agreements with the
Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."

For shares sold prior to July 1, 1987, (the "Implementation Date"), the
financial intermediary was not eligible to receive compensation pursuant to such
Distribution and Service Agreement or Selling Agreement. To the extent that
there remain outstanding shares of the Fund that were purchased prior to the
Implementation Date, the percentage of the total average daily net asset value
of a class of shares that may be utilized pursuant to the Distribution and
Service Agreement will be less than the maximum percentage amount permissible
with respect to such class of shares under the Distribution and Service
Agreement. The Distributor must submit quarterly reports to the Board of
Trustees of the Trust, of which the Fund is a series, setting forth separately
by class of shares all amounts paid under the Distribution Plan and the purposes
for which such expenditures were made, together with such other information as
from time to time is reasonably requested by the Trustees. The Plans provide
that they will continue in full force and effect from year to year so long as
such continuance is specifically approved by a vote of the Trustees, and also by
a vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.

The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any deferred sales
charges it received. For Class A Shares, to the extent the Distributor is not
fully reimbursed in a given year, there is no carryover of such unreimbursed
amounts to succeeding years. For each of the Class B Shares and Class C Shares,
to the extent the Distributor is not fully reimbursed in a given year, any
unreimbursed expenses for such class will be carried forward and paid by the
Fund in future years so long as such Plans are in effect. Except as mandated by
applicable law, the Fund does not impose any limit with respect to the number of
years into the future that such unreimbursed expenses may be carried forward (on
a Fund level basis). Because such expenses are accounted on a Fund level basis,
in periods of extreme net asset value fluctuation such amounts with respect to a
particular Class B Share of 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
September 30, 1998, there were $ and $ of unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively, representing % and % of the Fund's net assets attributable to
Class B Shares and Class C Shares, respectively. If the Plan were terminated or
not continued, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through deferred sales charge.

Because the Fund is a series of the Trust, amounts paid to the Distributor
as reimbursement for expenses of one series of the Trust may indirectly benefit
the other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.

B-32
<PAGE> 279

to reimburse the Distributor for the following payments: $ for commissions
and transaction fees paid to financial intermediaries in respect of sales of
Class B Shares of the Fund and $ for fees paid to financial intermediaries
for servicing Class B shareholders and administering the Plans. For the fiscal
year ended September 30, 1998, the Fund's aggregate expenses under the Plans for
Class C Shares were $ or % of the Class C Shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments;
$ for commissions and transaction fees paid to financial intermediaries in
respect of sales of Class C Shares of the Fund and $ for fees paid to
financial intermediaries for servicing Class C shareholders and administering
the Class C Plan.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $644,000 and $673,900, respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the trustees of the Fund.

As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed bonds on a exchange, which are effected through brokers who charge a
commission for their services.

The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or pur-chasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the
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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, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.

Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter Discover
& Co. ("Dean Witter") became an affiliate of the Adviser. The trustees have
adopted certain policies incorporating the standards of Rule 17e-1 issued by the
SEC under the 1940 Act which requires that the commissions paid to affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.

The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
-------------------
MORGAN DEAN
BROKERS STANLEY WITTER
------- ---------- ------
<S> <C> <C> <C>
Commission paid:
Fiscal period September 30, 1998..........................
Fiscal year December 31, 1997.............................
Fiscal year December 31, 1996.............................
Fiscal period September 30, 1998 Percentages:
Commissions with affiliate to total commissions...........
Value of brokerage transactions with affiliate to total
transactions...........................................
</TABLE>

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described herein.
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Investors, or their authorized dealers, must notify the Fund at the time of
the purchase order whenever a quantity discount is applicable to purchases. Upon
such notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their authorized
dealer or the Distributor.

A person eligible for a reduced sales charge includes an individual, his or
her spouse and children under 21 years of age and any corporation, partnership
or sole proprietorship which is 100% owned, either alone or in combination, by
any of the foregoing; a trustee or other fiduciary purchasing for a single trust
or for a single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.

As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.

VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A
Shares sales charge table may also be determined by combining the amount being
invested in shares of the Participating Funds plus the current offering price of
all shares of the Participating Funds which have been previously purchased and
are still owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as out-lined in the Class A Shares
sales charge table. The size of investment shown in the Class A Shares sales
charge table also includes purchases of shares of the Participating Funds over a
13-month period based on the total amount of intended purchases plus the value
of all shares of the Participating Funds previously purchased and still owned.
An investor may elect to compute the 13-month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. The initial purchase must be for an amount equal to at
least 5% of the minimum total purchase amount of the level selected. If trades
not initially made under a Letter of Intent subsequently qualify for a lower
sales charge through the 90-day back-dating provisions, an adjustment will be
made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the sales charges previously paid. Such payments may be made directly
to the Distributor or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain the difference.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales
charges in connection with unit investment trust reinvestment programs and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders
of unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund, at net asset value and with no minimum initial or subsequent
investment requirement, if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer

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<PAGE> 282

concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their authorized dealer or the Distributor.

The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in the Fund during each distribution period by all investors who choose to
invest in the Fund through the program and (2) provide Investor Services with
appropriate backup data for each participating investor in a computerized format
fully compatible with Investor Services' processing system.

As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.

NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

2. Current or retired directors, officers and employees of Morgan Stanley
Dean Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.

3. Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group agreement
with the Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any such
financial institution, when purchasing for retirement plans for such
institution's employees; provided that such purchases are otherwise permitted by
such institutions.

4. Registered investment advisers who charge a fee for their services,
trust companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over a
12-month period.

5. Trustees and other fiduciaries purchasing shares for retirement plans
which invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.

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.

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Trust Company serves as custodian will not be eligible for net asset value
purchases based on the aggregate investment made by the plan or the number of
eligible employees, except under certain uniform criteria established by the
Distributor from time to time. Prior to February 1, 1997, a commission will be
paid to authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5 million,
plus 0.50% on the next $5 million, plus 0.25% on the excess over $10 million.
For purchases on February 1, 1997 and thereafter, a commission will be paid as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million, plus
0.50% on the next $47 million, plus 0.25% on the excess over $50 million.

9. Individuals who are members of a "qualified group". For this purpose,
a qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or similar
investments, (iii) has given and continues to give its endorsement or
authorization, on behalf of the group, for purchase of shares of the Fund and
Participating Funds, (iv) has a membership that the authorized dealer can
certify as to the group's members and (v) satisfies other uniform criteria
established by the Distributor for the purpose of realizing economies of scale
in distributing such shares. A qualified group does not include one whose sole
organizational nexus, for example, is that its participants are credit card
holders of the same institution, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment adviser or other
similar groups. Shares purchased in each group's participants account in
connection with this privilege will be subject to a contingent deferred sales
charge ("CDSC") of 1.00% in the event of redemption within one year of purchase,
and a commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million.

The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."

INVESTMENT ACCOUNT

Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.

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SHARE CERTIFICATES

Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate equal to no
more than 2.00% of the net asset value of the issued shares, and bill the party
to whom the replacement certificate was mailed.

RETIREMENT PLANS

Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.

DIVIDEND DIVERSIFICATION

A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on a class of shares of the Fund invested into
shares of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.

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.

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To be eligible for exchange, shares of the Fund must have been registered
in the shareholder's name at least 30 days prior to an exchange. Shares of the
Fund registered in a shareholder's name for less than 30 days may only be
exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.

When Class B Shares and Class C Shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund. If such
Class B Shares or Class C Shares are redeemed and not exchanged for shares of
another Participating Fund, Class B Shares and Class C Shares are subject to the
CDSC schedule imposed by the Participating Fund from which such shares were
originally purchased.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to Investor Services or by contacting the telephone transaction line at
(800) 421-5684. A shareholder automatically has telephone exchange privileges
unless otherwise designated in the application form accompanying the Prospectus.
Van Kampen Investments and its subsidiaries, including Investor Services, and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen Investments, Investor Services nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
file a specific written request. The Fund reserves the right to reject any order
to acquire its shares through exchange. In addition, the Fund may modify,
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment.

For purposes of determining the sales charge rate previously paid on Class
A Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.

Exchange requests received on a business day prior to the time shares of
the funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.

SYSTEMATIC WITHDRAWAL PLAN

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of instructions may establish a quarterly, semiannual or annual withdrawal plan.
This plan provides for the orderly use of the entire account, not only the
income but also the capital, if necessary. Each withdrawal constitutes a
redemption of shares on which any capital gain or loss will be recognized. The
planholder may arrange for monthly, quarterly, semi-annual or annual checks in
any amount, not less than $25. Such a systematic withdrawal plan may also be
maintained by an investor purchasing shares for a retirement plan established on
a form made available by the Fund.

Class B shareholders and Class C shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plans are reinvested in additional shares
at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.

INTERNET TRANSACTIONS

In addition to performing transactions on your account through written
instruction or by telephone, you may also perform certain transactions through
the internet. Please refer to our web site at www.vankampen.com for further
instruction. Van Kampen Investments, Investor Services and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated through the internet are genuine. Such procedures include requiring
use of a personal identification number prior to acting upon internet
instructions and providing written confirmation of instructions communicated
through the internet. If reasonable procedures are employed, neither Van Kampen
Investments, Investor Services nor the Fund will be liable for following
instructions through the internet which it reasonably believes to be genuine. If
an account has multiple owners, Investor Services may rely on the instructions
of any one owner.

REINSTATEMENT PRIVILEGE

A Class A shareholder or Class B shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class C Shares of the Fund with credit given for any CDSC paid upon such
redemption. Such reinstatement is made at the net asset value per share (without
sales charge) next determined after the order is received, which must be within
180 days after the date of the redemption. Reinstatement at net asset value per
share is also offered to participants in those eligible retirement plans held or
administered by Van Kampen Trust Company for repayment of principal (and
interest) on their borrowings on such plans.

REDEMPTION OF SHARES

Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.

CONTINGENT DEFERRED SALES CHARGE-CLASS A

were purchased in the fund from which the exchange was made. If the exchanged
shares themselves are acquired through an exchange, the purchase date is assumed
to carry over from the date of the original election to purchase shares subject
to a CDSC-Class A rather than a front-end load sales charge. In determining
whether a CDSC-Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED
SALES CHARGE ("CDSC-CLASS B AND C")

As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a CDSC. The CDSC-Class B
and C is waived on redemptions of Class B Shares and Class C Shares in the
circumstances described below:

REDEMPTION UPON DEATH OR DISABILITY

The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC-Class B and C.

In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from Retirement
Plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another Retirement Plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be

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specified by the shareholder upon his or her election to participate in the
Plan. The CDSC-Class B and C will be waived on redemptions made under the Plan.

The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC-Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.

REINVESTMENT OF REDEMPTION PROCEEDS

A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.

REDEMPTION BY ADVISER

The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.

TAXATION

FEDERAL INCOME TAXATION. The Trust's series, including the Fund, will be
treated as separate corporations for federal income tax purposes. The Fund has
elected and qualified, and intends to continue to qualify each year, to be
treated as a regulated investment company under Subchapter M of the Code. To
qualify as a regulated investment company, the Fund must comply with certain
requirements of the Code relating to, among other things, the source of its
income and diversification of its assets.

If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including tax-exempt interest, taxable
income and net short-term capital gain, but not net capital gains, which are the
excess of net long-term capital gains over net short-term capital losses), it
will not be required to pay federal income taxes on any income distributed to
shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to shareholders.

In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income (not including tax-exempt income) for such year and (ii) 98%
of its capital gain net income (the latter of which generally is computed on the
basis of the one-year period ending on October 31st of such year), plus any
amounts that were not distributed in previous taxable years. For purposes of the
excise tax, any ordinary income or capital gain net income retained by, and
subject to federal income tax in the hands of, the Fund will be treated as
having been distributed.

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If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.

Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.

DISTRIBUTIONS. The Fund intends to invest in sufficient tax-exempt
municipal securities to permit payment of "exempt-interest dividends" (as
defined in the Code). Dividends paid by the Fund from the net tax-exempt
interest earned from municipal securities qualify as exempt-interest dividends
if, at the close of each quarter of its taxable year, at least 50% of the value
of the total assets of the Fund consists of municipal securities.

Certain limitations on the use and investment of the proceeds of state and
local government bonds and other funds must be satisfied in order to maintain
the exclusion from gross income for interest on such bonds. These limitations
generally apply to bonds issued after August 15, 1986. In light of these
requirements, bond counsel qualify their opinions as to the federal tax status
of bonds issued after August 15, 1986 by making them contingent on the issuer's
future compliance with these limitations. Any failure on the part of an issuer
to comply could cause the interest on its bonds to become taxable to investors
retroactive to the date the bonds were issued.

Except as provided below, exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. The percentage of the total dividends paid by the Fund
during any taxable year that qualify as exempt-interest dividends will be the
same for all shareholders of the Fund receiving dividends during such year.

Interest on certain "private-activity bonds" is an item of tax preference
subject to the alternative minimum tax on individuals and corporations. The Fund
invests a portion of its assets in municipal securities subject to this
provision so that a portion of its exempt-interest dividends is an item of tax
preference to the extent such dividends represent interest received from these
private-activity bonds. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax. Per capita volume limitations on certain
private-activity bonds could limit the amount of such bonds available for
investment by the Fund.
B-43
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Exempt-interest dividends are included in determining what portion, if any,
of a person's social security and railroad retirement benefits will be
includable in gross income subject to federal income tax.

Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the shareholder would be
treated as a "substantial user" (or a "related person" of a substantial user) of
the facilities financed with respect to any of the tax-exempt obligations held
by the Fund. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses in his trade or business a part
of any facilities financed with the tax-exempt obligations and whose gross
revenues derived from such facilities exceed 5% of the total revenues derived
from the facilities by all users, or who occupies more than 5% of the useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.

While the Fund expects that a major portion of its net investment income
will constitute tax-exempt interest, a significant portion may consist of
investment company taxable income. Distributions of the Fund's net investment
company taxable income are taxable to shareholders as ordinary income to the
extent of the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains ("capital gain
dividends"), if any, are taxable to shareholders as long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming such shares are held as a capital asset). For a summary of the
tax rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates" below. Interest on indebtedness which is incurred to
purchase or carry shares of a mutual fund which distributes exempt interest
dividends during the year is not deductible for federal income tax purposes.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.

The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The aggregate
amount of dividends designated as exempt-interest dividends cannot exceed the
amount of interest exempt from tax under Section 103 of the Code received by the
Fund during the year over any amounts disallowed as deductions under Sections
265 and 171(a)(2) of the Code. Since the percentage of dividends which are
"exempt-interest" dividends is determined on an average annual method for the
fiscal year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend.
Fund distributions 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.

"Capital Gains Rates" below. Any loss recognized upon a taxable disposition of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends received with respect to such
shares. For purposes of determining whether shares have been held for six months
or less, the holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.

CAPITAL GAINS RATES. The maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less or (ii) 20% for capital assets held for more than one year. The maximum
long-term capital gains rate for corporations is 35%.

BACKUP WITHHOLDING. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with its correct taxpayer
identification number, (ii) the 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.

The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.

GENERAL. The federal, income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.

FUND PERFORMANCE

From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.

The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes the maximum sales charge for Class A Shares);
that all income dividends or capital gains distributions during the period are
reinvested in Fund shares at net asset value; and that any applicable CDSC has
been paid. The Fund's total return will vary depending on market conditions, the
securities comprising the Fund's portfolio, the Fund's operating expenses and
unrealized net capital gains or losses during the period. Total return is based
on historical earnings and asset value fluctuations and is not intended to
indicate future performance. No adjustments are made to reflect any income taxes
payable by shareholders on dividends and distributions paid by the Fund.

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

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 initial sales charge, if any,
determining the value of all subsequent reinvested distributions, and dividing
the net change in the value of the investment as of the end of the period by the
amount of the initial investment and expressing the result as a percentage.
Non-standardized total return will be calculated separately for each class of
shares.

Non-standardized total return calculations do not reflect the imposition of
a contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC imposed at the time of redemption were
reflected, it would reduce the performance quoted.

In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from 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. Class A Shares total return figures include the
maximum sales charge; Class B Shares and Class C Shares total return figures
include any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.

From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top five sectors, ten largest holdings and other Fund asset
structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes the Fund compares relative to other Van Kampen funds.
Materials may also discuss the Dalbar Financial Services study from 1984 to 1994
which studied investor cash flow into and out of all types of mutual funds. The
ten year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless of if shareholders purchased their funds in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the internet.

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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, other
appropriate indices of investment securities, or with investment or savings
vehicles. The performance information may also include evaluations of the Fund
published by nationally recognized ranking services and by nationally recognized
financial publications. Such comparative performance information will be stated
in the same terms in which the comparative data or indices are stated. Such
advertisements and sales material may also include a yield quotation as of a
current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce Fund
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 provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.

The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
other-wise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
and (3) in reports or other communications to shareholders or in advertising
material, illustrate the benefits of compounding at various assumed rates of
return. Such illustrations may be in the form of charts or graphs and will not
be based on historical returns experienced by the Fund.

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.

The Fund's Annual Report and Semi-Annual Report contain additional
performance information. A copy of the Annual Report or Semi-Annual Report may
be obtained without charge by calling or writing the Fund at the telephone
number and address printed on the back cover of the Prospectus.

CLASS A SHARES

The Fund's yield with respect to the Class A Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 4.11%. The tax-equivalent yield with
respect to the Class A Shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class A Shares for the month ending
September 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class A Shares for the month ending
September 30, 1998 was %.

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 September 30, 1998 (as calculated in the manner described in the
Prospectus under the heading "Fund Performance") was %.

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 September 30, 1998 was %.

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CLASS B SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class B Shares for (i) the one year period ended September 30,
1998 was % and (ii) the approximately five year, five month period of May
3, 1993 (commencement of investment operations of the Fund) through September
30, 1998 was %.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.55%. The tax-equivalent yield with
respect to the Class B Shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class B Shares for the month ending
September 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class B Shares for the month ending
September 30, 1998 was %.

The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class B Shares from its inception to September 30,
1998 (as calculated in the manner described in the Prospectus under the heading
"Fund Performance") was %.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class B Shares from its inception to September 30,
1998 was %.

CLASS C SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class C Shares for (i) the one year period ended September 30,
1998 was % and (ii) the approximately five year, one month period from
August 13, 1993 (the commencement of investment operations of the Fund) through
September 30, 1998 was %.

The Fund's yield with respect to the Class C Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.53%. The tax-equivalent yield with
respect to the Class C shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class C Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class C Shares for the month ending
September 30, 1998 was 6.63%.

The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class C Shares from its inception to September 30,
1998 (as calculated in the manner described in the Prospectus under the heading
"Fund Performance") was %.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class C Shares from its inception to September 30,
1998 was %.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash,
including proceeds from the sale of shares of the Fund and of securities in the
Fund's investment portfolio, are held by State Street Bank and Trust Company,
225 West Franklin Street, Boston, Massachusetts 02110, as Custodian.

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to
shareholders, and annually such statements are audited by the independent
accountants.

INDEPENDENT ACCOUNTANTS -- KPMG Peat Marwick LLP, 303 East Wacker 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).

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THE INFORMATION CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT COMPLETE AND MAY BE CHANGED. THE FUND MAY NOT SELL THESE SECURITIES
UNTIL THE POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF
ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES.

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN INSURED TAX FREE INCOME FUND

Van Kampen Insured Tax Free Income Fund is a mutual fund with an investment
objective to provide investors a high level of current income exempt from
federal income taxes, with liquidity and safety of principal, primarily through
investment in a diversified portfolio of insured municipal securities.

The Fund is organized as a diversified series of the Van Kampen Tax Free
Trust, an open-end, management investment company (the "Trust").

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-3
Investment Restrictions..................................... B-16
Description of Municipal Securities Ratings................. B-17
Description of Insurance Company Claims Paying Ability
Ratings................................................... B-23
Trustees and Officers....................................... B-24
Investment Advisory and Other Services...................... B-34
Distribution and Service.................................... B-35
Transfer Agent.............................................. B-38
Portfolio Transactions and Brokerage Allocation............. B-38
Share Purchase Programs..................................... B-40
Shareholder Services........................................ B-43
Redemption of Shares........................................ B-46
Contingent Deferred Sales Charge-Class A.................... B-46
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-46
Taxation.................................................... B-48
Fund Performance............................................ B-51
Other Information........................................... B-54
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.
B-1
<PAGE> 296

GENERAL INFORMATION

The Fund was originally organized as a Maryland corporation under the name
Van Kampen Merritt Insured Tax Free Fund Inc. The Fund was subsequently
reorganized into a sub-trust of the Massachusetts Trust under the name Van
Kampen Merritt Insured Tax Free Income Fund as of February 22, 1998. The Fund
was reorganized as a series of the Trust under the name Van Kampen American
Capital Insured Tax Free Fund on July 31, 1995. On July 14, 1998, the Fund
adopted its current name.

B-2
<PAGE> 297

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT
NAME AND ADDRESS JANUARY , CLASS PERCENTAGE
OF HOLDER 1999 OF SHARES OWNERSHIP
- ------------------------------------------------ ---------------- ------------ ----------
<S> <C> <C> <C>
R T Kelley......................................
P O Box 237
Canadian, TX 79014-0237
Painewebber for the Benefit of..................
Ralph A. Picard & Susan E. Picard JTWROS
506 N. Church St.
West Chester, PA 19380-2304
MLPF&S for the Sole Benefit of..................
Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
</TABLE>

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit
plans and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

MUNICIPAL SECURITIES

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<PAGE> 298

securities, and therefore the Fund generally expects to be invested primarily in
longer term municipal securities. The Fund will, 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.

B-4
<PAGE> 299

will be larger than comparable changes in the value of an equal principal amount
of a fixed rate municipal security having similar credit quality, redemption
provisions and maturity.

The Fund also 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.

Although the municipal securities in which the Fund may invest will be
insured as to timely payment of principal and interest, 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 considered speculative
with respect to the capacity to pay interest or repay principal in accordance
with their terms.

INSURANCE

As described in the Prospectus, the Fund invests primarily in municipal
securities which are either pre-insured under a policy obtained for such
securities prior to the purchase of such securities or will be insured under
policies obtained by the Fund to cover otherwise uninsured securities.

B-5
<PAGE> 300

date of the principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the insured payments may be made in such amounts and at such times as
payments of principal would have been due had there not been such acceleration.
The insurer is responsible for such payments less any amounts received by the
holder from any trustee for the municipal security issuers or from any other
source. Original Issue Insurance generally does not insure payment on an
accelerated basis, the payment of any redemption premium (except with respect to
certain premium payments in the case of certain small issue industrial
development and pollution control municipal securities), the value of the shares
of the Fund or the market value of municipal securities, or payments of any
tender purchase price upon the tender of the municipal securities. Original
Issue Insurance also does not insure against nonpayment of principal of or
interest on municipal securities resulting from the insolvency, negligence or
any other act or omission of the trustee or other paying agent for such
obligations.

In the event that interest on or principal of a municipal security covered
by insurance is due for payment but is unpaid by reason of nonpayment by the
issuer thereof, the applicable insurer will make payments to its fiscal agent
(the "Fiscal Agent") equal to such unpaid amounts of principal and interest not
later than one business day after the insurer has been notified that such
nonpayment has occurred (but not earlier than the date of such payment is due).
The Fiscal Agent will disburse to the Fund the amount of principal and interest
which is then due for payment but is unpaid upon receipt by the Fiscal Agent of
(i) evidence of the Fund's right to receive payment of such principal and
interest and (ii) evidence, including any appropriate instrument of assignment,
that all of the rights of payment of such principal or interest then due for
payment shall thereupon vest in the insurer. Upon payment by the insurer of any
principal or interest payments with respect to any municipal securities, the
insurer shall succeed to the rights of the Fund with respect to such payment.

Original Issue Insurance remains in effect as long as the municipal
securities covered thereby remain outstanding and the insurer remains in
business, regardless of whether the Fund ultimately disposes of such municipal
securities. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the municipal securities so
insured, but the exact effect, if any, of this insurance on such market value
cannot be estimated.

SECONDARY MARKET INSURANCE. Subsequent to the time of original issuance of
a municipal security, the Fund or a third party may, upon the payment of a
single premium, purchase insurance on such municipal security. Secondary Market
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and, as is the case with Original Issue Insurance,
Secondary Market Insurance remains in effect as long as the municipal security
covered thereby remains outstanding and the insurer remains in business,
regardless of whether the Fund ultimately disposes of such municipal security.
All premiums respecting municipal securities covered by Original Issue Insurance
or Secondary Market Insurance are paid in advance by the issuer or other party
obtaining the insurance.

One of the purposes of acquiring Secondary Market Insurance with respect to
a particular municipal security would be to enhance the value of such municipal
security. The Fund, for example, might seek to purchase a particular municipal
security and obtain Secondary Market Insurance with respect thereto if, in the
opinion of the Adviser, the market value of such municipal security, as insured,
would exceed the current value of the municipal security without insurance plus
the cost of the Secondary Market Insurance. Similarly, if the Fund owns but
wishes to sell a municipal security that is then covered by Portfolio Insurance,
the Fund might seek to obtain Secondary Market Insurance with respect thereto
if, in the opinion of the Adviser, the net proceeds of a sale by the Fund of
such obligation, as insured, would exceed the current value of such obligation
plus the cost of the Secondary Market Insurance.

PORTFOLIO INSURANCE. The Portfolio Insurance policies obtained by the Fund
would insure the payment of principal and interest on specified eligible
municipal securities purchased by the Fund. Except as described below, Portfolio
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance or Secondary Market Insurance. Municipal securities
insured under one Portfolio Insurance policy generally would not be insured
under any other policy purchased by the Fund. A municipal security is eligible
for coverage under a policy if it meets certain requirements of the insurer.
Portfolio Insurance is intended to reduce financial risk, but the cost thereof
and compliance with investment restrictions imposed under the

B-6
<PAGE> 301

policy will reduce the yield to shareholders of the Fund. If a municipal
security already is covered by Original Issue Insurance of Secondary Market
Insurance, the Fund is not required to additionally insure any such municipal
security under any policy of Portfolio Insurance that the Fund may purchase.

Portfolio Insurance policies are effective only as to municipal securities
owned and held by the Fund, and do not cover municipal securities for which the
contract for purchase fails. A "when-issued" municipal security will be covered
under a Portfolio Insurance policy upon the settlement date of the issue of such
"when-issued" municipal security.

In determining whether to insure municipal securities held by the Fund, an
insurer will apply its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
municipal securities. See "Original Issue Insurance" above.

Each Portfolio Insurance policy will be non-cancellable and will remain in
effect so long as the Fund is in existence, the municipal securities covered by
the policy continue to be held by the Fund, and the Fund pays the premiums for
the policy. Each insurer generally will reserve the right at any time upon 90
days written notice to the Fund to refuse to insure any additional securities
purchased by the Fund after the effective date of such notice. The Board of
Trustees of the Fund generally will reserve the right to terminate each policy
upon seven days written notice to an insurer if it determines that the cost of
such policy is not reasonable in relation to the value of the insurance to the
Fund.

Each Portfolio Insurance policy shall terminate as to any municipal
security that has been redeemed from or sold by the Fund on the date of such
redemption or the settlement date of such sale, and an insurer shall not have
any liability thereafter under a policy as to any such municipal security,
except that if the date of such redemption or the settlement date of such sale
occurs after a record date and before the related payment date with respect to
any such municipal security, the policy will terminate as to such municipal
security on the business day immediately following such payment date. Each
policy will terminate as to all municipal securities covered thereby on the date
on which the last of the covered municipal securities mature, are redeemed or
are sold by the Fund.

One or more policies of Portfolio Insurance may provide the Fund, pursuant
to an irrevocable commitment of the insurer, with the option to exercise the
right to obtain permanent insurance ("Permanent Insurance") with respect to a
municipal security that is to be sold by the Fund. The Fund would exercise the
right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such municipal
security. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a municipal security only if, in the opinion of the
Adviser, upon such exercise the net proceeds from the sale by the Fund of such
obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance. The Permanent Insurance premium with respect to
each such obligation is determined based upon the insurability of each such
obligation as of the date of purchase by the Fund and will not be increased or
decreased for any change in the creditworthiness of such obligation unless such
obligation is in default as to payment of principal or interest, or both. In
such event, the Permanent Insurance premium shall be subject to an increase
predetermined at the date of purchase by the Fund.

Because each Portfolio Insurance policy will terminate as to municipal
securities sold by the Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by the
Fund, whether or not the securities are in default or in significant risk of
default. On the other hand, since Original Issue Insurance and Secondary Market
Insurance will remain in effect as long as municipal securities covered thereby
are outstanding, such insurance may enhance the marketability of such securities
even when such securities are in default or in significant risk of default, but
the exact effect, if any, on the marketability cannot be estimated. Accordingly,
the Fund may determine to retain or, alternatively, to sell municipal securities
covered by Original Issue Insurance or Secondary Market Insurance that are in
default or in significant risk of default.

B-7
<PAGE> 302

municipal securities insured under policies obtained by persons other than the
Fund, the Fund does not pay the premiums for such policies; rather the cost of
such policies may be reflected in a higher purchase price for such municipal
securities. Accordingly, the yield on such municipal securities may be lower
than that on similar uninsured municipal securities. Premiums for a Portfolio
Insurance Policy generally are paid by the Fund monthly, and are adjusted for
purchases and sales of municipal securities covered by the policy during the
month. The yield on the Fund's portfolio is reduced to the extent of the
insurance premiums paid by the Fund which, in turn, will depend upon the
characteristics of the covered municipal securities held by the Fund. In the
event the Fund were to purchase Secondary Market Insurance with respect to any
municipal securities then covered by a Portfolio Insurance policy, the coverage
and the obligation of the Fund to pay monthly premiums under such policy would
cease with such purchase.

There can be no assurance that insurance of the kind described above will
continue to be available to the Fund. In the event that such insurance is no
longer available or that the cost of such insurance outweighs the benefits to
the Fund in the view of the Board of Trustees, the Board will consider whether
to modify the investment policies of the Fund, which may require the approval of
shareholders. In the event the claims-paying ability rating of an insurer of
municipal securities in the Fund's portfolio were to be lowered from AAA by
Standard and Poor's ("S&P"), Aaa by Moody's Investor Services, Inc. ("Moody's")
or an equivalent rating by another nationally recognized statistical ratings
organization ("NRSRO"), or if the Adviser anticipates such a lowering or
otherwise does not believe an insurer's claims-paying ability merits its
existing triple-A rating, the Fund could seek to obtain additional insurance
from an insurer whose claims-paying ability is rated AAA by S&P, Aaa by Moody's
or an equivalent rating by another NRSRO, or if the Adviser determines that the
cost of obtaining such additional insurance outweigh the benefits, the Fund may
elect not to obtain additional insurance. In making such determination, the
Adviser will consider the cost of the additional insurance, the new
claims-paying ability rating and financial condition of the existing insurer and
the creditworthiness of the issuer or guarantor of the underlying municipal
securities. The Adviser also may determine not to purchase additional insurance
in such circumstances if it believes that the insurer is taking steps which will
cause its triple-A claims paying ability rating to be restored promptly.

Although the Adviser periodically reviews the financial condition of each
insurer, there can be no assurance that the insurers will be able to honour
their obligations under all circumstances. The Fund cannot predict the
consequences of a state takeover of an insurer's obligations and, in particular,
whether such an insurer (or its state regulatory agency) could or would honour
all of the insurer's contractual obligations including any outstanding insurance
contracts insuring the timely payment of principal and interest on municipal
securities. The Fund cannot predict the impact which such events might have on
the market values of such municipal security. In the event of a default by an
insurer on its obligations with respect to any municipal securities in the
Fund's portfolio, the Fund would look to the issuer or guarantor of the relevant
municipal securities for payments of principal and interest and such issuer or
guarantor may not be rated AAA by S&P, Aaa by Moody's or an equivalent rating by
another NRSRO. Accordingly, the Fund could be exposed to greater risk of
non-payment in such circumstances which could adversely affect the Fund's net
asset value. Alternatively, the Fund could elect to dispose of such municipal
securities; however, the market prices for such municipal securities may be
lower than the Fund's purchase price for them and the Fund could sustain a
capital loss as a result.

(i.e., fluctuations in market value as a result of changes in prevailing
interest rates). Accordingly, insurance on municipal securities does not insure
the market value of the Fund's assets or the net asset value.

STRATEGIC TRANSACTIONS

Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

Any or all of these investment techniques may be used at any time and there
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

B-9
<PAGE> 304

market value by giving the Fund the right to sell such instrument at the option
exercise price. A call option, upon payment of a premium, gives the purchaser of
the option the right to buy, and the seller the obligation to sell, the
underlying instrument at the exercise price. The Fund's purchase of a call
option on a security, financial future, index, or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

B-10
<PAGE> 305

"primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from S&P or "P-1"
from Moody's or an equivalent rating from any other NRSRO. The staff of the SEC
currently takes the position that, in general, OTC options on securities other
than U.S. Government securities purchased by the Fund, and portfolio securities
"covering" the amount of the Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Fund's limitation on illiquid securities
described herein.

The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities that are traded on securities exchanges
and in the over-the-counter markets and related futures on such contracts. All
calls sold by the Fund must be "covered" (i.e., the Fund must own the securities
or futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though the
Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold. In the event of exercise of a call option
sold by the Fund with respect to securities not owned by the Fund, the Fund may
be required to acquire the underlying security at a disadvantageous price in
order to satisfy its obligation with respect to the call option.

B-11
<PAGE> 306

position just as it would for any position. Futures contracts and options
thereon are generally settled by entering into an offsetting transaction but
there can be no assurance that the position can be offset prior to settlement at
an advantageous price nor that delivery will occur.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

B-12
<PAGE> 307

the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent equity rating from an NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate cash and
liquid securities with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate cash and
liquid securities sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by the Fund on an index will require the Fund
to own portfolio securities which correlate with the index or to segregate cash
and liquid securities equal to the excess of the index value over the exercise
price on a current basis. A put option written by the Fund requires the Fund to
segregate cash and liquid securities equal to the exercise price.

B-13
<PAGE> 308

segregated cash and liquid securities, equals its net outstanding obligation in
related options and Strategic Transactions. For example, the Fund could purchase
a put option if the strike price of that option is the same or higher than the
strike price of a put option sold by the Fund. Moreover, instead of segregating
cash and liquid securities if the Fund held a futures or forward contract, it
could purchase a put option on the same futures or forward contract with a
strike price as high or higher than the price of the contract held. Other
Strategic Transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction no
segregation is required, but if it terminates prior to such time, cash and
liquid securities equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of the Code for qualification as a regulated investment
company.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

The Fund may also purchase and sell municipal securities on a "when issued"
and "delayed delivery" basis. 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 fluctuation; the value of the municipal securities at delivery may be
more or less than their purchase price, and yields generally available on
municipal securities when delivery occurs may be higher or lower than yields on
the municipal securities obtained pursuant to such transactions. Because the
Fund relies on the buyer or seller, as the case may be, to consummate the
transaction, 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. 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.

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

readily marketable without some time delay. Investments in securities which have
no ready market are valued at fair value as determined in good faith by the
Adviser in accordance with procedures approved by the Fund's Trustees.
Ordinarily, the Fund would invest in restricted securities only when it receives
the issuer's commitment to register the securities without expense to the Fund.
However, registration and underwriting expenses (which may range from 7% to 15%
of the gross proceeds of the securities sold) may be paid by the Fund.
Restricted securities which can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act ("144A Securities") and are determined
to be liquid under guidelines adopted by and subject to the supervision of the
Fund's Board of Trustees are not subject to the limitation on illiquid
securities. Such 144A Securities are subject to monitoring and may become
illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

B-15
<PAGE> 310

INVESTMENT RESTRICTIONS

1. Purchase any securities (other than tax exempt obligations guaranteed by
the United States Government or by its agencies or instrumentalities),
if as a result more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or if as
a result the Fund would hold more than 10% of the outstanding voting
securities of any single issuer, 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.

2. Invest more than 25% of its assets in a single industry. (As described
in the Prospectus, the Fund may from time to time invest more than 25%
of its assets in a particular segment of the municipal bond market;
however, the Fund will not invest more than 25% of its assets in
industrial development bonds in a single industry), 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.

3. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 5% of the total asset value of the Fund, or
mortgage, pledge or hypothecate any assets except in connection with a
borrowing and in amounts not in excess of 10% of the total asset value
of the Fund. Borrowings may not be made for investment leverage, but
only to enable the Fund to satisfy redemption requests where liquidation
of portfolio securities is considered disadvantageous or inconvenient.
In this connection, the Fund will not purchase portfolio securities
during any period that such borrowings exceed 5% of the total asset
value of the Fund. Notwithstanding this investment restriction, the Fund
may enter into "when issued" and "delayed delivery" transactions as
described in the Prospectus.

4. Make loans, except to the extent the tax exempt obligations the Fund may
invest in are considered to be loans.

6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other
financial futures or index contracts or related options, except as
hedging transactions in accordance with the requirements of the
Securities and Exchange Commission and the Commodity Futures Trading
Commission.

7. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.

8. Make investments for the purpose of exercising control or participation
in management, 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.

9. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and 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. Invest in equity interests in oil, gas or other mineral exploration or
development programs.

B-16
<PAGE> 311

11. Purchase or sell real estate, commodities or commodity contracts,
except as set forth in item 6 above and except to the extent the
municipal securities the Fund may invest in are considered to be
interests in real estate.

The Fund generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as
deemed advisable in view of prevailing or anticipated market conditions to
accomplish the Fund's investment objectives. For example, the Fund may sell
portfolio securities in anticipation of a movement in interest rates. Frequency
of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of portfolio securities by the monthly
average value of the securities in the portfolio during the year. Securities,
including options, whose maturity or expiration date at the time of acquisition
were one year or less are excluded from such calculation. The Fund anticipates
that its annual portfolio turnover rate normally will be less than 100%.

The Fund does not intend to invest in certain "private activity"
obligations issued after August 7, 1986. Interest on such "private activity"
obligations is treated as a preference item for the purpose of calculating the
alternative minimum tax. If the Fund were to invest in such "private activity"
obligations, dividends paid to an investor who is subject to the alternative
minimum tax might not be completely tax exempt or might cause an investor to be
subject to such tax.

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

B-17
<PAGE> 312
<TABLE>
<S> <C>
BBB Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.

BB, B, Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as
CCC, CC, C having significant speculative characteristics with respect
to capacity to pay interest and repay principal. 'BB'
indicates the lowest degree of speculation and 'C' the
highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be
modified by the addition of a plus or minus sign to show
relative standing within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

B-18
<PAGE> 313
<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

2. MUNICIPAL NOTES

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:

<TABLE>
<S> <C>
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.
</TABLE>

B-19
<PAGE> 314

3. COMMERCIAL PAPER

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'.

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.

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 MUNICIPAL BONDS

B-20
<PAGE> 315
<TABLE>
<S> <C>
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.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

B-21
<PAGE> 316

2. SHORT-TERM EXEMPT NOTES

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

B-22
<PAGE> 317

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

DESCRIPTION OF INSURANCE COMPANY CLAIMS PAYING ABILITY RATINGS

RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

The claims-paying ability of insurance companies is rated by S&P and
Moody's. Descriptions of these ratings are set forth below:

DESCRIPTION OF S&P'S RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

AAA. Superior financial security on an absolute and relative basis.
Capacity to meet policyholder obligations is overwhelming under a variety of
economic and underwriting conditions.

AA. Excellent financial security. Capacity to meet policyholder obligations
is strong under a variety of economic and underwriting conditions.

A. Good financial security, but capacity to meet policyholder obligations
is somewhat susceptible to adverse economic and underwriting conditions.

BBB. Adequate financial security, but capacity to meet policyholder
obligations is susceptible to adverse economic and underwriting conditions.

Note: Plus (+) and minus (-) signs indicate relative standing within a category,
and are not indications of likely upgrades or downgrades.

DESCRIPTION OF MOODY'S RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

AAA. Insurance companies rated Aaa offer exceptional financial security.
While the financial strength of these companies is likely to change, such
changes as can be visualized are most unlikely to impair their fundamentally
strong position.

AA. Insurance companies rated Aa offer excellent financial security.
Together with the Aaa group they constitute what are generally known as high
grade companies. They are rated lower than Aaa companies because long-term risks
appear somewhat larger.

A. Insurance companies rated A offer good financial security. However,
elements may be present which suggest a susceptibility to impairment sometime in
the future.

B-23
<PAGE> 318

BAA. Insurance companies rated Baa offer adequate financial security.
However, certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.

Note: Numeric modifiers are used to refer to the ranking within the group -- one
being the highest and three being the lowest. However, the financial strength of
companies within a generic rating symbol (Aa, for example) is broadly the same.

TRUSTEES AND OFFICERS

TRUSTEES

B-24
<PAGE> 319

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief
Date of Birth: 02/29/52 Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a
private foundation. Trustee/Director of each of the
funds in the Fund Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc.,
423 Country Club Drive a financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). Trustee/Director
of each of the funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of Van Kampen Investments, the
2800 Post Oak Blvd. Advisers, the Distributor and Investor Services.
Houston, TX 77056 Director or officer of certain other subsidiaries of
Date of Birth: 10/19/39 Van Kampen Investments. Chairman of River View
International Inc. Chairman of the Board of Governors
and the Executive Committee of the Investment Company
Institute. Prior to July of 1998, Director and
Chairman of Van Kampen Investments Inc. Prior to
November 1996, President, Chief Executive Officer and
a Director of Van Kampen Investments Inc.
Trustee/Director of each of the funds in the Fund
Complex and Trustee of other funds advised by the
Advisers or Van Kampen Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster
One ServiceMaster Way Company, a business and consumer services company.
Downers Grove, IL 60515 Director of Illinois Tool Works, Inc., a manufacturing
Date of Birth: 07/08/44 company; the Urban Shopping Centers Inc., a retail
mall management company; and Stone Container Corp., a
paper manufacturing company. Trustee, University of
Notre Dame. Formerly, President and Chief Executive
Officer, Waste Management, Inc., an environmental
services company, and prior to that President and
Chief Operating Officer, Waste Management, Inc.
Trustee/Director of each of the funds in the Fund
Complex.

Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate,
333 West Wacker Drive Meagher & Flom (Illinois), legal counsel to the funds
Chicago, IL 60606 in the Fund Complex, and other open-end and closed-end
Date of Birth: 08/22/39 funds advised by the Advisers or Van Kampen Management
Inc. Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers
or Van Kampen Management Inc.
</TABLE>

B-25
<PAGE> 320

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com
233 South Wacker Drive Corporation, APAC Teleservices, Inc., COMARCO, Inc.,
Suite 9700 Applied Language Technologies, Focal Communications,
Chicago, IL 60606 and Lante Corporation. Limited Partner of Evercore
Date of Birth: 10/29/53 Partners, LLP. Trustee/Director of each of the Funds
in the Fund Complex.
</TABLE>

B-26
<PAGE> 321

OFFICERS

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and a Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and a
President Director of the Advisers, Van Kampen Advisors Inc., and
Van Kampen Management Inc. Prior to July of 1998, Director
and Executive Vice President of VK/AC Holding, Inc. Prior
to April of 1998, President and a Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April of 1997, Mr.
McDonnell was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996, Mr. McDonnell
was Chief Executive Officer and Director of MCM Group,
Inc., McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited and MCM
(Europe) Limited. Prior to July of 1996, Mr. McDonnell was
President, Chief Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds in the Fund
Complex. President, Chairman of the Board and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or their affiliates.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Prior to July
Vice President of 1996, Mr. Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of McCarthy, Crisanti
& Maffei, Inc. Vice President of each of the funds in the
Fund Complex and certain other investment companies
advised by the Advisers or their affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
</TABLE>

B-27
<PAGE> 322

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and
Secretary of VK/AC Holding, Inc. Prior to April of 1998,
Executive Vice President, General Counsel and Director of
Van Kampen Merritt Equity Advisors Corp. Prior to April of
1997, he was Executive Vice President, General Counsel and
a Director of Van Kampen Merritt Equity Holdings Corp.
Prior to September of 1996, he was General Counsel of
McCarthy, Crisanti & Maffei, Inc. Prior to July of 1996,
Mr. Nyberg was Executive Vice President and General
Counsel of VSM Inc. and Executive Vice President and
General Counsel of VCJ Inc. Vice President and Secretary
of each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers or their
affiliates.
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding,
Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-28
<PAGE> 323

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.
Huey P. Falgout, Jr.................. Vice President, Assistant Secretary and Senior Attorney of
Date of Birth: 11/15/63 Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior Vice
Assistant Secretary President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy
General Counsel and Assistant Secretary of VK/AC Holding,
Inc. Prior to April of 1998, Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, Senior Vice
President, Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and Van Kampen
Merritt Holdings Corp. Prior to September of 1996, Mr.
Martin was Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc., and prior to July of
1996, he was Senior Vice President, Deputy General Counsel
and Secretary of VSM Inc. and VCJ Inc. Assistant Secretary
of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their
affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by the
Advisers or their affiliates.
</TABLE>

B-29
<PAGE> 324

B-30
<PAGE> 325

reasonable expenses incurred by the Non-Affiliated Trustee in connection with
his or her services as a trustee. Each Non-Affiliated Trustee receives a per
meeting fee from each VK Fund in the amount of $125 per special meeting attended
by the Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
PENSION OR ESTIMATED MAXIMUM COMPENSATION
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ $30,328 $60,000 $111,197
Linda Hutton Heagy 3,141 60,000 111,197
R. Craig Kennedy 2,229 60,000 111,197
Jack E. Nelson 15,820 60,000 104,322
Jerome L. Robinson* 32,020 15,750 107,947
Phillip B. Rooney 0 60,000 74,697
Dr. Fernando Sisto 60,208 60,000 111,197
Wayne W. Whalen 10,788 60,000 111,197
</TABLE>

- ---------------

B-31
<PAGE> 326

of Trustees effective April 14, 1997 and thus does not have a full fiscal
year of information to report. Mr. Paul G. Yovovich became a member of the
Board of Trustees effective October 22, 1998 and thus does not have a full
fiscal year of information to report. Trustees not eligible for compensation
or retirement benefits are not shown in the table.

As of January , 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.

B-32
<PAGE> 327

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund.................... 12/31 0
Tax Free High Income
Fund.................... 12/31 0
California Insured Tax
Free Fund............... 12/31 0
Municipal Income Fund..... 12/31 0
Intermediate Term
Municipal Income Fund... 12/31 0
Florida Insured Tax Free
Income Fund............. 12/31 0
New York Tax Free Income
Fund.................... 12/31 0
Trust Total............. 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-33
<PAGE> 328

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.525% on the first $500 million of
average daily net assets; 0.500% on the next $500 million of average daily net
assets, 0.475% on the next $500 million of average daily net assets; and 0.450%
on the average daily net assets over $1,500 million.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, the Adviser received $ , $6,799,897 and
$6,928,017, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

B-34
<PAGE> 329

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Advisory Corp. received $0, $233,500 and
$43,900, respectively, in accounting services fees from the Fund.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Van Kampen Investments received $0, $28,300
and $39,400, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
TOTAL UNDER- AMOUNTS
WRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------ --------------
<S> <C> <C>
Fiscal Period Ended September 30, 1998......................
Fiscal Year Ended December 31, 1997......................... $1,239,728 $259,984
Fiscal Year Ended December 31, 1996......................... $1,589,072 $405,829
</TABLE>

B-35
<PAGE> 330

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

- ---------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a 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 based on a percentage of the dollar
value of such shares sold as follows: 1.00% on sales to $2 million, plus 0.80%
on the next $1 million and 0.50% on the excess over $3 million.

B-36
<PAGE> 331

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through an agreement (the "Distribution and Service Agreement") with the
Distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."

The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.

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<PAGE> 332

pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through deferred sales charge.

For the fiscal year ended September 30, 1998, the Fund's aggregate expenses
under the Plans for Class A Shares were $ or % of the Class A Shares'
average daily net assets. Such expenses were paid to reimburse the Distributor
for payments made to financial intermediaries for servicing Fund shareholders
and for administering the Plans. For the fiscal year ended September 30, 1998,
the Fund's aggregate expenses under the Class B Plan were $ or % of the
Class B Shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $ for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class B Shares of
the Fund and $ for fees paid to financial intermediaries for servicing Class
B shareholders and administering the Plans. For the fiscal year ended September
30, 1998, the Fund's aggregate expenses under the Plans for Class C Shares were
$ or % of the Class C Shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments; $ for commissions
and transaction fees paid to financial intermediaries in respect of sales of
Class C Shares of the Fund and $ for fees paid to financial intermediaries
for servicing Class C shareholders and administering the Class C Plan.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $614,500 and $1,272,800, respectively for these
services. Prior to 1998, these services were provided at cost plus a profit.
Beginning in 1998, the transfer agency prices are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

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 pur-chasers 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.

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The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
-------------------
MORGAN DEAN
BROKERS STANLEY WITTER
-------- ---------- ------
<S> <C> <C> <C>
Commission paid:
Fiscal period ended September 30, 1998....................
Fiscal year ended December 31, 1997....................... $211,776 $0 $0
Fiscal year ended December 31, 1996....................... $ 0 $0 NA
Fiscal period ended September 30, 1998 Percentages:
Commissions with affiliate to total commissions...........
Value of brokerage transactions with affiliate to total
transactions...........................................
</TABLE>

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

a Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provisions, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. Such adjustment in
sales charge will be used to purchase additional shares for the shareholder at
the applicable discount category. The Fund initially will escrow shares totaling
5% of the dollar amount of the Letter of Intent to be held by Investor Services
in the name of the shareholder. In the event the Letter of Intent goal is not
achieved within the period, the investor must pay the difference between the
sales charge applicable to the purchases made and the sales charges 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

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

B-41
<PAGE> 336

dealers through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.

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 Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and sponsored by
non-profit organizations defined under Section 501(c)(3) of the Code and assets
held by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify for
purchases at net asset value provided, for plans initially establishing accounts
with the Distributor in the Participating Funds after February 1, 1997, that (1)
the initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than 100
eligible employees. Such plans that have been established with a Participating
Fund or have received proposals from the Distributor prior to February 1, 1997
based on net asset value purchase privileges previously in effect will be
qualified to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen Trust Company serves as custodian will not be
eligible for net asset value purchases based on the aggregate investment made by
the plan or the number of eligible employees, except under certain uniform
criteria established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve-month period as follows:
1.00% on sales to $5 million, plus 0.50% on the next $5 million, plus 0.25% on
the excess over $10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on sales to $2 million, plus 0.80% on
the next $1 million, plus 0.50% on the next $47 million, plus 0.25% on the
excess over $50 million.

The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents, and a person's spouse's parents.

B-42
<PAGE> 337

such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

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<PAGE> 338

Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services.

DIVIDEND DIVERSIFICATION

EXCHANGE PRIVILEGE

shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN

Any investor whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions may establish a
monthly, quarterly, semi-annual or annual withdrawal plan. Any investor whose
shares in a single account total $5,000 or more at the offering price next
computed after receipt of instructions may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual or
annual checks in any amount, not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by the Fund.

INTERNET TRANSACTIONS

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<PAGE> 340

Fund will be liable for following instructions through the internet which it
reasonably believes to be genuine. If an account has multiple owners, Investor
Services may rely on the instructions of any one owner.

REINSTATEMENT PRIVILEGE

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A

For purposes of the CDSC-Class A, when shares of one fund are exchanged for
shares of another fund, the purchase date for the shares of the fund exchanged
into will be assumed to be the date on which shares were purchased in the fund
from which the exchange was made. If the exchanged shares themselves are
acquired through an exchange, the purchase date is assumed to carry over from
the date of the original election to purchase shares subject to a CDSC-Class A
rather than a front-end load sales charge. In determining whether a CDSC-Class A
is payable, it is assumed that shares held the longest are the first to be
redeemed.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED
SALES CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR DISABILITY

B-46
<PAGE> 341

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 does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

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<PAGE> 342

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. The Trust and any of 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.

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.

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, or by the Trust if it is required to qualify as a regulated
investment company as described below. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses in his
trade or business a part of any facilities financed with the 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.

B-49
<PAGE> 344

are held as a capital asset). For a summary of the tax rates applicable to
capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Interest on indebtedness which is incurred to purchase or carry shares of
a mutual fund which distributes exempt interest dividends during the year is not
deductible for federal income tax purposes. Tax-exempt shareholders not subject
to federal income tax on their income generally will not be taxed on
distributions from the Fund.

SALE OF SHARES. The sale of shares (including transfers in connection with
a redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss. For a summary of the tax rates
applicable to capital gains (including capital gain dividends), see "Capital
Gains Rates" below. Any loss recognized upon a taxable disposition of shares
held for six months or less will be treated as a long-term capital loss to the
extent of any capital gain dividends received with respect to such shares. For
purposes of determining whether shares have been held for six months or less,
the holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

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<PAGE> 345

respect to such dividends. This information may also be made available to the
tax authorities in the Non-U.S. Shareholder's country of residence.

FUND PERFORMANCE

The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes a maximum sales charge of 4.75% for Class A
Shares); that all income dividends or capital gains distributions during the
period are reinvested in Fund shares at net asset value; and that any applicable
CDSC has been paid. The Fund's total return will vary depending on market
conditions, the securities comprising the Fund's portfolio, the Fund's operating
expenses and unrealized net capital gains or losses during the period. Total
return is based on historical earnings and asset value fluctuations and is not
intended to indicate future performance. No adjustments are made to reflect any
income taxes payable by shareholders on dividends and distributions paid by the
Fund.

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 initial 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.

Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. Class A Shares total return figures include the
maximum sales charge of 4.75%; Class B Shares and Class C Shares total return
figures include any applicable CDSC. Because of the differences in sales charges
and distribution fees, the total returns for each of the classes will differ.

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;
and (3) in reports or other communications to shareholders or in advertising
material, illustrate the benefits of compounding at various assumed rates of
return. Such illustrations may be in the form of charts or graphs and will not
be based on historical returns experienced by the Fund.

CLASS A SHARES

The average total return, including payment of the maximum sales charge,
with respect to the Class A Shares for (i) the one year period ended December
31, 1997 was 3.05%; (ii) the five year period ended December 31, 1997 was 5.72%;
(iii) the ten year period ended December 31, 1997 was 7.64%; and (iv) the period
from December 14, 1984 (the commencement of investment operations of the Fund)
through December 31, 1997 was 8.99%.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 4.04%. The tax-equivalent yield for
the 30 day period ending December 30, 1997 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 6.31%. The Fund's current distribution rate with respect to the Class
A Shares for the 31 day period ending December 31, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.66%. The Fund's taxable equivalent distribution rate with respect to Class A
Shares for the month ending December 31, 1997 was 7.28%.

The Fund's cumulative non-standardized total return, including payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to the end of the current period was 207.44%.

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 the end of the current period was 222.72%.

CLASS B SHARES

The average total return, including payment of CDSC, with respect to the
Class B Shares for (i) the one year period ended December 31, 1997 was 3.36% and
(ii) the approximately four year, eight month period from May 1, 1993 (the
commencement of distribution) through December 31, 1997 was 4.95%.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.44%. The tax-equivalent yield for
the 30 day period ending December 30, 1997 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 5.38%. The Fund's current distribution rate with respect to the Class
B Shares for the 31 day period ending December 31, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.14%. The Fund's taxable equivalent distribution rate with respect to Class B
Shares for the month ending December 31, 1997 was 6.47%.

B-53
<PAGE> 348

The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class B Shares from its inception to the end of
the current period was 25.33%.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class B Shares from its inception to the end of
the current period was 26.83%.

CLASS C SHARES

The average total return, including payment of CDSC, with respect to the
Class C Shares for (i) the one year period ended December 31, 1997 was 6.36% and
(ii) the approximately four year, five month period from August 13, 1993
(commencement of distribution) through December 31, 1997 was 4.82%.

The Fund's yield with respect to the Class C Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.38%. The tax-equivalent yield for
the 30 day period ending December 30, 1997 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 5.28%. The Fund's current distribution rate with respect to the Class
C Shares for the 31 day period ending December 31, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.14%. The Fund's taxable equivalent distribution rate with respect to Class C
Shares for the month ending December 31, 1997 was 6.47%.

The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class C Shares from its inception to the end of
the current period was 22.97%.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class C Shares from its inception to the end of
the current period was 22.97%.

OTHER INFORMATION

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to
shareholders, and annually such statements are audited by the independent
accountants.

LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher &
Flom (Illinois).

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<PAGE> 349

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND

Van Kampen California Insured Tax Free Fund is a mutual fund with an
investment objective to provide only California investors a high level of
current income exempt from federal and California income taxes, with liquidity
and safety of principal, primarily through investment in a diversified portfolio
of insured California municipal securities. The Fund is designed for investors
who are residents of California for tax purposes. All of the municipal
securities in the portfolio of the Fund will be insured by AMBAC Indemnity
Corporation or by other municipal bond insurers whose claims-paying ability is
rated "AAA" by Standard and Poor's ("S&P") on the date of purchase. The Fund's
portfolio is managed by Van Kampen American Capital Advisory Corp. (the
"Adviser").

The Fund is organized as a diversified series of the Van Kampen Tax Free
Trust, an open-end, management investment company (the "Trust").

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-3
Investment Restrictions..................................... B-24
Description of Municipal Securities Ratings................. B-25
Description of Insurance Company Claims Paying Ability
Ratings................................................... B-31
Trustees and Officers....................................... B-32
Investment Advisory and Other Services...................... B-42
Distribution and Service.................................... B-43
Transfer Agent.............................................. B-46
Portfolio Transactions and Brokerage Allocation............. B-46
Share Purchase Programs..................................... B-48
Shareholder Services........................................ B-51
Redemption of Shares........................................ B-54
Contingent Deferred Sales Charge-Class A.................... B-54
Waiver of Class B and Class C Contingent Deferred Sales
Charge ("CDSC-Class B and C")............................. B-54
Taxation.................................................... B-56
Fund Performance............................................ B-60
Other Information........................................... B-64
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.
B-1
<PAGE> 350

GENERAL INFORMATION

The Fund is a separate series of the Van Kampen Tax Free Trust (the
"Trust"). The Trust is an unincorporated business trust established under the
laws of the State of Delaware by an Agreement and Declaration of Trust (the
"Declaration of Trust") dated May 10, 1995. The Declaration of Trust permits the
Trustees to create one or more separate investment portfolios and issue a series
of shares for each portfolio. The Trustees can further sub-divide each series of
shares into one or more classes of shares for each portfolio.

The Fund was originally organized under the name Van Kampen Merritt
California Insured Tax Free Fund as a sub-trust of the Massachusetts Trust. The
Fund was reorganized as a series of the Trust under the name Van Kampen American
Capital California Insured Tax Free Fund on July 31, 1995. On July 14, 1998, the
Fund adopted its current name.

B-2
<PAGE> 351

consider the removal of Trustees by a vote of two-thirds of the shares then
outstanding cast in person or by proxy at such meeting. The Fund will assist
such holders in communicating with other shareholders of the Fund to the extent
required by the Investment Company Act of 1940, as amended (the "1940 Act"), or
rules or regulations promulgated by the Securities and Exchange Commission
("SEC").

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit
plans and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

MUNICIPAL SECURITIES

B-3
<PAGE> 352

INSURANCE

ORIGINAL ISSUE INSURANCE. Original Issue Insurance is purchased with
respect to a particular issue of municipal securities by the issuer thereof or a
third party in conjunction with the original issuance of such municipal
securities. Under such insurance, the insurer unconditionally guarantees to the
holder of the insured municipal security the timely payment of principal and
interest on such obligation when and as such payments shall become due but shall
not be paid by the issuer; except that in the event of any acceleration of the
due date of the principal by reason of mandatory or optional redemption (other
than acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the insured payments may be made in such amounts and at such times as
payments of principal would have been due had there not been such acceleration.
The insurer is responsible for such payments less any amounts received by the
holder from any trustee for the municipal security issuers or from any other
source. Original Issue Insurance generally does not insure payment on an
accelerated basis, the payment of any redemption premium (except with respect to
certain premium payments in the case of certain small issue industrial
development and pollution control municipal securities), the value of the shares
of the Fund or the market value of municipal securities, or payments of any
tender purchase price upon the tender of the municipal securities. Original
Issue Insurance also does not

B-5
<PAGE> 354

insure against nonpayment of principal of or interest on municipal securities
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for such obligations.

B-6
<PAGE> 355

GENERAL. It is anticipated that certain of the municipal securities to be
purchased by the Fund will be insured under policies obtained by persons other
than the Fund. In instances in which the Fund purchases municipal securities
insured under policies obtained by persons other than the Fund, the Fund does
not pay the premiums for such policies; rather the cost of such policies may be
reflected in a higher purchase price for such municipal securities. Accordingly,
the yield on such municipal securities may be lower than that on similar
uninsured municipal securities. Premiums for a Portfolio Insurance Policy
generally are paid by the Fund monthly, and are adjusted for purchases and sales
of municipal securities covered by the policy during the month. The yield on the
Fund's portfolio is reduced to the extent of the insurance premiums paid by the
Fund which, in turn, will depend upon the characteristics of the covered
municipal securities held by the Fund. In the event the Fund were to purchase
Secondary Market Insurance with respect to any municipal

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<PAGE> 356

securities then covered by a Portfolio Insurance policy, the coverage and the
obligation of the Fund to pay monthly premiums under such policy would cease
with such purchase.

Although the insurance on municipal securities reduces financial or credit
risk in respect of the insured obligations (i.e., the possibility that owners of
the insured municipal securities will not receive timely scheduled payments of
principal or interest), insured municipal securities remain subject to market
risk
(i.e., fluctuations in market value as a result of changes in prevailing
interest rates). Accordingly, insurance on municipal securities does not insure
the market value of the Fund's assets or the net asset value.

SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES. As
described in the Prospectus, except during temporary periods, the Fund will
invest substantially all of its assets in California municipal securities. The
portfolio of the Fund may include securities issued by the State of California
(the "State"), by its various public bodies (the "Agencies") and/or by other
municipal entities located within the State (securities of all such entities are
referred to herein as "California municipal securities").

In addition, the specific California municipal securities in which the Fund
will invest will change from time to time. The Fund is therefore susceptible to
political, economic, regulatory or other factors affecting issuers of California
municipal securities. The following information constitutes only a brief summary
of a number of the complex factors which may impact issuers of California
municipal securities and does not purport to be a complete or exhaustive
description of all adverse conditions to which issuers of California municipal
securities may be subject. Such information is derived from official statements
utilized in connection with the issuance of California municipal securities, as
well as from other publicly available

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documents. Such information has not been independently verified by the Fund and
the Fund assumes no responsibility for the completeness or accuracy of such
information. Additionally, many factors, including national, economic, social
and environmental policies and conditions, which are not within the control of
such issuers, could have an adverse impact on the financial condition of such
issuers. The Fund cannot predict whether or to what extent such factors or other
factors may affect the issuers of California municipal securities, the market
value or marketability of such securities or the ability of the respective
issuers of such securities acquired by the Fund to pay interest on or principal
of such securities. The creditworthiness of obligations issued by local
California issuers may be unrelated to the creditworthiness of obligations
issued by the State of California, and there is no assurance on the part of the
State of California to make payments on such local obligations. There may be
specific factors that are applicable in connection with investment in the
obligations of particular issuers located within California, and it is possible
the Fund will invest in obligations of particular issuers as to which such
specific factors are applicable. However, the information set forth below is
intended only as a general summary and not as a discussion of any specific
factors that may affect any particular issuer of California municipal
securities.

Constitutional Limits on Spending and Taxes. Certain California municipal
securities may be obligations of issuers which rely in whole or in part,
directly or indirectly, on ad valorem real property taxes as a source of
revenue. In 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, the Jarvis/Gann Initiative, which added
Article XIIIA to the California Constitution. The effect of Article XIIIA is to
limit ad valorem taxes on real property and to restrict the ability of taxing
entities to increase real property tax revenues. On June 18, 1992, the United
States Supreme Court upheld the constitutionality of Article XIIIA.

In 1979, the voters of California passed an amendment adding Article XIIIB
to the California Constitution, the effect of which is to significantly limit
spending by State government and by "local government" (defined as "any city,
county, city and county, school district, special district, authority, or other
political subdivision of or within the state"). Excluded from these limitations
on government entities is "debt service" (defined as "appropriations required to
pay the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally authorized as of January 1, 1979 or on bonded indebtedness
thereafter approved" by the voters of the issuing entity).

In November 1986, California voters approved an amendment to the California
Government Code known as Proposition 62 which added Article 3.7 to Title 5,
Division 2, Chapter 4 of the California Government Code. The effect of Article
3.7 is to limit the abilities of local governments to impose new taxes or
increase existing taxes by requiring certain legislative and voter approvals
prior to the imposition of certain taxes by any local government (defined as any
county, city, city and county, including a chartered city or county, or any
public or municipal corporation) or district (defined as any agency of the
state, formed pursuant to general law or special act, for the local performance
of governmental or proprietary functions within limited boundaries). Article 3.7
can be amended only by a vote of the electorate of the State of California. In
particular, Article 3.7, among other things, requires (i) two-thirds approval of
all members of the applicable legislative body followed by majority approval of
the voters voting in an election in order for a local government or district to
impose any general tax (defined as any tax imposed for general governmental
purposes), and (ii) two-thirds approval of the voters voting in an election in
order for a local government or district to impose any special tax (defined as
any tax imposed for a specific purpose). Those voting requirements do not apply
to ad valorem taxes to pay interest and redemption charges on any indebtedness
approved by the voters prior to the effective date of Article XIIIA of the
California Constitution. Article 3.7 requires (1) that the revenues from a
special tax be used only for the purpose or service for which the tax was
imposed, and (2) any tax subject to the measure imposed by any local government
or district on or after August 1, 1985 be ratified by majority vote of the
voters voting in an election held within two years after the effective date of
the measure in order for the tax to continue to be imposed on and after November
15, 1988. Article 3.7 contains a provision which diminishes the property tax
revenues allocated to a local government or district to the extent that the
local government or district imposed any tax not in compliance with Article 3.7.
Article 3.7 also provides that no local government or district may impose any ad
valorem tax on real property other than as permitted by Section 1 of

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Article XIIIA of the California Constitution, and that no local government or
district may impose any transaction tax or sales tax on the sale of real
property within the city, county or district. A 1988 decision of the Fourth
Appellate District of the California Court of Appeals declared that the
requirement of local voter ratification provided for in Article 3.7 violated the
California Constitution. An initiative proposed to re-enact the ratification
provisions of Article 3.7 as a constitutional amendment was defeated by the
voters in November 1990, but such a proposal may be renewed in the future.

On December 19, 1991, the California Supreme Court declared a 1988 San
Diego County Ballot measure that raised sales taxes for the purpose of financing
construction of criminal detention and courthouse facilities unconstitutional
because it was not passed with two-thirds voter approval. The court concluded
that the agency established to finance the facilities is a special district
created to circumvent Article XIIIA. However, in May 1992, the California
Supreme Court let stand two lower court decisions involving sales tax increases
passed by a majority vote. The lower courts had held that the Los Angeles County
Transportation Commission and the Orange County Transportation Authority, the
agencies entitled to collect the taxes, were not formed to circumvent Article
XIIIA, and that, therefore, the taxes were validly passed. On November 10, 1993,
in a closely watched case involving a Santa Clara County transportation
authority created with the parameters of the California Supreme Court's 1991
decision in mind, a California Court of Appeal overturned a sales tax approved
by less than two-thirds of the voters. In a September 1995 decision, the State
Supreme Court affirmed the Court of Appeal, declaring Proposition 62
constitutional under the California Constitution. The decision limited itself to
cities organized by the State and left unresolved whether Proposition 62 is
constitutional as applied to cities organized under a charter. Approximately
half the population of the State resides in charter cities. In March 1996, a
Superior Court held that charter cities do not have to submit taxes to voter
approval despite the State Supreme Court's Proposition 62 ruling . These
decisions may continue to cast doubt on other projects around the State that
have been financed with sales tax increases imposed without two-thirds voter
approval. Soon after the State Supreme Court decision, Moody's Investors
Services, Inc. indicated that the ruling has broad negative implications on the
ability of the State's cities and counties to raise revenue and issue debt
supported by general fund revenues.

On November 5, 1996, voters approved Proposition 218, entitled the "Right
to Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives.

Proposition 218 does not affect the State or its ability to levy or collect
taxes. There are a number of ambiguities concerning the Proposition and its
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature. The Legislative Analyst
estimated that enactment of Proposition 218 would reduce local government
revenues statewide by over $100 million a year, and that over time revenues to
local government would be reduced by several hundred million dollars a year
under this Proposition.

Because of the complex nature of Articles XIIIA-D, the ambiguities and
possible inconsistencies in their respective terms, and the applicability of
their respective exemptions and exceptions and the impossibility of predicting
future appropriations, it is not presently possible to determine the impact of
Article XIIIA-D or any implementing or related legislation on the California
municipal securities in which the Fund may invest, or the abilities of State or
local governments to pay the interest on, or repay the principal of such
California municipal securities.

Proposition 98. On November 8, 1988, voters approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act" (the "Act"). The Act changes
State funding of public education below the university level and the operation
of the State's Appropriations Limit. The Act, as amended, guarantees State
funding for K-12 school districts and community college districts at a level
equal to the greater of (a) in general, a fixed percentage of General Fund
revenues, (b) the amount actually appropriated to such districts from the
General Fund in the previous

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fiscal year, adjusted for either changes in the cost of living, or (c) a third
test which would replace the test in (b) if the percentage growth in per capita
of General Fund revenues in the prior year plus one half of one percent is less
than the percentage growth in California per capita personal income. Under the
test in (c), the schools would receive the amount appropriated in the prior year
adjusted for changes in enrollment and General Fund revenues. The Act permits
the legislature, by two-thirds vote of both houses, with the Governor's
concurrence, to suspend this formula for a one-year period. The Act could cause
increasing pressure on the State's budget over future years, potentially
reducing resources available for other State programs, especially to the extent
the Article XIIIB spending limit would restrain the State's ability to fund such
other programs by raising taxes. The Act also changes how tax revenues in excess
of the State's Appropriations Limit are distributed. Any excess State tax
revenues up to a specified amount would, instead of being returned to taxpayers,
be transferred to K-12 school and community college districts. Such transfer
would be excluded from the Appropriations Limit for K-14 school districts, and
the K-14 school Appropriations Limits for the next year would be automatically
increased by the amount of such transfer. These additional moneys would enter
the base funding calculation for K-14 schools for subsequent years, creating
further pressure on other portions of the state budget, particularly if revenues
decline in a year following such a transfer.

During the recent recession, General Fund revenues for several years were
less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements.

In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. The settlement
of this case, finalized in July, 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State will repay $935
million by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected as an appropriation
above the current Proposition 98 base calculation. The schools' share of the
repayment will count as appropriations that count toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact. Substantially increased General Fund revenues, above
initial budget projections, in the fiscal years 1994-95 and thereafter have
resulted or will result in retroactive increases in Proposition 98
appropriations from subsequent fiscal years' budgets.

Local Governments. The fiscal condition of local governments has been
constrained since the enactment of "Proposition 13" in 1978, which reduced and
limited the future growth of property taxes, and limited the ability of local
government to impose "special taxes" (those devoted to a specific purpose)
without two-thirds voter approval.

Counties, in particular, have had fewer options to raise revenues than many
other local government entities, and have been required to maintain many
services. The entire statewide welfare system was changed in response to the
change in federal welfare law enacted in 1996. As part of the 1997-98 Budget Act
legislative package, the Legislature and Governor agreed on a comprehensive
reform of the State's public assistance programs to implement the new federal
law. The new basic State welfare program is called California Work Opportunity
and Responsibility to Kids Act ("CalWORKs"), which replaces the former Aid to
Families with Dependent Children (AFDC) and Greater Avenues to Independence
(GAIN) programs effective January 1, 1998. Consistent with the federal law,
CalWORKs contains new time limits on receipt of welfare aid, both lifetime as
well as for any current period on aid. The centerpiece of CALWORKs is the
linkage of eligibility to work participation requirements. Administration of the
new Welfare-to-Work programs will be largely at the county level and counties
are given financial incentives for success in this program.

Although the longer-term impact of the new federal Law and CalWORKs cannot
be determined until there has been more experience, the State does not presently
anticipate that these new programs will have an

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adverse financial impact on the General Fund. Overall Temporary Assistance for
Needy Families (TANF) grants from the federal government are expected to equal
or exceed the amounts the State would have received under the old AFDC program.

Under current law, counties are required to provide "general assistance"
aid to certain persons who cannot obtain welfare from other programs, but this
mandate may be eliminated as part of the overhaul.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature has
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.

In November of 1994, Standard & Poor's Rating Group downgraded the credit
rating of several California counties, including San Francisco, San Diego,
Marin, Los Angeles and San Bernadino. In December of 1994 and January of 1995,
Standard & Poor's and Moody's Investors Services, Inc., respectively, downgraded
Orange County to below investment grade as a result of its bankruptcy filing
(see discussion below). In August of 1995, Standard & Poor's Rating Group again
downgraded the credit rating of Los Angeles County and placed it on CreditWatch.
Moody's Investors Services, Inc. also downgraded Los Angeles County. In October
of 1995, Standard & Poor's Rating Group placed San Diego County's $449.3 million
in general fund-supported debt issues on CreditWatch. Since the passage of
Proposition 218 in November 1996, five of the seven California cities reviewed
by the major rating agencies have been downgraded (Los Angeles, Sacramento, San
Diego, Fresno and Anaheim).

On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Funds") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Funds had
suffered significant market losses in their investments, causing a liquidity
crisis for the Funds and the County. More than 200 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Funds. As of mid-January, 1995, following a restructuring of most of the Funds'
assets to increase their liquidity and reduce their exposure to interest rate
increases, the County estimated the Funds' loss at about $1.69 billion, or 23%
of their initial deposits of approximately $7.5 billion. Many of the entities
which deposited moneys in the Funds, including the County, are facing cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. This may also affect their ability to meet their
outstanding obligations. In June, 1996, Orange County emerged from bankruptcy
protection as part of a fiscal recovery plan that included the issuance of new
recovery bonds and sharp reductions in services and personnel. Moody's gave the
insured recovery bonds an underlying rating of Baa and the county's general
obligation bonds a Ba rating. Standard & Poor's gave the recovery bonds a B
underlying rating and Fitch Investors Service assigned the bonds as underlying
rating of BBB.

State Finances. From 1990 until 1994 the State experienced the worst
economic fiscal, and budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others, have
all been severely affected. Job losses were the worst of any post-war recession.

The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-14
education, health, welfare and corrections -- growing at rates significantly
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State entered a period of chronic budget imbalance. By
the 1993-94 Fiscal Year, the accumulated deficit was so large that it was
impractical to budget to retire it in one year, so a two-year program was
implemented, using the issuance of revenue anticipation warrants to carry a
portion of the deficit over the end of the fiscal year. When the economy failed
to recover sufficiently in 1993-94, a second two-year plan was implemented in
1994-95, again using cross-fiscal year revenue anticipation warrants to partly
finance the deficit into the 1995-96 fiscal year.

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Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.

For several fiscal years during the recession, the State was forced to rely
on external debt markets to meet its cash needs, as a succession of notes and
revenue anticipation warrants were issued in the period from June 1992 to July
1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.

The State's financial condition improved markedly during the 1995-96 and
1996-97 fiscal years, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending restraint
based on the actions taken in earlier years. The State's cash position also
improved, and no external deficit borrowing has occurred over the end of these
two fiscal years.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96 and $1.6 billion in 1996-97) than were initially planned when the
budgets were enacted. These additional funds were largely directed to school
spending as mandated by Proposition 98, and to make up shortfalls from reduced
federal health and welfare aid. The accumulated budget deficit from the
recession years was finally eliminated. In the Governor's 1998-99 Budget
Proposal, released January 9, 1998, the Department of Finance reported that the
State's budget reserve totaled $461 million as of June 30, 1997.

As a result of the deterioration in the State's budget and cash situation
during the early 1990, rating agencies reduced the State's credit rating.
Between October 1991 and October 1992, the rating on the general obligation
bonds was reduced by Standard & Poor's from "AAA" to "A+", by Moody's Investors
Services, Inc. from "Aaa" to "Aa" and by Fitch Investors Services, Inc. from
"AAA" to "AA". On July 15, 1994, all three of the rating agencies rating the
State's long-term debt again lowered their ratings of the State's general
obligation bonds. Moody's Investors Services, Inc. lowered its rating from "Aa"
to "A1", Standard & Poor's Ratings Group lowered its rating from "A+" to "A",
and Fitch Investors Service lowered its rating from "AA" to "A". In July 1996,
Standard & Poor's raised its rating to A+ from A. In 1997, Fitch Investors
Service raised its rating to "AA-" from "A+". There can be no assurance that
such ratings will continue for any given period of time or that they will not in
the future be further revised or withdrawn. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and there is no obligation on the part of the State to make payment
on such obligations in the event of default.

On January 9, 1997, the Governor released his proposed budget for the
1997-98 Fiscal Year (the "Proposed Budget"). The Proposed Budget estimated
General Fund revenues and transfers of about $50.7 billion, and proposed
expenditures of $50.3 billion. In May 1997, the Department of Finance increased
its revenue estimate for the upcoming fiscal year by $1.3 billion, in response
to the continued strong growth in the State's economy.

In May, 1997, action was taken by the California Supreme Court in an
ongoing lawsuit, PERS v. Wilson, which made final a judgment against the State
requiring an immediate payment from the General Fund to the Public Employees
Retirement Fund ("PERF") to make up certain deferrals in annual retirement fund
contributions which had been legislated in earlier years for budget savings, and
which the courts found to be unconstitutional. On July 30, 1997, following a
direction from the Governor, the Controller transferred

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$1.228 billion from the General Fund to the PERF in satisfaction of the
judgment, representing the principal amount of the improperly deferred payments
from 1995-96 and 1996-97.

Once the pension payment of $1.228 billion eliminated essentially all the
"increased" revenue in the budget, final agreement was reached within a few
weeks on a welfare reform package and the remainder of the budget. The
Legislature passed the Budget Bill on August 11, 1997, along with numerous
related bills to implement its provisions. On August 18, 1997, the Governor
signed the 1997-98 Budget Act, but vetoed approximately $314 million of specific
spending items, primarily in health and welfare and education areas from both
the General Fund and Special Funds. Most of this spending (approximately $200
million) was restored in later legislation passed before the end of the
Legislative Session.

The 1997-98 Budget Act anticipated General Fund revenues and transfers of
$52.5 billion (a 6.8 percent increase over the final 1996-97 amount), and
expenditures of $52.8 billion (an 8.0 percent increase from the 1996-97 levels).
The 1997-98 Budget Act also included Special Fund expenditures of $14.4 billion
(as against estimated Special Fund revenues of $14.0 billion), and $2.1 billion
of expenditures from various Bond Funds. Following enactment of the 1997-98
Budget Act, the State implemented its normal annual cash flow borrowing program,
issuing $3.0 billion of notes which mature on June 30, 1998.

The Department of Finance released updated estimates for the 1997-98 Fiscal
Year on January 9, 1998 as part of the Governor's 1998-99 Fiscal Year Budget
Proposal. Total revenues and transfers are projected at $52.9 billion, up
approximately $360 million from the Budget Act projection. Expenditures for the
fiscal year are expected to rise approximately $200 million above the original
Budget Act, to $53.0 billion. The balance in the budget reserve, the Special
Fund for Economic Uncertainties (SFEU), is projected to be $329 million at June
30, 1998, compared to $461 million at June 30, 1997.

On January 9, 1998, the Governor released his Budget Proposal for the
1998-99 Fiscal Year (the "Governor's Budget"). The Governor's Budget projects
total General Fund revenues and transfers of $55.4 billion, a $2.5 billion
increase (4.7 percent) over revised 1997-98 revenues. This revenue increase
takes into account reduced revenues of approximately $600 million from the 1997
tax cut package, but also assumes approximately $500 million additional revenues
primarily associated with capital gains realizations. The Governor's Budget
notes, however, that capital gains activity and the resultant revenues derived
from it are very hard to predict.

Total General Fund expenditures for 1998-99 are recommended at $55.4
billion an increase of $2.4 billion (4.5 percent) above the revised 1997-98
level. The Governor's Budget includes funds to pay the interest claim relating
to the court decision on pension fund payments, PERS v. Wilson. The Governor's
Budget projects that the State will carry out its normal intra-year cash flow
external borrowing in 1998-99, in an estimated amount of $3.0 billion. The
Governor's Budget projects that the budget reserve, the SFEU, will be $296
million at June 30, 1999, slightly lower than the projected level at June 30,
1998.

The Governor's Budget projects Special Fund revenues of $14.7 billion, and
Special Fund expenditures of $15.2 billion, in the 1998-99 Fiscal Year. A total
of $3.2 billion of bond fund expenditures are also proposed.

It is not presently possible (1) to know whether, and to what extent, the
State General Fund or any Special Funds will have surplus or deficit balances in
the 1995-1996 fiscal year or in any subsequent fiscal year, or (2) to determine
the overall impact of any deficits on future allocations of the State revenues
to local governments or on the abilities of State or local governments to pay
the interest on, or repay the principal of, any California municipal securities
in which the Fund may invest.

Litigation. At any given time, including the present, there are numerous
civil actions pending against the State (including, but not limited to, those
discussed in the preceding paragraphs and below), which could, if determined
adversely to the State, affect the State's expenditures and, in some cases, its
revenues. The following are certain of the more significant lawsuits pending
against the State.

Northern California 1997 Flood Litigation: In January of 1997, California
experienced major flooding in six different areas with current estimates of
property damage to be approximately $1.6 to $2 billion. To date,

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one lawsuit has been filed by 500 homeowners, but more lawsuits are expected.
Exposure from all of the anticipated cases arising from these floods could total
approximately $2 billion.

The State is a defendant in several related cases, mainly California
Ambulance Association v. Shalala et al., in which the plaintiffs are seeking
action to compel the Department of Health Services to pay Part B ambulance and
physician services co-payments under the Medicare and Medicaid Acts. Should the
plaintiffs prevail, the liability for retroactive payments is estimated to be
$490 million, and the liability for future payments can be in excess of $130
million annually. The General Fund and the federal government will share the
liability equally.

The State is a defendant in Ceridian Corporation v. Franchise Tax Board, a
suit which challenges the validity of two sections of the California Tax laws.
The first relates to deduction from corporate taxes for dividends received from
insurance companies to the extent the insurance companies have California
activities. The second relates to corporate deduction of dividends to the extent
the earnings of the dividend paying corporation have already been included in
the measure of their California tax. If both sections of the California Tax law
are invalidated, and all dividends become deductible, then the General Fund can
become liable for approximately $200-$250 million annually.

The State is involved in a lawsuit. Thomas Hayes v. Commission on State
Mandates, related to state-mandated costs. The action involves an appeal by the
Director of Finance from a 1984 decision by the State Board of Control (now
succeeded by the Commission on State Mandates (Commission)). The Board of
Control decided in favor of local school districts' claims for reimbursement for
special education programs for handicapped students. The case was then brought
to the trial court by the State and later remanded to the Commission for
redetermination. The Commission has since expanded the claim to include
supplemental claims filed by seven other educational institutions; the issuance
of a final consolidated decision is anticipated sometime in early 1997. To date,
the Legislature has not appropriated funds. The liability to the State, if all
potentially eligible school districts pursue timely claims, has been estimated
by the Department of Finance at more than $1 billion.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J. B. Stringfellow, Jr., et al., the State is seeking recovery for
past costs of cleanup of the site, a declaration that the defendants are jointly
and severally liable for future costs, and an injunction ordering completion of
the cleanup. However, the defendants have filed a counterclaim against the State
for alleged negligent acts. Because the State is the present owner of the site,
the State may be found liable. Present estimates of the cleanup range from $300
million to $800 million.

The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The trial court has found liability in inverse condemnation and awarded damages
of $500,000 to a sample of plaintiffs. The State's potential liability to the
remaining plaintiffs ranges from $800 million to $1.5 billion. An appeal has
been filed.

The State is a defendant in California State Employees Association v.
Wilson, where the petitioners are challenging several budget appropriations in
the 1994 and 1995 Budget Acts. The appropriations mandate the transfer of funds
from the State Highway Account to the General Fund to reimburse the General Fund
for debt service costs on two rail bond measures. The petitioners contend that
the transfers violate the bond acts themselves and are requesting the monies be
returned. The loss to the State's General Fund could be up to $227 million.

In a similar case, Professional Engineers in California Government v.
Wilson, the petitioners are challenging several appropriations in the 1993,
1994, and 1995 Budget Acts. The appropriations mandate the transfer of
approximately $262 million from the State Highway Account and $113 million from
the Motor Vehicle Account to the General Fund and appropriate approximately $6
million from the State Highway Account to fund a highway-grade crossing program
administered by the Public Utilities Commission. Petitioners contend that the
transfers violate several constitutional provisions and request that the moneys
be returned to the State Highway Account and Motor Vehicle Account.

B-15
<PAGE> 364

The State is a defendant in Just Say No To Tobacco Dough Campaign v. State
of California, where the petitioners challenge the appropriation of
approximately $166 million of Proposition 99 funds in the Cigarette and Tobacco
Products Surtax Fund for years ended June 30, 1990, through June 30, 1995 for
programs which were allegedly not health education or tobacco-related disease
research. If the State loses, the General Fund and funds from other sources
would be used to reimburse the Cigarette and Tobacco Products Surtax Fund for
approximately $166 million.

The State is a defendant in the case of Kurt Hathaway, et al. v. Wilson, et
al., where the plaintiffs are challenging the legality of various budget action
transfers and appropriations from particular special funds for years ended June
30, 1995, and June 30, 1996. The plaintiffs allege that the transfers and
appropriations are contrary to the substantive law establishing the funds and
providing for interest accruals to the fund, violate the single subject
requirement of the State Commission, and is an invalid "special law." Plaintiffs
seek to have monies totaling approximately $335 million returned to the special
funds.

The State is a defendant in two related cases, Beno vs. Sullivan (Beno) and
Welch vs. Anderson (Welch), concerning reductions in Aid to Families with
Dependent Children (AFDC) grant payments. In the Beno case, plaintiffs seek to
invalidate AFDC grant reductions and in the Welch case, plaintiffs contend that
AFDC grant reductions are not authorized by state law. The Beno case concerns
the total grant reductions while the Welch case concerns the period of time the
State did not have a waiver for those reductions. The State's potential
liability for retroactive AFDC grant reductions is estimated at $831 million if
the plaintiffs are awarded the full amount in both cases.

Recent Legislation. Recently, legislation has been enacted which (1)
increases, in limited instances, the abilities of both county boards of
supervisors and redevelopment agencies to impose new special taxes; (2) repeals
the existing limitations on the amount of notes of the State of California which
may be sold; (3) eliminates certain restrictions on repayment of general
obligations bonds; (4) allows revenue anticipation notes to be repaid in a
succeeding fiscal year and generally facilitates their issuance; (5) increases
the ability of community redevelopment agencies to issue revenue bonds for the
purpose of refunding bonds of other political subdivisions of the State; (6) cut
corporate tax rates by 5% a year; and (7) automatically and proportionately
reduces programmed General Fund appropriations for the next fiscal year (except
those mandated by the Constitution) up to 4%, if the State Director of Finance,
with concurrence of the Commission on State Finance, certifies that revenues for
such fiscal year were not expected to meet programmed budgetary requirements.

Additional legislation has been or may be introduced which would create new
regional agencies with the ability to tax and issue debt, alter the definition
of ownership changes that trigger reassessment of business property under
Article XIIIA, modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively would increase the abilities of
State and local governments to impose new taxes, increase existing taxes
(including sales tax increases to fund earthquake relief), issue bonds or other
debt instruments, or adopt State budgets with only a majority vote of the
legislature. It is not currently possible to predict the extent to which any
such legislation will be enacted. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Nor is it currently possible to determine the
impact of any recently enacted or proposed legislation on California municipal
securities in which the Fund may invest or future allocations of State revenues
to local governments.

STRATEGIC TRANSACTIONS

B-16
<PAGE> 365

financial future, index, or other instrument might be intended to protect the
Fund against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may purchase
such instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.

B-18
<PAGE> 367

takes the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on illiquid securities described herein.

B-19
<PAGE> 368

time of entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least "A" by
S&P or Moody's or has an equivalent equity rating from an NRSRO or is determined
to be of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

B-21
<PAGE> 370

futures or forward contract with a strike price as high or higher than the price
of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash and liquid securities equal to any remaining obligation would
need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of the Code for qualification as a regulated investment
company.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities,
which includes repurchase agreements which have a maturity of longer than seven
days and generally includes securities that are restricted from sale to the
public without registration under the Securities Act of 1933, as amended (the
"1933 Act"). The sale of such securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of liquid securities trading on national securities exchanges or
in the over-the-counter markets. Restricted securities are often purchased at a
discount from the market price of unrestricted securities of the same issuer
reflecting the fact that such securities may not be readily marketable without
some time delay. Investments in securities which have no ready market are valued
at fair value as determined in good faith by the Adviser in accordance with
procedures approved by the Fund's Trustees. Ordinarily, the Fund would invest in
restricted securities only when it receives the issuer's commitment to register
the securities without expense to the Fund. However, registration and
underwriting
B-22
<PAGE> 371

expenses (which may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the Fund. Restricted securities which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A Securities are liquid include, among other things, a
security's trading history, the availability of reliable pricing information,
the number of dealers making quotes or making a market in such security and the
number of potential purchasers in the market for such security. For purposes
hereof, investments by the Fund in securities of other investment companies will
not be considered investments in restricted securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.

B-23
<PAGE> 372

INVESTMENT RESTRICTIONS

1. Purchase any securities (other than tax exempt obligations guaranteed by
the United States Government or by its agencies or instrumentalities),
if as a result more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or if as
a result the Fund would hold more than 10% of the outstanding voting
securities or any single issuer, except that up to 25% of the Fund's
total assets may be invested without regard to such limitation, 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.

3. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 5% of the total asset value of the Fund, or
mortgage, pledge or hypothecate any assets except in connection with a
borrowing and in amounts not in excess of 10% of the total asset value
of the Fund. Borrowings may not be made for investment leverage, but
only to enable the Fund to satisfy redemption requests where liquidation
of portfolio securities is considered disadvantageous or inconvenient.
In this connection, the Fund will not purchase portfolio securities
during any period that such borrowings exceed 5% of the total asset
value of the Fund. Notwithstanding this investment restriction, the Fund
may enter into "when issued" and "delayed delivery" transactions as
described in the Prospectus.

4. Make loans, except to the extent the tax exempt obligations the Fund may
invest in are considered to be loans.

6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other
financial futures or index contracts or related options, except as
hedging transactions in accordance with the requirements of the
Securities and Exchange Commission and the Commodity Futures Trading
Commission.

7. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.

B-24
<PAGE> 373

10. Invest in equity interests in oil, gas or other mineral exploration or
development programs.

11. Purchase or sell real estate commodities or commodity contracts, except
as set forth in item 6 above and except to the extent the municipal
securities in which the Fund may invest are considered to be interests
in real estate.

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
</TABLE>

B-25
<PAGE> 374
<TABLE>
<S> <C>
AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing
within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.
</TABLE>

B-26
<PAGE> 375
<TABLE>
<S> <C>
I The letter "i" indicates the rating is implied. Such ratings
are assigned only on request to entities that do not have
specific debt issues to be rated. In addition, implied
ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings
on governments represent the sovereign ceiling or upper
limit for ratings on specific debt issues of entities
domiciled in the country.

L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

2. MUNICIPAL NOTES

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:

<TABLE>
<S> <C>
SP-1 Strong or strong capacity to pay principal and interest.
Issues determined to possess very strong characteristics are
a plus (+) designation.
</TABLE>

B-27
<PAGE> 376
<TABLE>
<S> <C>
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.
</TABLE>

3. COMMERCIAL PAPER

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'.

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.

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 MUNICIPAL BONDS

B-28
<PAGE> 377
<TABLE>
<S> <C>
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 risk
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.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

B-29
<PAGE> 378

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

2. SHORT-TERM EXEMPT NOTES

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

B-30
<PAGE> 379

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

DESCRIPTION OF INSURANCE COMPANY CLAIMS PAYING ABILITY RATINGS

RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

The claims-paying ability of insurance companies is rated by S&P and
Moody's. Descriptions of these ratings are set forth below:

DESCRIPTION OF S&P'S RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

AAA. Superior financial security on an absolute and relative basis.
Capacity to meet policyholder obligations is overwhelming under a variety of
economic and underwriting conditions.

AA. Excellent financial security. Capacity to meet policyholder obligations
is strong under a variety of economic and underwriting conditions.

A. Good financial security, but capacity to meet policyholder obligations
is somewhat susceptible to adverse economic and underwriting conditions.

BBB. Adequate financial security, but capacity to meet policyholder
obligations is susceptible to adverse economic and underwriting conditions.

B-31
<PAGE> 380

Note: Plus (+) and minus (-) signs indicate relative standing within a category,
and are not indications of likely upgrades or downgrades.

DESCRIPTION OF MOODY'S RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

A. Insurance companies rated A offer good financial security. However,
elements may be present which suggest a susceptibility to impairment sometime in
the future.

BAA. Insurance companies rated Baa offer adequate financial security.
However, certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.

TRUSTEES AND OFFICERS

TRUSTEES

B-32
<PAGE> 381

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual
Two World Trade Center Asset Management Group, a division of Morgan Stanley
66th Floor Dean Witter & Co. Mr. DeMartini is a Director of the
New York, NY 10048 Morgan Stanley Dean Witter Funds, Morgan Stanley Dean
Date of Birth: 10/12/52 Witter Distributors, Inc. and Dean Witter Trust
Company. Trustee of the TCW/DW Funds. Director of the
National Healthcare Resources, Inc. Formerly Vice
Chairman of the Board of the National Association of
Securities Dealers, Inc. and Chairman of the Board of
the Nasdaq Stock Market, Inc. Trustee/Director of each
of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management
Suite 7000 consulting firm. Formerly, Executive Vice President of
Chicago, IL 60606 ABN AMRO, N.A., a Dutch bank holding company. Prior to
Date of Birth: 06/03/48 1992, Executive Vice President of La Salle National
Bank. Trustee on the University of Chicago Hospitals
Board, The International House Board and the Women's
Board of the University of Chicago. Trustee/Director
of each of the funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief
Date of Birth: 02/29/52 Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a
private foundation. Trustee/Director of each of the
funds in the Fund Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc.,
423 Country Club Drive a financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). Trustee/Director
of each of the funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of Van Kampen Investments, the
2800 Post Oak Blvd. Advisers, the Distributor and Investor Services.
Houston, TX 77056 Director or officer of certain other subsidiaries of
Date of Birth: 10/19/39 Van Kampen Investments. Chairman of River View
International Inc. Chairman of the Board of Governors
and the Executive Committee of the Investment Company
Institute. Prior to July of 1998, Director and
Chairman of Van Kampen Investments Inc. Prior to
November 1996, President, Chief Executive Officer and
a Director of Van Kampen Investments Inc.
Trustee/Director of each of the funds in the Fund
Complex and Trustee of other funds advised by the
Advisers or Van Kampen Management Inc.
</TABLE>

B-33
<PAGE> 382

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster
One ServiceMaster Way Company, a business and consumer services company.
Downers Grove, IL 60515 Director of Illinois Tool Works, Inc., a manufacturing
Date of Birth: 07/08/44 company; the Urban Shopping Centers Inc., a retail
mall management company; and Stone Container Corp., a
paper manufacturing company. Trustee, University of
Notre Dame. Formerly, President and Chief Executive
Officer, Waste Management, Inc., an environmental
services company, and prior to that President and
Chief Operating Officer, Waste Management, Inc.
Trustee/Director of each of the funds in the Fund
Complex.

Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com
233 South Wacker Drive Corporation, APAC Teleservices, Inc., COMARCO, Inc.,
Suite 9700 Applied Language Technologies, Focal Communications,
Chicago, IL 60606 and Lante Corporation. Limited Partner of Evercore
Date of Birth: 10/29/53 Partners, LLP. Trustee/Director of each of the Funds
in the Fund Complex.

B-34
<PAGE> 383

OFFICERS

B-35
<PAGE> 384

B-36
<PAGE> 385

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.
Huey P. Falgout, Jr.................. Vice President, Assistant Secretary and Senior Attorney of
Date of Birth: 11/15/63 Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior Vice
Assistant Secretary President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy
General Counsel and Assistant Secretary of VK/AC Holding,
Inc. Prior to April of 1998, Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, Senior Vice
President, Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and Van Kampen
Merritt Holdings Corp. Prior to September of 1996, Mr.
Martin was Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc., and prior to July of
1996, he was Senior Vice President, Deputy General Counsel
and Secretary of VSM Inc. and VCJ Inc. Assistant Secretary
of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their
affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by the
Advisers or their affiliates.
</TABLE>

B-37
<PAGE> 386

B-38
<PAGE> 387

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
PENSION OR ESTIMATED MAXIMUM COMPENSATION
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ $30,328 $60,000 $111,197
Linda Hutton Heagy 3,141 60,000 111,197
R. Craig Kennedy 2,229 60,000 111,197
Jack E. Nelson 15,820 60,000 104,322
Jerome L. Robinson* 32,020 15,750 107,947
Phillip B. Rooney 0 60,000 74,697
Dr. Fernando Sisto 60,208 60,000 111,197
Wayne W. Whalen 10,788 60,000 111,197
</TABLE>

- ---------------

B-39
<PAGE> 388

As of January , 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.

B-40
<PAGE> 389

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund.................... 12/31 0
Tax Free High Income
Fund.................... 12/31 0
California Insured Tax
Free Fund............... 12/31 0
Municipal Income Fund..... 12/31 0
Intermediate Term
Municipal Income Fund... 12/31 0
Florida Insured Tax Free
Income Fund............. 12/31 0
New York Tax Free Income
Fund.................... 12/31 0
Trust Total............. 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-41
<PAGE> 390

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.500% on the first $100 million of
average daily net assets, 0.450% on the average daily net assets of the next
$150 million, 0.425% on the average daily net assets of the next $250 million
and 0.400% on the average daily net assets over $500 million.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, the Adviser received $ , $14,437 and
$27,860, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

B-42
<PAGE> 391

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Advisory Corp. received $0, $70,200 and
$14,700, respectively, in accounting services fees from the Fund.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Van Kampen Investments received $0, $9,100 and
$9,900, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
TOTAL UNDER- AMOUNTS
WRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------ -------------- --------------
<S> <C> <C> <C>
Fiscal Period Ended September 30, 1998........
Fiscal Year Ended December 31, 1997...........
Fiscal Year Ended December 31, 1996...........
</TABLE>

B-43
<PAGE> 392

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 TO
AS % OF NET DEALERS AS
AS % OF AMOUNT A % OF
SIZE OF INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE
------------------ ------------------ ----------- --------------
<S> <C> <C> <C>
Less than $25,000...................................... 3.25% 3.36% 3.00%
$25,000 but less than $250,000......................... 2.75% 2.83% 2.50%
$250,000 but less than $500,000........................ 1.75% 1.78% 1.50%
$500,000 but less than $1,000,000...................... 1.50% 1.52% 1.25%
$1,000,000 or more..................................... * * *
</TABLE>

- ---------------

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 3.00% on Class B Shares and 1.00% on Class C Shares.

B-44
<PAGE> 393

B-45
<PAGE> 394

pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through deferred sales charge.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $112,100 and $142,100, respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

B-47
<PAGE> 396

The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
-------------------
MORGAN DEAN
BROKERS STANLEY WITTER
------- ---------- ------
<S> <C> <C> <C>
Commission paid:
Fiscal period ended December 31 1998...................... $0
Fiscal year ended December 31, 1997....................... $0 $0 $0
Fiscal year ended December 31, 1996....................... $0 $0 NA
Fiscal period ended 1998 Percentages:
Commissions with affiliate to total commissions...........
Value of brokerage transactions with affiliate to total
transactions...........................................
</TABLE>

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

OTHER PURCHASE PROGRAMS

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

B-49
<PAGE> 398

dealers through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.

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.

The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents, and a person's spouse's parents.

B-50
<PAGE> 399

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

B-51
<PAGE> 400

Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services.

DIVIDEND DIVERSIFICATION

EXCHANGE PRIVILEGE

shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN

INTERNET TRANSACTIONS

B-53
<PAGE> 402

REINSTATEMENT PRIVILEGE

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED
SALES CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR DISABILITY

B-54
<PAGE> 403

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

B-55
<PAGE> 404

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

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, or by the Trust if it is required to qualify as a regulated
investment company as described below. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses in his
trade or business a part of any facilities financed with the 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.

B-57
<PAGE> 406

B-58
<PAGE> 407

respect to such dividends. This information may also be made available to the
tax authorities in the Non-U.S. Shareholder's country of residence.

The Trust and each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund will be subject
to tax if, among other things, it fails to distribute net capital gains, or if
its annual distributions, as a percentage of its income, are less than the
distributions required by tax laws.

CALIFORNIA

<TABLE>
<CAPTION>
FEDERAL STATE COMBINED
SINGLE RETURN JOINT RETURN TAX BRACKET TAX BRACKET* TAX BRACKET*
------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
$ 0-24,650 $ 0-41,200 15.00% 6.00% 20.10%
24,650-59,750 41,200-99,600 28.00% 9.30% 34.70%
59,750-124,650 99,600-151,750 31.00% 9.30% 37.40%
124,650-271,050 151,750-271,050 36.00% 9.30% 42.00%
Over 271,050 Over 271,050 39.60% 9.30% 45.20%
</TABLE>

- ---------------

B-59
<PAGE> 408

1997 CALIFORNIA INCOME TAX BRACKETS -- REFLECTING 1997 INDEXED BRACKETS

Married Filing Jointly -- 4 Personal Exemptions

<TABLE>
<CAPTION>
ADJUSTED FEDERAL STATE
TAXABLE INCOME GROSS INCOME TAX RATE TAX RATE
-------------- ------------ -------- --------
<S> <C> <C> <C>
$ 0-41,200 $ 0-121,200 15.00% 6.000%
41,200-99,600 0-121,200 28.00% 9.300%
121,200-181,800 28.84% 9.300%
99,600-151,750 0-121,200 31.00% 9.300%
121,200-181,800 31.93% 9.300%
181,800-228,305 34.56% 9.300%
228,305-255,805 34.56% 10.818%
255,805-304,300 34.56% 9.858%
151,750-271,050 121,200-181,800 37.08% 9.300%
181,800-228,305 40.13% 9.300%
228,305-255,805 40.13% 10.818%
255,805-304,300 40.13% 9.858%
Over 304,300 37.08% 9.858%
Over 271,050 181,800-228,305 44.15% 9.300%
228,305-255,805 44.15% 10.818%
255,805-304,300 44.15% 9.858%
Over 304,300 40.79% 9.858%
</TABLE>

Single -- 1 Personal Exemption

<TABLE>
<CAPTION>
ADJUSTED FEDERAL STATE
TAXABLE INCOME GROSS INCOME TAX RATE TAX RATE
-------------- ------------ -------- --------
<S> <C> <C> <C>
$ 0-24,650 $ 0-114,152 15.00% 6.000%
24,650-59,750 0-114,152 28.00% 9.300%
59,750-124,650 0-114,152 31.00% 9.300%
114,152-121,200 31.00% 10.098%
121,200-141,652 32.59% 10.098%
141,652-243,700 32.59% 9.858%
124,650-271,050 121,200-141,652 37.84% 10.098%
141,652-243,700 37.84% 9.858%
Over 243,700 37.08% 9.858%
Over 271,050 Over 243,700 40.79% 9.858%
</TABLE>

FUND PERFORMANCE

The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes a maximum sales charge of 4.75% for Class A
Shares); that all income dividends or capital gains distributions during the
period are reinvested in Fund shares at net asset value; and that any applicable
CDSC has been paid. The Fund's total return will vary depending on market
conditions, the securities comprising the Fund's portfolio, the Fund's operating
expenses and unrealized net

B-60
<PAGE> 409

capital gains or losses during the period. Total return is based on historical
earnings and asset value fluctuations and is not intended to indicate future
performance. No adjustments are made to reflect any income taxes payable by
shareholders on dividends and distributions paid by the Fund.

B-61
<PAGE> 410

B-62
<PAGE> 411

1984 to 1994 which studied investor cash flow into and out of all types of
mutual funds. The ten year study found that investors who bought mutual fund
shares and held such shares outperformed investors who bought and sold. The
Dalbar study conclusions were consistent regardless of if shareholders purchased
their funds in direct or sales force distribution channels. The study showed
that investors working with a professional representative have tended over time
to earn higher returns than those who invested directly. The Fund will also be
marketed on the Internet.

CLASS A SHARES

The average total return, including payment of the maximum sales charge,
with respect to the Class A Shares for (i) the one year period ended December
31, 1997 was 5.19%; (ii) the five year period ended December 31, 1997 was 6.31%;
(iii) the ten year period ended December 31, 1997 was 7.87%; and (iv) the
approximately twelve year, one month period from December 13, 1985 (the
commencement of investment operations of the Fund) through December 31, 1997 was
7.97%.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 31, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 4.26%. The tax-equivalent yield for
the 30 day period ending December 31, 1997 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 42% tax
rate) was 7.34%. The Fund's current distribution rate with respect to the Class
A Shares for the 31 day period ending December 31, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.67%. The Fund's taxable equivalent distribution rate with respect to Class A
Shares for the month ending December 31, 1997 was 8.05%.

The Fund's cumulative non-standardized total return, including payment of
the maximum sales charge, with respect to the Class A Shares from its inception
to the end of the current period was 151.90%.

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 the end of the current period was 160.39%.

CLASS B SHARES

The average total return, including payment of the CDSC, with respect to
the Class B Shares for (i) the one year period ended December 31, 1997 was 5.19%
and (ii) the approximately three year, eight month period of May 1, 1993
(commencement of distribution) through December 31, 1997 was 5.34%.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending December 31, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.61%. The tax-equivalent yield for
the 30 day period ending December 30, 1997 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 43% tax
rate) was 6.22%. The Fund's current distribution rate with respect to the Class
B Shares for the 31 day period ending December 31, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.10%. The Fund's taxable equivalent distribution rate with respect to Class B
Shares for the month ending December 31, 1997 was 7.07%.

The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class B Shares from its inception to the end of
the current period was 27.49%.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class B Shares from its inception to the end of
the current period was 27.49%.

CLASS C SHARES

The average total return, including payment of the CDSC, with respect to
the Class C Shares for the (i) one year period ending December 31, 1997 was
7.19% and (ii) the approximately four year, five month period from August 13,
1993 (commencement of distribution) through December 31, 1997 was 4.77%.

B-63
<PAGE> 412

The Fund's yield with respect to the Class C Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.57%. The tax-equivalent yield for
the 30 day period ending December 30, 1997 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 42% tax
rate) was 6.16%. The Fund's current distribution rate with respect to the Class
C Shares for the 31 day period ending December 31, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.10%. The Fund's taxable equivalent distribution rate with respect to Class C
Shares for the month ending December 31, 1997 was 7.07%.

The Fund's cumulative non-standardized total return, including payment of
the CDSC, with respect to the Class C Shares from its inception to the end of
the current period was 22.71%.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class C Shares from its inception to the end of
the current period was 22.71%.

OTHER INFORMATION

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to
shareholders, and annually such statements are audited by the independent
accountants.

LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher &
Flom (Illinois).

B-64
<PAGE> 413

The information in this statement of additional information is not complete
and may be changed. The Fund may not sell these securities until the post-
effective amendment to the registration statement filed with the Securities
and Exchange Commission is effective. This statement of additional
information is not a prospectus. This statement of additional information
is not an offer to sell these securities and is not soliciting an offer to
buy these securities.

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN MUNICIPAL INCOME FUND

Van Kampen Municipal Income Fund is a mutual fund with an investment objective
to provide investors a high level of current income exempt from federal income
tax, consistent with preservation of capital. The Fund's management seeks to
achieve the investment objective by investing primarily in a portfolio of
municipal securities that are rated investment grade at the time of purchase.

The Fund is organized as a diversified series of the Van Kampen Tax Free
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. A Prospectus may be obtained without charge by
writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833 for the hearing
impaired).

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-3
Investment Restrictions..................................... B-12
Description of Municipal Securities Ratings................. B-13
Trustees and Officers....................................... B-19
Investment Advisory and Other Services...................... B-29
Distribution and Service.................................... B-30
Transfer Agent.............................................. B-33
Portfolio Transactions and Brokerage Allocation............. B-33
Share Purchase Programs..................................... B-34
Shareholder Services........................................ B-37
Redemption of Shares........................................ B-40
Contingent Deferred Sales Charge-Class A.................... B-40
Waiver of Class B and Class C Contingent Deferred Sales
Charge ("CDSC-Class B and C")............................. B-41
Taxation.................................................... B-42
Fund Performance............................................ B-45
Other Information........................................... B-48
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.
B-1
<PAGE> 414

GENERAL INFORMATION

The Trust was originally organized in 1985 under the name Van Kampen Merritt
Tax Free Trust as a Massachusetts business trust (the "Massachusetts Trust").
The Massachusetts Trust was reorganized into the Trust under the name Van Kampen
American Capital Tax Free Trust on 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 Fund was originally organized in 1985 under the name Van Kampen Merritt
Municipal Income Fund as a sub-trust of the Massachusetts Trust. The Fund was
reorganized as a series of the Trust under the name Van Kampen American Capital
Municipal Income Free Fund on July 31, 1995. On July 14, 1998, the Fund adopted
its current name.

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 and further sub-divided 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.

B-2
<PAGE> 415

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 pay 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.

As of January , 1999, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit plans
and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

MUNICIPAL SECURITIES

B-3
<PAGE> 416

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 also may invest up to 15% of its total assets in derivative variable
rate municipal securities such as inverse floaters whose rates vary inversely
with changes in market rates of interest or range floaters or capped floaters
whose rates are subject to periodic or lifetime caps. Derivative variable rate
municipal securities may pay a rate of interest determined by applying a
multiple to the variable rate. The extent of increases and decreases in the
value of derivative variable rate municipal securities in response to changes in
market rates of interest generally will be larger than comparable changes in the
value of an equal principal amount of a fixed rate municipal security having
similar credit quality, redemption provisions and maturity.

The Fund also 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.

B-4
<PAGE> 417

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 considered speculative with respect to the
capacity to pay interest or repay principal in accordance with their terms.

STRATEGIC TRANSACTIONS

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, financial futures, interest rate indices and
other financial instruments, purchase and sell financial futures contracts and
options thereon, or enter into various interest rate transactions such as swaps,
caps, floors or collars (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities.

Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

B-5
<PAGE> 418

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.

(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (iv) interruption of the normal operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a disadvantageous price above the market
price.

GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that 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 and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) for other than bona fide hedging purposes if, immediately
thereafter, the sum of the amount of its initial margin and premiums on open
futures contracts and options thereon would exceed 5% of the Fund's total assets
(taken at current value); however, in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. The segregation requirements with respect to
futures contracts and options thereon are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

B-8
<PAGE> 421

futures, options and interest rate transactions ("component" transactions),
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of the Adviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions are normally entered into based on the Adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve the
desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management
objective.

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
the Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash and liquid
securities with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash and liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash and
liquid securities equal to the excess of the index value over the exercise price
on a current basis. A put option written by the Fund requires the Fund to
segregate cash and liquid securities equal to the exercise price.

B-9
<PAGE> 422

OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of cash and liquid securities equal
to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out cash and liquid securities equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of cash and liquid securities equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement, will be treated the same as other options settling
with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash and liquid securities sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of cash and liquid securities with a value equal to the Fund's net obligation,
if any.

The Fund's activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

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<PAGE> 423

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.

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities, which
includes securities that are not readily marketable, repurchase agreements which
have a maturity of longer than seven days and generally includes securities that
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"). The sale of such securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of liquid securities trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities are often purchased at a discount from the market price of
unrestricted securities of the same issuer reflecting the fact that such
securities may not be readily marketable without some time delay. Investments in
securities which have no ready market are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the Fund's
Trustees. Ordinarily, the Fund would invest in restricted securities only when
it receives the issuer's commitment to register the securities without expense
to the Fund. However, registration and underwriting expenses (which may range
from 7% to 15% of the gross proceeds of the securities sold) may be paid by the
Fund. Restricted securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by and subject to the
supervision of the Fund's Board of Trustees are not subject to the limitation on
illiquid securities. Such 144A Securities are subject to monitoring and may
become illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

B-11
<PAGE> 424

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment restrictions which
may not be changed without approval by the vote of a majority of its outstanding
voting shares, which is defined by the 1940 Act as the lesser of (i) 67% or more
of the voting securities present in person or by proxy at the meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy; or (ii) more than 50% of the outstanding voting securities.
The Fund may not:

1. With respect to 75% of its total assets, purchase any securities (other
than obligations guaranteed by the United States Government or by its
agencies or instrumentalities), if, as a result, more than 5% of the
Fund's total assets (taken at current market value) would then be invested
in securities of a single issuer or, if, as a result, the Fund would hold
more than 10% of the outstanding voting securities of an issuer, 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.

2. Invest more than 25% of its assets in a single industry, however, the Fund
may from time to time invest more than 25% of its assets in a particular
segment of the municipal bond market; however, the Fund will not invest
more than 25% of its assets in industrial development bonds in a single
industry, and 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.

3. Borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the total asset value of the Fund, or mortgage,
pledge, or hypothecate any assets except in connection with a borrowing
and in amounts not in excess of 10% of the total asset value of the Fund.
Borrowings may not be made for investment leverage, but only to enable the
Fund to satisfy redemption requests where liquidation of portfolio
securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings exceed 5% of the total asset value of the
Fund. Notwithstanding this investment restriction, the Fund may enter into
when issued and delayed delivery transactions.

5. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with hedging transactions nor short term
credits as may be necessary for the clearance of transactions is
considered the purchase of a security on margin.

6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options, except as hedging or risk
management transactions in accordance with the requirements of the
Securities and Exchange Commission and the Commodity Futures Trading
Commission.

7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

B-12
<PAGE> 425

9. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except that the Fund
may purchase securities of other investment companies 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. Invest in oil, gas or mineral leases or in equity interests in oil, gas,
or other mineral exploration or development programs.

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

B-13
<PAGE> 426
<TABLE>
<S> <C>
BBB Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing
within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

B-14
<PAGE> 427
<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

Debt Obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. MUNICIPAL NOTES

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:

<TABLE>
<S> <C>
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.
</TABLE>

B-15
<PAGE> 428

3. COMMERCIAL PAPER

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'.

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.

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 MUNICIPAL BONDS

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<PAGE> 429
<TABLE>
<S> <C>
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.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

B-17
<PAGE> 430

2. SHORT-TERM EXEMPT NOTES

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

B-18
<PAGE> 431

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

TRUSTEES AND OFFICERS

TRUSTEES

B-19
<PAGE> 432

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management
Suite 7000 consulting firm. Formerly, Executive Vice President of
Chicago, IL 60606 ABN AMRO, N.A., a Dutch bank holding company. Prior to
Date of Birth: 06/03/48 1992, Executive Vice President of La Salle National
Bank. Trustee on the University of Chicago Hospitals
Board, The International House Board and the Women's
Board of the University of Chicago. Trustee/Director
of each of the funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief
Date of Birth: 02/29/52 Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a
private foundation. Trustee/Director of each of the
funds in the Fund Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc.,
423 Country Club Drive a financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). Trustee/Director
of each of the funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of Van Kampen Investments, the
2800 Post Oak Blvd. Advisers, the Distributor and Investor Services.
Houston, TX 77056 Director or officer of certain other subsidiaries of
Date of Birth: 10/19/39 Van Kampen Investments. Chairman of River View
International Inc. Chairman of the Board of Governors
and the Executive Committee of the Investment Company
Institute. Prior to July of 1998, Director and
Chairman of Van Kampen Investments Inc. Prior to
November 1996, President, Chief Executive Officer and
a Director of Van Kampen Investments Inc.
Trustee/Director of each of the funds in the Fund
Complex and Trustee of other funds advised by the
Advisers or Van Kampen Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster
One ServiceMaster Way Company, a business and consumer services company.
Downers Grove, IL 60515 Director of Illinois Tool Works, Inc., a manufacturing
Date of Birth: 07/08/44 company; the Urban Shopping Centers Inc., a retail
mall management company; and Stone Container Corp., a
paper manufacturing company. Trustee, University of
Notre Dame. Formerly, President and Chief Executive
Officer, Waste Management, Inc., an environmental
services company, and prior to that President and
Chief Operating Officer, Waste Management, Inc.
Trustee/Director of each of the funds in the Fund
Complex.

B-20
<PAGE> 433

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate,
333 West Wacker Drive Meagher & Flom (Illinois), legal counsel to the funds
Chicago, IL 60606 in the Fund Complex, and other open-end and closed-end
Date of Birth: 08/22/39 funds advised by the Advisers or Van Kampen Management
Inc. Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers
or Van Kampen Management Inc.

B-21
<PAGE> 434

OFFICERS

Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell
and Hill are located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181. The Fund's
other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

B-22
<PAGE> 435

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and
Secretary of Van Kampen Investments Inc. Prior to April of
1998, Executive Vice President, General Counsel and
Director of Van Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, he was Executive Vice President, General
Counsel and a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996, he was General
Counsel of McCarthy, Crisanti & Maffei, Inc. Prior to July
of 1996, Mr. Nyberg was Executive Vice President and
General Counsel of VSM Inc. and Executive Vice President
and General Counsel of VCJ Inc. Vice President and
Secretary of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of Van Kampen
Investments Inc. Vice President of each of the funds in
the Fund Complex and certain other investment companies
advised by the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-23
<PAGE> 436

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.
Huey P. Falgout, Jr.................. Vice President, Assistant Secretary and Senior Attorney of
Date of Birth: 11/15/63 Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior Vice
Assistant Secretary President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy
General Counsel and Assistant Secretary of VK/AC Holding,
Inc. Prior to April of 1998, Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, Senior Vice
President, Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and Van Kampen
Merritt Holdings Corp. Prior to September of 1996, Mr.
Martin was Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc., and prior to July of
1996, he was Senior Vice President, Deputy General Counsel
and Secretary of VSM Inc. and VCJ Inc. Assistant Secretary
of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their
affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by the
Advisers or their affiliates.
</TABLE>

B-24
<PAGE> 437

B-25
<PAGE> 438

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
PENSION OR ESTIMATED MAXIMUM COMPENSATION
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ $30,328 $60,000 $111,197
Linda Hutton Heagy 3,141 60,000 111,197
R. Craig Kennedy 2,229 60,000 111,197
Jack E. Nelson 15,820 60,000 104,322
Jerome L. Robinson* 32,020 15,750 107,947
Phillip B. Rooney 0 60,000 74,697
Dr. Fernando Sisto 60,208 60,000 111,197
Wayne W. Whalen 10,788 60,000 111,197
</TABLE>

- ---------------

B-26
<PAGE> 439

As of January , 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-27
<PAGE> 440

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund.................... 12/31 0
Tax Free High Income
Fund.................... 12/31 0
California Insured Tax
Free Fund............... 12/31 0
Municipal Income Fund..... 12/31 0
Intermediate Term
Municipal Income Fund... 12/31 0
Florida Insured Tax Free
Income Fund............. 12/31 0
New York Tax Free Income
Fund.................... 12/31 0
Trust Total............. 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-28
<PAGE> 441

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement (the
"Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. See
"Accounting Services Agreement" below. The Fund also pays distribution fees,
service fees, custodian fees, legal and auditing fees, the costs of reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any error of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.

Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.500% on the first $500 million of
average daily net assets and 0.450% on the average daily net assets over $500
million.

The Fund's average net assets are determined by taking the average of all of
the determinations of the net assets during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month.

The Advisory Agreement also provides that, in the event the annual expenses of
the Fund for any fiscal year exceed the most stringent limit in any state in
which the Fund's shares are offered for sale, 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.

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, the Adviser received $ , $4,721,648 and
$4,825,272, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, Advisory Corp. received $ , $207,300 and $80,200,
respectively, in accounting services fees from the Fund.

B-29
<PAGE> 442

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, Van Kampen Investments received $ , $25,000
and $27,900, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
TOTAL AMOUNTS
UNDERWRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------ --------------
<S> <C> <C>
Fiscal Period Ended September 30, 1998......................
Fiscal Year Ended December 31, 1997......................... $ 939,551 $111,895
Fiscal Year Ended December 31, 1996......................... $1,088,499 $125,602
</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 TO
AS % OF NET DEALERS AS
AS % OF AMOUNT A % OF
SIZE OF INVESTMENT OFFERING 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>

- ---------------

B-30
<PAGE> 443

and are responsible for purchases of $1 million or more computed based on a
percentage of the dollar value of such shares sold as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million and 0.50% on the excess over
$3 million.

Proceeds from any deferred sales charge and any distribution fees on Class B
Shares and Class C Shares of the Fund are paid to the Distributor and are used
by the Distributor to defray its distribution related expenses in connection
with the sale of the Fund's shares, such as the payment to authorized dealers
for selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of the Fund's Class C Shares annually commencing in
the second year after purchase.

certain services or assistance, which may include, but not be limited to,
processing purchase and redemption transactions, establishing and maintaining
shareholder accounts regarding the Fund, and such other services as may be
agreed to from time to time and as may be permitted by applicable statute, rule
or regulation. Brokers, dealers and financial intermediaries that have entered
into sub-agreements with the Distributor and sell shares of the Fund are
referred to herein as "financial intermediaries."

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.

B-32
<PAGE> 445

Class C Shares of the Fund and $ for fees paid to financial intermediaries
for servicing Class C shareholders and administering the Class C Plan.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $649,000 and $892,000, respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for 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.

B-33
<PAGE> 446

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 Fund paid the following commissions to all brokers and affiliated brokers
during the periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
-------------------
MORGAN DEAN
BROKERS STANLEY WITTER
------- ---------- ------
<S> <C> <C> <C>
Commission paid:
Fiscal period ended September 30, 1998....................
Fiscal year ended December 31, 1997.......................
Fiscal year ended December 31, 1996.......................
Fiscal period 1998 Percentages:
Commissions with affiliate to total commissions...........
Value of brokerage transactions with affiliate to total
transactions...........................................
</TABLE>

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

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 out-lined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table also includes purchases of shares of the Participating Funds over a
13-month period based on the total amount of intended purchases plus the value
of all shares of the Participating Funds previously purchased and still owned.
An investor may elect to compute the 13-month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. The initial purchase must be for an amount equal to at
least 5% of the minimum total purchase amount of the level selected. If trades
not initially made under a Letter of Intent subsequently qualify for a lower
sales charge through the 90-day back-dating provisions, an adjustment will be
made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the sales charges previously paid. Such payments may be made directly
to the Distributor or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain the difference.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund, at net asset value and with no minimum initial or subsequent
investment requirement, if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information with respect to this program, including the applicable
terms and conditions thereof, should contact their authorized dealer or the
Distributor.

B-35
<PAGE> 448

through the program and (2) provide Investor Services with appropriate backup
data for each participating investor in a computerized format fully compatible
with Investor Services' processing system.

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

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.

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 Code, or custodial accounts held by
a bank created pursuant to Section 403(b) of the Code and sponsored by
non-profit organizations defined under Section 501(c)(3) of the Code and assets
held by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify for
purchases at net asset value provided, for plans initially establishing accounts
with the Distributor in the Participating Funds after February 1, 1997, that (1)
the initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than 100
eligible employees. Such plans that have been established with a Participating
Fund or have received proposals from the Distributor prior to February 1, 1997
based on net asset value purchase privileges previously in effect will be
qualified to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen Trust Company serves as custodian will not be
eligible for net asset value purchases based on the aggregate investment made by
the plan or the number of eligible employees, except under certain uniform
criteria established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve-month period as follows:
1.00% on sales to $5 million, plus 0.50% on the next $5 million, plus 0.25% on
the excess over $10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on
B-36
<PAGE> 449

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 ("CDSC") of 1.00% in the event of redemption within one year of purchase,
and a commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

Each shareholder has an investment account under which the investor's shares
of the Fund are held by Investor Services, the Fund's transfer agent. Investor
Services performs bookkeeping, data processing and administrative services
related to the maintenance of shareholder accounts. Except as described in the
Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.

SHARE CERTIFICATES

B-37
<PAGE> 450

a form acceptable to Investor Services. On the date the letter is received,
Investor Services will calculate a fee for replacing the lost certificate equal
to no more than 2.00% of the net asset value of the issued shares, and bill the
party to whom the replacement certificate was mailed.

RETIREMENT PLANS

Eligible investors may establish individual retirement accounts ("IRAs"); SEP;
401(k) plans; Section 403(b)(7) plans in the case of employees of public school
systems and certain non-profit organizations; or other pension or profit sharing
plans. Documents and forms containing detailed information regarding these plans
are available from the Distributor. Van Kampen Trust Company serves as custodian
under the IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as
full plan administration for profit sharing, pension and 401(k) plans, are
available from the Distributor.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

DIVIDEND DIVERSIFICATION

EXCHANGE PRIVILEGE

To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.

another Participating Fund, Class B Shares and Class C Shares are subject to the
CDSC schedule imposed by the Participating Fund from which such shares were
originally purchased.

For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.

Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

SYSTEMATIC WITHDRAWAL PLAN

B-39
<PAGE> 452

Class B shareholders and Class C shareholders who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.

INTERNET TRANSACTIONS

REINSTATEMENT PRIVILEGE

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A

B-40
<PAGE> 453

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED
SALES CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR DISABILITY

The Fund will waive the CDSC-Class B and C on redemptions following the death
or disability of a Class B shareholder and Class C shareholder. An individual
will be considered disabled for this purpose if he or she meets the definition
thereof in Section 72(m)(7) of the Code, which in pertinent part defines a
person as disabled if such person "is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long-continued
and indefinite duration." While the Fund does not specifically adopt the balance
of the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of death or disability before it determines to waive the
CDSC-Class B and C.

In cases of death or disability, the CDSC-Class B and C will be waived where
the decedent or disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This waiver of the
CDSC-Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial determination of
disability.

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund will waive the CDSC-Class B and C when a total or partial redemption
is made in connection with certain distributions from Retirement Plans. The
charge will be waived upon the tax-free rollover or transfer of assets to
another Retirement Plan invested in one or more Participating Funds; in such
event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).

The Fund does not intend to waive the CDSC-Class B and C for any distributions
from IRAs or other Retirement Plans not specifically described above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

The amount of the shareholder's investment in a Fund at the time the election
to participate in the Plan is made with respect to the Fund is hereinafter
referred to as the "initial account balance." The amount to be systematically
redeemed from the Fund without the imposition of a CDSC-Class B and C may not
exceed a maximum of 12% annually of the shareholder's initial account balance.
The Fund reserves the right to change the terms and conditions of the Plan and
the ability to offer the Plan.

B-41
<PAGE> 454

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

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

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.

B-42
<PAGE> 455

company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.

Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses 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.

DISTRIBUTIONS. The Fund intends to invest in sufficient tax-exempt municipal
securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of municipal securities.

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.

B-43
<PAGE> 456

include a non-exempt person who regularly uses in his trade or business a part
of any facilities financed with the tax-exempt obligations and whose gross
revenues derived from such facilities exceed 5% of the total revenues derived
from the facilities by all users, or who occupies more than 5% of the useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.

While the Fund expects that a major portion of its net investment income will
constitute tax-exempt interest, a significant portion may consist of investment
company taxable income. Distributions of the Fund's net investment company
taxable income are taxable to shareholders as ordinary income to the extent of
the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains ("capital gain
dividends"), if any, are taxable to shareholders as long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming such shares are held as a capital asset). For a summary of the
tax rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates" below. Interest on indebtedness which is incurred to
purchase or carry shares of a mutual fund which distributes exempt interest
dividends during the year is not deductible for federal income tax purposes.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.

SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss. For a summary of the tax rates
applicable to capital gains (including capital gain dividends), see "Capital
Gains Rates" below. Any loss recognized upon a taxable disposition of shares
held for six months or less will be treated as a long-term capital loss to the
extent of any capital gain dividends received with respect to such shares. For
purposes of determining whether shares have been held for six months or less,
the holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

capital 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%.

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 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.

The Fund must report annually to the IRS and to each Non-U.S. Shareholder the
amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.

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 (or since the
commencement of investment operations). Other total return quotations, aggregate
or average, over other time periods may also be included.

The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes the maximum sales charge for Class A Shares); that all income
dividends or capital gains distributions during the period are reinvested in
Fund shares at net asset value; and that any applicable CDSC has been paid. The
Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund.

B-45
<PAGE> 458

Non-standardized total return calculations do not reflect the imposition of a
contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC imposed at the time of redemption were
reflected, it would reduce the performance quoted.

Yield and total return are calculated separately for Class A Shares, Class B
Shares and Class C Shares. Class A Shares total return figures include the
maximum sales charge; Class B Shares and Class C Shares total return figures
include any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.

From time to time marketing materials may provide a portfolio manager update,
an adviser update or discuss general economic conditions and outlooks. The
Fund's marketing materials may also show the Fund's asset class diversification,
top five sectors, ten largest holdings and other Fund asset structures, such as
duration, maturity, coupon, NAV, rating breakdown, AMT exposure and number of
issues in the portfolio. Materials may also mention how the Distributor believes
the Fund compares relative to other Van Kampen funds. Materials may also discuss
the Dalbar Financial Services study from 1984 to 1994 which studied investor
cash flow into and out of all types of mutual funds. The ten year study found
that investors who bought mutual fund shares and held such shares outperformed
investors who bought and sold. The Dalbar study conclusions were consistent
regardless of if shareholders purchased their funds in direct or sales force
distribution channels. The study showed that investors working with a
professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the internet.

securities, or with investment or savings vehicles. The performance information
may also include evaluations of the Fund published by nationally recognized
ranking services and by nationally recognized financial publications. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. For these purposes, the performance of the
Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce Fund 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, from time to time: (1) illustrate the benefits of tax-deferral
by comparing taxable investments to investments made through tax-deferred
retirement plans; (2) illustrate in graph or chart form, or other-wise, the
benefits of dollar cost averaging by comparing investments made pursuant to a
systematic investment plan to investments made in a rising market; and (3) in
reports or other communications to shareholders or in advertising material,
illustrate the benefits of compounding at various assumed rates of return. Such
illustrations may be in the form of charts or graphs and will not be based on
historical returns experienced by the Fund.

The Fund's Annual Report and Semi-Annual Report contain additional performance
information. A copy of the Annual Report or Semi-Annual Report may be obtained
without charge by calling or writing the Fund at the telephone number and
address printed on the back cover of the Prospectus.

CLASS A SHARES

The average annualized total return, including payment of the sales charge,
with respect to the Class A Shares for (i) the one year period ended September
30, 1998 was %, (ii) the five year period ended September 30, 1998 was % and
(iii) the approximately eight year, two month period from August 1, 1990 (the
commencement of investment operations of the Fund) through September 30, 1998
was %.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class A Shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class A Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class A Shares for the month ending
September 30, 1998 was %.

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 September 30, 1998 (as calculated in the manner described in the
Prospectus under the heading "Fund Performance") was %.

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
September 30, 1998 was %.

B-47
<PAGE> 460

CLASS B SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class B Shares for (i) the one year period ended September 30,
1998 was %, (ii) the five year period ended September 30, 1998 was % and
(iii) the approximately six year, one month period of August 24, 1992
(commencement of investment operations of the Fund) through September 30, 1998
was %.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class B Shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class B Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class B Shares for the month ending
September 30, 1998 was %.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class B Shares from its inception to September 30,
1998 (as calculated in the manner described in the Prospectus under the heading
"Fund Performance") was %.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class B Shares from its inception to September 30,
1998 was %.

CLASS C SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class C Shares for (i) the one year period ended September 30,
1998 was %, (ii) the five year period ended September 30, 1998 was % and
(iii) the approximately five year, one month period from August 13, 1993 (the
commencement of investment operations of the Fund) through September 30, 1998
was %.

The Fund's yield with respect to the Class C Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class C shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class C Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class C Shares for the month ending
September 30, 1998 was %.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class C Shares from its inception to September 30,
1998 (as calculated in the manner described in the Prospectus under the heading
"Fund Performance") was %.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class C Shares from its inception to September 30,
1998 was %.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225 West
Franklin Street, Boston, Massachusetts 02110, as Custodian.

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders,
and annually such statements are audited by the independent accountants.

LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom
(Illinois).

B-48
<PAGE> 461

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND

The Fund is organized as a diversified series of the Van Kampen Tax Free
Trust, an open-end, management investment company (the "Trust").

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-3
Investment Restrictions..................................... B-13
Description of Municipal Securities Ratings................. B-14
Trustees and Officers....................................... B-20
Investment Advisory and Other Services...................... B-30
Distribution and Service.................................... B-31
Transfer Agent.............................................. B-34
Portfolio Transactions and Brokerage Allocation............. B-34
Share Purchase Programs..................................... B-36
Shareholder Services........................................ B-39
Redemption of Shares........................................ B-42
Contingent Deferred Sales Charge-Class A.................... B-42
Waiver of Class B and Class C Contingent Deferred Sales
Charge ("CDSC-Class B and C")............................. B-42
Taxation.................................................... B-44
Fund Performance............................................ B-47
Other Information........................................... B-50
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.
B-1
<PAGE> 462

GENERAL INFORMATION

The Fund was originally organized in 1993 under the name Van Kampen Merritt
Limited Term Municipal Income Fund as a sub-trust of the Massachusetts Trust.
The Fund was reorganized as a series of the Trust on July 31, 1995 under the
name Van Kampen American Capital Limited Term Municipal Income Fund and was
renamed Van Kampen American Capital Intermediate Term Municipal Income Fund on
January 26, 1996. On July 14, 1998, the Fund adopted its current name.

B-2
<PAGE> 463

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit
plans and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

MUNICIPAL SECURITIES

B-3
<PAGE> 464

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.

B-4
<PAGE> 465

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.

STRATEGIC TRANSACTIONS

B-5
<PAGE> 466

B-6
<PAGE> 467

exchanges and in the over-the-counter markets and related futures on such
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold. In the event of exercise of a
call option sold by the Fund with respect to securities not owned by the Fund,
the Fund may be required to acquire the underlying security at a disadvantageous
price in order to satisfy its obligation with respect to the call option.

B-8
<PAGE> 469

instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

B-9
<PAGE> 470

The Fund's activities involving Strategic Transactions may be limited by
the requirements of the Code for qualification as a regulated investment
company.

B-10
<PAGE> 471

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

B-11
<PAGE> 472

history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

B-12
<PAGE> 473

INVESTMENT RESTRICTIONS

1. With respect to 75% of its total assets, purchase any securities (other
than obligations guaranteed by the United States Government or by its
agencies or instrumentalities), if, as a result, more than 5% of the
Fund's total assets (determined at the time of investment) would then be
invested in securities of a single issuer or, if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of an
issuer, 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.

2. Invest more than 25% of its assets in a single industry; however, the
Fund may from time to time invest more than 25% of its assets in a
particular segment of the municipal securities market; however, the Fund
will not invest more than 25% of its assets in industrial development
bonds in a single industry, and 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.

3. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 5% of the total asset value of the Fund, or
mortgage, pledge, or hypothecate any assets except in connection with a
borrowing and in amounts not in excess of 10% of the total asset value
of the Fund. Borrowings may not be made for investment leverage, but
only to enable the Fund to satisfy redemption requests where liquidation
of portfolio securities is considered disadvantageous or inconvenient.
In this connection, the Fund will not purchase portfolio securities
during any period that such borrowings exceed 5% of the total asset
value of the Fund. Notwithstanding this investment restriction, the Fund
may enter into when issued and delayed delivery transactions.

4. Make loans of money or property, except to the extent the obligations
the Fund may invest in are considered to be loans and except to the
extent that the Fund may lend money or property in connection with
maintenance of the value of or the Fund's interest with respect to the
securities owned by the Fund.

5. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with Strategic Transactions nor short
term credits as may be necessary for the clearance of transactions is
considered the purchase of a security on margin.

6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other
financial futures or index contracts or related options, except in
connection with Strategic Transactions in accordance with the
requirements of the SEC and the Commodity Futures Trading Commission.

7. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.

8. Make investments for the purpose of exercising control or participation
in management, except to the extent that exercise by the Fund of its
rights under agreements related to municipal securities would be deemed
to constitute such control or participation and except that the Fund may
purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

B-13
<PAGE> 474

9. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and 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.

10. Invest in oil, gas or mineral leases or in equity interests in oil,
gas, or other mineral exploration or development programs except
pursuant to the exercise by the Fund of its rights under agreements
relating to municipal securities.

11. Purchase or sell real estate, commodities or commodity contracts,
except to the extent that the securities that the Fund may invest in
are considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under
agreements relating to such municipal securities (in which case the
Fund may liquidate real estate acquired as a result of a default on a
mortgage), and except to the extent that Strategic Transactions the
Fund may engage in are considered to be commodities or commodities
contracts.

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.
</TABLE>

B-14
<PAGE> 475
<TABLE>
<S> <C>
A Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing
within the major categories.

B-15
<PAGE> 476
<TABLE>
<S> <C>
I The letter "i" indicates the rating is implied. Such ratings
are assigned only on request to entities that do not have
specific debt issues to be rated. In addition, implied
ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings
on governments represent the sovereign ceiling or upper
limit for ratings on specific debt issues of entities
domiciled in the country.

2. MUNICIPAL NOTES

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:

<TABLE>
<S> <C>
SP-1 Strong or strong capacity to pay principal and interest.
Issues determined to possess very strong characteristics are
a plus (+) designation.
</TABLE>

B-16
<PAGE> 477
<TABLE>
<S> <C>
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.
</TABLE>

3. COMMERCIAL PAPER

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'.

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.

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 MUNICIPAL BONDS

B-17
<PAGE> 478
<TABLE>
<S> <C>
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 risk
appear somewhat larger than the Aaa securities.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

B-18
<PAGE> 479

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

2. SHORT-TERM EXEMPT NOTES

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

B-19
<PAGE> 480

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

TRUSTEES AND OFFICERS

B-20
<PAGE> 481

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August
1632 Morning Mountain Road 1996, Chairman, Chief Executive Officer and President,
Raleigh, NC 27614 MDT Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical
and scientific equipment. Trustee/Director of each of
the funds in the Fund Complex.
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual
Two World Trade Center Asset Management Group, a division of Morgan Stanley
66th Floor Dean Witter & Co. Mr. DeMartini is a Director of the
New York, NY 10048 Morgan Stanley Dean Witter Funds, Morgan Stanley Dean
Date of Birth: 10/12/52 Witter Distributors, Inc. and Dean Witter Trust
Company. Trustee of the TCW/DW Funds. Director of the
National Healthcare Resources, Inc. Formerly Vice
Chairman of the Board of the National Association of
Securities Dealers, Inc. and Chairman of the Board of
the Nasdaq Stock Market, Inc. Trustee/Director of each
of the funds in the Fund Complex.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management
Suite 7000 consulting firm. Formerly, Executive Vice President of
Chicago, IL 60606 ABN AMRO, N.A., a Dutch bank holding company. Prior to
Date of Birth: 06/03/48 1992, Executive Vice President of La Salle National
Bank. Trustee on the University of Chicago Hospitals
Board, The International House Board and the Women's
Board of the University of Chicago. Trustee/Director
of each of the funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief
Date of Birth: 02/29/52 Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a
private foundation. Trustee/Director of each of the
funds in the Fund Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc.,
423 Country Club Drive a financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). Trustee/Director
of each of the funds in the Fund Complex.
</TABLE>

B-21
<PAGE> 482

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Don G. Powell*............................ Chairman and a Director of Van Kampen Investments, the
2800 Post Oak Blvd. Advisers, the Distributor and Investor Services.
Houston, TX 77056 Director or officer of certain other subsidiaries of
Date of Birth: 10/19/39 Van Kampen Investments. Chairman of River View
International Inc. Chairman of the Board of Governors
and the Executive Committee of the Investment Company
Institute. Prior to July of 1998, Director and
Chairman of Van Kampen Investments Inc. Prior to
November 1996, President, Chief Executive Officer and
a Director of Van Kampen Investments Inc.
Trustee/Director of each of the funds in the Fund
Complex and Trustee of other funds advised by the
Advisers or Van Kampen Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster
One ServiceMaster Way Company, a business and consumer services company.
Downers Grove, IL 60515 Director of Illinois Tool Works, Inc., a manufacturing
Date of Birth: 07/08/44 company; the Urban Shopping Centers Inc., a retail
mall management company; and Stone Container Corp., a
paper manufacturing company. Trustee, University of
Notre Dame. Formerly, President and Chief Executive
Officer, Waste Management, Inc., an environmental
services company, and prior to that President and
Chief Operating Officer, Waste Management, Inc.
Trustee/Director of each of the funds in the Fund
Complex.

B-22
<PAGE> 483

OFFICERS

B-23
<PAGE> 484

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and
Secretary of VK/AC Holding, Inc. Prior to April of 1998,
Executive Vice President, General Counsel and Director of
Van Kampen Merritt Equity Advisors Corp. Prior to April of
1997, he was Executive Vice President, General Counsel and
a Director of Van Kampen Merritt Equity Holdings Corp.
Prior to September of 1996, he was General Counsel of
McCarthy, Crisanti & Maffei, Inc. Prior to July of 1996,
Mr. Nyberg was Executive Vice President and General
Counsel of VSM Inc. and Executive Vice President and
General Counsel of VCJ Inc. Vice President and Secretary
of each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers or their
affiliates.
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding,
Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-24
<PAGE> 485

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.
Huey P. Falgout, Jr.................. Vice President, Assistant Secretary and Senior Attorney of
Date of Birth: 11/15/63 Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior Vice
Assistant Secretary President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy
General Counsel and Assistant Secretary of VK/AC Holding,
Inc. Prior to April of 1998, Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, Senior Vice
President, Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and Van Kampen
Merritt Holdings Corp. Prior to September of 1996, Mr.
Martin was Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc., and prior to July of
1996, he was Senior Vice President, Deputy General Counsel
and Secretary of VSM Inc. and VCJ Inc. Assistant Secretary
of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their
affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by the
Advisers or their affiliates.
</TABLE>

B-25
<PAGE> 486

B-26
<PAGE> 487

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

- ---------------

B-27
<PAGE> 488

As of January , 1999, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.

B-28
<PAGE> 489

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

1998 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL -------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund...... 9/30
Tax Free High Income Fund......... 9/30
California Insured Tax Free
Fund............................ 9/30
Municipal Income Fund............. 9/30
Intermediate Term Municipal Income
Fund............................ 9/30
Florida Insured Tax Free Income
Fund............................ 9/30
New York Tax Free Income Fund..... 9/30
Trust Total.....................

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund.................... 12/31 0
Tax Free High Income
Fund.................... 12/31 0
California Insured Tax
Free Fund............... 12/31 0
Municipal Income Fund..... 12/31 0
Intermediate Term
Municipal Income Fund... 12/31 0
Florida Insured Tax Free
Income Fund............. 12/31 0
New York Tax Free Income
Fund.................... 12/31 0
Trust Total............. 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-29
<PAGE> 490

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, the Adviser received $ , $164,970 and
$176,896, respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

B-30
<PAGE> 491

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Advisory Corp. received $ , $36,000 and
$8,900, respectively, in accounting services fees from the Fund.

During the fiscal period ended September 30, 1998 and the fiscal years
ended December 31, 1997 and 1996, Van Kampen Investments received $ , $7,200
and $7,800, respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
TOTAL UNDER- AMOUNTS
WRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------ --------------
<S> <C> <C>
Fiscal Period Ended September 30, 1998......................
Fiscal Year Ended December 31, 1997......................... $10,982 $ 636
Fiscal Year Ended December 31, 1996......................... $15,585 $ 1,844
</TABLE>

B-31
<PAGE> 492

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 TO
AS % OF NET DEALERS AS
AS % OF AMOUNT A % OF
SIZE OF INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE
------------------ ------------------ ----------- --------------
<S> <C> <C> <C>
Less than $25,000...................................... 3.25% 3.36% 3.00%
$25,000 but less than $250,000......................... 2.75% 2.83% 2.50%
$250,000 but less than $500,000........................ 1.75% 1.78% 1.50%
$500,000 but less than $1,000,000...................... 1.50% 1.52% 1.25%
$1,000,000 or more..................................... * * *
</TABLE>

- ---------------

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 3.00% on Class B Shares and 1.00% on Class C Shares.

B-32
<PAGE> 493

B-33
<PAGE> 494

pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through deferred sales charge.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $28,200 and $35,600, respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

B-35
<PAGE> 496

The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

OTHER PURCHASE PROGRAMS

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

B-37
<PAGE> 498

dealers through which purchases are made an amount up to 0.50% of the amount
invested, over a 12-month period.

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.

The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents, and a person's spouse's parents.

B-38
<PAGE> 499

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

SHARE CERTIFICATES

RETIREMENT PLANS

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

B-39
<PAGE> 500

Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services.

DIVIDEND DIVERSIFICATION

EXCHANGE PRIVILEGE

shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN

INTERNET TRANSACTIONS

B-41
<PAGE> 502

REINSTATEMENT PRIVILEGE

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED
SALES CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR DISABILITY

B-42
<PAGE> 503

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other Retirement Plans not specifically described
above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

B-43
<PAGE> 504

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

B-45
<PAGE> 506

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.

B-46
<PAGE> 507

respect to such dividends. This information may also be made available to the
tax authorities in the Non-U.S. Shareholder's country of residence.

FUND PERFORMANCE

CLASS A SHARES

The average annualized total return, including payment of the sales charge,
with respect to the Class A Shares for (i) the one year period ended September
30, 1998 was %, (ii) the five year period ended September 30, 1998 was %
and (iii) the approximately five year, four month period from May 28, 1993 (the
commencement of investment operations of the Fund) through September 30, 1998
was %.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class A Shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class A Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class A Shares for the month ending
September 30, 1998 was %.

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 September 30, 1998 was %.

CLASS B SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class B Shares for (i) the one year period ended September 30,
1998 was %, (ii) the five year period ended September 30, 1998 was % and
(iii) the approximately five year, four month period of May 28, 1993
(commencement of investment operations of the Fund) through September 30, 1998
was %.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class B Shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class B Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class B Shares for the month ending
September 30, 1998 was %.

B-49
<PAGE> 510

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class B Shares from its inception to September 30,
1998 was %.

CLASS C SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class C Shares for (i) the one year period ended September 30,
1998 was %, (ii) the five year period ended September 30, 1998 was % and
(iii) the approximately four year, eleven month period from October 19, 1993
(the commencement of investment operations of the Fund) through September 30,
1998 was %.

The Fund's yield with respect to the Class C Shares for the 30 day period
ending September 30, 1998 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class C shares for the 30 day period ending September 30, 1998
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class C Shares for the month ending
September 30, 1998 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class C Shares for the month ending
September 30, 1998 was %.

The Fund's cumulative non-standardized total return, excluding payment of
the CDSC, with respect to the Class C Shares from its inception to September 30,
1998 was %.

OTHER INFORMATION

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to
shareholders, and annually such statements are audited by the independent
accountants.

LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher &
Flom (Illinois).

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STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND

Van Kampen Florida Insured Tax Free Income Fund is a mutual fund with an
investment objective to provide investors a high level of current income exempt
from federal income tax and Florida intangible personal property taxes,
consistent with preservation of capital. The Fund is designed for investors who
are residents of Florida for tax purposes. The Fund's management seeks to
achieve the investment objective by investing primarily in a portfolio of
Florida municipal securities that are insured at the time of investment as to
timely payment of both principal and interest by a top-rated private insurance
company.

The Fund is organized as a non-diversified series of the Van Kampen Tax Free
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. A Prospectus may be obtained without charge by
writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, 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 Objectives and Policies.......................... B-3
Investment Restrictions..................................... B-18
Description of Municipal Securities Ratings................. B-19
Description of Insurance Company Claims Paying Ability
Ratings................................................... B-25
Trustees and Officers....................................... B-26
Investment Advisory and Other Services...................... B-36
Distribution and Service.................................... B-37
Transfer Agent.............................................. B-40
Portfolio Transactions and Brokerage Allocation............. B-40
Share Purchase Programs..................................... B-41
Shareholder Services........................................ B-44
Redemption of Shares........................................ B-47
Contingent Deferred Sales Charge-Class A.................... B-47
Waiver of Class B and Class C Contingent Deferred Sales
Charge ("CDSC-Class B and C")............................. B-48
Taxation.................................................... B-49
Fund Performance............................................ B-52
Other Information........................................... B-56
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.

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GENERAL INFORMATION

The Trust was originally organized in 1985 under the name Van Kampen Merritt
Tax Free Trust as a Massachusetts business trust (the "Massachusetts Trust").
The Massachusetts Trust was reorganized into the Trust under the name Van Kampen
American Capital Tax Free Trust on 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 Fund was originally organized in 1994 under the name Van Kampen Merritt
Florida Insured Tax Free Income Fund as a sub-trust of the Massachusetts Trust.
The Fund was reorganized as a series of the Trust under the name Van Kampen
American Capital Florida Insured Tax Free Income Fund on July 31, 1995. On July
14, 1998, the Fund adopted its current name.

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 and further sub-divided 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.

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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 pay 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.

As of January , 1999, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit plans
and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

MUNICIPAL SECURITIES

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"Non-Substitution" clauses in municipal lease transactions have recently been
held unenforceable in Florida as violative of public policy. The Fund will
invest in lease obligations which contain non-appropriation clauses only if such
obligations are rated investment grade, at the time of investment.

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 also may invest up to 20% of its total assets in derivative variable
rate municipal securities such as inverse floaters whose rates vary inversely
with changes in market rates of interest or range floaters or capped floaters
whose rates are subject to periodic or lifetime caps. Derivative variable rate
securities may pay a rate of interest determined by applying a multiple to the
variable rate. The extent of increases and decreases in the value of derivative
variable rate securities in response to changes in market rates of interest
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate municipal security having similar credit
quality, redemption provisions and maturity.

The Fund also 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
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<PAGE> 515

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.

Although the municipal securities in which the Fund may invest will be insured
as to timely payment of principal and interest, 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 considered speculative with respect to the
capacity to pay interest or repay principal in accordance with their terms.

INSURANCE

ORIGINAL ISSUE INSURANCE. Original Issue Insurance is purchased with respect
to a particular issue of municipal securities by the issuer thereof or a third
party in conjunction with the original issuance of such municipal securities.
Under such insurance, the insurer unconditionally guarantees to the holder of
the insured municipal security the timely payment of principal and interest on
such obligation when and as such payments shall become due but shall not be paid
by the issuer; except that in the event of any acceleration of the due date of
the principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the insured payments may be made in such amounts and at such times as
payments of principal would have been due had there not been such acceleration.
The insurer is responsible for such payments less any amounts received by the
holder from any trustee for the municipal security issuers or from any other
source. Original Issue Insurance generally does not insure payment on an
accelerated basis, the payment of any redemption premium (except with respect to
certain premium payments in the case of certain small issue industrial
development and pollution control municipal securities), the value of the shares
of the Fund or the market value of municipal securities, or payments of any
tender purchase price upon the tender of the municipal securities. Original
Issue Insurance also does not insure against nonpayment of principal of or
interest on municipal securities resulting from the insolvency, negligence or
any other act or omission of the trustee or other paying agent for such
obligations.

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<PAGE> 516

agent (the "Fiscal Agent") equal to such unpaid amounts of principal and
interest not later than one business day after the insurer has been notified
that such nonpayment has occurred (but not earlier than the date of such payment
is due). The Fiscal Agent will disburse to the Fund the amount of principal and
interest which is then due for payment but is unpaid upon receipt by the Fiscal
Agent of (i) evidence of the Fund's right to receive payment of such principal
and interest and (ii) evidence, including any appropriate instrument of
assignment, that all of the rights of payment of such principal or interest then
due for payment shall thereupon vest in the insurer. Upon payment by the insurer
of any principal or interest payments with respect to any municipal securities,
the insurer shall succeed to the rights of the Fund with respect to such
payment.

Original Issue Insurance remains in effect as long as the municipal securities
covered thereby remain outstanding and the insurer remains in business,
regardless of whether the Fund ultimately disposes of such municipal securities.
Consequently, Original Issue Insurance may be considered to represent an element
of market value with respect to the municipal securities so insured, but the
exact effect, if any, of this insurance on such market value cannot be
estimated.

SECONDARY MARKET INSURANCE. Subsequent to the time of original issuance of a
municipal security, the Fund or a third party may, upon the payment of a single
premium, purchase insurance on such municipal security. Secondary Market
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and, as is the case with Original Issue Insurance,
Secondary Market Insurance remains in effect as long as the municipal security
covered thereby remains outstanding and the insurer remains in business,
regardless of whether the Fund ultimately disposes of such municipal security.
All premiums respecting municipal securities covered by Original Issue Insurance
or Secondary Market Insurance are paid in advance by the issuer or other party
obtaining the insurance.

One of the purposes of acquiring Secondary Market Insurance with respect to a
particular municipal security would be to enhance the value of such municipal
security. The Fund, for example, might seek to purchase a particular municipal
security and obtain Secondary Market Insurance with respect thereto if, in the
opinion of the Adviser, the market value of such municipal security, as insured,
would exceed the current value of the municipal security without insurance plus
the cost of the Secondary Market Insurance. Similarly, if the Fund owns but
wishes to sell a municipal security that is then covered by Portfolio Insurance,
the Fund might seek to obtain Secondary Market Insurance with respect thereto
if, in the opinion of the Adviser, the net proceeds of a sale by the Fund of
such obligation, as insured, would exceed the current value of such obligation
plus the cost of the Secondary Market Insurance.

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<PAGE> 517

notice to the Fund to refuse to insure any additional securities purchased by
the Fund after the effective date of such notice. The Board of Trustees of the
Fund generally will reserve the right to terminate each policy upon seven days
written notice to an insurer if it determines that the cost of such policy is
not reasonable in relation to the value of the insurance to the Fund.

Each Portfolio Insurance policy shall terminate as to any municipal security
that has been redeemed from or sold by the Fund on the date of such redemption
or the settlement date of such sale, and an insurer shall not have any liability
thereafter under a policy as to any such municipal security, except that if the
date of such redemption or the settlement date of such sale occurs after a
record date and before the related payment date with respect to any such
municipal security, the policy will terminate as to such municipal security on
the business day immediately following such payment date. Each policy will
terminate as to all municipal securities covered thereby on the date on which
the last of the covered municipal securities mature, are redeemed or are sold by
the Fund.

One or more policies of Portfolio Insurance may provide the Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") with respect to a
municipal security that is to be sold by the Fund. The Fund would exercise the
right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such municipal
security. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a municipal security only if, in the opinion of the
Adviser, upon such exercise the net proceeds from the sale by the Fund of such
obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance. The Permanent Insurance premium with respect to
each such obligation is determined based upon the insurability of each such
obligation as of the date of purchase by the Fund and will not be increased or
decreased for any change in the creditworthiness of such obligation unless such
obligation is in default as to payment of principal or interest, or both. In
such event, the Permanent Insurance premium shall be subject to an increase
predetermined at the date of purchase by the Fund.

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<PAGE> 518

from AAA by Standard and Poor's ("S&P"), Aaa by Moody's Investor Services, Inc.
("Moody's") or an equivalent rating by another nationally recognized statistical
ratings organization ("NRSRO"), or if the Adviser anticipates such a lowering or
otherwise does not believe an insurer's claims-paying ability merits its
existing triple-A rating, the Fund could seek to obtain additional insurance
from an insurer whose claims-paying ability is rated AAA by S&P, Aaa by Moody's
or an equivalent rating by another NRSRO, or if the Adviser determines that the
cost of obtaining such additional insurance outweigh the benefits, the Fund may
elect not to obtain additional insurance. In making such determination, the
Adviser will consider the cost of the additional insurance, the new
claims-paying ability rating and financial condition of the existing insurer and
the creditworthiness of the issuer or guarantor of the underlying municipal
securities. The Adviser also may determine not to purchase additional insurance
in such circumstances if it believes that the insurer is taking steps which will
cause its triple-A claims paying ability rating to be restored promptly.

SPECIAL CONSIDERATIONS REGARDING FLORIDA MUNICIPAL SECURITIES

GENERAL. As described in the Prospectus, except during temporary periods, the
Fund will invest substantially all of its assets in Florida municipal
securities. The Fund is therefore susceptible to political, economic, regulatory
or other factors affecting issuers of Florida municipal securities. In addition,
the specific Florida municipal securities in which the Fund will invest are
expected to change from time to time. The following information constitutes only
a brief summary of some of the complex factors which may have an impact on the
financial situation of issuers of Florida municipal securities and does not
purport to be a complete or exhaustive description of all adverse conditions to
which issuers of Florida municipal securities may be subject and is not
applicable to "conduit" obligations, such as industrial development revenue
bonds, with respect to which the public issuer itself has no financial
responsibility. Such information is derived from certain official statements of
the State of Florida published in connection with the issuance of specific State
of Florida securities, as well as from other publicly available documents. Such
information has not been independently verified by the Fund and may not apply to
all Florida municipal securities acquired by the Fund. The Fund assumes no
responsibility for the completeness or accuracy of such information.

Additionally, many factors, including national, economic, social and
environmental policies and conditions, which are not within the control of such
issuers, could have an adverse impact on the financial condition of such
issuers. The Fund cannot predict whether or to what extent such factors or other
factors may affect the issuers of Florida municipal securities, the market value
or marketability of such securities or the ability of the respective issuers of
such securities acquired by the Fund to pay interest on or principal of such
securities. The creditworthiness of obligations issued by local Florida issuers
may be unrelated to the creditworthiness of

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<PAGE> 519

obligations issued by the State of Florida, and there is no responsibility on
the part of the State of Florida to make payments on such local obligations.
There may be specific factors that are applicable in connection with investment
in the obligations of particular issuers located within Florida, and it is
possible the Fund will invest in obligations of particular issuers as to which
such specific factors are applicable. However, the information set forth below
is intended only as a general summary and not as a discussion of any specific
factors that may affect any particular issuer of Florida municipal securities.

Florida state and local government obligations may be adversely affected by
political and economic conditions and developments within the State of Florida
and the nation as a whole. Florida's economic outlook is generally projected to
reflect the national economic outlook, and is expected to experience steady if
unspectacular growth over the next couple of years. The Florida constitution and
statutes require a balanced budget, which may affect the ability of the State of
Florida to issue and/or repay its obligations. In addition, various limitations
on the State of Florida, its governmental agencies and its local governments,
including school and special districts and authorities, may inhibit the ability
of these issuers to repay existing indebtedness and issue additional
indebtedness. The ability of such issuers to repay revenue bonds may also depend
on the success of the capital projects to which they relate. The ability of such
issuers to repay general obligation bonds will also depend on the success of
such issuer maintaining its ad valorem tax base.

INVESTMENT PRACTICES AND POLICIES OF ISSUERS OF FLORIDA MUNICIPAL
ISSUERS. Florida law does provide certain restrictions on the investment of
funds for the State of Florida and its local governments; however, with respect
to all municipalities and its charter counties, such restrictions may be limited
by the constitutional home rule powers of such entities. Although the Florida
municipal securities which may be purchased by the Fund will be insured, only
those securities which are insured by Original Issuance Insurance will contain
restrictions on investments imposed by the issuer of such insurance. Because
statutory restrictions on investments and investment policies with respect to
the investment of funds is limited by constitutional home rule powers, there can
be no assurance as to whether any issuer will suffer losses as a result of
investments or the magnitude or any such losses.

POPULATION, INCOME AND EMPLOYMENT. Florida has experienced a large population
growth. As of April 1, 1995, Florida ranks fourth with an estimated population
of 14.7 million. Since the beginning of the eighties, Florida has surpassed
Ohio, Illinois and Pennsylvania in total population. Because of the national
recession, Florida's net in-migration declined to 138,000 in 1992, but migration
has since recovered and reached 255,000 in 1996. The personal income of
residents of Florida has been growing strongly the last several years and
generally has historically outperformed both the nation as a whole and the
southeast in particular. The State's economy since the early seventies has
diversified in such a way as to provide a greater insulation from national
economic downturns. The structure of income of residents of Florida differs from
that of the nation and the southeast in that, due to a proportionately greater
retirement age population, property income (dividends, interest and rent) and
transfer payments (Social Security and pension benefits, among other sources of
income) are an important source of income.

Real personal income in Florida is estimated to increase at 5.2% and 3.7% for
1997-98 and 1998-99 respectively while real personal income per capita is
projected to grow 3.2% in 1997-98 and 1.8% in 1998-99.

Florida's economic dependence on the cyclical construction and construction
related manufacturing sectors has declined over time. The service and trade
sectors are Florida's largest employers. Presently, the State's service and
trade sectors employment constitutes approximately 60% of the total non-farm
employment. While structurally the southeast and the nation are endowed with a
greater proportion of manufacturing jobs, which tend to pay higher wages,
service jobs are less sensitive to business cycle swings.

Historically, Florida's unemployment rate has generally tracked below that of
the nation; however, beginning with the recession in the early 1990's, the trend
reversed. Since 1995, the State's unemployment rate has again been below or
about the same as the nations. The unemployment rate for Florida in 1997 was
4.8% while the rate in 1997 was 4.9%. Florida's unemployment rate is forecasted
at 4.6% for fiscal year 1997-98 and 4.8% in 1998-99.

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TOURISM INDUSTRY. Tourism is one of Florida's most important industries.
Approximately 47 million people visited the State in 1997. By the end of fiscal
year 1998-99, 49.7 million domestic and international tourists are expected to
have visited the State. In 1999-00 tourist arrivals should approximate 50.6
million.

STATE FINANCIAL OPERATIONS. Financial operations of the State covering all
receipts and expenditures are maintained through the use of four funds--the
General Revenue Fund, Trust Funds, the Working Capital Fund, and the Budget
Stabilization Fund. In fiscal year 1996-97, the State derived an estimated 67%
of its total direct revenues to these funds from state taxes and fees. Federal
funds and other special revenues accounted for the remaining revenues. Major
sources of tax revenues to the General Revenue Fund are the sales and use tax,
corporate income tax, intangible personal property tax, beverage tax and estate
tax, which amounted to 68%, 8%, 4%, 3% and 3% respectively, of the total General
Revenue funds available. State expenditures are categorized for budget and
appropriation purposes by type of fund and spending unit, which are further
subdivided by line item. In fiscal year 1996-97, appropriations from the General
Revenue Fund for education, health and welfare, and public safety amounted to
approximately 53%, 26%, and 14%, respectively, of total General Revenues.

The sales and use tax is the greatest single source of tax receipts in
Florida. The sales tax is 6% of the sales price of tangible personal property
sold at retail in the State. The use tax is at 6% of the cost price of tangible
personal property when the same is not sold but is used, or stored for use, in
the State. Slightly less than 10% of the sales tax is designated for local
governments and is distributed to the respective counties in which collected for
use by the county and the municipalities therein. In addition to this
distribution, local governments may (by referendum) assess certain discretionary
sales surtaxes within their county, for certain purposes, restricted as to
amount. The proceeds of these surtaxes are required to be applied to the
purposes for which such surtax is assessed.

For the State fiscal year which ended June 30, 1997, receipts from the sales
and use tax were $12,089 million, an increase of 5.5% from fiscal year 1995-96.

The second largest source of State tax receipts, including those distributed
to local governments, is the tax on motor fuels. Preliminary data show
collections from this source in the State fiscal year ending June 30, 1997 were
$2,012 million. However, these revenues are almost entirely trust funds
dedicated for specific purposes and are not included in the State General
Revenue Fund. Alcoholic beverage tax and license revenues totalled $447.2
million in the State fiscal year ended June 30, 1997. The receipts of corporate
income tax for the State fiscal year ended June 30, 1997 were $1,362.3 million,
an increase of 17.2% over the prior fiscal year. In November 1986, the voters of
the State approved a constitutional amendment to allow the State to operate a
lottery, the proceeds of which are required to be applied as follows: 50% to be
returned to the public as prizes, at least 38% to be deposited in the
Educational Enhancement Trust (for public education), and no more than 12% to be
spent on the administrative cost of operating the lottery. State fiscal year
1996-97 produced gross revenues of $2.09 billion of which education received
approximately $792.3 million.

The State Constitution does not permit a personal income tax. An amendment to
the State Constitution would be required to impose a personal income tax in the
State.

For fiscal year 1997-98, the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $18,469.8 million, 10.3% increase
over 1996-97.

For fiscal year 1998-99, the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $19,185.4 million, a 3.9%
increase over 1997-98. The $7,627.0 million in Estimated Revenues represent a
4.4% increase over the analogous figure in 1997-98.

LOCAL GOVERNMENT REVENUE SOURCES. County and municipal governments in Florida
depend primarily upon ad valorem property taxes, and sales, motor fuels and
other local excise taxes and miscellaneous revenue sources, including revenues
from utilities services. Florida school districts derive substantially all of
their revenues from local property taxes. The overall levels of revenues from
these sources is in part dependent upon the local, state and national economy.
Local government obligations held by the Fund may constitute general obligations
or may be special obligations payable solely from one or more specified revenue
sources. The ability of the local governments to repay their obligations on a
timely basis will be dependent upon the continued strength of the revenues
pledged and of the overall fiscal status of the local government.
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STATE CONSTITUTIONAL AMENDMENT LIMITING STATE REVENUES. An amendment to the
Constitution of the State of Florida was approved by the voters of the State of
Florida at the November 1994 general election. This amendment limits the amount
of taxes, fees, licenses and charges imposed by the State Legislature and
collected during any fiscal year to the amount of revenues allowed for the prior
fiscal year, plus an adjustment for growth. Growth is defined as the amount
equal to the average annual rate of growth in Florida personal income over the
most recent twenty quarters times the state revenues allowed for the prior
fiscal year. The revenues allowed for any fiscal year could be increased by a
two-thirds vote of the Legislature. The limit was effective in the fiscal year
1995-1996. Excess revenues generated will initially be deposited in the budget
stabilization fund until it is fully funded; any additional excess revenues will
then be refunded to taxpayers. This amendment could limit the amount of actual
revenues from which the State of Florida could appropriate funds, including
funds appropriated to local governments. It is unclear at this point what
effect, if any, this amendment would have on local government debt obligations
payable from state revenues which may be subject to this amendment, such as
state revenue sharing moneys or other state revenues distributed to local
governments. Certain State of Florida debt obligations, which are not by their
terms subject to appropriation, should not be affected, depending upon the
language of the legislation authorizing the issuance of such obligations.

OTHER FACTORS. Florida will continue to face enormous spending pressures well
into the future. The large number of elderly residents will continue to demand
health services, an area where cost escalation is significant, and the constant
influx of people to Florida will continue to place sizable pressure on the State
for infrastructure needs.

STRATEGIC TRANSACTIONS

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, financial futures, interest rate indices and
other financial instruments, purchase and sell financial futures contracts and
options thereon, or enter into various interest rate transactions such as swaps,
caps, floors or collars (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities.

Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.
B-11
<PAGE> 522

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

B-13
<PAGE> 524

GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that 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 and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) for other than bona fide hedging purposes if, immediately
thereafter, the sum of the amount of its initial margin and premiums on open
futures contracts and options thereon would exceed 5% of the Fund's total assets
(taken at current value); however, in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. The segregation requirements with respect to
futures contracts and options thereon are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

B-14
<PAGE> 525

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
the Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash and liquid
securities with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash and liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash and
liquid securities equal to the excess of the index value over the exercise price
on a current basis. A put option written by the Fund requires the Fund to
segregate cash and liquid securities equal to the exercise price.

B-15
<PAGE> 526

OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of cash and liquid securities equal
to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out cash and liquid securities equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of cash and liquid securities equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement, will be treated the same as other options settling
with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash and liquid securities sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of cash and liquid securities with a value equal to the Fund's net obligation,
if any.

The Fund's activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

B-16
<PAGE> 527

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.

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities, which
includes securities that are not readily marketable, repurchase agreements which
have a maturity of longer than seven days and generally includes securities that
are restricted from sale to the public without registration under the Securities
Act of 1933, as amended (the "1933 Act"). The sale of such securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of liquid securities trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities are often purchased at a discount from the market price of
unrestricted securities of the same issuer reflecting the fact that such
securities may not be readily marketable without some time delay. Investments in
securities which have no ready market are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the Fund's
Trustees. Ordinarily, the Fund would invest in restricted securities only when
it receives the issuer's commitment to register the securities without expense
to the Fund. However, registration and underwriting expenses (which may range
from 7% to 15% of the gross proceeds of the securities sold) may be paid by the
Fund. Restricted securities which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") and
are determined to be liquid under guidelines adopted by and subject to the
supervision of the Fund's Board of Trustees are not subject to the limitation on
illiquid securities. Such 144A Securities are subject to monitoring and may
become illiquid to the extent qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Factors used to determine whether
144A Securities are liquid include, among other things, a security's trading
history, the availability of reliable pricing information, the number of dealers
making quotes or making a market in such security and the number of potential
purchasers in the market for such security. For purposes hereof, investments by
the Fund in securities of other investment companies will not be considered
investments in restricted securities to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief from the provisions of the 1940 Act.

B-17
<PAGE> 528

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment restrictions which
may not be changed without approval by the vote of a majority of its outstanding
voting shares, which is defined by the 1940 Act as the lesser of (i) 67% or more
of the voting securities present in person or by proxy at the meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy; or (ii) more than 50% of the outstanding voting securities.
The Fund may not:

1. Invest more than 25% of its assets in a single industry; however, the Fund
may from time to time invest more than 25% of its assets in a particular
segment of the municipal bond market; however, the Fund will not invest
more than 25% of its assets in industrial development bonds in a single
industry, and 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.

2. Borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the total asset value of the Fund, or mortgage,
pledge, or hypothecate any assets except in connection with a borrowing
and in amounts not in excess of 10% of the total asset value of the Fund.
Borrowings may not be made for investment leverage, but only to enable the
Fund to satisfy redemption requests where liquidation of portfolio
securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings exceed 5% of the total asset value of the
Fund. Notwithstanding this investment restriction, the Fund may enter into
when issued and delayed delivery transactions.

3. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of, or the Fund's interest with respect to, the
securities owned by the Fund.

4. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with hedging transactions nor short term
credits as may be necessary for the clearance of transactions is
considered the purchase of a security on margin.

5. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options, except in connection with
Strategic Transactions in accordance with the requirements of the SEC and
the Commodity Futures Trading Commission.

6. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

7. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to securities owned by the Fund would be deemed
to constitute such control or participation, and 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. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and 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.

9. Invest in oil, gas or mineral leases or in equity interests in oil, gas,
or other mineral exploration or development programs, except pursuant to
the exercise by the Fund of its rights under agreements relating to
municipal securities.

B-18
<PAGE> 529

10. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the securities the Fund may invest in are considered to be
interest in real estate, commodities or commodity contracts or to the
extent the Fund exercises its rights under agreements relating to such
securities (in which case the Fund may own, hold, foreclose, liquidate or
otherwise dispose of real estate acquired as a result of a default on a
mortgage), and except to the extent that Strategic Transactions the Fund
may engage in are considered to be commodities or commodities contracts.

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

B-19
<PAGE> 530
<TABLE>
<S> <C>
BB, B, Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as
CCC, CC, C having significant speculative characteristics with respect
to capacity to pay interest and repay principal. 'BB'
indicates the lowest degree of speculation and 'C' the
highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing
within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

B-20
<PAGE> 531
<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

Debt Obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. MUNICIPAL NOTES

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:

<TABLE>
<S> <C>
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.
</TABLE>

B-21
<PAGE> 532

3. COMMERCIAL PAPER

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'.

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.

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 MUNICIPAL BONDS

B-22
<PAGE> 533
<TABLE>
<S> <C>
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.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

B-23
<PAGE> 534

2. SHORT-TERM EXEMPT NOTES

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

B-24
<PAGE> 535

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

DESCRIPTION OF INSURANCE COMPANY CLAIMS PAYING ABILITY RATINGS

RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

The claims-paying ability of insurance companies is rated by S&P and Moody's.
Descriptions of these ratings are set forth below:

DESCRIPTION OF S&P'S RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

AAA. Superior financial security on an absolute and relative basis. Capacity
to meet policyholder obligations is overwhelming under a variety of economic and
underwriting conditions.

AA. Excellent financial security. Capacity to meet policyholder obligations is
strong under a variety of economic and underwriting conditions.

A. Good financial security, but capacity to meet policyholder obligations is
somewhat susceptible to adverse economic and underwriting conditions.

BBB. Adequate financial security, but capacity to meet policyholder
obligations is susceptible to adverse economic and underwriting conditions.

Note: Plus (+) and minus (-) signs indicate relative standing within a category,
and are not indications of likely upgrades or downgrades.

DESCRIPTION OF MOODY'S RATINGS OF INSURANCE COMPANY CLAIMS-PAYING ABILITY

AAA. Insurance companies rated Aaa offer exceptional financial security. While
the financial strength of these companies is likely to change, such changes as
can be visualized are most unlikely to impair their fundamentally strong
position.

AA. Insurance companies rated Aa offer excellent financial security. Together
with the Aaa group they constitute what are generally known as high grade
companies. They are rated lower than Aaa companies because long-term risks
appear somewhat larger.

A. Insurance companies rated A offer good financial security. However,
elements may be present which suggest a susceptibility to impairment sometime in
the future.

B-25
<PAGE> 536

BAA. Insurance companies rated Baa offer adequate financial security. However,
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.

TRUSTEES AND OFFICERS

TRUSTEES

B-26
<PAGE> 537

B-27
<PAGE> 538

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com
233 South Wacker Drive Corporation, APAC Teleservices, Inc., COMARCO, Inc.,
Suite 9700 Applied Language Technologies, Focal Communications,
Chicago, IL 60606 and Lante Corporation. Limited Partner of Evercore
Date of Birth: 10/29/53 Partners, LLP. Trustee/Director of each of the Funds
in the Fund Complex.
</TABLE>

B-28
<PAGE> 539

OFFICERS

Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell
and Hill are located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181. The Fund's
other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Executive Vice President and a Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and a
President Director of the Advisers, Van Kampen Advisors Inc., and
Van Kampen Management Inc. Prior to July of 1998, Director
and Executive Vice President of VK/AC Holding, Inc. Prior
to April of 1998, President and a Director of Van Kampen
Merritt Equity Advisors Corp. Prior to April of 1997, Mr.
McDonnell was a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996, Mr. McDonnell
was Chief Executive Officer and Director of MCM Group,
Inc., McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited and MCM
(Europe) Limited. Prior to July of 1996, Mr. McDonnell was
President, Chief Operating Officer and Trustee of VSM Inc.
and VCJ Inc. President of each of the funds in the Fund
Complex. President, Chairman of the Board and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or their affiliates.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Prior to July
Vice President of 1996, Mr. Hegel was a Director of VSM Inc. Prior to
September of 1996, he was a Director of McCarthy, Crisanti
& Maffei, Inc. Vice President of each of the funds in the
Fund Complex and certain other investment companies
advised by the Advisers or their affiliates.
Curtis W. Morell..................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
</TABLE>

B-29
<PAGE> 540

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and
Secretary of VK/AC Holding, Inc. Prior to April of 1998,
Executive Vice President, General Counsel and Director of
Van Kampen Merritt Equity Advisors Corp. Prior to April of
1997, he was Executive Vice President, General Counsel and
a Director of Van Kampen Merritt Equity Holdings Corp.
Prior to September of 1996, he was General Counsel of
McCarthy, Crisanti & Maffei, Inc. Prior to July of 1996,
Mr. Nyberg was Executive Vice President and General
Counsel of VSM Inc. and Executive Vice President and
General Counsel of VCJ Inc. Vice President and Secretary
of each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers or their
affiliates.
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding,
Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-30
<PAGE> 541

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Nicholas Dalmaso..................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies advised
by the Advisers or their affiliates.
Huey P. Falgout, Jr.................. Vice President, Assistant Secretary and Senior Attorney of
Date of Birth: 11/15/63 Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin...................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior Vice
Assistant Secretary President, Deputy General Counsel and Secretary of the
Advisers, the Distributor, Investor Services, American
Capital Contractual Services, Inc., Van Kampen Management
Inc., Van Kampen Exchange Corp., Van Kampen Advisors Inc.,
Van Kampen Insurance Agency of Illinois Inc., Van Kampen
System Inc. and Van Kampen Recordkeeping Services Inc.
Prior to July of 1998, Senior Vice President, Deputy
General Counsel and Assistant Secretary of VK/AC Holding,
Inc. Prior to April of 1998, Van Kampen Merritt Equity
Advisors Corp. Prior to April of 1997, Senior Vice
President, Deputy General Counsel and Secretary of Van
Kampen American Capital Services, Inc. and Van Kampen
Merritt Holdings Corp. Prior to September of 1996, Mr.
Martin was Deputy General Counsel and Secretary of
McCarthy, Crisanti & Maffei, Inc., and prior to July of
1996, he was Senior Vice President, Deputy General Counsel
and Secretary of VSM Inc. and VCJ Inc. Assistant Secretary
of each of the funds in the Fund Complex and other
investment companies advised by the Advisers or their
affiliates.
Weston B. Wetherell.................. Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in the Fund
Assistant Treasurer Complex and other investment companies advised by the
Advisers or their affiliates.
</TABLE>

B-31
<PAGE> 542

B-32
<PAGE> 543

Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

- ---------------

B-33
<PAGE> 544

As of January , 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-34
<PAGE> 545

TABLE A

1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

1997 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund.................... 12/31 0
Tax Free High Income
Fund.................... 12/31 0
California Insured Tax
Free Fund............... 12/31 0
Municipal Income Fund..... 12/31 0
Intermediate Term
Municipal Income Fund... 12/31 0
Florida Insured Tax Free
Income Fund............. 12/31 0
New York Tax Free Income
Fund.................... 12/31 0
Trust Total............. 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-35
<PAGE> 546

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement (the
"Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. See
"Accounting Services Agreement" below. The Fund also pays distribution fees,
service fees, custodian fees, legal and auditing fees, the costs of reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any error of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.

Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.500% on the first $500 million of
average daily net assets and 0.450% on the average daily net assets over $500
million.

The Fund's average net assets are determined by taking the average of all of
the determinations of the net assets during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month.

The Advisory Agreement also provides that, in the event the annual expenses of
the Fund for any fiscal year exceed the most stringent limit in any state in
which the Fund's shares are offered for sale, 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.

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, the Adviser received $ , $ and $ ,
respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, Advisory Corp. received $0, $0 and $0, respectively,
in accounting services fees from the Fund.

B-36
<PAGE> 547

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, Van Kampen Investments received $0, $0 and $0,
respectively, in legal services fees from the Fund.

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
TOTAL UNDER- AMOUNTS
WRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------ --------------
<S> <C> <C>
Fiscal Period Ended September 30, 1998......................
Fiscal Year Ended December 31, 1997......................... $15,284 $128,317
Fiscal Year Ended December 31, 1996......................... $18,660 $143,174
</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

- ---------------

B-37
<PAGE> 548

Proceeds from any deferred sales charge and any distribution fees on Class B
Shares and Class C Shares of the Fund are paid to the Distributor and are used
by the Distributor to defray its distribution related expenses in connection
with the sale of the Fund's shares, such as the payment to authorized dealers
for selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of the Fund's Class C Shares annually commencing in
the second year after purchase.

B-38
<PAGE> 549

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.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.

For the fiscal period ended September 30, 1998, the Fund's aggregate expenses
under the Plans for Class A Shares were $ or % of the Class A Shares'
average daily net assets. Such expenses were paid to reimburse the Distributor
for payments made to financial intermediaries for servicing Fund shareholders
and for administering the Plans. For the fiscal year ended September 30, 1998,
the Fund's aggregate expenses under the Class B Plan were $ or % of the
Class B Shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $ for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class B Shares of
the Fund and $ for fees paid to financial intermediaries for servicing Class
B shareholders and administering the Plans. For the fiscal year ended September
30, 1998, the Fund's aggregate expenses under the Plans for Class C Shares were
$ or % of the Class C Shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments; $ for commissions
and transaction fees paid to financial intermediaries in respect of sales of

B-39
<PAGE> 550

Class C Shares of the Fund and $ for fees paid to financial intermediaries
for servicing Class C shareholders and administering the Class C Plan.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $ and $ , respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for 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 pur-chasers 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.

B-40
<PAGE> 551

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 Fund paid the following commissions to all brokers and affiliated brokers
during the periods shown:

<TABLE>
<CAPTION>
AFFILIATED BROKERS
-------------------
MORGAN DEAN
BROKERS STANLEY WITTER
------- ---------- ------
<S> <C> <C> <C>
Commission paid:
Fiscal period ended September 30, 1998....................
Fiscal year ended December 31, 1997....................... $2,232 $0 $0
Fiscal year ended December 31, 1996....................... $0 N/A N/A
Fiscal period 1998 Percentages:
Commissions with affiliate to total commissions...........
Value of brokerage transactions with affiliate to total
transactions...........................................
</TABLE>

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

B-41
<PAGE> 552

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 out-lined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table also includes purchases of shares of the Participating Funds over a
13-month period based on the total amount of intended purchases plus the value
of all shares of the Participating Funds previously purchased and still owned.
An investor may elect to compute the 13-month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. The initial purchase must be for an amount equal to at
least 5% of the minimum total purchase amount of the level selected. If trades
not initially made under a Letter of Intent subsequently qualify for a lower
sales charge through the 90-day back-dating provisions, an adjustment will be
made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the sales charges previously paid. Such payments may be made directly
to the Distributor or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain the difference.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund, at net asset value and with no minimum initial or subsequent
investment requirement, if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or agency commission. Persons
desiring more information with respect to this program, including the applicable
terms and conditions thereof, should contact their authorized dealer or the
Distributor.

B-42
<PAGE> 553

through the program and (2) provide Investor Services with appropriate backup
data for each participating investor in a computerized format fully compatible
with Investor Services' processing system.

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

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.

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 Code, or custodial accounts held by
a bank created pursuant to Section 403(b) of the Code and sponsored by
non-profit organizations defined under Section 501(c)(3) of the Code and assets
held by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify for
purchases at net asset value provided, for plans initially establishing accounts
with the Distributor in the Participating Funds after February 1, 1997, that (1)
the initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than 100
eligible employees. Such plans that have been established with a Participating
Fund or have received proposals from the Distributor prior to February 1, 1997
based on net asset value purchase privileges previously in effect will be
qualified to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen Trust Company serves as custodian will not be
eligible for net asset value purchases based on the aggregate investment made by
the plan or the number of eligible employees, except under certain uniform
criteria established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve-month period as follows:
1.00% on sales to $5 million, plus 0.50% on the next $5 million, plus 0.25% on
the excess over $10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on

B-43
<PAGE> 554

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 ("CDSC") of 1.00% in the event of redemption within one year of purchase,
and a commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

Each shareholder has an investment account under which the investor's shares
of the Fund are held by Investor Services, the Fund's transfer agent. Investor
Services performs bookkeeping, data processing and administrative services
related to the maintenance of shareholder accounts. Except as described in the
Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.

SHARE CERTIFICATES

B-44
<PAGE> 555

RETIREMENT PLANS

Eligible investors may establish individual retirement accounts ("IRAs"); SEP;
401(k) plans; Section 403(b)(7) plans in the case of employees of public school
systems and certain non-profit organizations; or other pension or profit sharing
plans. Documents and forms containing detailed information regarding these plans
are available from the Distributor. Van Kampen Trust Company serves as custodian
under the IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as
full plan administration for profit sharing, pension and 401(k) plans, are
available from the Distributor.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

DIVIDEND DIVERSIFICATION

EXCHANGE PRIVILEGE

To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.

B-45
<PAGE> 556

another Participating Fund, Class B Shares and Class C Shares are subject to the
CDSC schedule imposed by the Participating Fund from which such shares were
originally purchased.

For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.

Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

SYSTEMATIC WITHDRAWAL PLAN

B-46
<PAGE> 557

Class B shareholders and Class C shareholders who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.

INTERNET TRANSACTIONS

REINSTATEMENT PRIVILEGE

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A

B-47
<PAGE> 558

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED

SALES CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR DISABILITY

The Fund will waive the CDSC-Class B and C on redemptions following the death
or disability of a Class B shareholder and Class C shareholder. An individual
will be considered disabled for this purpose if he or she meets the definition
thereof in Section 72(m)(7) of the Code, which in pertinent part defines a
person as disabled if such person "is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long-continued
and indefinite duration." While the Fund does not specifically adopt the balance
of the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of death or disability before it determines to waive the
CDSC-Class B and C.

In cases of death or disability, the CDSC-Class B and C will be waived where
the decedent or disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This waiver of the
CDSC-Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial determination of
disability.

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund will waive the CDSC-Class B and C when a total or partial redemption
is made in connection with certain distributions from Retirement Plans. The
charge will be waived upon the tax-free rollover or transfer of assets to
another Retirement Plan invested in one or more Participating Funds; in such
event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).

The Fund does not intend to waive the CDSC-Class B and C for any distributions
from IRAs or other Retirement Plans not specifically described above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

The amount of the shareholder's investment in a Fund at the time the election
to participate in the Plan is made with respect to the Fund is hereinafter
referred to as the "initial account balance." The amount to be systematically
redeemed from the Fund without the imposition of a CDSC-Class B and C may not
exceed a maximum of 12% annually of the shareholder's initial account balance.
The Fund reserves the right to change the terms and conditions of the Plan and
the ability to offer the Plan.

B-48
<PAGE> 559

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

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

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.

B-49
<PAGE> 560

Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.

DISTRIBUTIONS. The Fund intends to invest in sufficient tax-exempt municipal
securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of municipal securities.

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.

B-50
<PAGE> 561

While the Fund expects that a major portion of its net investment income will
constitute tax-exempt interest, a significant portion may consist of investment
company taxable income. Distributions of the Fund's net investment company
taxable income are taxable to shareholders as ordinary income to the extent of
the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains ("capital gain
dividends"), if any, are taxable to shareholders as long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming such shares are held as a capital asset). For a summary of the
tax rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates" below. Interest on indebtedness which is incurred to
purchase or carry shares of a mutual fund which distributes exempt interest
dividends during the year is not deductible for federal income tax purposes.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.

SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss. For a summary of the tax rates
applicable to capital gains (including capital gain dividends), see "Capital
Gains Rates" below. Any loss recognized upon a taxable disposition of shares
held for six months or less will be treated as a long-term capital loss to the
extent of any capital gain dividends received with respect to such shares. For
purposes of determining whether shares have been held for six months or less,
the holding period is suspended for any periods during which the shareholder's
risk of loss is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

B-51
<PAGE> 562

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 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.

The Fund must report annually to the IRS and to each Non-U.S. Shareholder the
amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.

The table below illustrates approximate equivalent taxable and tax-free yields
at the 1997 federal individual income tax rates in effect on the date of this
Statement of Additional Information, including the 36% and 39.6% rates enacted
in August 1993 as part of the Revenue Reconciliation Act of 1993.

The table shows, for example, that a couple with a taxable income of $90,000,
or a single individual with a taxable income of $55,000, whose investments earn
a 6% tax-free yield, would have to earn approximately an 8.3% taxable yield at
current federal income tax rates to receive the same benefit.

The State of Florida imposes no income tax on individuals; accordingly, the
table reflects only the exemption from Federal income taxes. The table does not
reflect the exemption of shares of the Fund from the State's intangible tax;
accordingly, Florida residents subject to such tax would need a somewhat higher
taxable return than those shown to equal the tax-exempt return of the Florida
Fund.

1998 FEDERAL TAXABLE VS. TAX-FREE YIELDS

<TABLE>
<CAPTION>
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX -------------------------------------------------------------------------------
RETURN RETURN BRACKET 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5%
- ---------------- --------------- ------- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
25,350 0-42,350 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41% 10.00%
25,350-61,400 42,350-102,300 28.00% 4.86 5.56 6.25 6.94 7.64 8.33 9.03 9.72 10.42 11.11 11.81
61,400-128,100 102,300-155,950 31.00% 5.07 5.80 6.52 7.25 7.97 8.70 9.42 10.14 10.87 11.59 12.32
128,100-278,450 155,950-278,450 36.00% 5.47 6.25 7.03 7.81 8.59 9.38 10.16 10.94 11.72 12.50 13.28
Over 278,450 Over 278,450 39.60% 5.79 6.62 7.45 8.28 9.11 9.93 10.76 11.59 12.42 13.25 14.07
</TABLE>

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.

B-52
<PAGE> 563

a percentage of the initial investment; the calculation assumes the initial
investment is made at the current maximum public offering price (which includes
the maximum sales charge for Class A Shares); that all income dividends or
capital gains distributions during the period are reinvested in Fund shares at
net asset value; and that any applicable CDSC has been paid. The Fund's total
return will vary depending on market conditions, the securities comprising the
Fund's portfolio, the Fund's operating expenses and unrealized net capital gains
or losses during the period. Total return is based on historical earnings and
asset value fluctuations and is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and distributions paid by the Fund.

Non-standardized total return calculations do not reflect the imposition of a
contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC imposed at the time of redemption were
reflected, it would reduce the performance quoted.

Yield and total return are calculated separately for Class A Shares, Class B
Shares and Class C Shares. Class A Shares total return figures include the
maximum sales charge; Class B Shares and Class C Shares total return figures
include any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.

B-53
<PAGE> 564

be greater than yield since, for instance, it may not include the effect of
amortization of bond premiums, and may include non-recurring short-term capital
gains and premiums from futures transactions engaged in by the Fund.
Distribution rates will be computed separately for each class of the Fund's
shares.

From time to time marketing materials may provide a portfolio manager update,
an adviser update or discuss general economic conditions and outlooks. The
Fund's marketing materials may also show the Fund's asset class diversification,
top five sectors, ten largest holdings and other Fund asset structures, such as
duration, maturity, coupon, NAV, rating breakdown, AMT exposure and number of
issues in the portfolio. Materials may also mention how the Distributor believes
the Fund compares relative to other Van Kampen funds. Materials may also discuss
the Dalbar Financial Services study from 1984 to 1994 which studied investor
cash flow into and out of all types of mutual funds. The ten year study found
that investors who bought mutual fund shares and held such shares outperformed
investors who bought and sold. The Dalbar study conclusions were consistent
regardless of if shareholders purchased their funds in direct or sales force
distribution channels. The study showed that investors working with a
professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the internet.

In reports or other communications to shareholders or in advertising material,
the Fund may compare its performance with that of other mutual funds as listed
in the rankings or ratings prepared by Lipper Analytical Services, Inc., CDA,
Morningstar Mutual Funds or similar independent services which monitor the
performance of mutual funds with the Consumer Price Index, other appropriate
indices of investment securities, or with investment or savings vehicles. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by nationally recognized financial
publications. Such comparative performance information will be stated in the
same terms in which the comparative data or indices are stated. Such
advertisements and sales material may also include a yield quotation as of a
current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce Fund
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, from time to time: (1) illustrate the benefits of tax-deferral
by comparing taxable investments to investments made through tax-deferred
retirement plans; (2) illustrate in graph or chart form, or other-wise, the
benefits of dollar cost averaging by comparing investments made pursuant to a
systematic investment plan to investments made in a rising market; and (3) in
reports or other communications to shareholders or in advertising material,
illustrate the benefits of compounding at various assumed rates of return. Such
illustrations may be in the form of charts or graphs and will not be based on
historical returns experienced by the Fund.

The Fund's Annual Report and Semi-Annual Report contain additional performance
information. A copy of the Annual Report or Semi-Annual Report may be obtained
without charge by calling or writing the Fund at the telephone number and
address printed on the back cover of the Prospectus.

B-54
<PAGE> 565

CLASS A SHARES

The average annualized total return, including payment of the sales charge,
with respect to the Class A Shares for (i) the one year period ended December
31, 1997 was 3.57% and (ii) the approximately three year, five month period from
July 29, 1994 (the commencement of investment operations of the Fund) through
December 31, 1997 was 6.44%.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.78%. The tax-equivalent yield with
respect to the Class A Shares for the 30 day period ending December 30, 1997
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was 5.91%. The Fund's current
distribution rate with respect to the Class A Shares for the month ending
December 31, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 4.74%. The Fund's taxable equivalent
distribution rate with respect to the Class A Shares for the month ending
December 31, 1997 was 7.41%.

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 December 31, 1997 (as calculated in the manner described in the
Prospectus under the heading "Fund Performance") was 23.87%.

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
December 31, 1997 was 30.02%.

CLASS B SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class B Shares for (i) the one year period ended December 31,
1997 was 3.91% and (ii) the approximately three year, five month period of July
29, 1994 (commencement of investment operations of the Fund) through December
31, 1997 was 6.55%.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.19%. The tax-equivalent yield with
respect to the Class B Shares for the 30 day period ending December 30, 1997
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was 4.98%. The Fund's current
distribution rate with respect to the Class B Shares for the month ending
December 31, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 4.24%. The Fund's taxable equivalent
distribution rate with respect to the Class B Shares for the month ending
December 31, 1997 was 6.63%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class B Shares from its inception to December 31, 1997
(as calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 24.30%.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class B Shares from its inception to December 31, 1997
was 26.80%.

CLASS C SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class C Shares for (i) the one year period ended December 31,
1997 was 6.97% and (ii) the approximately three year, five month period from
July 29, 1994 (the commencement of investment operations of the Fund) through
December 31, 1997 was 7.23%.

B-55
<PAGE> 566

The Fund's yield with respect to the Class C Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.21%. The tax-equivalent yield with
respect to the Class C shares for the 30 day period ending December 30, 1997
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was 5.02%. The Fund's current
distribution rate with respect to the Class C Shares for the month ending
December 31, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 4.24%. The Fund's taxable equivalent
distribution rate with respect to the Class C Shares for the month ending
December 31, 1997 was 6.63%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class C Shares from its inception to December 31, 1997
(as calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 27.04%.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class C Shares from its inception to December 31, 1997
was 27.04%.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225 West
Franklin Street, Boston, Massachusetts 02110, as Custodian.

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders,
and annually such statements are audited by the independent accountants.

LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom
(Illinois). Squire, Sanders & Dempsey L.L.P. acts as special counsel to the Fund
for Florida disclosure, tax matters and passes on the legality of the Fund's
shares.

B-56
<PAGE> 567

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN NEW YORK TAX FREE INCOME FUND

Van Kampen New York Tax Free Income Fund is a mutual fund with an investment
objective to provide investors a high level of current income exempt from
federal, New York State and New York City income taxes, consistent with
preservation of capital. The Fund is designed for investors who are residents of
New York for tax purposes. The Fund's management seeks to achieve the investment
objective by investing primarily in a portfolio of New York municipal securities
that are rated investment grade at the time of purchase.

The Fund is organized as a non-diversified series of the Van Kampen Tax Free
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. A Prospectus may be obtained without charge by
writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833 for the hearing
impaired).

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective and Policies........................... B-3
Investment Restrictions..................................... B-37
Description of Municipal Securities Ratings................. B-38
Trustees and Officers....................................... B-44
Investment Advisory and Other Services...................... B-54
Distribution and Service.................................... B-55
Transfer Agent.............................................. B-58
Portfolio Transactions and Brokerage Allocation............. B-58
Share Purchase Programs..................................... B-59
Shareholder Services........................................ B-62
Redemption of Shares........................................ B-65
Contingent Deferred Sales Charge-Class A.................... B-65
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-66
Taxation.................................................... B-67
Fund Performance............................................ B-71
Other Information........................................... B-74
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED JANUARY , 1999.
B-1
<PAGE> 568

GENERAL INFORMATION

The Trust was originally organized in 1985 under the name Van Kampen Merritt
Tax Free Trust as a Massachusetts business trust (the "Massachusetts Trust").
The Massachusetts Trust was reorganized into the Trust under the name Van Kampen
American Capital Tax Free Trust on 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 Fund was originally organized in 1994 under the name Van Kampen Merritt
New York Tax Free Income Fund as a sub-trust of the Massachusetts Trust. The
Fund was reorganized as a series of the Trust under the name Van Kampen American
Capital New York Tax Free Income Fund on July 31, 1995. On July 14, 1998, the
Fund adopted its current name.

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 and further sub-divided 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.

B-2
<PAGE> 569

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 pay 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.

As of January , 1999, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:

- ---------------

Van Kampen Trust Company acts as custodian for certain employee benefit plans
and independent retirement accounts.

INVESTMENT OBJECTIVE AND POLICIES

MUNICIPAL SECURITIES

B-3
<PAGE> 570

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 also may invest up to 20% of its total assets in derivative variable
rate municipal securities such as inverse floaters whose rates vary inversely
with changes in market rates of interest or range floaters or capped floaters
whose rates are subject to periodic or lifetime caps. Derivation variable rate
securities may pay a rate of interest determined by applying a multiple to the
variable rate. The extent of increases and decreases in the value of derivative
variable rate securities in response to changes in market rates of interest
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate municipal security having similar credit
quality, redemption provisions and maturity.

The Fund also 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
B-4
<PAGE> 571

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.

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 considered speculative with respect to the
capacity to pay interest or repay principal in accordance with their terms.

SPECIAL CONDITIONS REGARDING NEW YORK MUNICIPAL SECURITIES

As described in the Prospectus, except during temporary periods, the Fund will
invest substantially all of its assets in New York municipal securities. In
addition, the specific New York municipal securities in which the Fund will
invest will change from time to time. The Fund is therefore susceptible to
political, economic, regulatory or other factors affecting issuers of New York
municipal securities. The following information constitutes only a brief summary
of a number of the complex factors which may impact issuers of New York
municipal securities and does not purport to be a complete or exhaustive
description of all adverse conditions to which issuers of New York municipal
securities may be subject. Such information is derived from official statements
utilized in connection with the issuance of New York municipal securities, as
well as from other publicly available documents. Such information has not been
independently verified by the Fund, and the Fund assumes no responsibility for
the completeness or accuracy of such information. Additionally, many factors,
including national, economic, social and environmental policies and conditions,
which are not within the control of such issuers, could have an adverse impact
on the financial condition of such issuers. The Fund cannot predict whether or
to what extent such factors or other factors may affect the issuers of New York
municipal securities, the market value or marketability of such securities or
the ability of the respective issuers of such securities acquired by the Fund to
pay interest on or principal of such securities. The creditworthiness of
obligations issued by local New York issuers may be unrelated to the
creditworthiness of obligations issued by the State of New York, and there is no
responsibility on the part of the State of New York to make payments on such
local obligations. There may be specific factors that are applicable in
connection with investment in the obligations of particular issuers located
within New York, and it is possible the Fund will invest in obligations of
particular issuers as to which such specific factors are applicable. However,
the information set forth below is intended only as a general summary and not as
a discussion of any specific factors that may affect any particular issuer of
New York municipal securities.

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The portfolio of the Fund may include municipal securities issued by New York
State (the "State"), by its various public bodies (the "Agencies") or by other
entities located within the State, including the City of New York (the "City")
and political subdivisions thereof or their agencies.

THE STATE. The State is the third most populous state in the nation (after
California and Texas) and has a relatively high level of personal wealth. The
State's economy is diverse, with a comparatively large share of the nation's
finance, insurance, transportation, communications and services employment, and
a very small share of the nation's farming and mining activity. Like the rest of
the nation, the State has had a declining proportion of its workforce engaged in
manufacturing and an increasing proportion engaged in service industries. The
State's location and its excellent air transport facilities and natural harbors
have made it an important link in international commerce. Travel and tourism
constitute an important part of the economy; in 1995, tourists spent $24.3
billion in the State.

Historically, State per capita personal income has been significantly higher
that the national average, although the ratio has varied substantially. Because
the City is a regional employment center for a multi-state region, however,
personal income measured on a residence basis may understate the relative
importance of the State to the national economy and the size of the base to
which State taxation applies. In 1994, the State had a per capita personal
income of $25,726, compared to $21,699 for the nation as a whole. According to
data published by the US Bureau of Economic Analysis, during the past ten years,
total personal income in the State rose slightly faster than the national
average only from 1986 through 1988. Personal income was expected to record
moderate gains in 1996 and bonus payments in the securities industry were
expected to increase further from 1995's record level. While the State
historically has been one of the wealthiest in the nation, demographic changes
have been gradually eroding its relative economic affluence. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
Nevertheless, the State's population has grown since 1930, except for a period
of decline during the 1970s and a virtual standstill the past two years. The
City has also faced greater competition as other major cities have developed
financial and business capabilities which make businesses less dependent on the
specialized services traditionally available almost exclusively in the City.

The State has for many years had a very high state and local tax burden
relative to other states. In fiscal year 1994, the State assessed per capita
taxes of $1,806 (9th in the nation), compared to a national average of $1,439.
The burden of state and local taxation, in combination with the many other
causes of regional economic dislocation, may have contributed to the decisions
of some businesses and individuals to relocate outside, or not locate within,
the State.

To stimulate economic growth, the State has developed programs, including the
provision of direct financial assistance, designed to help businesses expand
existing operations located within the State and to attract new businesses to
the State. In addition, the State has provided various tax incentives to
encourage business relocation and expansion. These programs include direct tax
abatements from local property taxes for new facilities (subject to locality
approval) and investment tax credits that are applied against the state
corporation franchise tax. Furthermore, the State has created "economic
development zones" in economically distressed regions of the State. Businesses
in these zones are provided a variety of tax and other incentives to create jobs
and make investments in the zones.

During the 1982-83 recession, overall economic activity in the State declined
less than that in the nation as a whole. However, from 1987 to 1995, the State's
rate of economic growth was somewhat slower than the rest of the nation. In
particular, during the 1990-91 recession and post-recession period, the economy
of the State, and that of the rest of the Northeast, was more heavily damaged
than that of the nation as a whole and has been slower to recover. The total
employment growth rate in the State has been below the national average since
1987. The unemployment rate in the State dipped below the national rate in the
second half of 1981 and remained lower until 1991; since then, it has been
higher. The national economy has resumed a more robust rate of growth after a
"soft landing" in 1995, with over 11 million jobs added nationally since early
1992. The State economy has continued to expand, but growth remains somewhat
slower than in the nation. Although the State has added approximately 240,000
jobs since late 1992, employment growth in the State has been

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hindered during recent years by significant cutbacks in the computer and
instrument manufacturing, utility, defense and banking industries. Government
downsizing has also moderated these job gains.

At the State level, moderate growth is projected to continue in 1998 and 1999
for employment, wages, and personal income, although the growth rates will
lessen gradually during the course of the two years. Personal income is
estimated to grow by 5.4 percent in 1997, fueled in part by a continued large
increase in financial sector bonus payments, and is projected to grow 4.7
percent in 1998 and 4.4 percent in 1999. Increases in bonus payments at year-end
1998 are projected to be modest, a substantial change from the rate of increase
of the last few years. Overall employment growth is expected to continue at a
modest rate, reflecting the slowing growth in the national economy, continued
spending restraint in government, and restructuring in the health care, social
service, and banking sectors.

The forecast for continued slow growth, and any resultant impact on the
State's Financial Plans, contains some uncertainties. Stronger-than-expected
gains in employment could lead to a significant improvement in consumption
spending. Investments could also remain robust. Conversely, the prospect of a
continuing deadlock on federal budget deficit reduction or fears of excessively
rapid economic growth could create upward pressures on interest rates. In
addition, the State economic forecast could over- or underestimate the level of
future bonus payments or inflation growth, resulting in forecasted average wage
growth that could differ significantly from actual growth. Similarly, the State
forecast could fail to correctly account for expected declines in government and
banking employment and the direction of employment change that is likely to
accompany telecommunications deregulation.

THE STATE'S 1997-98 FISCAL YEAR. The State's 1997-98 fiscal year commenced on
April 1, 1997 and ended on March 31, 1998, and is referred to herein as the
1997-98 fiscal year.

The State's budget for the 1997-98 fiscal year was enacted by the State
Legislature on August 4, 1997, more than four months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1997-98 fiscal year was
formulated on August 11, 1997 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor, as well as actual results
for the first quarter of the current fiscal year. The State Financial Plan is
updated quarterly pursuant to law in July, October and January.

1997-98 STATE FINANCIAL PLAN. The four governmental fund types that comprise
the State Financial Plan are the General Fund, the Special Revenue Funds, the
Capital Projects Funds and the Debt Service Funds. This fund structure adheres
to accounting standards of the Governmental Accounting Standards Board.

GENERAL FUND. The General Fund is the principal operating fund of the State
and is used to account for all financial transactions, except those required to
be accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1997-98 fiscal year, the General Fund is expected to account for
approximately 48 percent of total governmental-fund disbursements and 71 percent
of total State-funded disbursements. General Fund moneys are also transferred to
other funds, primarily to support certain capital projects and debt service
payments in other fund types. The General Fund is projected to be balanced on a
cash basis for the State's 1997-98 fiscal year. Total receipts and transfers
from other funds are projected to be $35.09 billion, an increase of $2.05
billion from the prior fiscal year. Total General Fund disbursements and
transfers to other funds are projected to be $34.60 billion, an increase of
$1.70 billion from the total amount disbursed in the prior fiscal year.

PROJECTED GENERAL FUND RECEIPTS. The discussion below summarizes the State's
original projections of General Fund tax revenues and other receipts for the
1997-98 fiscal year. Total General Fund receipts and transfers from other funds
in the 1997-98 fiscal year were projected to be $35.09 billion, an increase of
over $2 billion or roughly 6 percent from the $33.04 billion recorded in the
1996-97 fiscal year. This total includes $31.68 billion in tax receipts, $1.48
billion in miscellaneous receipts, and $1.94 billion in transfers from other
funds.

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The personal income tax is imposed on the income of individuals, estates and
trusts and is based on federal definitions of income and deductions with certain
modifications. In 1995, the State enacted a tax-reduction program designed to
reduce, by 20 percent over three years, receipts from the personal income tax.
The tax-reduction program is estimated to reduce receipts by approximately $4
billion, compared to what tax receipts would have been under the pre-1995 rate
structure. On a current law basis, 1997 income tax liability is expected to fall
slightly, reflecting the tax cut. On a constant law basis, liability growth
during taxable year 1997 would be between 6 and 7 percent. The maximum rate was
reduced to 7.59375 percent for 1995, from the 7.875 percent in effect between
1989 and 1994, and is scheduled under current law to be reduced further to 6.85
percent in 1997 and thereafter. Net personal income tax collections are
projected to reach $18.87 billion, over half of all General Fund receipts and
$2.5 billion above the reported 1996-97 fiscal year total. Virtually all of the
projected annual growth in this category, however, is provided by tax refund and
refund reserve transactions which affect reported receipts levels in the 1995-96
through 1997-98 fiscal years. Without these transactions between years, income
tax receipts in 1997-98 would be virtually flat.

User taxes and fees are comprised of three-quarters of the State's four
percent sales and use tax (the balance, one percent, flows to support Local
Government Assistance Corporation ("LGAC") debt service requirements), the
cigarette, alcoholic beverage container and auto rental taxes and a portion of
the motor fuel excise levies. Also included in this category are receipts from
the motor vehicle registration fees and alcoholic beverage license fees. Since
1993-94, a portion of the motor fuel tax and motor vehicle registration fees and
all of the highway use tax have been earmarked for dedicated transportation
funds. Receipts in this category in the 1997-98 fiscal year were expected to
total $7 billion, an increase of $204 million from reported 1996-97 results. The
sales tax component of this category accounts for all of the projected 1997-98
growth in this category, as receipts from all other categories are projected to
decline by $3 million. The yield of most of the excise taxes in this category
show a long-term declining trend, particularly cigarette and alcoholic beverage
taxes. These declines in the 1997-98 fiscal year are projected to be offset by
an increase in anticipated motor vehicle fees arising, in large part, from
legislative actions that raise additional receipts from this source.

Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as
gross-receipts-based taxes on utilities and gallonage-based petroleum business
taxes. Through 1993, these levies had been subject to a 15 percent surcharge
initially imposed in 1990. Beginning in 1994, a 15 percent surcharge on these
levies began to be phased out and, for most taxpayers, there will be no
surcharge liability for taxable periods ending in 1997 and thereafter. Total
business tax receipts in the State's 1997-98 fiscal year were projected at $4.83
billion, a decline of $253 million from reported 1996-97 results. The
year-over-year decline in projected receipts in this category is a function of
both statutory changes between the two years -- 1997 is the first "surcharge
free" taxable period in this decade -- and a number of essentially one-time
transactions that increased receipts in the base year, including unusually large
audit receipts under the bank tax.

Other taxes include estate, gift and real estate transfer taxes, a tax on
gains from the sale or transfer of certain real estate (this tax was repealed in
1996), a pari-mutuel tax and other minor levies. This is the first fiscal year
that real estate transfer tax receipts have been diverted from the General Fund
to the Clean Water/ Clean Air Fund to provide debt service coverage for general
obligation bonds. Total receipts from this category in the State's 1997-98
fiscal year were projected at $982 million, nearly $100 million less than in the
preceding year. This figure masks the significant increase in estate tax
collections during the first four months of the fiscal year, and results largely
from the dedication of the proceeds of the real estate transfer tax to meet debt
service obligations on the new Clean Water/Clean Air bond act and from the
full-year impact of the repeal of the real property gains tax.

Miscellaneous receipts include investment income, abandoned property receipts,
medical provider assessments, minor federal grants, receipts from public
authorities and certain other license and fee revenues. Receipts in this
category in the 1997-98 fiscal year were expected to total $1.48 billion, a
decrease of almost $600 million from the amount received in the prior fiscal
year. The reduction reflects a significant diminution in the amount of
non-recurring resources used in the 1997-98 Financial Plan as compared to
1996-97.

Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, particularly the one percent
sales tax used to support payments to LGAC. In the State's 1997-

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98 fiscal year, tax revenues transferred in support of debt service were
projected to be $1.48 billion, $58 million more than the amount received in the
1996-97 fiscal year. All other transfers were projected to increase by $237
million, primarily reflecting the non-recurring transfer of $200 million for
retroactive reimbursement to the State of certain social services claims from
the federal government.

PROJECTED GENERAL FUND DISBURSEMENTS. Grants to local governments is the
largest category of General Fund disbursements, and generally accounts for
approximately 68 percent of overall General Fund spending. Disbursements from
this category were projected to total $23.63 billion in the 1997-98 State
Financial Plan, an increase of $750 million (3.3 percent) from 1996-97 levels.
This category of the State Financial Plan included $11.57 billion in aid for
elementary, secondary and higher education, accounting for 49 cents of every
dollar spent in this category. On a school year basis, school aid increases by
$750 million including formula-based elementary and secondary education aid
increases of $650 million levels. This category of the Financial Plan is
affected by reclassification of costs formerly budgeted as City University local
assistance that are now included in the transfers for debt service category.
This has the effect of decreasing disbursements in this category by a projected
$262 million, and raising projected transfers by the same amount. General Fund
payments for Medicaid were projected to be $5.42 billion, virtually unchanged
from the level of $5.38 billion in 1997-98. This expected slow growth was due
primarily to continuation of cost containment measures enacted in 1995-96, new
reforms included in the adopted 1997-98 budget and forecasts for slower
underlying growth. Other social service spending was forecast to increase by
only $115 million to $3.15 billion in 1997-98. Remaining disbursements primarily
supported community-based mental hygiene programs, community and public health
programs, local transportation programs and revenue sharing.

State Operations spending reflects the administrative costs of operating the
State's agencies, including the prison system, mental hygiene institutions, the
State University of New York ("SUNY") system, the Legislature and the court
system. Personal service costs were to account for approximately 71 percent of
the anticipated disbursements in this category in 1997-98. Since January 1995,
the State's workforce had been reduced by about 10%, and is projected to reach a
level of approximately 191,000 persons by the end of the 1997-98 fiscal year.
Collective bargaining agreements have been ratified by employee bargaining units
representing most State employees subject to such agreements and the 1997-98
projections reflect salary increases under the agreements. Disbursements for
State operations were projected at $6.22 billion, an increase of $441 million or
7.6 percent. Approximately $200 million of this increase resulted from approved
collective bargaining agreements and the impact of binding arbitration
settlements. Other major increases include growth in SUNY operations, increased
mental hygiene costs resulting from increased assessments on State operated
programs, public protection agency spending, which is increasing to reflect the
impact of sentencing reforms and prison expansion, and higher spending by the
Judiciary and Legislature.

General state charges primarily reflect the costs of providing fringe benefits
for State employees, including contributions to pension systems, the employer's
share of social security contributions, employer contributions toward the cost
of health insurance and the costs of providing worker's compensation and
unemployment insurance benefits. This category also reflects certain fixed costs
such as payments in lieu of taxes and payments of judgments against the State or
its public officers. Disbursements in this category were projected at $2.18
billion in the 1997-98 State Financial Plan, virtually unchanged from 1996-97
levels. Pension costs are projected to grow moderately, while most of the
projected growth in fixed costs is related to increased payments to localities
for State owned lands. These increases are fully offset by continued savings
from health care and worker's compensation reforms, which account for most of
the cost containment savings in this area.

Debt services to be paid from the General Fund for 1997-98 reflected only the
$11 million interest cost of the State's commercial paper program.

Transfers to other funds from the General Fund are made primarily to finance
certain portions of State capital project spending and debt service on long-term
bonds where these costs are not funded from other sources. Transfers were
projected to total $2.07 billion in 1997-98, an increase of $496 million. This
reflects the increased debt service impact of prior year bond sales, the
reclassification of City University debt service costs that had been previously
included in grants to local governments, and the inclusion of costs associated
with the 1996-1997 bonding of previous pension liabilities at lower interest
rates. Transfers for capital projects provide General Fund support for projects
not otherwise financed through bond proceeds, dedicated taxes and

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other revenues and federal grants. These transfers are projected at $184 million
for 1997-98, an increase of $46 million. The 1997-98 State Financial Plan also
includes $299 million for subsidies or transfers to other State funds, a
decrease of $30 million from last year's level.

NON-RECURRING RESOURCES. The 1997-98 State Financial Plan included actions
affecting the budget outlook for fiscal year 1997-98 and beyond. The DOB
estimated that the 1997-98 State Financial Plan contained actions that provided
non-recurring resources or savings totaling approximately $270 million. These
included the use of $200 million in federal reimbursement funds available from
retroactive social service claims approved by the federal government in April
1997. The balance was composed of various other actions, primarily the transfer
of unused special revenue fund balances to the General Fund.

OUT-YEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS. The State closed projected
budget gaps of $5.0 billion, $3.9 billion and $2.3 billion for its 1995-96
through 1997-98 fiscal years, respectively. The 1998-99 gap was projected at
$1.68 billion, (before the application of any assumed efficiencies) in the
outyear projections submitted to the Legislature in February 1997. As a result
of changes made in the adopted budget, the 1998-99 gap is now expected to be
about the same or smaller than the amount previously projected, after
application of the $530 million reserve for future needs. The expected gap is
smaller than the three previous budget gaps closed by the State.

The revised expectations for the 1998-99 fiscal year reflect the loss of $1.4
billion in surplus resources from 1996-97 operations that are being utilized to
finance current year spending and an incremental effect of approximately $300
million in legislated State and local tax reductions in the outyear. Other
factors include the annualized costs of certain program increases in the 1997-98
adopted budget, most of which are subject to annual appropriation.

Certain actions taken in the State's 1997-98 fiscal year, such as Medicaid and
welfare reforms, are expected to provide recurring savings in future fiscal
years. Continued controls on State agency spending will also provide recurring
savings. The availability of $530 million in reserves created as part of the
1997-98 adopted budget and included in the Financial Plan was expected to
benefit the 1998-99 fiscal year. Sustained growth in the State's economy and
continued declines in welfare caseload and health care costs would also produce
additional savings in the 1998-99 Financial Plan. Finally, various federal
actions, including the potential beneficial effect on State tax receipts from
changes to the federal tax treatment of capital gains, could potentially provide
significant benefits to the State over the next several years. The Governor
indicated that he would close any potential imbalance primarily through General
Fund expenditure reductions without increases in taxes or deferrals of scheduled
tax reductions.

FUND BALANCES. The 1997-98 opening fund balance of $433 million included $317
million reserved in the Tax Stabilization Reserve Fund ("TSRF"), $41 million on
deposit in the Contingency Reserve Fund ("CRF") and $75 million in the Community
Projects Fund. The projected closing fund balance in the General Fund of $927
million reflected a balance of $332 million in the TSRF, following an additional
payment of $15 million at the end of the year, $65 million in the CRF, following
a deposit of $24 million in 1997-98, and a reserve for future needs of $530
million.

OTHER GOVERNMENTAL FUNDS. In addition to the General Fund, the 1997-98 State
Financial Plan included Special Revenue Funds, Capital Projects Funds and Debt
Service Funds which are discussed below. Amounts below do not include other
sources and uses of funds transferred to or from other fund types.

Special revenue funds are used to account for the proceeds of specific revenue
sources such as federal grants that are legally restricted, either by the
Legislature or outside parties, to expenditures for specified purposes. Activity
in this fund type was expected to comprise approximately 42 percent of total
government funds receipts in the 1997-98 fiscal year, about three-quarters of
which related to federally-funded programs. Projected receipts in this fund type
totaled $28.22 billion, an increase of $2.51 billion (9.7 percent) over the
prior year. Projected disbursements in this fund type totaled $28.45 billion, an
increase of $2.43 billion (9.3 percent) over 1996-97 levels. Disbursements from
federal funds, primarily the federal share of Medicaid and other social services
programs, were projected to total $21.19 billion in the 1997-98 fiscal year.
Remaining projected spending of $7.26 billion primarily reflected aid to SUNY
supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the Metropolitan Transportation

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Authority ("MTA") funded from the proceeds of dedicated transportation taxes and
costs of a variety of self-supporting programs which deliver services financed
by user fees.

Capital projects funds are used to account for the financial resources used
for the acquisition, construction, or rehabilitation of major State capital
facilities and for capital assistance grants to certain local governments or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax receipts transferred from the General Fund, and various
other capital funds established to distinguish specific capital construction
purposes supported by other revenues. In the 1997-98 fiscal year, activity in
these funds was expected to comprise 5 percent of total governmental receipts.
Total receipts in this fund type were projected at $3.30 billion. Disbursements
from this fund type were projected to be $3.70 billion, an increase of $154
million (4.3 percent) over prior-year levels. The Dedicated Highway and Bridge
Trust Fund (the "Highway Trust Fund") was the single largest dedicated fund,
comprising an estimated $982 million (27 percent) of the activity in this fund
type. Total spending for capital projects was financed through a combination of
sources: federal grants (29 percent), public authority bond proceeds (31
percent), general obligation bond proceeds (15 percent) and pay-as-you-go
revenues (25 percent).

Debt service funds are used to account for the payment of principal of, and
interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund type was expected to comprise 4 percent of total governmental fund receipts
and 47 percent of total governmental disbursements in the 1997-98 fiscal year.
Receipts in these funds in excess of debt service requirements may be
transferred to the General Fund and Special Revenue Funds, pursuant to law. The
Debt Service fund type consists of the General Debt Service Fund, which is
supported primarily by tax receipts transferred from the General Fund, and other
funds established to accumulate moneys for the payment of debt service. In the
1997-98 fiscal year, total disbursements in this fund type were projected at
$3.17 billion, an increase of $641 million or 25.3 percent from the prior year.
The transfer from the General Fund of $2.07 billion was expected to finance 65
percent of these payments. The remaining payments were expected to be financed
by pledged revenues, including $2.03 billion in taxes and $601 million in
dedicated fees and other miscellaneous receipts. After required impoundment for
debt service, $3.77 billion was expected to be transferred to the General Fund
and other funds in support of State operations. The largest transfer--$1.86
billion--was made to the Special Revenue Fund type in support of operations of
the mental hygiene agencies. Another $1.47 billion in excess sales taxes was
expected to be transferred to the General Fund, following payment of projected
debt service on LGAC bonds.

1997-98 Financial Plan Revisions. The 1997-98 State Financial Plan was updated
on October 30, 1997 (the "Mid-Year Update") and on January 20, 1998 (the "Third
Quarter Update"). Revisions were made to estimates of both receipts and
disbursements based on (1) updated economic forecasts for both the nation and
the State, (2) an analysis of actual receipts and disbursements during the
elapsed portion of the fiscal year and (3) an assessment of changing program
requirements.

The 1997-98 General Fund Financial Plan continues to be balanced, with a
projected cash surplus of $1.83 billion, an increase of $1.3 billion over the
surplus estimate of $530 million in the prior update. The increase in the
surplus results primarily from higher-than-expected tax receipts, which are
forecast to exceed the October estimates by $1.28 billion. In order to make the
surplus available to help finance 1998-99 requirements, the State plans to
accelerate $1.18 billion in income tax refund payments into 1997-98, or provide
reserves for such payments. The balance in the refund reserve on March 31, 1998
is projected to be $1.647 billion, including $521 million as a result of LGAC.
This acceleration decreases reported personal income receipts by $1.18 billion
in 1997-98, while increasing available personal income receipts in 1998-99, as
these refunds will no longer be a charge against current revenues in 1998-99. As
a result, projections of available receipts in 1997-98 have been increased by
only $103 million from the Mid-Year Update.

Compared to the prior update, personal income tax collections for 1997-98 are
now projected at $18.50 billion, or $363 million less than projected in October
after accounting for the refund reserve transaction discussed above. Business
tax receipts are projected at $4.98 billion, an increase of $158 million. User
tax collections are estimated at $7.06 billion, or $52 million higher than the
prior update and reflect a projected loss of $20 million in sales tax receipts
from an additional week of sales tax exemption for clothing and footwear costing
less than $500, which was authorized and implemented in January 1998. Other tax

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receipts are projected to increase by $103 million over the prior update and
total $1.09 billion for the fiscal year. Miscellaneous receipts and transfers
from other funds are projected to reach $3.57 billion, or $153 million higher
than the Mid-Year Update.

The State projects that disbursements will increase by $565 million over the
Mid-Year Update, with nearly the entire increase attributable to one-time
disbursements of $561 million that pre-pay expenditures previously scheduled for
1998-99. In the absence of these accelerated payments, projected General Fund
spending in the current year would have remained essentially unchanged from the
Mid-Year Update. The Governor is proposing legislation to use a portion of the
current year surplus to transfer $425 million to pay for capital projects
authorized under the Community Enhancement Facilities Assistance Program (CEFAP)
that were previously planned to be financed with bond proceeds in 1998-99 and
thereafter, and $136 million in costs for an additional Medicaid payment
originally scheduled for 1998-99. Aside from these actions, a number of other
changes produced a net increase of $4 million in projected disbursements over
the Mid-Year Update. These included higher spending in General State charges
($80 million), largely as a result of litigation settlements and collective
bargaining costs, an increase in General Fund transfers for education ($70
million) to offset declines in Lottery receipts, and additional costs associated
with a delay of Housing Finance Agency (HFA) receipts into 1998-99 that were
originally planned to offset capital projects spending ($25 million). These
increases were offset in part by projected savings in Medicaid ($85 million),
social services ($75 million), and debt service ($37 million).

The General Fund closing balance is projected to be $465 million at the end of
1997-98, a decline of $462 million from the Mid-Year Update. The decline
reflects the application of the $530 million undesignated reserve plus
additional surplus monies projected in the January Update to pay for certain
one-time costs in the State's Financial Plan. The effect of this action is to
help lower the State's projected disbursements in 1998-99. The remaining General
Fund closing balance will be held in two funds, the TSRF and CRF. The TSRF is
projected to have $400 million on deposit at the close of the fiscal year,
following a required deposit of $15 million and an extraordinary deposit of $68
million made from the 1997-98 surplus. The CRF is projected to have a closing
balance of $65 million, following an earlier planned deposit of $24 million in
1997-98.

1997-98 Borrowing Plan. The proposed 1997-98 through 2002-03 Capital Program
and Financing Plan was released with the 1998-99 Executive Budget on January 20,
1998. As a part of that Plan, changes were proposed to the State's 1997-98
borrowing plan, including: the delay in the issuance of COPs to finance welfare
information systems until 1998-99 to permit a thorough assessment of needs; and
the elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.

As a result of these changes, the State's 1997-98 borrowing plan now reflects:
$501 million in general obligation bonds (including $140 million for purposes of
redeeming outstanding BANs) and $140 million in general obligation commercial
paper; the issuance of $83 million in COPs for equipment purchases; and
approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.

THE STATE'S 1997-98 FISCAL YEAR. The State's most recent fiscal year commenced
on April 1, 1998 and ends on March 31, 1999, and is referred to herein as the
1998-99 fiscal year. The Governor presented his 1998-99 Executive Budget to the
Legislature on January 20, 1998. The Executive Budget also contains financial
projections for the State's 1997-98 through 2000-01 fiscal years, detailed
estimates of receipts and a proposed Capital Program and Financing Plan for the
1997-98 through 2002-03 fiscal years. It was expected that the Governor would
prepare amendments to his Executive Budget as permitted under law and that these
amendments would be reflected in a revised Financial Plan to be released on or
before February 19, 1998. There can be no assurance that the Legislature will
enact the Executive Budget as proposed by the Governor into law, or that the
State's adopted budget projections will not differ materially and adversely from
the projections set forth herein.

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1998-99 STATE FINANCIAL PLAN. The 1998-99 Financial Plan projects balance on a
cash basis in the General Fund. Total General Fund receipts and transfers from
other funds are projected to be $36.22 billion, an increase of $1.02 billion
over total receipts projected in the 1997-98 fiscal year. Total General Fund
disbursements and transfers to other funds are projected to be $36.18 billion,
an increase of $1.02 billion over spending totals projected for the 1997-98
fiscal year. As compared to the 1997-98 State Financial Plan, the Executive
Budget proposes a year-to-year growth in General Fund spending of 2.89 percent.
State funds spending (i.e., General Fund plus other dedicated funds, with the
exception of federal aid) is projected to grow by 8.5 percent. Spending from All
Governmental Funds (excluding transfers) is proposed to increase by 7.6 percent
from the prior fiscal year.

Current law and programmatic requirements are primarily responsible for the
year-to-year growth in General Fund spending. These include a current law
increase in school aid ($607 million), cost and enrollment growth in handicapped
education ($91 million) and Medicaid ($212 million), and employee contract
increases and inflation adjustments for State agency operations. The Executive
Budget also included increases of $84 million for corrections programs to cover
new capacity demands and $152 million for mental health programs to finance
current law increases and the expansion of community beds. Other spending growth
reflects a requested increase of $108 million for the Judiciary and $117 million
for long-term debt service. New spending is partially offset by reductions of
$453 million in capital projects transfers due to the financing of CEFAP from
resources available in 1997-98, $37 million in welfare assistance savings, $36
million from lower spending in General State charges, and $68 million in lower
transfers primarily due to the elimination of the Lottery transfer made in
1997-98. The 1998-99 Financial Plan projects that the State will end 1998-99
with a closing balance in the General Fund of $500 million, which reflects $400
million in the TSRF and $100 million in the CRF, following an anticipated
deposit of $35 million in the latter fund during the year.

PROJECTED GENERAL FUND RECEIPTS. The 1998-99 Financial Plan projects General
Fund receipts (including transfers from other funds) of $36.22 billion, an
increase of $1.02 billion from the projected 1997-98 level. Recurring growth in
the State General Fund tax base is projected to be approximately 6 percent
during 1998-99, after adjusting for tax law and administrative changes. This
growth rate is lower than the rates for 1996-97 or currently estimated for
1997-98, but roughly equivalent to the rate for 1995-96.

The Executive Budget contains several new tax initiatives which are projected
to reduce total receipts by $700 million in 1998-99. The Executive Budget
proposed accelerating school tax relief for senior citizens under the School Tax
Relief Initiative ("STAR"), which is projected to reduce General Funds receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which were projected at $187 million for
1998-99. The Budget also proposed several new tax-cut initiatives and other
funding changes that were projected to further reduce receipts available to the
General Fund by over $200 million. The Executive Budget also proposed
establishing a reserve of $100 million to permit the acceleration into 1998-99
of other tax reductions that are otherwise scheduled in law for the
implementation in future fiscal years.

General Fund receipts in 1998-99 will also be affected by the loss of certain
one-time receipts recorded in 1997-98, the largest of which include
approximately $200 million in retroactive federal reimbursements for prior-year
social service spending recorded as a transfer from other funds and about $55
million in retroactive assessments on Office of Mental Retardation and
Developmental Disabilities facilities that were received in 1997-98 as
miscellaneous receipts. Estimates for 1998-99 also reflect the loss of one-time
receipts from a tax amnesty program.

Personal income tax collections for 1998-99 are projected to be $19.02
billion, an increase of $1.32 billion from the projected 1997-98 level. This
estimate reflects growth in "constant law" liability (i.e., taxpayer liability
before scheduled or proposed tax reductions) of over 6 percent in 1998.

User tax and fee receipts are projected at $7.2 billion in 1998-99, up $144
million from projected 1997-98 levels. Total collections in this category are
dominated by the State sales and use tax, which accounts for nearly 80 percent
of total receipts in the category. The strong growth in income experienced this
year produced continuing growth in the base of the sales and use tax of 5.2
percent in 1997-98. The sales tax growth rate projected for the coming year is
expected to be marginally higher.

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Total business taxes are now projected at $4.96 billion for 1998-99, a
decrease in $200 million from 1997-98 levels. The decline in this category is
largely attributable to scheduled tax reductions.

Other tax receipts are now projected at $1.01 billion, down $78 million from
the estimated 1997-98 level. The main reason for the decline is an expected fall
in the number and value of large estate tax payments from the extraordinary
level achieved in 1997-98. The decline also reflects the first full-year impact
of the repeal of the gains tax.

Miscellaneous receipts, which include license revenues, fee and fine income,
investment income and abandoned property proceeds, as well as the proceeds of
the largest share of the State's medical provider assessment and various
one-time transactions, are estimated to total $1.4 billion in 1998-99, a decline
of $170 million from the prior year. This decline is largely attributable to the
loss of $90 million in several one-time transactions and $56 million in
statutory reductions in Medicaid provider assessments.

Transfers from other funds consist primarily of sales tax revenues in excess
of debt service requirements used to support debt service payments to LGAC.
Projected amounts in this category for 1998-99 total $1.55 billion, an increase
of $72 million from 1997-98.

PROJECTED GENERAL FUND DISBURSEMENTS. The 1997-98 Financial Plan projects
General Fund disbursements of $36.18 billion, an increase of $1.02 billion from
projected spending levels for 1997-98. Grants to Local Governments constitute
approximately 67.9 percent of all General Fund spending, and include payments to
local governments, non-profit providers and individuals. Disbursements in this
category are projected to increase by $931 million, primarily reflecting
increases for school aid and Medicaid. School aid is projected at $9.47 billion
in 1998-99, an increase of $607 million on a State fiscal year basis. This
increase funds both the balance of aid payable for the 1997-98 school year and a
proposed 1998-99 school year increase of $518 million. Medicaid costs are
estimated to increase $212 million to $5.68 billion, about the same spending
level as in 1994-95. After adjusting 1997-98 spending for the one-time
acceleration of a 53(rd) weekly Medicaid payment scheduled for 1998-99, Medicaid
spending is projected to increase by $348 million or 6.5 percent. The adjustment
eliminates this extraordinary payment in 1997-98 for purposes of comparison with
1998-99. Spending in local assistance programs for higher education, handicapped
education, mental hygiene, local public health and revenue sharing are also
proposed to increase.

Support for State operations is projected to increase by $524 million to $6.73
billion in 1998-99. This projected increase is primarily due to costs associated
with an additional 27(th) payroll and current collective bargaining agreements,
the loss of Federal disproportionate share receipts that offset General Fund
spending in mental hygiene programs, and a $108 million requested increase in
the Judiciary's budget. Adjusting for the extra payroll, State operations
spending increases by a projected 6.1 percent. The State workforce is roughly
191,000 at present and is projected to remain stable over the year.

General State Charges are projected to decline slightly from 1997-98 to $2.23
billion in 1998-99. This annual decline reflects projected decreases in one-time
costs for pension and Court of Claims payments, offset by projected increases
for health insurance contributions, social security costs, and the loss of
reimbursements due to a reduction in the fringe benefit rate charged to
positions financed by non-General funds.

Transfers in support of debt service are projected to grow at 5.8 percent in
1998-99, from $2.03 billion to $2.15 billion. Transfers in support of capital
projects for 1998-99 are estimated to total $190 million, a decrease of $453
million from 1997-98, reflecting the absence of one-time transfers for the
Hudson River Park and CEFAP in 1997-98. All other transfers reflect remaining
transfers from the General Fund to other funds. These transfers decline by $68
million to $323 million in 1998-99, reflecting non-recurring transfers in
1997-98 to the State University Tuition Stabilization Fund ($29 million) and to
the Lottery fund to support school aid as a result of lower-than-projected
1997-98 Lottery receipts ($70 million), offset by a $34 million increase in the
State subsidy to the Roswell Park Cancer Institute.

GENERAL FUND CLOSING BALANCE. The 1998-99 closing fund balance in the General
Fund is projected to be $500 million. The expected balance of the TSRF will be
$400 million at the close of 1998-99. The remaining General Fund balance
reflects a reserve of $100 million in the CRF (after an additional deposit of
$35 million in 1998-99.

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NON-RECURRING RESOURCES. The DOB estimates that the 1998-99 Financial Plan
includes approximately $62 million in non-recurring resources, comprising less
than two-tenths of one percent of the General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in assets sales.

SPECIAL REVENUE FUNDS. For 1998-99, the Financial Plan projects disbursements
of $30.16 billion from Special Revenue Funds, an increase of $2.32 billion. This
includes $8.29 billion from Special Revenue Funds containing State revenues and
$21.87 billion from funds containing federal grants.

The implementation of the first phase of the STAR program accounts for $724
million of the $1.09 billion increase in proposed State SRF spending in 1998-99.
Other projected State SRF spending increases include; $149 million in additional
operating assistance for mass transit systems; $82 million to expand the Child
Health Plus program, which provides health insurance for uninsured children
under 19 years of age; and $138 million for various State agency activities.
Spending from the State Lottery Fund is projected to increase slightly over
1997-98, while disbursements from the Indigent Care Fund are projected to remain
flat. The $1.22 billion year-to-year growth in federal SRF spending is primarily
due to increases in Medicaid ($433 million), Children and Family Assistance
Programs ($297 million), education programs ($172 million), the expanded Child
Health Plus program ($144 million), and the welfare program ($50 million).

CAPITAL PROJECTS FUNDS. Disbursements from the Capital Projects funds in
1998-99 are estimated at $4.82 billion, or $1.07 billion higher than 1997-98.
The proposed spending plan includes: $2.51 billion in disbursements for
transportation purposes, including the State and local highway and bridge
program; $815 million for environmental activities; $379 million for
correctional services; $228 million for SUNY and CUNY; $290 million for mental
hygiene projects; and $375 million for CEFAP.

Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.

DEBT SERVICE FUNDS. Disbursements from Debt Service Funds are estimated at
$3.39 billion in 1998-99, an increase of $281 million from 1997-98. The increase
in debt service is primarily attributable to bonds previously issued in support
of the following: $107 million for transportation purposes in the State and
local highway and bridge programs financed by the Dedicated Highway and Bridge
Trust Fund; $26 million for the mental hygiene programs financed through the
Mental Health Services Fund; $34 million for the environment; $37 million for
public protection purposes; and $43 million for CUNY senior and community
college debt service formerly classified as local assistance in the General
Fund. Debt services for LGAC bonds is projected at $345 million, an increase of
$15 million from 1997-98.

CASH FLOW. The projected 1998-99 General Fund cash flow will not depend on
either short-term spring borrowing or the issuance of LGAC bonds. The new-money
bond issuance portion of the LGAC program was completed in 1995-96, and
provisions prohibiting the State from returning to a reliance upon cash flow
manipulation to balance its budget will remain in bond covenants until the LGAC
bonds are retired.

The 1998-99 cash flow projects substantial closing balances in each quarter of
the fiscal year, with excesses in receipts over disbursements in every quarter
of the fiscal year, and no monthly balance (prior to March) lower than $1.5
billion. The closing fund balance is projected at $500 million.

OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS. General Fund receipts are
projected at $36.14 billion and $35.75 billion for 1999-00 and 2000-01,
respectively. These projections were prepared on the basis of an economic
forecast of a steadily growing national economy, in an environment of low
inflation and slow employment growth. The forecast for the State's economic
performance likewise is for slow but steady economic growth. The receipt
projections reflect constant law income tax liability growth of approximately
5.3 percent annually and sales tax growth averaging slightly less than 5 percent
over the period. Constant law business tax liability is projected to rise slowly
over the two years.

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Disbursements from the General Fund are projected at $37.84 billion in 1999-00
and $39.45 billion in 2000-01, after assuming implementation of spending
proposals contained in the Executive Budget, the value of which is annualized
and assumed to continue. The projections include additional school aid increases
of roughly 7 percent annually to finance present law and implement proposals
enacted under the STAR/School Aid program. Additional funding to implement
welfare reform is also included, as well as funding for mental health community
reinvestment, prison expansion, and other previous multi-year spending
commitments. Growth in General Fund Medicaid spending is projected at just over
6 percent annually. Other spending growth is projected to follow recent trends.
Consistent with past practice, funding is not included for any costs associated
with new collective bargaining agreements after the expiration of the current
round of contracts at the end of the 1998-99 fiscal year. Savings actions
totaling $600 million in 1990-00 and growing to $800 million in 2000-01 are
assumed in these spending projections. It is expected that the 1999-00 Financial
Plan will include continued actions by State agencies to deliver services more
efficiently, continued savings from workforce management efforts, aggressive
efforts to maximize federal and other non-General Fund spending offsets, and
other efforts to control State spending.

The Governor is required by law to propose a balanced budget each year. In
order to address any potential remaining budget gap, the Governor is expected to
make additional proposals to bring receipts in line with disbursements. The
State has closed projected budget gaps of $5.0 billion, 3.9 billion and $2.3
billion in its 1995-96, 1996-97 and 1997-98 fiscal years, respectively.
GAAP-Basis Financial Plan. The Executive Budget also contains General Fund and
All Governmental Funds Financial Plans prepared in accordance with Generally
Accepted Accounting Principles ("GAAP"). The Financial Plan is projected to show
a GAAP-basis surplus of $131 million for 1997-98 and a GAAP-basis deficit of 1.3
billion for 1998-99 in the General Fund, primarily as a result of the use of the
1997-98 cash surplus. In 1998-99, the General Fund GAAP Financial Plan shows
total revenues of $34.68 billion, total expenditures of $35.94 billion, and net
other financing sources and uses of $42 million.

SPECIAL CONSIDERATIONS. DOB believes that the economic assumptions and
projections of receipts and disbursements accompanying the 1998-99 Executive
Budget are reasonable. However, the economic and financial condition of the
State may be affected by various financial, social, economic and political
factors. Those factors can be very complex, can vary from fiscal year to fiscal
year and are frequently the result of actions taken not only by the State but
also by entities, such as the federal government, that are outside the State's
control. Because of the uncertainty and unpredictability of changes in these
factors, their impact cannot be fully included in the assumptions underlying the
State's projections. There can be no assurance that the State economy will not
experience results that are worse than predicted, with corresponding material
and adverse effects on the State's financial projections. However, there can be
no assurance that the Legislature will enact the Governor's proposals or that
the State's actions will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in either 1998-99 or future fiscal years.

Uncertainties with regard to the economy present the largest potential risk to
future budget balance in New York State. This risk includes either a financial
market or broader economic "correction" during the period, a risk heightened by
the relatively lengthy expansions currently underway. The securities industry is
more important to the New York economy than the national economy, and a
significant deterioration in stock market performance could ultimately produce
adverse changes in wage and employment levels. In addition, a normal "forecast
error" of one percentage point in the expected growth rate could cumulatively
raise or lower receipts by over $1 billion by the last year of the 1998 through
2001 projection period. On the other hand, the national or State economy may
continue to perform better than projected, which could produce beneficial
short-term results in State receipts.

An additional risk to the State Financial Plan arises from the potential
impact of certain litigation and federal disallowances now pending against the
State, which could produce adverse effects on the State's projections of
receipts and disbursements. The Financial Plan assumes no significant federal
disallowances or other federal actions that could affect State finances, but has
reserves of $500 million in the event of such an action.

On August 11, 1997 President Clinton exercised his line-item veto powers to
cancel a provision in the Federal Balanced Budget Act of 1997 that would have
deemed New York State's health care provider taxes to

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be approved by the federal government. New York and several other states have
used hospital rate assessments and other provider tax mechanisms to finance
various Medicaid and health insurance programs since the early 1980s. The
State's process of taxation and redistribution of health care dollars was
sanctioned by federal legislation in 1987 and 1991. However, the federal Health
Care Financing Administration (HCFA) regulations governing the use of provider
taxes require the State to seek waivers from HCFA that grant explicit approval
of the provider taxing system now in place. The State filed the majority of
these waivers with HCFA in 1995 but has yet to receive final approval.

The Balanced Budget Act of 1997 provision passed by Congress was intended to
rectify the uncertainty created by continued inaction on the State's waiver
requests. A federal disallowance of the State's provider tax system could
jeopardize up to $2.6 billion in Medicaid reimbursement received through
December 31, 1998. The President's veto message valued any potential
disallowance at $200 million. The Financial Plan projections do not anticipate
any provider tax disallowance.

On October 9, 1997, the President offered a corrective amendment to the HCFA
regulations governing such taxes. The Governor stated that this proposal did not
appear to address all of the State's concerns, and negotiations are ongoing
between the State and HCFA. In addition, the City of New York and other affected
parties in the health care industry have filed a lawsuit challenging the
constitutionality of the President's line-item veto.

THE STATE'S DEBT. For purposes of analyzing the financial condition of the
State, debt of the State and of certain public authorities may be classified as
State-supported debt, which includes general obligation debt of the State and
lease-purchase and contractual obligations of public authorities (and
municipalities) where debt service is paid from State appropriations (including
dedicated-tax sources and other revenues such as patient charges and dormitory
facilities rentals). In addition, a broader classification, referred to as
State-related debt, includes State-supported debt, as well as certain types of
contingent obligations, including moral-obligation financing, certain contingent
contractual-obligation financing arrangements and State-guaranteed debt
described above, where debt service is expected to be paid from other sources
and State appropriations are contingent in that they may be made and used only
under certain circumstances.

GENERAL OBLIGATION BOND PROGRAMS. The first type of State-supported debt,
general obligation debt, is currently authorized for three programmatic
categories: transportation, environmental and housing. The State has issued
bonds only in the first two categories in recent years, with the size of the
issues generally decreasing as existing authorizations are diminished. The
amount of general obligation bonds and BANs issued in the 1993-94 through
1995-96 fiscal years, excluding bonds issued to redeem BANs, was $388 million,
$250 million and $333 million, respectively. Transportation-related bonds are
issued for State highway and bridge improvements, aviation, highway and mass
transportation projects and purposes, and rapid transit, rail, canal, port and
waterway programs and projects. Environmental bonds are issued to fund
environmentally-sensitive land acquisitions, air and water quality improvements,
municipal non-hazardous waste landfill closures and hazardous waste site cleanup
projects. As of March 31, 1996, the total amount of outstanding general
obligation debt was $5.05 billion, including $293.6 million in BANs.

LEASE-PURCHASE AND CONTRACTUAL-OBLIGATION FINANCING PROGRAMS. The second type
of State-supported debt, lease-purchase and contractual-obligation financing
arrangements with public authorities and municipalities, has been used primarily
by the State to finance the State's highway and bridge program, SUNY and CUNY
buildings, health and mental hygiene facilities, prison construction and
rehabilitation and various other State capital projects.

OTHER FINANCING OBLIGATIONS. The State has utilized and expects to continue to
utilize lease-purchase and contractual-obligation financing arrangements to
finance its capital programs, in addition to authorized general obligation
bonds. Some of the major capital programs financed by lease-purchase and
contractual obligation agreements are highlighted below.

TRANSPORTATION. The State Department of Transportation is responsible for the
highway and bridge program which maintains approximately 400,000 lane miles of
highways and approximately 7,500 State bridges. Despite more than $4.1 billion
of general obligation bond authorizations since 1983, of which more than $3.5
billion has been issued, many of the bridges, which were built in the 1930's,
and the extensive interstate,

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primary and urban highway system built in the 1960's have deteriorated and are
in need of increased levels of maintenance.

Legislation enacted in 1991 established the Highway Trust Fund to provide for
the dedication of a portion of the petroleum business tax and certain other
transportation-related taxes and fees for transportation improvements.
Legislation enacted in 1996 extends the capital program supported by the Highway
Trust Fund through fiscal year 1999-2000. The $11.35 billion plan is expected to
be financed by federal grants (45 percent), general obligation bonds (3 percent)
and the Highway Trust Fund (52 percent). It is expected that about 50 percent of
the Highway Trust Fund financing will be supported by the dedicated taxes on a
pay-as-you-go basis and 50 percent from bonds to be issued by the Thruway
Authority. The 1996 legislation also extended the authorization of the Thruway
Authority to 1999-2000 to finance the local transportation programs, including a
new $350 million program.

The State has supported the capital plans of the MTA in part by entering into
service contracts relating to certain bonds issued by the MTA. Legislation
adopted in 1992 and 1993 also authorized payments, subject to appropriation, of
a portion of the petroleum business tax from the State's Dedicated Mass
Transportation Trust Fund to the MTA and authorized it to be used as a source of
payment for bonds to be sold by the MTA to support its capital program.

EDUCATION. The State finances the physical infrastructure of SUNY and CUNY and
their respective community colleges and the State Education Department through
direct State capital spending and through financing arrangements with DASNY,
paying all capital costs of the senior colleges and sharing equally with local
governments for the community colleges, except that SUNY dormitories are
financed through dormitory fees.

The 34 SUNY campuses include more than 1,700 classroom, dormitory, library,
athletic and student buildings, of which approximately 68 percent are over 20
years of age. Together with the 30 SUNY community colleges, the SUNY system
serves approximately 300,000 full-time students. The CUNY system is comprised of
11 senior colleges and 6 community colleges that serve approximately 158,000
full-time students.

MENTAL HYGIENE. The State provides care for its citizens with mental illness,
mental retardation and developmental disabilities, and for those with chemical
dependencies, through the Office of Mental Retardation ("OMR"), the Office of
Substance Abuse Services and the Office of Mental Hygiene ("OMH"). Historically,
this care had been provided at large State institutions, but the State recently
adopted policies that provide institutional care to only the neediest and
provide additional care in community residences. OMR has closed 11 of its 20
developmental centers, with one additional facility planned for closure in
1996-97. OMH has reduced its adult institutional population from 22,000 in 1982
to approximately 8,250. OMH will continue to require substantial capital
investments to upgrade to federal standards and implement community facility
development as deinstitutionalization continues. Capital investments for both
programs are primarily supported by patient revenues through financing
arrangements with DASNY.

CORRECTIONS. During the 10-year period 1983-92, the State's prison system more
than doubled in size due to the unprecedented increase in demand for prison
space. Today, the system houses approximately 68,000 inmates in over 69
facilities with 3,000 buildings comprising over 32 million square feet. As the
need to build new structures to create capacity abated in the early 1990's, the
focus of the Department of Correctional Services ("DOCS") capital program
shifted from expansion to the increasing need for rehabilitation of existing
facilities. While high priority renovation projects and replacement of
deteriorated structures remains a DOCS capital program priority, the 1996-97
enacted budget contained funding to increase bed capacity through the addition
of 1,500 new beds. This program is financed through lease-purchase financing
arrangements with the UDC.

OTHER PROGRAMS. The State also uses lease-purchase and contractual-obligation
financing arrangements for hospital capital programs of the Department of Health
(including Roswell Park Cancer Institute and the David Axelrod Institute for
Public Health), the Division for Youth's institutional facilities and Youth
Opportunity Centers, the State's housing programs and various environmental,
economic development and State building programs.

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LOCAL GOVERNMENT ASSISTANCE CORPORATION (LGAC). In 1990, as part of a State
fiscal reform program, legislation was enacted creating LGAC, a public benefit
corporation empowered to issue long-term obligations to fund certain payments to
local governments traditionally funded through the State's annual seasonal
borrowing. The legislation authorized LGAC to issue its bonds and notes in an
amount not in excess of $4.7 billion (exclusive of certain refunding bonds).
Over a period of years, the issuance of these long-term obligations, which are
to be amortized over no more than 30 years, was expected to eliminate the need
for continued short-term seasonal borrowing. The legislation also dedicated
revenues equal to one-quarter of the four cent State sales and use tax to pay
debt service on these bonds. The legislation also imposed a cap on the annual
seasonal borrowing of the State at $4.7 billion, less net proceeds of bonds
issued by LGAC and bonds issued to provide for capitalized interest, except in
cases where the Governor and the legislative leaders have certified the need for
additional borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap is thus permitted in any fiscal year, it is required by
law to be reduced to the cap by the fourth fiscal year after the limit was first
exceeded. This provision capping the seasonal borrowing was included as a
covenant with LGAC's bondholders in the resolution authorizing such bonds. As of
June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7
billion, completing the program. The impact of LGAC's borrowing is that the
State is able to meet its cash flow needs throughout the fiscal year without
relying on short-term seasonal borrowings.

THE STATE'S RATINGS. As of August 1997, the State's general obligation bonds
were rated A by Standard & Poor's ("S&P"), A2 by Moody's Investors Service
("Moody's") and A+ by Fitch Investors Service ("Fitch"). The State carries the
lowest general obligation bond rating of any state. There is no assurance that
any particular rating will continue for any given period of time or that any
such rating will not be revised downward or withdrawn entirely if, in the
judgment of the agency originally establishing the rating, circumstances so
warrant.

STANDARD & POOR'S. On January 13, 1992, S&P lowered its rating on the State's
general obligation bonds to A- from A and continued its negative rating outlook
assessment on State general obligation debt. S&P cited "[c]continued economic
deterioration, chronic operating deficits, mounting GAAP fund balance deficits,
and the legislative statement in seeking permanent and structurally sound fiscal
operations" as factors contributing to the rating reduction. On April 26, 1993,
S&P revised the rating outlook assessment to stable. On February 14, 1994, S&P
raised its rating outlook assessment to positive and, on December 12, 1994,
confirmed its A- rating. On August 28, 1997, S&P revised its ratings from A- to
A. S&P's previous ratings were A from March 1990 to January 1992, AA- from
August 1987 to March 1990 and A+ from November 1982 to August 1987.

MOODY'S INVESTORS SERVICE. On January 6, 1992, Moody's lowered its rating on
certain appropriations-backed debt of the State and its agencies from A to Baa1
noting "mounting budget deficits, inability of the legislature and the
administration to reach timely agreement on deficit reduction plans for the
current fiscal year, and protracted weakness in the economy." Previously,
Moody's lowered its rating to A on June 6, 1990, its rating having been A1 since
May 27, 1986. State general obligation, State-guaranteed and LGAC bonds retained
an A rating but were placed under review for possible downgrade. On February 3,
1992, Moody's confirmed its A rating of State general obligation bonds,
asserting that the State's "general credit standing reflects its diverse and
substantial economic base, but this strength is offset by structural imbalance
of state finances and increasing debt levels." On December 12, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness. On February 11, 1997, Moody's confirmed its rating of the State's
general obligation bonds and, in connection with a policy change at Moody's to
introduce numerical modifiers to its municipal securities ratings, assigned a
rating of A2 to the State's general obligation bonds.

THE STATE'S LITIGATION. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and federal laws.
Included in the State's outstanding litigation are a number of cases challenging
the constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's Medicaid and
mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective

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changes in patient care which could require substantial increased financing of
the litigated programs in the future.

TAX LAW. In Matter of the Petition of Consolidated Rail Corporation v. Tax
Appeals Tribunal (Appellate Division, Third Department, commenced December 22,
1995), petitioner, a rail freight corporation that purchases diesel motor fuel
out of State and imports the fuel into the State for use, distribution, storage
or sale in the State, contended that the assessment of the petroleum business
tax imposed pursuant to Tax Law sec.301-a to such fuel purchases violated the
Commerce Clause of the United States Constitution. Petitioner contended that the
application of Section 301-a to the interstate transaction, but not to
purchasers who purchase fuel within the State for use, distribution, storage or
sale within the State, discriminates against interstate commerce. In a decision
dated July 17, 1997, the Appellate Division, Third Department, dismissed the
petition. Petitioner appealed to the Court of Appeals. On December 4, 1997, the
Court of Appeals dismissed the appeal, sua sponte, upon the ground that no
substantial Constitutional question was directly involved.

In New York Association of Convenience Stores, et al. v. Urbach, et al.,
petitioners, New York Association of Convenience Stores, National Association of
Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek Stores, Inc. seek to
compel respondents, the Commissioner of Taxation and Finance and the Department
of Taxation and Finance, to enforce sales and excise taxes imposed pursuant to
Tax Law Articles 12-A, 20 and 28 on tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations. In orders dated August 13, 1996 and
August 24, 1996, the Supreme Court, Albany County, ordered, inter alia, that
there be equal implementation and enforcement of said taxes for sales to
non-Indian consumers on and off Indian reservations, and further ordered that,
if respondents failed to comply within 120 days, no tobacco products or motor
fuel could be introduced onto Indian reservations other than for Indian
consumption or, alternately, the collection and enforcement of such taxes would
be suspended statewide. Respondents appealed to the Appellate Division, Third
Department, and invoked CPLR 5519(a)(1), which provides that the taking of the
appeal stayed all proceedings to enforce the orders pending the appeal.
Petitioner's motion to vacate the stay was denied. In a decision entered May 8,
1997, the Third Department modified the orders by deleting the portion thereof
that provided for the statewide suspension of the enforcement and collection of
the sales and excise taxes on motor fuel and tobacco products. The Third
Department held, inter alia, that petitioners had not sought such relief in
their petition and that it was an error for the Supreme Court to have awarded
such undemanded relief without adequate notice of its intent to do so. On May
22, 1997, respondents appealed to the Court of Appeals on other grounds, and
again invoked the statutory stay. On October 23, 1997, the Court of Appeals
granted petitioners' motion for leave to cross-appeal from the portion of the
Third Department's decision that deleted the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco.

INSURANCE LAW. Proceedings have been brought by two groups of petitioners
challenging regulations promulgated by the Superintendent of Insurance that
established excess medical malpractice premium rates for the 1986-87 through
1995-96 and 1996-97 fiscal years, respectively (New York State Health
Maintenance Organization Conference, Inc., et al. v. Muhl, et al. ["HMO"], and
New York State Conference of Blue Cross and Blue Shield Plans, et al. v. Muhl,
et al. ["Blue Cross 'I' and 'II"'], Supreme Court, Albany County). By Order
filed January 22, 1997, the Court in Blue Cross I permitted the plaintiffs in
HMO to intervene and dismissed the challenges to the rates for the period prior
to 1995-96. By decision dated July 24, 1997, the Court in Blue Cross I held that
the determination made by the Superintendent in establishing the 1995-96 rate
was arbitrary and capricious and directed that premiums paid pursuant to that
determination be returned to the payors. The State has appealed this decision.

OFFICES OF MENTAL/HEALTH PATIENT-CARE COSTS. Two actions, Balzi, et al. v.
Surles, et al., commenced in November 1985 in the United States District Court
for the Southern District of New York, and Brogan, et al. v. Sullivan, et al.,
commenced in May 1990 in the United States District Court for the Western
District of New York, now consolidated, challenge the practice of using
patients' Social Security benefits for the costs of care of patients of State
Office of Mental Health facilities. The cases have been settled by a stipulation
and order dated January 7, 1998.

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<PAGE> 587

SHELTER ALLOWANCE. In an action commenced in March 1987 against State and New
York City officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New York
County), plaintiffs allege that the shelter allowance granted to recipients of
public assistance is not adequate for proper housing. In a decision dated April
16, 1997, the Court held that the shelter allowance promulgated by the
Legislature and enforced through Department of Social Services regulations is
not reasonably related to the cost of rental housing in New York City and
results in homelessness to families in New York City. A judgement was entered on
July 25, 1997, directing, inter alia, that the State (i) submit a proposed
schedule of shelter allowances (for the Aid to Dependent Children program and
any successor program) that bears a reasonable relation to the cost of housing
in New York City; and (ii) compel the New York City Department of Social
Services to pay plaintiffs a monthly shelter allowance in the full amount of
their contract rents, provided they continue to meet the eligibility
requirements for public assistance, until such time as a lawful shelter
allowance is implemented, and provide interim relief to other eligible
recipients of Aid to Dependent Children under the interim relief system
established in this case. The State has sought relief from each and every
provision of this judgment except that portion directing the continued provision
of interim relief.

CIVIL RIGHTS CLAIMS. In an action commenced in 1980 (United States, et al. v
Yonkers Board of Education, et al.), the United States District Court for the
Southern District of New York found, in 1985, that Yonkers and its public
schools were intentionally segregated. In 1986, the District Court ordered
Yonkers to develop and comply with a remedial educational improvement plan ("EIP
I"). On January 19, 1989, the District Court granted motions by Yonkers and the
NAACP to add the State Education Department, the Yonkers Board of Education, and
the State Urban Development Corporation as defendants, based on allegations that
they had participated in the perpetuation of the segregated school system. On
August 30, 1993, the District Court found that vestiges of a dual school system
continued to exist in Yonkers. On March 27, 1995, the District Court made
factual findings regarding the role of the State and the other State defendants
(the "State") in connection with the creation and maintenance of the dual school
system, but found no legal basis for imposing liability. On September 3, 1996,
the Court of Appeals, based on the District Court's factual findings, held the
State defendants liable under 42 USC sec.1983 and the Equal Educational
Opportunity Act, 20 USC sec.sec.1701, et seq., for the unlawful dual school
system, because the State, inter alia, had taken no action to force the school
district to desegregate despite its actual or constructive knowledge of de jure
segregation. By Order dated October 8, 1997, the District Court held that
vestiges of the prior segregated school system continued to exist and that,
based on the State's conduct in creating and maintaining that system, the State
is liable for eliminating segregation and its vestiges in Yonkers and must fund
a remedy to accomplish that goal. Yonkers presented a proposed educational
improvement plan ("EIP II") to eradicate these vestiges of segregation. The
October 8, 1997 Order of the District Court ordered that EIP II be implemented
and directed that, within 10 days of the entry of the Order, the State make
available to Yonkers $450,000 to support planning activities to prepare the EIP
II budget for 1997-98 and the accompanying capital facilities plan. A final
judgment to implement EIP II was entered on October 14, 1997. The State intends
to appeal that judgment. Additionally, the Court adopted a requirement that the
State pay to Yonkers $9 million as its pro rata share of the funding of EIP I
for the 1996-97 school year. The requirement for State funding of EIP I has not
yet been reduced to an order.

MEDICAID. Several cases, including Port Jefferson Health Care Facility, et al.
v. Wing (Supreme Court, Suffolk County), challenge the constitutionality of
Public Health Law sec.2807-d, which imposes a tax on the gross receipts
hospitals and residential health care facilities receive from all patient care
services. Plaintiffs allege that the tax assessments were not uniformly applied,
in violation of federal regulations. In a decision dated June 30, 1997, the
Court held that the 1.2 percent and 3.8 percent assessments on gross receipts
imposed pursuant to Public Health Law sec.sec.2807-d(2)(b)(ii) and
2807-d(2)(b)(iii), respectively, are unconstitutional. An order entered August
27, 1997 enforced the terms of the decision. The State has appealed that order.

CONTRACT AND TORT CLAIMS. In Inter-Power of New York, Inc. v. State of New
York, commenced November 16, 1994 in the Court of Claims, plaintiff alleged that
by reason of the failure of the State's Department of Environmental Conservation
to provide in a timely manner accurate and complete data, plaintiff was unable
to complete by the projected completion date a cogeneration facility, and
thereby suffered damages. The parties have agreed to settle this case for $29
million.

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<PAGE> 588

NEW YORK CITY

The fiscal health of the State is closely related to the fiscal health of its
localities, particularly the City, which has required and continues to require
significant financial assistance from the State. The City, with a population of
approximately 7.4 million, is the most populous city in the State and in the
nation and is the center of the nation's largest metropolitan area. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. Manufacturing activity in the City is conducted primarily in
apparel and printing.

In February 1975, the UDC, which had approximately $1 billion of outstanding
debt, defaulted on certain of its short-term notes. Shortly after the UDC
default, the City entered a period of financial crisis from which it is only now
emerging. Both the State Legislature and the United States Congress enacted
legislation in response to this crisis. During 1975, the State Legislature (i)
created the Municipal Assistance Corporation for the City of New York ("MAC") to
assist with long-term financing for the City's short-term debt and other cash
requirements and (ii) created the New York State Financial Control Board (the
"Control Board") to review and approve the City's budgets and financial plans
(the financial plans also apply to certain City-related public agencies (the
"Covered Organizations")). If the City were to experience certain adverse
financial circumstances, including the occurrence or the substantial likelihood
and imminence of the occurrence of an annual operating deficit of more than $100
million or the loss of access to the public credit markets to satisfy the City's
capital and seasonal financing requirements, the Control Board would be required
by State law to exercise certain powers.

The severe financial difficulties encountered by the City in 1975 caused it to
lose access to the public credit market. At that time, the City was incurring
substantial operating deficits and employing financial and accounting practices
which were widely criticized. Since that time, the City benefited substantially
from financial assistance provided through a combination of federal, State and
private measures and the City has extensively revised its financial systems and
accounting practices. Since 1978, the City's annual financial statements have
been required to be prepared in accordance with GAAP and audited by independent
certified public accountants. For each of the 1981 through 1997 fiscal years,
the City achieved balanced operating results as reported in accordance with
GAAP. The City's operating results for the 1997 fiscal year were balanced in
accordance with GAAP, after taking into account the use of $1.362 billion for
expenditures due in the 1998 fiscal year. The City's current financial plan for
the 1998 through 2002 fiscal years (the "Financial Plan") projects a surplus in
the 1998 fiscal year, before discretionary transfers, and substantial budget
gaps for each of the 2000, 2001 and 2002 fiscal years. This pattern of current
year balanced operating results and projected subsequent year budget gaps has
been consistent through virtually the entire period since 1982. The City was
required to close substantial budget gaps between forecast revenues and forecast
expenses in recent years in order to maintain balanced operating results. There
can be no assurance that the City will continue to maintain a balanced budget as
required by State law without additional tax or other revenue increases or
additional reductions in City services or entitlement programs, which could
adversely affect the City's economic base. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. There
can be no assurance that there will not be reductions in State aid to the City
from amounts currently projected or that State budgets will be adopted by the
April 1 statutory deadline or that any such reductions or delays will not have
adverse effects on the City's cash flow or expenditures. In addition, the
federal budget negotiation process could result in a reduction in or a delay in
the receipt of federal grants which could have additional adverse effects on the
City's cash flow or revenues.

THE FINANCIAL PLAN. Pursuant to the New York State Financial Emergency Act for
The City of New York, the City prepares a four-year annual financial plan, which
is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The Mayor is responsible for
preparing the City's financial plan, including the Financial Plan. The City is
required to submit its financial plans to review bodies, including the Control
Board.

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<PAGE> 589

On January 29, 1998, the City published the Financial Plan, which relates to
the City, the Board of Education ("BOE") and CUNY. The Financial Plan is a
modification to the financial plan submitted to the Control Board on June 10,
1997 (the "June Financial Plan").

The June Financial Plan identified actions to close a previously projected gap
for the 1998 fiscal year. The proposed actions in the June Financial Plan for
the 1998 fiscal year included (i) agency actions totaling $621 million, (ii) the
proposed sale of various assets; and (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999. The June Financial Plan also included a
proposed discretionary transfer in the 1998 fiscal year of $300 million of debt
service due in the 1999 fiscal year for budget stabilization purposes.

The Financial Plan reflects actual receipts and expenditures and changes in
forecast revenues and expenditures since the June Financial Plan. The Financial
Plan projects revenues and expenditures for the 1998 and 1999 fiscal years
balanced in accordance with GAAP, and project gaps of $1.8 billion, $2.0 billion
and $1.9 billion for the 2000, 2001 and 2002 fiscal years, respectively. Changes
since the June Financial Plan include: (i) an increase in projected tax revenues
of $841 million, $738 million, $808 million and $802 million in the 1998 through
2001 fiscal years, respectively, including an increase in sales tax revenues
resulting from the State adopting a smaller sales tax reduction than previously
assumed; (ii) a reduction in assumed State aid of $283 million in the 1998
fiscal year and of between $134 million and $142 million in each of the 1999
through 2001 fiscal years, reflecting the State adopted budget, including, in
the 1998 fiscal year, the failure of the State budget to implement the proposed
acceleration of $142 million of revenue sharing payments; (iii) a reduction in
projected debt service expenditures totaling $164 million, $291 million, $127
million and $145 million in the 1998 through 2001 fiscal years, respectively;
(iv) an increase in BOE spending of $70 million, $182 million, $59 million and
$61 million in the 1998 through 2001 fiscal years, respectively; and (v) an
increase in expenditures totaling $71 million in the 1998 fiscal year and
between $214 million and $273 million in each of the 1999 and 2001 fiscal years,
reflecting additional spending for the City's proposed drug initiative and other
agency spending. The Financial Plan includes a proposed discretionary transfer
in the 1998 fiscal year of an additional $920 million of debt service due in the
1999 fiscal year, and a proposed discretionary transfer in the 1999 fiscal year
of $210 million of debt service due in fiscal year 2000, for budget
stabilization purposes, raising the total for the 1999 fiscal year to $1.2
billion.

In addition, the Financial Plan sets forth gap-closing actions to eliminate a
previously projected gap for the 1999 fiscal year and to reduce projected gaps
for fiscal years 2000 through 2002. The gap-closing actions for the 1998 through
2002 fiscal years include: (i) additional agency actions totaling $122 million,
$429 million, $354 million, $303 million and $311 million in fiscal years 1998
through 2002; (ii) additional Federal aid of $250 million in each of the fiscal
years 1999 through 2002, which could include funds to be distributed from the
tobacco settlement, increased Medicaid assistance, unrestricted Federal revenue
sharing aid or increased funds for school construction; and (iii) additional
State aid of $200 million in each of fiscal years 1999 through 2002, including a
proposed increase in revenue sharing payments and reimbursement of inmate costs.
The gap-closing actions are partially offset by proposed new tax reduction
programs totaling $237 million, $537 million, $610 million and $774 million in
fiscal years 1999 through 2002, respectively, including the elimination of the
City sales tax on all clothing as of December 1, 1998, the extension of current
tax reductions for owners of cooperative and condominium apartments starting in
fiscal year 2000, a personal income tax credit for child care and for resident
shareholders of Subchapter S corporations and elimination of the commercial rent
tax over three years commencing in fiscal year 2000, all of which are subject to
State legislative approval.

The City's projections set forth in the Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. The Financial Plan assumes (i) approval by the Governor
and the State Legislature of the extension of the 14% personal income tax
surcharge, which is scheduled to expire on December 31, 1999 and the extension
of which is projected to provide revenue of $168 million, $507 million and $530
million in the 2000 through 2002 fiscal years, respectively, and of the
extension of the 12.5% personal income tax surcharge, which is scheduled to
expire on December 31, 1998 and the extension of which is projected to provide
revenue of $187 million, $531 million, $554 million and $579 million in the 1999
through 2002 fiscal years,

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<PAGE> 590

respectively, (ii) collection of the projected rent payments for the City's
airports, totalling $365 million, $175 million, $170 million and $70 million in
1999 through 2002 fiscal years, respectively, which may depend on the successful
completion of negotiations with the Port Authority or the enforcement of the
City's rights under the existing leases thereto through pending legal actions,
and (iii) State approval of the repeal of the Wicks Law relating to contracting
requirements for City construction projects and the additional State funding
assumed in the Financial Plan, and State and Federal approval of the State and
Federal gap-closing actions proposed by the City in the Financial Plan. It can
be expected that the Financial Plan will engender public debate which will
continue through the time the budget is scheduled to be adopted in June 1998,
and that there will be alternative proposals to reduce taxes, including the
12.5% personal income tax surcharge, and increase spending. Accordingly, the
Financial Plan may be changed by the time the budget for the 1999 fiscal year is
adopted. The Financial Plan provides no additional wage increases for City
employees after their contracts expire in fiscal years 2000 and 2001. In
addition, the economic and financial condition of the City may be affected by
various financial, social, economic and political factors which could have a
material effect on the City.

Implementation of the Financial Plan is also dependent upon the City's ability
to market its securities successfully. The City's financing program for fiscal
years 1998 through 2001 contemplates the issuance of $7.0 billion of general
obligation bonds and $7.5 billion of bonds to be issued by the New York City
Transitional Finance Authority (the "Finance Authority") to finance City capital
projects. The Finance Authority was created as part of the City's effort to keep
the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. The State
Constitution provides that, with certain exceptions, the City may not contract
indebtedness, including contracts for capital projects to be paid with the
proceeds of City bonds ("contracts for capital projects"), in an amount greater
than 10% of the average full value of taxable real estate in the City for the
most recent five years (the "general debt limit"). The City's projections of
total debt subject to the general debt limit that would be required to be issued
to fund the Updated Ten-Year Capital Strategy published in April 1995 indicated
that projected contracts for capital projects and debt issuance might exceed the
general debt limit by the end of fiscal year 1997 and would exceed the general
debt limit by a substantial amount thereafter, unless legislation was enacted
creating the Finance Authority or other legislative initiatives were identified
and implemented. This City's projection of its capital financing need pursuant
to the Mayor's Declaration of Need and Proposed Transitional Capital Plan of
June 30, 1997 indicates additional projected debt and contract liabilities of
approximately $3 billion for fiscal year 1998. To provide for the City's capital
program, State legislation was enacted which created the Finance Authority, the
debt of which is not subject to the general debt limit. Without the Finance
Authority or other legislative relief, new contractual commitments for the
City's general obligation financed capital program would have been virtually
brought to a halt during the Financial Plan period beginning early in the 1998
fiscal year. By utilizing projected Finance Authority borrowing and including
the Finance Authority's projected borrowing as part of the total debt-incurring
power, the City's total debt-incurring power has been increased. Even with the
increase, the City may reach the limit of its capacity to enter into new
contractual commitments in fiscal year 2000. In addition, the City issues
revenue and tax anticipation notes to finance its seasonal working capital
requirements. The success of projected public sales of City bonds and notes, New
York City Municipal Water Finance Authority (the "Water Authority") bonds and
Finance Authority bonds will be subject to prevailing market conditions and no
assurance can be given that such sales will be completed. The City's planned
capital and operating expenditures are dependent upon the sale of its general
obligations bonds and notes, and the Water Authority and Finance Authority
bonds. Future developments concerning the City and public discussion of such
developments, as well as prevailing market conditions, may affect the market for
outstanding City general obligation bonds and notes.

The Governor presented his 1998-1999 Executive Budget to the Legislature on
January 20, 1998. The Governor's Executive Budget projected balance on a cash
basis in the General Fund. The Legislature and the State Comptroller will review
the Governor's Executive Budget and are expected to comment on it. There can be
no assurance that the Legislature will enact the Executive Budget into law, or
that the State's adopted budget projections will not differ materially and
adversely from the projections set forth in the Executive Budget. Depending upon
the amount of State aid provided to localities, the City might be required to
make substantial additional changes in the Financial Plan. If the State's budget
for the State's 1998-99 fiscal year is

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not adopted by the statutory deadline and interim appropriations are not
enacted, the projected receipt by the City of State aid could be delayed.

CERTAIN REPORTS. From time to time, the Control Board staff, MAC, the Office
of the State Deputy Comptroller for the City of New York ("OSDC"), the City
Comptroller and others issue reports and make public statements regarding the
City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the future
to meet the costs of its expenditure increases and to provide necessary
services. It is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.

On December 18, 1997, the City Comptroller issued a report on the November
1997 update to the June Financial Plan (the "November Financial Plan"). With
respect to the 1998 fiscal year, the report identified a possible $19 million to
$372 million surplus above the level projected in the November Financial Plan,
which itself reflected a $214 million discretionary transfer in the 1998 fiscal
year of debt service due in the 1999 fiscal year for budget stabilization
purposes. The report stated that the range of possible surpluses depends
primarily on whether the State accelerates $142 million of State revenue sharing
payments from the 1999 fiscal year to the 1998 fiscal year and whether the sale
of the Coliseum for $200 million is completed. With respect to the 1999 fiscal
year, the report identified total net budget gaps of between $1.1 billion and
$1.3 billion, which include the gap set forth in the November Financial Plan.
The potential risks identified in the report for the 1999 fiscal year include
(i) assumed payments from the Port Authority relating to the City's claim for
back rentals and an increase in future rentals, part of which are the subject of
arbitration, totaling $350 million; and (ii) State approval of the extension of
the 12.5% personal income tax surcharge beyond December 31, 1998, which would
generate $188 million in the 1999 fiscal year. The potential risks are offset by
potential additional resources for the 1999 fiscal year, including the potential
for an additional $100 million of State education aid, $170 million of
additional debt service savings and $137 million of higher than projected tax
revenues. On January 22, 1998, the City Comptroller increased the possible
surplus for the 1998 fiscal year by approximately $520 million, to $900 million
more than projected in the November Financial Plan, due primarily to tax
collections which exceed prior projections.

The report notes that if the difficulties in Asia were to reduce the value of
assets traded on the U.S. stock market in future months, projected tax revenues
could be reduced in the 1999 fiscal year. The report noted that a general lag
occurs between the time of the initial stock market downturn and tax collections
and that the City did not feel the consequences of the October 1987 stock market
crash until the 1990 fiscal year, when revenues from the City's business and
real estate taxes fell by 20% over the prior fiscal year. The report also noted
that the gap-closing program for the 1999 fiscal year continues to rely heavily
on State actions to generate resources and savings, including $400 million in
unspecified State aid and $200 million in unspecified entitlement savings, which
appear optimistic. In addition, the report noted that the State remains
delinquent in the payment of approximately $633 million in prior year education
aid covering the 1989 through 1996 fiscal years, and that the current labor
reserve for the 1999 fiscal year does not include funding for contractual
increases due employees of certain Covered Organizations, including HHC, which
total $104 million, $225 million and $231 million in the 1999 through 2001
fiscal years, respectively, and which the Financial Plan assumes will be funded
by the Covered Organizations. The City Comptroller also noted, in a separate
report on the City's capital debt, that debt burden measures, such as annual
debt service as a percentage of tax revenues, debt per capita and debt to
assessed value of real property, are approaching historically high post-fiscal
crisis levels, which calls for restraint in the City's capital program, while
the City's infrastructure, which is in need of rehabilitation, requires
increased resources.

On December 18, 1997, the staff of the OSDC issued a report on the November
Financial Plan. The report projected a potential surplus for the 1998 fiscal
year of $199 million, due to the potential for greater than forecast tax
revenues, and budget gaps for the 1999 through 2001 fiscal years which are
slightly less than the gaps set forth in the November Financial Plan for such
years, due primarily to the potential for greater than forecast tax revenues and
lower pension costs for fiscal years 2000 and 2001. The report noted that the
budget

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for the 1998 fiscal year is balanced with $1.6 billion in non-recurring
resources, two-thirds of which represents the portion of the 1997 fiscal year
surplus targeted for use in the 1998 fiscal year. The report also identified net
risks of $192 million, $1.1 billion, $1.3 billion and $1.3 billion for the 1998
through 2001 fiscal years, respectively. The additional risks identified in the
report relate to: (i) the receipt of Port Authority lease payments totaling $350
million, $140 million and $135 million in the 1999 through 2001 fiscal years,
respectively; (ii) City proposals for the acceleration of $142 million of State
revenue sharing payments from the 1999 fiscal year to the 1998 fiscal year,
which are subject to approval by the Governor and/or the State Legislature;
(iii) the receipt of $200 million in the 1998 fiscal year in connection with the
proposed sale of the New York Coliseum; (iv) unfunded expenditures relating to
BOE totaling $375 million in the 1999 fiscal year and $397 million in each of
the 2000 and 2001 fiscal years; (v) State approval of a three-year extension of
the City's 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and which would generate revenues of $230 million, $525
million and $550 million in the 1999 through 2001 fiscal years, respectively;
(vi) the potential for additional funding needs for the City's labor reserve
totaling $104 million, $225 million and $231 million in the 1999 through 2001
fiscal years, respectively, to pay for collective bargaining increases for the
Covered Organizations, which the November Financial Plan assumes will be paid
for by the Covered Organizations, rather than the City; and (vii) the
reimbursement of the State by the City in the 1999 fiscal year for $75 million
of State funding of children's services. The report also noted that the November
Financial Plan assumes that the State will extend the 14% personal income tax
that is scheduled to expire in December 1999, which would generate revenues of
$200 million in fiscal year 2000 and $560 million annually in subsequent fiscal
years, and that the November Financial Plan makes no provision for wage
increases after the expiration of current contracts in fiscal year 2000, which
would add $400 million to the 2001 fiscal year budget gap if employees receive
wage increases at the projected rate of inflation.

The report noted that despite positive developments over the last few years,
including a reduced municipal workforce, reduced welfare rolls, record profits
in the securities industries and pension fund investment earnings, the City
still faces substantial budget gaps during the financial plan period, and that
the projected budget gaps for fiscal years 2000 and 2001 are among the largest
gaps faced by the City since the City first achieved budget balance in
accordance with generally accepted accounting principles in the 1981 fiscal
year. The report noted that, while revenues are projected to grow at 1.3% each
year, spending is projected to grow at the average annual rate of 5.2% during
the financial plan period. Moreover, the report noted that the City's economy
and budget are even more dependent on the securities industry than a decade ago
and there have been large, rapid swings in the securities industry which affect
revenues significantly. The report noted that while the economy should remain
strong for the foreseeable future, economic slowdown is inevitable and that
there is already evidence that business tax revenues could be adversely affected
by the turmoil in the Asian economy. The report also noted that (i) the MTA has
not yet stated how it will fund the cost of recently adopted fare reductions or
the additional cost of services for the expected increase in ridership; (ii)
school enrollment is expected to continue to grow over the next eight years and,
accordingly, additional expenditures may be required for BOE; (iii) HHC will be
required to continue to reduce costs as a result of implementation of managed
care; and (iv) the City faces a potential liability of $633 million in State
education aid owed from prior years which has already been reflected in the
City's financial statements and which the City could be required to write off if
a plan is not reached to fund these claims.

In addition, the staff of the OSDC noted in the report, and in a separate
report on Child Care Services in New York City, that, if the State implements
the Federal requirement that TANF recipients who have received benefits for two
years or more undertake work assignments, as many as 33,500 additional children
may require child care, at a cost of between $135 million and $225 million
beginning in fiscal year 2000, depending upon the method for providing child
care services. The report noted that, while the State will receive Federal funds
as part of its welfare surpluses that could be used for this purpose, it remains
to be seen whether such funds will be shared with the City and other localities.
The report noted that the City does not believe that the demand for child care
services will exceed the levels assumed in the November Financial Plan, because
the City expects a large reduction in the percentage of the TANF recipients
receiving benefits for two or more years.

On December 17, 1997, the staff of the Control Board issued a report
commenting on the 1998 fiscal year. The report stated that the City should end
the 1998 fiscal year with its budget in balance, with sufficient

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reserves available to offset $355 million in risks. The principal risks
identified in the report included uncertain State funding, the proposed sale of
the Coliseum in the 1998 fiscal year, and the assumed receipt of $76 million by
BOE for prior year claims of State aid. The report also noted that there are
substantial gaps for fiscal years 2000 and 2001 which remain near historical
highs. In addition, the report noted that the State is subject potentially to
recoupment of as much as $2.6 billion of Federal Medicaid reimbursement for
provider taxes, and it is not clear what the City's financial exposure might be
in the event that the Federal government disallows all or a portion of such
Medicaid reimbursement. The report also noted that currently projected City
spending for the 1998 fiscal year exceeds the ceiling set forth in an agreement
between the City and MAC entered into in 1996. Although, as entered into, the
agreement could result in MAC taking up to $125 million from the City in the
1999 fiscal year, the City does not expect this outcome.

On January 13, 1998, the IBO released a report setting forth its forecast of
the City's revenues and expenditures for the 1998 through 2001 fiscal years,
assuming continuation of current spending policies and tax laws. In the report,
the IBO forecasts that the City will end the 1998 fiscal year with a surplus of
$120 million, in addition to $514 million in the budget stabilization account,
and that the City will face gaps of $1.4 billion, $2.6 billion and $2.8 billion
in the 1999 through 2001 fiscal years, respectively, resulting from 4.8% annual
growth in spending from 1998 through 2001, compared with 2.2% annual revenue
growth. The report noted that slow revenue growth is attributable to a variety
of factors, including a gradual deceleration in economic growth through the
first half of calendar year 1999, the impact of recently enacted tax cuts and
constraints on increases in the real property tax, as well as uncertain back
rent payments from the Port Authority, while future costs for existing programs
will increase to reflect inflation and scheduled pay increases for City
employees during the term of existing labor agreements. The report noted that
debt service and education spending will increase rapidly, while spending for
social services will rise more slowly due to lower projected caseloads.

On October 31, 1996, the IBO released a report assessing the costs that could
be incurred by the City in response to the 1996 Welfare Act, which, among other
things, replaces the AFDC entitlement program with TANF, imposes a five-year
time limit on TANF assistance, required 50% of states' TANF caseload to be
employed by 2002, and restricts assistance to legal aliens. The report noted
that if the requirement that all recipients work after two years of receiving
benefits is enforced, these additional costs could be substantial starting in
1999, reflecting costs for worker training and supervision of new workers and
increased child care costs. The report further noted that, if economic
performance weakened, resulting in an increased number of public assistance
cases, potential costs to the City could substantially increase. The report
noted that decisions to be made by the State which will have a significant
impact on the City budget include the allocation of block grant funds between
the State and New York local governments such as the City and the division
between the State and its local governments of welfare costs not funded by the
Federal government.

Finally, the report noted that the new welfare law's most significant fiscal
impact is likely to occur in the years 2002 and beyond, reflecting the full
impact of the lifetime limit on welfare participation which only begins to be
felt in 2002 when the first recipients reach the five-year limit and are assumed
to be covered by Home Relief, which has recently been replaced by the Safety Net
Assistance program. In addition, the report noted that, given the constitutional
requirement to care for the needy, the 1996 Welfare Act might well prompt a
migration of benefit-seekers into the City, thereby increasing City welfare
expenditures in the long run. The report concluded that the impact of the 1996
Welfare Act on the City will ultimately depend on the decisions of State and
City officials, the performance of the local economy and the behavior of
thousands of individuals in response to the new system.

On August 25, 1997, the IBO issued a report describing recent developments
regarding welfare reform. The report noted that Federal legislation adopted in
August 1997, modified certain aspects of the 1996 Welfare Act, by reducing SSI
eligibility restrictions for certain legal aliens residing in the country as of
August 22, 1996, resulting in the continuation of Federal benefits, by providing
significant funding to the states to move welfare recipients from public
assistance and into jobs and by providing continued Medicaid coverage for those
children who lose SSI due to stricter eligibility criteria. In addition, the
report noted that the State had enacted the Welfare Reform Act of 1997 which,
among other things, requires the City to achieve work quotas and other work
requirements and requires all able-bodied recipients to work after receiving
assistance for two years. The report noted that this provision could require the
City to spend substantial funds over the next

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several years for workfare and day care in addition to the funding reflected in
the Financial Plan. The report also noted that the State Welfare Reform Act of
1997 established a Food Assistance Program designed to replace Federal food
stamp benefits for certain classes of legal aliens denied eligibility for such
benefits by the 1996 Welfare Act. The report noted that if the City elects to
participate in the Food Assistance Program, it will be responsible for 50% of
the costs for the elderly and disabled.

COLLECTIVE BARGAINING AGREEMENTS. Substantially all of the City's full-time
employees are members of labor unions. State law requires that all collective
bargaining agreements entered into by the City and the Covered Organizations be
consistent with the City's current financial plan, except for certain awards
arrived at through the impasse procedure of the New York City Collective
Bargaining Law, which can impose a binding settlement.

The projections for the 1998 through 2002 fiscal years reflect the costs of
the settlements and arbitration awards with the United Federation of Teachers
("UFT"), a coalition of unions headed by District Council 37 of the American
Federation of State, County and Municipal Employees ("District Council 37") and
other bargaining Units, which together represent approximately 86% of the City's
workforce, and assume that the City will reach agreement with its remaining
municipal unions under terms which are generally consistent with such
settlements and arbitration awards. The settlements and arbitration awards
provide for a wage freeze in the first two years, followed by a cumulative
effective wage increase of 11% by the end of the five year period covered by the
agreements, ending in fiscal years 2000 and 2001. Additional benefit increases
would raise the total cumulative effective increase to 13%. Assuming the City
reaches similar settlements with its remaining municipal unions, the cost of all
settlements for all City-funded employees, as reflected in the Financial Plan,
would total $459 million and $1.2 billion in the 1998 and 1999 fiscal years,
respectively, and exceed $2 billion in every fiscal year after the 1999 fiscal
year. On January 23, 1998, the City reached a tentative settlement with the
Correction Officers' Benevolent Association which is consistent with the
settlements previously reached by the City with certain other municipal unions.
There can be no assurance that the City will reach an agreement with the unions
that have not yet reached a settlement with the City on the terms contained in
the Financial Plan. The Financial Plan provides no additional wage increases for
City employees after their contracts expire in fiscal years 2000 and 2001.

Legislation passed in February 1996 will place collective bargaining matters
relating to police and firefighters, including impasse proceedings, under the
jurisdiction of the State Public Employment Relations Board ("PERB"), instead of
the New York City Office of Collective Bargaining ("OCB"). OCB considers wage
levels of municipal employees in similar cities in the United States in reaching
its determinations, while PERB's determinations take into account wage levels in
both private and public employment in comparable communities, particularly
within the State. In addition, PERB can approve only two-year contracts, unlike
OCB which can approve longer contracts. For these reasons, among others, PERB
jurisdiction could result in labor settlements which impose higher costs on the
City than those reached under excising procedures. On January 23, 1996, the City
requested the OCB to declare impasse against the Patrolmen's Benevolent
Association and the Uniformed Firefighters Association. In addition, on February
29, 1996, the City commenced an action in the State Supreme Court seeking a
declaratory judgment confirming that OCB, rather than PERB, has jurisdiction
over collective bargaining matters relating to police.

OUTSTANDING INDEBTEDNESS. As of December 31, 1997, the City had $26.584
billion of outstanding net long-term indebtedness and MAC had $3.645 billion of
outstanding net long-term indebtedness.

Ratings. In 1975, S&P suspended its A rating of City bonds. This suspension
remained in effect until March 1981, at which time the City received an
investment grade rating of BBB from S&P. On July 2, 1985, S&P revised its rating
of City bonds upward to BBB+ and on November 19, 1987, to A-. On July 10, 1995,
S&P revised its rating of the City's General Obligation Bonds downward to BBB+.
On February 3, 1997, S&P placed its BBB+ rating of City bonds on CreditWatch
with positive implications. S&P stated that an upgrade will depend on adoption
of a budget for the 1999 fiscal year and a financial plan that closely resembles
the outline of the current Financial Plan by keeping expenditures and headcount
under control, by limiting growth in the already substantial capital budget and
by maintenance of conservative budget assumptions.

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<PAGE> 595

Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1. On July 17 1997, Moody's changed
its outlook on City bonds to positive from stable.

Since July 15, 1993, Fitch has rated City bonds A-.

LITIGATION. The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
alleged torts, alleged breaches of contracts and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if any,
on the City of the proceedings and claims are not currently predictable, adverse
determination in certain of them might have a material adverse effect upon the
City's ability to carry out the Financial Plan. As of June 30, 1997, the City
estimated its potential future liability on account of all outstanding claims to
be approximately $3.5 billion.

OTHER LOCALITIES. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the projections of the State's receipts and disbursements for the State's
1996-97 fiscal year.

Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers
("Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the State to
assist Yonkers could result in increased State expenditures for extraordinary
local assistance. Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994 (the "Supervisory Board"). The Supervisory Board's
powers were increased in 1995, when Troy MAC was created to help Troy avoid
default on certain obligations. The legislation creating Troy MAC prohibits the
City of Troy from seeking federal bankruptcy protection while Troy MAC bonds are
outstanding.

Seventeen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities.

Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1994, the total indebtedness of all localities in the
State other than the City was approximately $17.7 billion. A small portion
(approximately $82.9 million) of that indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Seventeen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1994.

From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the public authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial decisions
and long-range economic trends. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing State assistance in the future.

STRATEGIC TRANSACTIONS

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, financial futures, interest rate indices and
other financial instruments, purchase and sell financial futures contracts and
options thereon, or enter into various interest rate transactions such as swaps,
caps, floors or collars (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities.

Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

such instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

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<PAGE> 598

OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to the Fund's limitation on illiquid
securities described herein.

If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that 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 and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

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<PAGE> 599

The Fund will not enter into a futures contract or related option (except for
closing transactions) for other than bona fide hedging purposes if, immediately
thereafter, the sum of the amount of its initial margin and premiums on open
futures contracts and options thereon would exceed 5% of the Fund's total assets
(taken at current value); however, in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. The segregation requirements with respect to
futures contracts and options thereon are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
the Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent equity rating from an NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash and liquid
securities with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash and liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash and
liquid securities equal to the excess of the index value over the exercise price
on a current basis. A put option written by the Fund requires the Fund to
segregate cash and liquid securities equal to the exercise price.

OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of cash and liquid securities equal
to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out cash and liquid securities equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of cash and liquid securities equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement, will be treated the same as other options settling
with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash and liquid securities sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of cash and liquid securities with a value equal to the Fund's net obligation,
if any.

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<PAGE> 601

of or after the primary transaction no segregation is required, but if it
terminates prior to such time, cash and liquid securities equal to any remaining
obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS

PORTFOLIO TURNOVER

ILLIQUID SECURITIES

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<PAGE> 602

under guidelines adopted by and subject to the supervision of the Fund's Board
of Trustees are not subject to the limitation on illiquid securities. Such 144A
Securities are subject to monitoring and may become illiquid to the extent
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. Factors used to determine whether 144A Securities are liquid
include, among other things, a security's trading history, the availability of
reliable pricing information, the number of dealers making quotes or making a
market in such security and the number of potential purchasers in the market for
such security. For purposes hereof, investments by the Fund in securities of
other investment companies will not be considered investments in restricted
securities to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.

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<PAGE> 603

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment restrictions which
may not be changed without approval by the vote of a majority of its outstanding
voting shares, which is defined by the 1940 Act as the lesser of (i) 67% or more
of the voting securities present in person or by proxy at the meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy; or (ii) more than 50% of the outstanding voting securities.
The Fund may not:

1. Invest more than 25% of its assets in a single industry; however, the Fund
may from time to time invest more than 25% of its assets in a particular
segment of the municipal bond market; however, the Fund will not invest
more than 25% of its assets in industrial development bonds in a single
industry and 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.

6. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

7. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to securities owned by the Fund would be deemed
to constitute such control or participation and except that the Fund may
purchase securities of other investment companies to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.

B-37
<PAGE> 604

DESCRIPTION OF MUNICIPAL 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:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

B-38
<PAGE> 605
<TABLE>
<S> <C>
BB, B, Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as
CCC, CC, C having significant speculative characteristics with respect
to capacity to pay interest and repay principal. 'BB'
indicates the lowest degree of speculation and 'C' the
highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.

CC Debt rating 'CC' is currently highly vulnerable to
nonpayment. The rating 'CC' is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'CCC' rating.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing
within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

B-39
<PAGE> 606
<TABLE>
<S> <C>
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

Debt Obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. MUNICIPAL NOTES

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:

<TABLE>
<S> <C>
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.
</TABLE>

B-40
<PAGE> 607

3. COMMERCIAL PAPER

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'.

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.

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all municipal debt issues that have a
demand or double feature as part of their provisions.

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 MUNICIPAL BONDS

B-41
<PAGE> 608
<TABLE>
<S> <C>
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.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

B-42
<PAGE> 609

2. SHORT-TERM EXEMPT NOTES

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

-- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

B-43
<PAGE> 610

-- Well established access to a range of financial markets and
assured sources of alternative liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

TRUSTEES AND OFFICERS

TRUSTEES

B-44
<PAGE> 611

B-45
<PAGE> 612

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers or
Van Kampen Management Inc.

Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com Corporation,
233 South Wacker Drive APAC Teleservices, Inc., COMARCO, Inc., Applied Language
Suite 9700 Technologies, Focal Communications, and Lante
Chicago, IL 60606 Corporation. Limited Partner of Evercore Partners, LLP.
Date of Birth: 10/29/53 Trustee/Director of each of the Funds in the Fund
Complex.
</TABLE>

B-46
<PAGE> 613

OFFICERS

Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell
and Hill are located at 1 Parkview Plaza, Oakbrook Terrace, IL 60181-5555. The
Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

B-47
<PAGE> 614

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Ronald A. Nyberg..................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen. Director of ICI Mutual
Insurance Co., a provider of insurance to members of the
Investment Company Institute. Prior to July of 1998,
Director and Executive Vice President, General Counsel and
Secretary of Van Kampen Investments Inc. Prior to April of
1998, Executive Vice President, General Counsel and
Director of Van Kampen Merritt Equity Advisors Corp. Prior
to April of 1997, he was Executive Vice President, General
Counsel and a Director of Van Kampen Merritt Equity
Holdings Corp. Prior to September of 1996, he was General
Counsel of McCarthy, Crisanti & Maffei, Inc. Prior to July
of 1996, Mr. Nyberg was Executive Vice President and
General Counsel of VSM Inc. and Executive Vice President
and General Counsel of VCJ Inc. Vice President and
Secretary of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.
Paul R. Wolkenberg................... Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of Van Kampen
Investments Inc. Vice President of each of the funds in
the Fund Complex and certain other investment companies
advised by the Advisers or their affiliates.
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
John L. Sullivan..................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the Advisers
or their affiliates.
Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>

B-48
<PAGE> 615

B-49
<PAGE> 616

B-50
<PAGE> 617

Additional information regarding compensation and benefits for trustees is set
forth below for the periods described in the notes accompanying the table.

COMPENSATION TABLE

- ---------------

B-51
<PAGE> 618

As of January , 1999, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-52
<PAGE> 619

TABLE A
1998 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROBINSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund.................... 12/31 0
Tax Free High Income
Fund.................... 12/31 0
California Insured Tax
Free Fund............... 12/31 0
Municipal Income Fund..... 12/31 0
Intermediate Term
Municipal Income Fund... 12/31 0
Florida Insured Tax Free
Income Fund............. 12/31 0
New York Tax Free Income
Fund.................... 12/31 0
Trust Total............. 0
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-53
<PAGE> 620

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement (the
"Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. See
"Accounting Services Agreement" below. The Fund also pays distribution fees,
service fees, custodian fees, legal and auditing fees, the costs of reports to
shareholders, and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any error of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.

Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.600% on the first $500 million of
average daily net assets and 0.500% on the average daily net assets over $500
million.

The Fund's average net assets are determined by taking the average of all of
the determinations of the net assets during a given calendar month. Such fee is
payable for each calendar month as soon as practicable after the end of that
month.

The Advisory Agreement also provides that, in the event the annual expenses of
the Fund for any fiscal year exceed the most stringent limit in any state in
which the Fund's shares are offered for sale, 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.

During the fiscal period ended September 30, 1998 and the fiscal years ended
December 31, 1997 and 1996, the Adviser received $ , $0 and $0,
respectively, in advisory fees from the Fund.

OTHER AGREEMENTS

B-54
<PAGE> 621

DISTRIBUTION AND SERVICE

<TABLE>
<CAPTION>
TOTAL UNDERWRITING AMOUNTS RETAINED
COMMISSIONS BY DISTRIBUTOR
------------------- ----------------
<S> <C> <C>
Fiscal Period Ended September 30, 1998......................
Fiscal Year Ended December 31, 1997......................... $163,312 $12,562
Fiscal Year Ended December 31, 1996......................... $ 63,306 $10,787
</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 TO
AS % OF NET DEALERS AS
AS % OF AMOUNT A % OF
SIZE OF INVESTMENT OFFERING 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>

- ---------------

B-55
<PAGE> 622

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 based on a percentage
of the dollar value of such shares sold as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million.

Proceeds from any deferred sales charge and any distribution fees on Class B
Shares and Class C Shares of the Fund are paid to the Distributor and are used
by the Distributor to defray its distribution related expenses in connection
with the sale of the Fund's shares, such as the payment to authorized dealers
for selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of the Fund's Class C Shares annually commencing in
the second year after purchase.

B-56
<PAGE> 623

Agreement") with the Distributor of each class of the Fund's shares,
sub-agreements between the Distributor and members of the NASD who are acting as
securities dealers and NASD members or eligible non-members who are acting as
brokers or agents and similar agreements between the Fund and financial
intermediaries who are acting as brokers (collectively, "Selling Agreements")
that may provide for their customers or clients certain services or assistance,
which may include, but not be limited to, processing purchase and redemption
transactions, establishing and maintaining shareholder accounts regarding the
Fund, and such other services as may be agreed to from time to time and as may
be permitted by applicable statute, rule or regulation. Brokers, dealers and
financial intermediaries that have entered into sub-agreements with the
Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.

September 30, 1998, the Fund's aggregate expenses under the Plans for Class C
Shares were $ or % of the Class C Shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments;
$ for commissions and transaction fees paid to financial intermediaries in
respect of sales of Class C Shares of the Fund and $ for fees paid to
financial intermediaries for servicing Class C shareholders and administering
the Class C Plan.

TRANSFER AGENT

The Fund's transfer agent is Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256. During the fiscal period ended September 30,
1998 and the fiscal years ended December 31, 1997 and 1996, Investor Services,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $ , $14,238 and $7,457, respectively for these services.
Prior to 1998, these services were provided at cost plus a profit. Beginning in
1998, the transfer agency prices are determined through negotiations with the
Fund's Board of Trustees and are based on competitive benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for 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 pur-chasers 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

B-58
<PAGE> 625

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 Fund paid the following commissions to all brokers and affiliated brokers
during the periods shown:

SHARE PURCHASE PROGRAMS

The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."

QUANTITY DISCOUNTS

B-59
<PAGE> 626

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 out-lined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table also includes purchases of shares of the Participating Funds over a
13-month period based on the total amount of intended purchases plus the value
of all shares of the Participating Funds previously purchased and still owned.
An investor may elect to compute the 13-month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. The initial purchase must be for an amount equal to at
least 5% of the minimum total purchase amount of the level selected. If trades
not initially made under a Letter of Intent subsequently qualify for a lower
sales charge through the 90-day back-dating provisions, an adjustment will be
made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustment in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. The Fund
initially will escrow shares totaling 5% of the dollar amount of the Letter of
Intent to be held by Investor Services in the name of the shareholder. In the
event the Letter of Intent goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the sales charges previously paid. Such payments may be made directly
to the Distributor or, if not paid, the Distributor will liquidate sufficient
escrowed shares to obtain the difference.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund, at net asset value and with no minimum initial or subsequent
investment requirement, if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the authorized dealer,
if any, through which such participation in the qualifying program was initiated
0.50% of the offering price as a dealer concession or

B-60
<PAGE> 627

agency commission. Persons desiring more information with respect to this
program, including the applicable terms and conditions thereof, should contact
their authorized dealer or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each participating investor in a computerized format fully
compatible with Investor Services' processing system.

1. Current or retired trustees or directors of funds advised by Asset
Management or Advisory Corp. and such persons' families and their beneficial
accounts.

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.

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.

B-61
<PAGE> 628

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 ("CDSC") of 1.00% in the event of redemption within one year of purchase,
and a commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

SHAREHOLDER SERVICES

INVESTMENT ACCOUNT

Each shareholder has an investment account under which the investor's shares
of the Fund are held by Investor Services, the Fund's transfer agent. Investor
Services performs bookkeeping, data processing and administrative services
related to the maintenance of shareholder accounts. Except as described in the
Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.

B-62
<PAGE> 629

SHARE CERTIFICATES

Generally, the Fund will not issue share certificates. However, upon written
or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate equal to no
more than 2.00% of the net asset value of the issued shares, and bill the party
to whom the replacement certificate was mailed.

RETIREMENT PLANS

Eligible investors may establish individual retirement accounts ("IRAs"); SEP;
401(k) plans; Section 403(b)(7) plans in the case of employees of public school
systems and certain non-profit organizations; or other pension or profit sharing
plans. Documents and forms containing detailed information regarding these plans
are available from the Distributor. Van Kampen Trust Company serves as custodian
under the IRA, 403(b)(7) and Keogh plans. Details regarding fees, as well as
full plan administration for profit sharing, pension and 401(k) plans, are
available from the Distributor.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

DIVIDEND DIVERSIFICATION

EXCHANGE PRIVILEGE

B-63
<PAGE> 630

To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.

For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.

Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.

SYSTEMATIC WITHDRAWAL PLAN

B-64
<PAGE> 631

Class B shareholders and Class C shareholders who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.

INTERNET TRANSACTIONS

REINSTATEMENT PRIVILEGE

REDEMPTION OF SHARES

CONTINGENT DEFERRED SALES CHARGE-CLASS A

purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC-Class A rather than a front-end load sales charge. In determining whether
a CDSC-Class A is payable, it is assumed that shares held the longest are the
first to be redeemed.

WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED
SALES CHARGE ("CDSC-CLASS B AND C")

REDEMPTION UPON DEATH OR DISABILITY

The Fund will waive the CDSC-Class B and C on redemptions following the death
or disability of a Class B shareholder and Class C shareholder. An individual
will be considered disabled for this purpose if he or she meets the definition
thereof in Section 72(m)(7) of the Code, which in pertinent part defines a
person as disabled if such person "is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long-continued
and indefinite duration." While the Fund does not specifically adopt the balance
of the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of death or disability before it determines to waive the
CDSC-Class B and C.

In cases of death or disability, the CDSC-Class B and C will be waived where
the decedent or disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This waiver of the
CDSC-Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial determination of
disability.

REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS

The Fund will waive the CDSC-Class B and C when a total or partial redemption
is made in connection with certain distributions from Retirement Plans. The
charge will be waived upon the tax-free rollover or transfer of assets to
another Retirement Plan invested in one or more Participating Funds; in such
event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).

The Fund does not intend to waive the CDSC-Class B and C for any distributions
from IRAs or other Retirement Plans not specifically described above.

REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN

B-66
<PAGE> 633

The amount of the shareholder's investment in a Fund at the time the election
to participate in the Plan is made with respect to the Fund is hereinafter
referred to as the "initial account balance." The amount to be systematically
redeemed from the Fund without the imposition of a CDSC-Class B and C may not
exceed a maximum of 12% annually of the shareholder's initial account balance.
The Fund reserves the right to change the terms and conditions of the Plan and
the ability to offer the Plan.

NO INITIAL COMMISSION OR TRANSACTION FEE

The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.

INVOLUNTARY REDEMPTIONS OF SHARES

REINVESTMENT OF REDEMPTION PROCEEDS

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

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.

B-67
<PAGE> 634

(even if such income were distributed to its shareholders) and all distributions
out of earnings and profits would be taxed to shareholders as ordinary income.
To qualify again as a regulated investment company in a subsequent year, the
Fund may be required to pay an interest charge on 50% of its earnings and
profits attributable to non-regulated investment company years and would be
required to distribute such earnings and profits to shareholders (less any
interest charge). In addition, if the Fund failed to qualify as a regulated
investment company for its first taxable year or, if immediately after
qualifying as a regulated investment company for any taxable year, it failed to
qualify for a period greater than one taxable year, the Fund would be required
to recognize any net built-in gains (the excess of aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.

Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses 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.

DISTRIBUTIONS. The Fund intends to invest in sufficient tax-exempt municipal
securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of municipal securities.

B-68
<PAGE> 635

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.

While the Fund expects that a major portion of its net investment income will
constitute tax-exempt interest, a significant portion may consist of investment
company taxable income. Distributions of the Fund's net investment company
taxable income are taxable to shareholders as ordinary income to the extent of
the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains ("capital gain
dividends"), if any, are taxable to shareholders as long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming such shares are held as a capital asset). For a summary of the
tax rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates" below. Interest on indebtedness which is incurred to
purchase or carry shares of a mutual fund which distributes exempt interest
dividends during the year is not deductible for federal income tax purposes.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.

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.

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 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.

The Fund must report annually to the IRS and to each Non-U.S. Shareholder the
amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.

1998 FEDERAL NEW YORK STATE AND NEW YORK CITY TAXABLE VS. TAX-FREE YIELDS

<TABLE>
<CAPTION>
FEDERAL STATE AND COMBINED TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX CITY TAX TAX -----------------------------------------------
RETURN RETURN BRACKET BRACKET* BRACKET* 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ---------------- --------------- ------- --------- -------- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25,350 15.00% 11.250% 24.60% 4.64% 5.31% 5.97% 6.63% 7.29% 7.96%
$ 0-42,350 15.00 11.239 24.60 4.64 5.31 5.97 6.63 7.29 7.96
25,350-61,400 42,350-102,300 28.00 11.307 36.10 5.48 6.26 7.04 7.82 8.61 9.39
61,400-128,100 102,300-155,950 31.00 11.307 38.80 5.72 6.54 7.35 8.17 8.99 9.80
128,100-278,450 155,950-278,450 36.00 11.307 43.20 6.16 7.04 7.92 8.80 9.68 10.56
Over 278,450 Over 278,450 39.60 11.307 46.40 6.53 7.46 8.40 9.33 10.26 11.19
</TABLE>

<TABLE>
<CAPTION>
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN
SINGLE -----------------------------------------------
RETURN 6.5% 7.0% 7.5% 8.0% 8.5%
- ---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 0-25,350 8.62% 9.28% 9.95% 10.61% 11.27%
25,350-61,400 10.17 10.95 11.74 12.52 13.30
61,400-128,100 10.62 11.44 12.25 13.07 13.89
128,100-278,450 11.44 12.32 13.20 14.08 14.96
Over 278,450 12.13 13.06 13.99 14.93 15.86
</TABLE>

- ---------------

* Combined Tax Bracket includes Federal, State and New York City income taxes.
Please note that the table does not reflect (i) any federal or state
limitations on the amounts of allowable itemized deductions, phase-outs of
personal or dependent exemption credits or other allowable credits, (ii) any
local taxes imposed (other than New York City), or (iii) any taxes other than
personal income taxes. The table assumes that federal taxable income is equal
to state income subject to tax, and in cases where more than one state rate
falls within a federal bracket, the highest state rate corresponding to the
highest income within that federal bracket is used. Further, the table does
not reflect the New York State supplemental income tax based upon a taxpayer's
New York State taxable income and New

B-70
<PAGE> 637

York State adjusted gross income. This supplemental tax results in an
increased marginal State income tax rate to the extent a taxpayer's New York
State adjusted gross income ranges between $100,000 and $150,000.

1998 FEDERAL AND NEW YORK STATE TAXABLE VS. TAX-FREE YIELDS*

<TABLE>
<CAPTION>
FEDERAL STATE COMBINED TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX TAX TAX ------------------------------------------------
RETURN RETURN BRACKET BRACKET* BRACKET* 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
- ---------------- --------------- ------- -------- -------- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25,350 $ 0-42,350 15.00% 6.850% 20.80% 4.42% 5.05% 5.68% 6.31% 6.94% 7.58% 8.21%
25,350-61,400 42,350-102,300 28.00 6.850 32.90 5.22 5.96 6.71 7.45 8.20 8.94 9.69
61,400-128,100 102,300-155,950 31.00 6.850 35.70 5.44 6.22 7.00 7.78 8.55 9.33 10.11
128,100-278,450 155,950-278,450 36.00 6.850 40.40 5.87 6.71 7.55 8.39 9.23 10.07 10.91
Over 278,450 Over 278,450 39.60 6.850 43.70 6.22 7.10 7.99 8.88 9.77 10.66 11.55
</TABLE>

<TABLE>
<CAPTION>
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN
SINGLE ---------------------------------------------
RETURN 7.0% 7.5% 8.0% 8.5%
- ---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 0-25,350 8.84% 9.47% 10.10% 10.73%
25,350-61,400 10.43 11.18 11.92 12.67
61,400-128,100 10.89 11.66 12.44 13.22
128,100-278,450 11.74 12.58 13.42 14.26
Over 278,450 12.43 13.32 14.21 15.10
</TABLE>

- ---------------

* Please note that the table does not reflect (i) any federal or state
limitations on the amounts of allowable itemized deductions, phase-outs of
personal or dependent exemption credits or other allowable credits, (ii) any
local taxes imposed, or (iii) any taxes other than personal income taxes. The
table assumes that federal taxable income is equal to state income subject to
tax, and in cases where more than one state rate falls within a federal
bracket, the highest state rate corresponding to the highest income within
that federal bracket is used. Further, the table does not reflect the New York
State supplemental income tax based upon a taxpayer's New York State taxable
income and New York State adjusted gross income. This supplemental tax results
in an increased marginal State income tax rate to the extent a taxpayer's New
York State adjusted gross income ranges between $100,000 and $150,000.

FUND PERFORMANCE

From time to time the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one year, five year and ten year periods. Other total return
quotations, aggregate or average, over other time periods may also be included.

The total return of the Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the current maximum public offering price
(which includes the maximum sales charge for Class A Shares); that all income
dividends or capital gains distributions during the period are reinvested in
Fund shares at net asset value; and that any applicable CDSC has been paid. The
Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and distributions paid by the Fund.

B-71
<PAGE> 638

Non-standardized total return calculations do not reflect the imposition of a
contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC imposed at the time of redemption were
reflected, it would reduce the performance quoted.

Yield and total return are calculated separately for Class A Shares, Class B
Shares and Class C Shares. Class A Shares total return figures include the
maximum sales charge; Class B Shares and Class C Shares total return figures
include any applicable CDSC. Because of the differences in sales charges and
distribution fees, the total returns for each of the classes will differ.

From time to time marketing materials may provide a portfolio manager update,
an adviser update or discuss general economic conditions and outlooks. The
Fund's marketing materials may also show the Fund's asset class diversification,
top five sectors, ten largest holdings and other Fund asset structures, such as
duration, maturity, coupon, NAV, rating breakdown, AMT exposure and number of
issues in the portfolio. Materials may also mention how the Distributor believes
the Fund compares relative to other Van Kampen funds. Materials may also discuss
the Dalbar Financial Services study from 1984 to 1994 which studied investor
cash flow into and out of all types of mutual funds. The ten year study found
that investors who bought mutual fund shares and held such shares outperformed
investors who bought and sold. The Dalbar study conclusions were consistent
regardless of if shareholders purchased their funds in direct or sales force
distribution channels. The study showed that investors working with a
professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the internet.

The Fund may, from time to time: (1) illustrate the benefits of tax-deferral
by comparing taxable investments to investments made through tax-deferred
retirement plans; (2) illustrate in graph or chart form, or other-wise, the
benefits of dollar cost averaging by comparing investments made pursuant to a
systematic investment plan to investments made in a rising market; and (3) in
reports or other communications to shareholders or in advertising material,
illustrate the benefits of compounding at various assumed rates of return. Such
illustrations may be in the form of charts or graphs and will not be based on
historical returns experienced by the Fund.

The Fund's Annual Report and Semi-Annual Report contain additional performance
information. A copy of the Annual Report or Semi-Annual Report may be obtained
without charge by calling or writing the Fund at the telephone number and
address printed on the back cover of the Prospectus.

CLASS A SHARES

The average annualized total return, including payment of the sales charge,
with respect to the Class A Shares for (i) the one year period ended December
31, 1997 was % and (ii) the approximately three year, five month period
from July 29, 1994 (the commencement of investment operations of the Fund)
through December 31, 1997 was %.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class A Shares for the 30 day period ending December 30, 1997
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class A Shares for the month ending
December 31, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class A Shares for the month ending
December 31, 1997 was %.

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
December 31, 1997 was %.

B-73
<PAGE> 640

CLASS B SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class B Shares for (i) the one year period ended December 31,
1997 was % and (ii) the approximately three year, five month period of July
29, 1994 (commencement of investment operations of the Fund) through December
31, 1997 was %.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class B Shares for the 30 day period ending December 30, 1997
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class B Shares for the month ending
December 31, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class B Shares for the month ending
December 31, 1997 was %.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class B Shares from its inception to December 31, 1997
was %.

CLASS C SHARES

The average annualized total return, including payment of the CDSC, with
respect to the Class C Shares for (i) the one year period ended December 31,
1997 was % and (ii) the approximately three year, five month period from
July 29, 1994 (the commencement of investment operations of the Fund) through
December 31, 1997 was %.

The Fund's yield with respect to the Class C Shares for the 30 day period
ending December 30, 1997 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was %. The tax-equivalent yield with
respect to the Class C shares for the 30 day period ending December 30, 1997
(calculated in the manner described in the Prospectus under the heading "Fund
Performance" and assuming a 36% tax rate) was %. The Fund's current
distribution rate with respect to the Class C Shares for the month ending
December 31, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was %. The Fund's taxable equivalent
distribution rate with respect to the Class C Shares for the month ending
December 31, 1997 was %.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class C Shares from its inception to December 31, 1997
was %.

OTHER INFORMATION

CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225 West
Franklin Street, Boston, Massachusetts 02110, as Custodian.

SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders,
and annually such statements are audited by the independent accountants.

LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom
(Illinois).

B-74
<PAGE> 641

PART C: OTHER INFORMATION

ITEM 23. EXHIBITS.

<TABLE>
<C> <C> <S>
(a)(1) -- Agreement and Declaration of Trust(1)
(2) -- Certificate of Amendment+
(3) -- Second Amended and Restated Certificate of Designation for:
(i) Van Kampen Insured Tax Free Income Fund+
(ii) Van Kampen Tax Free High Income Fund+
(iii) Van Kampen California Insured Tax Free Fund+
(iv) Van Kampen Municipal Income Fund+
(v) Van Kampen Florida Insured Tax Free Income Fund+
(vi) Van Kampen New York Tax Free Income Fund+
(vii) Van Kampen California Tax Free Income Fund+
(viii) Van Kampen Michigan Tax Free Income Fund+
(ix) Van Kampen Missouri Tax Free Income Fund+
(x) Van Kampen Ohio Tax Free Income Fund+
-- Third Amended and Restated Certificate of Designation for:
(xi) Van Kampen Intermediate Term Municipal Income Fund+
(b) -- By-Laws(1)
(c) -- Specimen Certificate of Share of Beneficial Interest of:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(ix) Van Kampen Michigan Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(x) Van Kampen Missouri Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(xi) Van Kampen Ohio Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(d) -- Investment Advisory Agreement for:
(i) Van Kampen Insured Tax Free Income Fund(3)
(ii) Van Kampen Tax Free High Income Fund(3)
(iii) Van Kampen California Insured Tax Free Fund(3)
(iv) Van Kampen Municipal Income Fund(3)
(v) Van Kampen Intermediate Term Municipal Income Fund(3)
(vi) Van Kampen Florida Insured Tax Free Income Fund(3)
(vii) Van Kampen New York Tax Free Income Fund(3)
(viii) Van Kampen California Tax Free Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
</TABLE>

C-1
<PAGE> 642

<TABLE>
<C> <C> <S>
(e)(1) -- Distribution and Service Agreement for:
(i) Van Kampen Insured Tax Free Income Fund(3)
(ii) Van Kampen Tax Free High Income Fund(3)
(iii) Van Kampen California Insured Tax Free Fund(3)
(iv) Van Kampen Municipal Income Fund(3)
(v) Van Kampen Intermediate Term Municipal Income Fund(3)
(vi) Van Kampen Florida Insured Tax Free Income Fund(3)
(vii) Van Kampen New York Tax Free Income Fund(3)
(viii) Van Kampen California Tax Free Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(2) -- Form of Dealer Agreement(4)
(3) -- Form of Broker Agreement(4)
(4) -- Form of Bank Agreement(4)
(g)(1) -- Custodian Contract for:
(i) Van Kampen Insured Tax Free Income Fund(5)
(ii) Van Kampen Tax Free High Income Fund(5)
(iii) Van Kampen California Insured Tax Free Fund(5)
(iv) Van Kampen Municipal Income Fund(5) and (6)
(v) Van Kampen Intermediate Term Municipal Income Fund(5)
(vi) Van Kampen Florida Insured Tax Free Income Fund(5)
(vii) Van Kampen New York Tax Free Income Fund(5)
(viii) Van Kampen California Tax Free Income Fund(2) and (5)
(ix) Van Kampen Michigan Tax Free Income Fund(2) and (7)
(x) Van Kampen Missouri Tax Free Income Fund(2) and (7)
(xi) Van Kampen Ohio Tax Free Income Fund(2) and (7)
(2) -- Transfer Agency and Service Agreement(5)
(h)(2) -- Fund Accounting Agreement(5)
(3) -- Legal Services Agreement(3)
(i) -- Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) for:
(i) Van Kampen Insured Tax Free Income Fund(8)
(ii) Van Kampen Tax Free High Income Fund(8)
(iii) Van Kampen California Insured Tax Free Fund(8)
(iv) Van Kampen Municipal Income Fund(8)
(v) Van Kampen Intermediate Term Municipal Income Fund(8)
(vi) Van Kampen Florida Insured Tax Free Income Fund(8)
(vii) Van Kampen New York Tax Free Income Fund(8)
(viii) Van Kampen California Tax Free Income Fund(++)
(ix) Van Kampen Michigan Tax Free Income Fund(++)
(x) Van Kampen Missouri Tax Free Income Fund(++)
(xi) Van Kampen Ohio Tax Free Income Fund(++)
(j) -- Consents of KPMG Peat Marwick LLP for:
(i) Van Kampen Insured Tax Free Income Fund++
(ii) Van Kampen Tax Free High Income Fund++
(iii) Van Kampen California Insured Tax Free Fund++
(iv) Van Kampen Municipal Income Fund++
(v) Van Kampen Intermediate Term Municipal Income Fund++
(vi) Van Kampen Florida Insured Tax Free Income Fund++
(vii) Van Kampen New York Tax Free Income Fund++
(viii) Van Kampen California Tax Free Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
</TABLE>

C-2
<PAGE> 643

<TABLE>
(k) -- Computation of Performance Quotations for:
<C> <C> <S>
(i) Van Kampen Insured Tax Free Income Fund++
(ii) Van Kampen Tax Free High Income Fund++
(iii) Van Kampen California Insured Tax Free Fund++
(iv) Van Kampen Municipal Income Fund++
(v) Van Kampen Intermediate Term Municipal Income Fund++
(vi) Van Kampen Florida Insured Tax Free Income Fund++
(vii) Van Kampen New York Tax Free Income Fund++
(l) -- Letter of understanding relating to initial capital(9)
(m)(1) -- Plan of Distribution Pursuant to Rule 12b-1 for:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Tax Free Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(2) -- Form of Shareholder Assistance Agreement(4)
(3) -- Form of Administrative Services Agreement(4)
(4) -- Service Plan for:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Tax Free Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(n) -- Financial Data Schedules++
(o) -- Amended Multi-Class Plan(8)
(p) -- Power of Attorney+
</TABLE>

- ---------------

(1) Incorporated herein by reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715, filed
on April 29, 1996.

(2) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715, filed
on September 30, 1994.

(3) Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715, filed
on April 30, 1998.

(4) Incorporated herein by reference to Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715, filed
on August 1, 1995.

(5) Incorporated herein by reference to Post-Effective Amendment No. 50 to Van
Kampen American Capital Comstock Fund, File No. 2-27778 filed on April 27,
1998.

(6) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715, filed
May 25, 1990.

(7) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration

on Form N-1A, File Number 2-99715, filed February 22, 1988.

(8) Incorporated herein by reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715, filed
on April 29, 1997.

C-3
<PAGE> 644

(9) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A, File Number 2-99715, filed August 15, 1985.

+ Filed herewith.

++ To be filed by further amendment.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

See the Statement of Additional Information.

ITEM 25. INDEMNIFICATION.

Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.

Article 8, Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office (iii) for a criminal proceeding, not having a reasonable cause
to believe that such conduct was unlawful (collectively, "Disabling Conduct").
Absent a court determination that an officer or trustee seeking indemnification
was not liable on the merits or guilty of Disabling Conduct in the conduct of
his or her office, the decision by the Registrant to indemnify such person must
be based upon the reasonable determination of independent counsel or non-party
independent trustees, after review of the facts, that such officer or trustee is
not guilty of Disabling Conduct in the conduct of his or her office.

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

C-4
<PAGE> 645

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in the Prospectus and "Investment
Advisory and Other Services" and "Trustees and Officers" in the Statement of
Additional Information for information regarding the business of 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. 801-18161) 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., which acts as
principal underwriter for certain investment companies and unit investment
trusts to be filed by further amendment.

(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of Registrant, is the sole principal underwriter for Registrant. The
name, principal business address and positions and offices with Van Kampen Funds
Inc. of each of the directors and officers will be filed by further amendment.
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.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of the Registrant, located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, Van Kampen Investors Services
Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts
02171. All such accounts, books and other documents required to be maintained by
the Adviser and by Van Kampen Funds Inc., the principal underwriter, will be
maintained at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois
60181-5555.

ITEM 29. MANAGEMENT SERVICES.

Not applicable.

ITEM 30. UNDERTAKINGS.

(a) Not applicable.

(b) The Registrant undertakes to file a post-effective amendment to the
Registration Statement to add financial statements, which need not be certified,
within four to six months from the effective date of this Registration Statement
for each of the Van Kampen California Tax Free Income Fund, Van Kampen Michigan
Tax Free Income, Van Kampen Missouri Tax Free Income Fund and Van Kampen Ohio
Tax Free Income Fund.

(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered for a particular series with a copy of the latest annual
report to shareholders of such series, upon request and without charge.

C-5
<PAGE> 646

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN TAX FREE TRUST, has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Oakbrook
Terrace and the State of Illinois, on the 25th day of November, 1998.

VAN KAMPEN TAX FREE TRUST

By: /s/ RONALD A. NYBERG

---------------------------------------
Ronald A. Nyberg, Vice President and
Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed on November 25, 1998 by the
following persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:

/s/ DENNIS J. McDONNELL* President and Trustee
- -----------------------------------------------------
Dennis J. McDonnell

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/ RICHARD M. DeMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini

/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy

/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy

/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson

/s/ DON G. POWELL* Trustee
- -----------------------------------------------------
Don G. Powell

/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney

/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto

/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen

Trustee
- -----------------------------------------------------
Paul G. Yovovich
- ------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney.

/s/ RONALD A. NYBERG November 25, 1998
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>

C-6
<PAGE> 647

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 42 TO FORM N-1A

AS SUBMITTED TO THE SECURITIES AND EXCHANGE

COMMISSION ON NOVEMBER 25, 1998

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
(a)(2) -- Certificate of Amendment
(a)(3) -- Second Amended and Restated Certificate of Designation for:
(i) Van Kampen Insured Tax Free Income Fund
(ii) Van Kampen Tax Free High Income Fund
(iii) Van Kampen California Insured Tax Free Fund
(iv) Van Kampen Municipal Income Fund
(v) Van Kampen Florida Insured Tax Free Income Fund
(vi) Van Kampen New York Tax Free Income Fund
(vii) Van Kampen California Tax Free Income Fund
(viii) Van Kampen Michigan Tax Free Income Fund
(ix) Van Kampen Missouri Tax Free Income Fund
(x) Van Kampen Ohio Tax Free Income Fund
-- Third Amended and Restated Certificate of Designation for:
(xi) Van Kampen Intermediate Term Municipal Income Fund
(p) -- Power of Attorney
</TABLE>

<PAGE> 1
Exhibit (a)(2)

CERTIFICATE OF AMENDMENT DATED JULY 14, 1998
TO
AGREEMENT AND DECLARATION OF TRUST DATED MAY 10, 1995

WHEREAS, the Trustees of Van Kampen American Capital Tax Free Trust, a
Delaware business trust (the "Trust") have approved the amendment of the
Agreement and Declaration of Trust dated May 10, 1995 ("Declaration of Trust")
in accordance with Section 9.5 thereof;

WHEREAS, the Trustees have authorized the proper officers of the Trust,
including the officer whose name appears below, to effect such amendment;

NOW, THEREFORE, the Declaration of Trust is amended as follows:

1. The first sentence of Section 1.1 is amended and restated in its
entirety to read as follows:

1.1 Name. The name of the Trust shall be

"VAN KAMPEN TAX FREE TRUST"

and so far as may be practicable, the Trustees shall conduct
the Trust's activities, execute all documents and sue or be
sued under that name, which name (and the word "Trust"
wherever used in this Agreement and Declaration of Trust,
except where the context otherwise requires) shall refer to
the Trustees in their capacity as Trustees, and not
individually or personally, and shall not refer to the
officers, agents or employees of the Trust or of such
Trustees, or to the holders of the Shares of Beneficial
Interest of the Trust or any Series. If the Trustees determine
that the use of such name is not practicable, legal or
convenient at any time or in any jurisdiction, or if the Trust
is required to discontinue the use of such name pursuant to
Section 10.7 hereof, then subject to that Section, the
Trustees may use such other designation, or they may adopt
such other name for the Trust as they deem proper, and the
Trust may hold property and conduct its activities under such
designation or name.

EXECUTED, to be effective as of July 14, 1998

/s/ Ronald A. Nyberg
-----------------------------
Ronald A. Nyberg,
Secretary

<PAGE> 1
EXHIBIT (a)(3)(i)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Insured Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Insured Tax Free
Income Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen Insured Tax Free Income Fund Series (the "Fund") with
the following rights, preferences and characteristics:

1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate Series
of Shares for the Trust as they deem necessary or desirable.

2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund

3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.

4. Conversion. Each Class B Share and certain Class C Shares of the Fund shall
be converted automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Shares of the Fund at such times and pursuant
to such terms, conditions and restrictions as may be established by the Trustees
and as set forth in the Fund's Prospectus.

5. Allocation of Expenses Among Classes. Expenses related solely to a particular
Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.

<PAGE> 2

6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.

7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in this
Certificate of Designation, in which case this Certificate of Designation shall
govern.

8. Amendments, etc. Subject to the provisions and limitations of Section 9.5 of
the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the affected
Classes outstanding and entitled to vote.

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
-------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(ii)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Tax Free High Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Tax Free High
Income Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen Tax Free High Income Fund Series (the "Fund") with the
following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(iii)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen California Insured Tax Free Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital California Insured
Tax Free Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen California Insured Tax Free Fund Series (the "Fund")
with the following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(iv)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Municipal Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Municipal Income
Fund Series of the Trust dated December 12, 1996 by redesignating such Series as
the Van Kampen Municipal Income Fund Series (the "Fund") with the following
rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
-------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(v)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Florida Insured Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Florida Insured
Tax Free Income Fund Series of the Trust dated December 12, 1996 by
redesignating such Series as the Van Kampen Florida Insured Tax Free Income Fund
Series (the "Fund") with the following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
-------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(vi)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen New York Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital New York Tax Free
Income Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen New York Tax Free Income Fund Series (the "Fund") with
the following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(vii)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen California Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital California Tax
Free Income Fund Series of the Trust dated December 12, 1996 by redesignating
such Series as the Van Kampen California Tax Free Income Fund Series (the
"Fund") with the following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(viii)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Michigan Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Michigan Tax Free
Income Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen Michigan Tax Free Income Fund Series (the "Fund") with
the following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(ix)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Missouri Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Missouri Tax Free
Income Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen Missouri Tax Free Income Fund Series (the "Fund") with
the following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(x)

VAN KAMPEN TAX FREE TRUST
Second Amended and Restated Certificate of Designation
of
Van Kampen Ohio Tax Free Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Amended and Restated
Certificate of Designation of the Van Kampen American Capital Ohio Tax Free
Income Fund Series of the Trust dated December 12, 1996 by redesignating such
Series as the Van Kampen Ohio Tax Free Income Fund (the "Fund") with the
following rights, preferences and characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
--------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (a)(3)(xi)

VAN KAMPEN TAX FREE TRUST
Third Amended and Restated Certificate of Designation
of
Van Kampen Intermediate Term Municipal Income Fund

The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Second Amended and Restated
Certificate of Designation of the Van Kampen American Capital Intermediate Term
Municipal Income Fund Series of the Trust dated December 12, 1996 by
redesignating such Series as the Van Kampen Intermediate Term Municipal Income
Fund Series (the "Fund") with the following rights, preferences and
characteristics:

<PAGE> 2

9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.

July 14, 1998

/s/ Ronald A. Nyberg
-------------------------------
Ronald A. Nyberg, Secretary

<PAGE> 1

EXHIBIT (p)

POWER OF ATTORNEY

The undersigned, being officers and trustees of each of the Van Kampen
American Capital 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 American Capital Pennsylvania Tax Free
Income Fund being a Pennsylvania business trust, and being officers and
directors of the Morgan Stanley Fund, Inc. (the "Corporation"), a Maryland
corporation, do hereby, in the capacities shown below, individually appoint
Dennis J. McDonnell and Ronald A. Nyberg, each of Oakbrook Terrace, Illinois,
and each of them, as the agents and attorneys-in-fact with full power of
substitution and resubstitution, for each of the undersigned, to execute and
deliver, for and on behalf of the undersigned, any and all amendments to the
Registration Statement filed by each Trust 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: April 24, 1998

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS J. MCDONNELL President and Trustee/Director
----------------------------------
Dennis J. McDonnell

/s/ EDWARD C. WOOD III Vice President and Chief Financial Officer
----------------------------------
Edward C. Wood III

/s/ J. MILES BRANAGAN Trustee/Director
----------------------------------
J. Miles Branagan

/s/ RICHARD M. DEMARTINI Trustee/Director
----------------------------------
Richard M. DeMartini

/s/ LINDA HUTTON HEAGY Trustee/Director
----------------------------------
Linda Hutton Heagy

/s/ R. CRAIG KENNEDY Trustee/Director
----------------------------------
R. Craig Kennedy

/s/ JACK E. NELSON Trustee/Director
----------------------------------
Jack E. Nelson

/s/ DON G. POWELL Trustee/Director
----------------------------------
Don G. Powell

/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 and Chairman
----------------------------------
Wayne W. Whalen
</TABLE>
<PAGE> 2

SCHEDULE 1

VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMREGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND