<PAGE> 1
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VAN KAMPEN NEW YORK TAX FREE INCOME FUND
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Van Kampen New York Tax Free Income Fund (the "Fund") is a non-diversified
mutual fund, organized as a separate series of Van Kampen Tax Free Trust. 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. Under normal market conditions, the
Fund seeks to achieve its investment objective by investing at least 80% of its
assets in a portfolio of New York municipal securities rated investment grade at
the time of investment. Investment grade securities are securities rated BBB or
higher by Standard and Poor's Ratings Group ("S&P"), Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or an equivalent rating by another
nationally recognized statistical ratings organization ("NRSRO"). 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, B3 by Moody's or an
equivalent rating by another NRSRO) and unrated New York municipal securities
believed by the Fund's investment adviser to be of comparable quality, which
involve special risk considerations. Municipal securities in which the Fund may
invest include conventional fixed-rate municipal securities, variable rate
municipal securities and other types of municipal securities described herein.
See "Municipal Securities." There is no assurance that the Fund will achieve its
investment objective.
The investment adviser for the Fund is Van Kampen Investment Advisory Corp.
(the "Adviser"). This Prospectus sets forth the information about the Fund that
a prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number is
(800) 421-5666.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated April 30, 1998 as supplemented
on July 14, 1998, containing additional information about the Fund has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety into this Prospectus. A copy of the Fund's Statement
of Additional Information may be obtained without charge by calling (800)
421-5666 or for Telecommunications Device for the Deaf at (800) 421-2833. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission ("SEC") and is available along with other related Fund
materials at the SEC's internet web site (http://www.sec.gov).
VAN KAMPEN FUNDS LOGO
THIS PROSPECTUS IS DATED APRIL 30, 1998, AS SUPPLEMENTED
ON JULY 14, 1998 AND OCTOBER 27, 1998.
<PAGE> 2
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 4
Annual Fund Operating Expenses and Example.................. 5
Financial Highlights........................................ 6
The Fund.................................................... 8
Investment Objective and Policies........................... 8
Municipal Securities........................................ 10
Investment Practices........................................ 12
Special Considerations Regarding the Fund................... 14
Investment Advisory Services................................ 15
Alternative Sales Arrangements.............................. 16
Purchase of Shares.......................................... 17
Shareholder Services........................................ 24
Redemption of Shares........................................ 26
Distribution and Service Plans.............................. 28
Distributions from the Fund................................. 29
Tax Status.................................................. 30
Description of Shares of the Fund........................... 33
Additional Information...................................... 34
</TABLE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
2
<PAGE> 3
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PROSPECTUS SUMMARY
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THE FUND. Van Kampen New York Tax Free Income Fund (the "Fund") is a
non-diversified mutual fund organized as a separate series of Van Kampen Tax
Free Trust (the "Trust").
INVESTMENT OBJECTIVE. 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.
INVESTMENT POLICIES. The Fund is designed for investors who are residents of
New York for tax purposes. Under normal market conditions, the Fund seeks to
achieve its investment objective by investing at least 80% of its assets in a
portfolio of New York municipal securities rated investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard and Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO"). 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, B3 by Moody's or an equivalent rating
by another NRSRO) and unrated New York municipal securities that the Fund's
investment adviser believes are of comparable quality, which involve special
risk considerations. Up to 20% of the Fund's assets may be invested in municipal
securities that are subject to federal alternative minimum tax. See "Investment
Objective and Policies," "Municipal Securities" and "Special Considerations
Regarding the Fund."
INVESTMENT RESULTS. The investment results of the Fund are shown in table of
"Financial Highlights."
PURCHASE OF SHARES. Shares of the Fund are offered through Van Kampen Funds
Inc. (the "Distributor"), as principal underwriter, and through selected brokers
and dealers. The offering price is the net asset value per share next determined
following receipt of an investor's order to purchase plus a sales charge which,
at the option of the investor, may be imposed at the time of purchase or on a
contingent deferred basis. Investors may elect to purchase Class A Shares, Class
B Shares or Class C Shares, each with different sales charges and expenses. The
minimum initial investment is $500 for each class of shares and the minimum for
each subsequent investment is $25 for each class of shares (or less as described
under "Purchase of Shares"). The different classes of shares permit an investor
to choose the method of purchasing shares that is more beneficial to the
investor, taking into account the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances. See "Purchase of
Shares."
INVESTMENT ADVISER. Van Kampen Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser.
SPECIAL RISK FACTORS. Up to 20% of the Fund's assets may consist of New York
securities rated below investment grade (but not rated lower than B- by S&P, B3
by Moody's or an equivalent rating by another NRSRO) and unrated New York
municipal securities considered by the Adviser to be of comparable quality. In
addition, the Fund may invest up to 20% of its assets in certain derivative
securities such as inverse floaters. Investment in such lower grade New York
municipal securities and derivative securities involves significant risks.
Furthermore, under normal market conditions, the Fund will invest substantially
all of its assets in New York municipal securities, and therefore it will be
more susceptible to factors adversely affecting issuers of New York municipal
securities than a municipal securities fund that does not invest in New York
municipal securities to this degree. There can be no assurance that the Fund
will achieve its objective. See "Special Considerations Regarding the Fund."
The foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.
3
<PAGE> 4
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SHAREHOLDER TRANSACTION EXPENSES
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage
of the offering price).................................... 4.75%(1) None None
Maximum sales charge imposed on reinvested dividends (as a
percentage of the offering price)......................... None None(3) None(3)
Deferred sales charge (as a percentage of the lesser of the
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
Redemption fees (as a percentage of amount redeemed)........ None None None
Exchange fees............................................... None None None
</TABLE>
- --------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchases of Shares -- Deferred Sales
Charge Alternative -- Class A Share Purchases of $1 Million or More".
(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred by the Distributor on behalf of the investor. See "Distribution and
Service Plans."
4
<PAGE> 5
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ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average daily net
assets)(1)................................................ 0.00% 0.00% 0.00%
12b-1 Fees (as a percentage of average daily net
assets)(1)(2)............................................. 0.25% 1.00%(3) 1.00%(3)
Other Expenses (as a percentage of average daily net
assets)(1)................................................ 0.39% 0.36% 0.41%
Total Expenses (as a percentage of average daily net
assets)(1)................................................ 0.64% 1.36% 1.41%
</TABLE>
- --------------------------------------------------------------------------------
(1) Expenses include reimbursement of $139,021 of "Management Fees" and
assumption of $52,808 of "Other Expenses" by the Adviser. If the Adviser did
not reimburse fees for the fiscal year ending December 31, 1997, the
"Management Fees" would have been 0.60% for each class of shares "Other
Expenses" would have been 0.62% for Class A Shares, 0.58% for Class B Shares
and 0.63% for Class C Shares and "Total Expenses" would have been 1.47% for
Class A Shares, 2.18% for Class B Shares and 2.23% for Class C Shares.
(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund as compensation for ongoing services rendered to investors.
With respect to each class of shares, amounts in excess of 0.25%, if any,
represent an asset based sales charge. The asset based sales charge with
respect to Class C Shares includes 0.75% (as a percentage of net asset
value) paid to investors' broker-dealers as sales compensation.
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (i) an operating expense ratio of 0.64% for Class
A Shares, 1.36% for Class B Shares and 1.41% for Class C
Shares, (ii) 5% annual return and (iii) redemption at the
end of each time period:
Class A Shares............................................ $54 $67 $81 $124
Class B Shares............................................ $54 $78 $89 $144*
Class C Shares............................................ $24 $45 $77 $169
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of each
period:
Class A Shares............................................ $54 $67 $81 $124
Class B Shares............................................ $14 $43 $74 $144*
Class C Shares............................................ $14 $45 $77 $169
</TABLE>
- --------------------------------------------------------------------------------
* Based on conversion to Class A Shares after eight years.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. As Fund assets
increase, the fees waived or expenses reimbursed by the Adviser are expected to
decrease. To facilitate such comparison, all funds are required by the SEC to
utilize a 5.00% annual return assumption. Class B Shares acquired through the
exchange privilege are subject to the contingent deferred sales charge schedule
relating to the Class B Shares of the Fund from which the purchase of Class B
Shares was originally made. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the "Annual Fund
Operating Expense" table. The ten year amount with respect to Class B Shares of
the Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A Shares. 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 INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of
such costs and expenses, see "Purchase of Shares," "Redemption of Shares,"
"Investment Advisory Services" and "Distribution and Service Plans."
5
<PAGE> 6
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FINANCIAL HIGHLIGHTS (for a share outstanding throughout the periods)
- --------------------------------------------------------------------------------
The following schedule presents financial highlights for one Class A Share,
one Class B Share and one Class C Share of the Fund outstanding throughout each
of the periods indicated. The financial highlights have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, for each of the
periods indicated and their report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------------------------------------
JULY 29, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $14.992 $15.048 $13.579 $14.300
------- ------- ------- -------
Net Investment Income...................................... .786 .816 .821 .302
Net Realized and Unrealized Gain/Loss...................... .795 (.074) 1.476 (.722)
------- ------- ------- -------
Total from Investment Operations............................ 1.581 .742 2.297 (.420)
Less:
Distributions from and in Excess of Net Investment
Income................................................... .798 .798 .828 .301
Distributions from Net Realized Gain....................... .041 -0- -0- -0-
------- ------- ------- -------
Total Distributions......................................... .839 .798 .828 .301
------- ------- ------- -------
Net Asset Value, End of Period.............................. $15.734 $14.992 $15.048 $13.579
======= ======= ======= =======
Total Return(a)(b).......................................... 10.92% 5.14% 17.33% (2.93%)(c)
Net Assets at End of Period (in millions)................... $ 18.0 $ 7.7 $ 5.4 $ 2.9
Ratio of Expenses to Average Net Assets(a).................. .64% .31% .21% .26%
Ratio of Net Investment Income to Average Net Assets(a)..... 5.16% 5.56% 5.63% 5.27%
Portfolio Turnover.......................................... 60% 126% 51% 68%(c)
- -------------------
(a) If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets..................... 1.47% 1.82% 2.10% 2.73%
Ratio of Net Investment Income to Average Net Assets........ 4.33% 4.04% 3.74% 2.81%
</TABLE>
(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Non-Annualized
6
<PAGE> 7
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED (for a share outstanding throughout the
periods)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
----------------------------------------------------------- ---------------------------
JULY 29, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1997 1996
------------ ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $14.992 $15.046 $13.578 $14.300 $14.992 $15.041
------- ------- ------- ------- ------- -------
Net Investment Income............. .684 .704 .713 .263 .676 .701
Net Realized and Unrealized
Gain/Loss....................... .782 (.068) 1.476 (.722) .789 (.060)
------- ------- ------- ------- ------- -------
Total from Investment Operations... 1.466 .636 2.189 (.459) 1.465 .641
Less:
Distributions from and in Excess
of Net Investment Income........ .690 .690 .721 .263 .690 .690
Distributions from Net Realized
Gain............................ .041 -0- -0- -0- .041 -0-
------- ------- ------- ------- ------- -------
Total Distributions................ .731 .690 .721 .263 .731 .690
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period..... $15.727 $14.992 $15.046 $13.578 $15.726 $14.992
======= ======= ======= ======= ======= =======
Total Return(a)(b)................. 10.07% 4.37% 16.47% (3.20%)(c) 10.07% 4.44%
Net Assets at End of Period (in
millions)......................... $ 13.1 $ 10.1 $ 9.7 $ 8.1 $ 1.0 $ .4
Ratio of Expenses to Average Net
Assets(a)......................... 1.36% 1.07% .93% .96% 1.41% 1.08%
Ratio of Net Investment Income to
Average Net Assets(a)............. 4.49% 4.79% 4.93% 4.58% 4.37% 4.78%
Portfolio Turnover................. 60% 126% 51% 68%(c) 60% 126%
- -------------------
(a) If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets............................ 2.18% 2.60% 2.82% 3.42% 2.23% 2.61%
Ratio of Net Investment Income to
Average Net Assets................ 3.67% 3.26% 3.04% 2.12% 3.55% 3.25%
<CAPTION>
CLASS C SHARES
-----------------------------
JULY 29, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
Net Asset Value, Beginning of
Period............................ $13.579 $14.300
------- -------
Net Investment Income............. .711 .267
Net Realized and Unrealized
Gain/Loss....................... 1.472 (.725)
------- -------
Total from Investment Operations... 2.183 (.458)
Less:
Distributions from and in Excess
of Net Investment Income........ .721 .263
Distributions from Net Realized
Gain............................ -0- -0-
------- -------
Total Distributions................ .721 .263
------- -------
Net Asset Value, End of Period..... $15.041 $13.579
======= =======
Total Return(a)(b)................. 16.39% (3.20%)(c)
Net Assets at End of Period (in
millions)......................... $ .4 $ .2
Ratio of Expenses to Average Net
Assets(a)......................... .98% .96%
Ratio of Net Investment Income to
Average Net Assets(a)............. 4.81% 4.58%
Portfolio Turnover................. 51% 68%(c)
- -------------------
(a) If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets............................ 2.86% 3.42%
Ratio of Net Investment Income to
Average Net Assets................ 2.93% 2.12%
</TABLE>
(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Non-Annualized
7
<PAGE> 8
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THE FUND
- --------------------------------------------------------------------------------
Van Kampen New York Tax Free Income Fund (the "Fund") is a non-diversified,
separate series of Van Kampen Tax Free Trust (the "Trust"), an open-end
management investment company, commonly known as a "mutual fund." Mutual funds
sell their shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows investors to pool their money with that of
other investors in order to obtain professional investment management. Mutual
funds generally make it possible for investors to obtain greater diversification
of their investments and to simplify their recordkeeping.
Van Kampen Investment Advisory Corp. (the "Adviser") provides investment
advisory and administrative services to the Fund. The Adviser or its affiliates
also act as investment advisers to other mutual funds distributed by Van Kampen
Funds Inc. (the "Distributor"). To obtain prospectuses and other information on
any of these other funds, please call the telephone number on the cover page of
the Prospectus.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund 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'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"). The
Fund is designed for investors who are residents of New York for tax purposes.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision with respect to the Fund. An investment in the Fund is intended to be a
long-term investment and should not be used as a trading vehicle.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in New York municipal securities rated investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard and Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or have an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO") in the case of long-term
obligations, and have equivalent ratings in the case of short-term obligations.
According to published guidelines, securities rated BBB by S&P are regarded by
S&P as having an adequate capacity to pay interest and repay principal. Whereas
such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely, in the opinion of
S&P, to lead to a weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories. According to published
guidelines, securities rated Baa by Moody's are considered by Moody's as medium
grade obligations. Such securities are, in the opinion of Moody's, neither
highly protected nor poorly secured. Interest payments and principal security
appear to Moody's to be adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great length of
time. In the opinion of Moody's they lack outstanding investment characteristics
and in fact have speculative characteristics as well. The Fund's policy with
respect to ratings is not a fundamental policy, and thus may be changed by the
Trustees without shareholder approval.
Up to 20% of the Fund's total assets may be invested in New York municipal
securities rated below investment grade (but not rated lower than B- by S&P, B3
by Moody's or an equivalent rating by another NRSRO) and unrated New York
municipal securities that the Adviser considers to be of comparable quality to
such securities. According to published guidelines, securities rated below
investment grade are regarded by S&P, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While in the opinion of S&P such securities will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. According to
published guidelines, securities rated below investment grade are regarded by
Moody's as generally lacking characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the securities' contract over any long period of time may, in the opinion of
Moody's, be small. Debt securities rated below investment grade are commonly
referred to as "junk bonds." For a description of S&P's and Moody's ratings see
the Statement of Additional Information. From time to time
8
<PAGE> 9
the Fund temporarily may also invest up to 10% of its assets in tax exempt money
market funds. Such instruments will be treated as investments in municipal
securities.
The 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 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 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 considers it advantageous to purchase or sell securities. The Fund
anticipates that its annual portfolio turnover rate normally will be less than
200%. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses or dealer costs than a lower rate, which expenses
and costs must be borne by the Fund and its shareholders. High portfolio
turnover may also result in the realization of substantial net short-term
capital gains and any distributions resulting from such gains will be taxable.
See "Tax Status" in this Prospectus and "Investment Policies and Restrictions"
in the Statement of Additional Information.
At times, conditions in the markets for New York municipal securities may, in
the Adviser's judgment, make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Adviser may use alternative strategies primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund may invest to a substantial degree in high-quality, short-term New York
municipal obligations. If these high-quality, short-term New York municipal
obligations are not available or, in the 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 municipal securities are
not available or, in the Adviser's judgment, do not afford sufficient protection
against adverse market conditions, the Fund may invest in taxable obligations.
Such taxable obligations may include: obligations of the U.S. Government, its
agencies or instrumentalities; other debt securities rated within the four
highest categories by either S&P or Moody's (or comparably rated by another
NRSRO); commercial paper rated in the highest grade by either rating service (or
comparably rated by another NRSRO); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Adviser considers
consistent with such strategy. To the extent that the Fund invests a substantial
portion of its assets in municipal securities other than New York municipal
securities or in taxable securities for temporary defensive purposes, the Fund
will not be invested in a manner primarily designed to achieve a high level of
current income exempt from federal, New York State and New York City income
taxes.
The following table sets forth the percentages of the Fund's assets invested
during the fiscal year ended December 31, 1997 in the various Moody's and S&P
rating categories and in unrated securities determined by the Adviser to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all Municipal Securities held by the Fund during the fiscal
year ended December 31, 1997, computed on a monthly basis.
9
<PAGE> 10
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------------------------------
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING AS A PERCENTAGE OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE
-------- ------------------ ---------------------
<S> <C> <C>
AAA/Aaa..................................................... 35.0% 0.0%
AA/Aa....................................................... 8.0% 0.0%
A/A......................................................... 8.1% 0.0%
BBB/Baa..................................................... 36.3% 3.9%
BB/Ba....................................................... 0.0% 8.4%
B/B......................................................... 0.0% 0.3%
CCC/Caa..................................................... 0.0% 0.0%
CC/Ca....................................................... 0.0% 0.0%
C/C......................................................... 0.0% 0.0%
D........................................................... 0.0% 0.0%
----- -----
Percentage of Rated and Unrated Securities.................. 87.4% 12.6%
===== =====
</TABLE>
Securities rated D are in default, and payment of interest or repayment of
principal is in arrears. Securities that are in default or with respect to which
payment of interest or repayment of principal is in arrears present special risk
considerations. The Fund may incur additional expenses to the extent that it is
required to seek recovery of interest or principal, and the Fund may be unable
to obtain full recovery thereof. See "Municipal Securities--Special
Considerations Regarding Medium and Lower Grade Municipal Securities."
The percentage of the Fund's assets invested in securities of various grades
may from time to time vary from those set forth above.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's 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 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 assurance that these
steps will be sufficient to avoid any adverse impact to the Fund. In addition,
the Year 2000 Problem may adversely affect the issuers of securities in which
the Fund may invest which, in turn, may adversely affect the net asset value of
the Fund.
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- --------------------------------------------------------------------------------
GENERAL. 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 issuer
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 assets will be invested in New York municipal securities. The policy
stated in the foregoing sentence is a fundamental policy of the Fund and cannot
be changed without approval of the shareholders of the Fund. Up to 20% of the
Fund's assets may be invested in municipal securities that are subject to the
federal alternative minimum tax.
The two principal classifications of municipal securities are "general
obligation" and "revenue" 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.
10
<PAGE> 11
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 the terms of which include
elements of, or are similar in effect to, certain Strategic Transactions (as
defined below) in which the Fund may engage. Variable rate securities bear rates
of interest that are adjusted periodically according to formulae intended to
reflect market rates of interest. The Fund may also invest in derivative
variable rate securities such as inverse floaters whose rates vary inversely
with changes in market rates of interest. When market rates of interest
decrease, the change in value of such securities will have a positive effect on
the net asset value of the Fund and when market rates of interest increase, the
change in value of such securities will have a negative effect on the net asset
value of the Fund. The extent of increases and decreases in the value of inverse
floaters 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 Fund will not invest more than
20% of its total assets in securities whose rates vary inversely with changes in
market rates of interest.
Municipal notes include tax, revenue and bond anticipation notes of short
maturity, generally less than three years, which are issued to obtain temporary
funds for various public purposes. 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. 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.
Although at least 80% of the municipal securities in which the Fund may invest
will be rated investment grade at the time of investment, 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 securities experiencing non-payment and a potential decrease in the
net asset value of the Fund.
Up to 20% of the Fund's assets may be invested in municipal securities that
are subject to the 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, income earned
or deemed to be earned with respect to the Fund's Strategic Transactions, if
any, will be taxable. See "Tax Status."
11
<PAGE> 12
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If any such proposal were to be enacted, the ability of
the Fund to pay "exempt-interest" dividends might be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.
LOWER GRADE MUNICIPAL SECURITIES. The Fund may invest up to 20% of its total
assets in New York municipal securities rated below investment grade (but not
rated lower than B- by S&P or B3 by Moody's or an equivalent rating by another
NRSRO) or in unrated New York municipal securities considered by the Adviser to
be of comparable quality to such securities. Higher yields are generally
available from municipal securities of such grade. With respect to such 20% of
the Fund's total assets, the Fund has not established any limit on the
percentage of its portfolio which may be invested in securities in any one
rating category or comparable unrated securities.
Investors should carefully consider the risks of owning shares of an
investment company which invests in lower grade municipal securities before
making an investment in the Fund. The higher yield on certain securities held by
the Fund reflects a greater possibility 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. See "Special
Considerations Regarding the Fund."
The Adviser seeks to minimize the risks involved in investing in lower grade
municipal securities through diversification and careful investment analysis. 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. The Adviser is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Trustees of the Trust. 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 Adviser to value the
Fund's securities becomes more difficult and the Adviser's use of judgment 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.
See "Special Considerations Regarding the Fund."
- --------------------------------------------------------------------------------
INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
In connection with the investment policies described above, the Fund also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Strategic
transactions generally will not be treated as investments in New York municipal
securities for purposes of the Fund's 80% investment policy with respect
thereto.
STRATEGIC TRANSACTIONS. 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, 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 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
12
<PAGE> 13
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
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 and temporary defensive strategies, if any, generally will be
taxable income of the Fund. See "Tax Status."
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
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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale.
OTHER PRACTICES. 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.
Under normal market conditions, the Fund will invest substantially all of its
assets in New York municipal securities. 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 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 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
13
<PAGE> 14
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.
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
Adviser, holds a major portion or all of an issue of New York 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 Adviser believes it is advisable to do so.
INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. See "Investment
Policies and Restrictions" in the Statement of Additional Information.
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. The income securities in which the Fund invests are
traded principally in the over-the-counter market. In the over-the-counter
market, securities generally are traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a mark-up to the dealer. Securities purchased
in underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.
The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, 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 is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.
In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser
and the Distributor or dealers participating in the offering of the Fund's
shares. In addition, in selecting among firms to handle a particular
transaction, the Adviser and the Fund may take into account whether the firm has
sold or is selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.
- --------------------------------------------------------------------------------
SPECIAL CONSIDERATIONS REGARDING THE FUND
- --------------------------------------------------------------------------------
GENERAL. In normal circumstances, the Fund may invest up to 20% of its total
assets in New York municipal securities rated below investment grade (but not
rated lower than B- by S&P, B3 by Moody's or an equivalent rating by another
NRSRO) or in unrated New York municipal securities considered by the Adviser to
be of comparable quality to such securities. Investment in such lower grade
municipal securities involves special risks as compared with investment in
higher grade municipal securities. The market for lower grade municipal
securities is considered to be less liquid than the market for investment grade
municipal securities which may adversely affect the ability of the Fund to
dispose of such securities in a timely manner at a price which reflects the
value of such security in the Adviser's judgement. The market price for less
liquid securities tends to be more volatile than the market price for more
liquid securities. Illiquid securities and the absence of readily available
market quotations with respect thereto may make the Adviser's valuation of such
securities more difficult, and the Adviser's judgement may play a greater role
in the valuation of the Fund's securities. Lower grade municipal securities
generally involve greater credit risk than higher grade municipal securities and
are more
14
<PAGE> 15
sensitive to adverse economic changes, significant increases in interest rates
and individual issuer developments. Because issuers of lower grade municipal
securities frequently choose not to seek a rating of their municipal securities,
the Fund will rely more heavily on the Adviser's ability to determine the
relative investment quality of such securities than if the Fund invested
exclusively in higher grade municipal securities. The Fund may, if deemed
appropriate by the Adviser, retain a security whose rating has been downgraded
below B- by S&P, below B3 by Moody's or an equivalent rating by another NRSRO,
or whose rating has been withdrawn. More detailed information concerning the
risks associated with instruments in lower grade municipal securities is
included in the Fund's Statement of Additional Information.
The Fund may invest up to 20% of its total assets in derivative variable rate
securities such as inverse floaters whose rates of interest vary inversely with
changes in market rates of interest. When market rates of interest decrease, the
change in value of such securities will have a positive effect on the net asset
value of the Fund and when market rates of interest increase, the change in
value of such securities will have a negative effect on the net asset value of
the Fund. 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 inverse floaters and the corresponding change to per share 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 inverse
variable rate securities may be less developed than the market for conventional
fixed rate municipal securities.
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
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.
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
THE ADVISER. Van Kampen Investment Advisory Corp. (the "Adviser") is the
investment adviser for the Fund. The Adviser is a wholly owned subsidiary of Van
Kampen Investments Inc. ("Van Kampen"). Van Kampen is a diversified asset
management company with more than two million retail investor accounts,
extensive capabilities for managing institutional portfolios, and more than $65
billion under management or supervision. Van Kampen's more than 50 open-end and
39 closed-end funds and more than 2,500 unit investment trusts are
professionally distributed by leading financial advisers nationwide. Van Kampen
Funds Inc. (the "Distributor"), the distributor of the Fund and sponsor of the
funds mentioned above, is a wholly owned subsidiary of Van Kampen. Van Kampen is
an indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
15
<PAGE> 16
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,
financial and investing; and securities lending.
ADVISORY AGREEMENT. The business and affairs of the Fund are managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
separate series. Subject to their authority, the Adviser and the respective
officers of the Fund supervise and implement the Fund's investment activities
and are responsible for the overall management of the Fund's business affairs.
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.......................................... 0.600 of 1.00%
Over $500 million........................................... 0.500 of 1.00%
</TABLE>
Under its investment advisory agreement with the Adviser, the Fund has agreed
to assume and pay the charges and expenses of the Fund's operation, including
the compensation of the Trustees of the Trust (other than those who are
affiliated persons, as defined in the 1940 Act, of the Adviser, the Distributor,
Van Kampen Investor Services Inc. ("Investor Services"), Van Kampen or Morgan
Stanley Dean Witter & Co.), the charges and expenses of independent accountants,
legal counsel, transfer agent, or dividend disbursing agent and the custodian
(including fees for safekeeping of securities), costs of calculating net asset
value, costs of acquiring and disposing of portfolio securities, interest (if
any) on obligations incurred by the Fund, costs of share certificates,
membership dues in the Investment Company Institute or any similar organization,
reports and notices to shareholders, costs of registering shares of the Fund
under the federal securities laws, miscellaneous expenses and all taxes and fees
to federal, state or other governmental agencies. The Adviser reserves the right
in its sole discretion from time-to-time to waive all or a portion of its
management fee or to reimburse the Fund for all or a portion of its other
expenses.
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 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 preclearance 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 area 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.
- --------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- --------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and accumulated
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.
The Fund offers three classes of shares, designated Class A Shares, Class B
Shares and Class C Shares. Shares of each class are offered at a price equal to
their net asset value per share plus a sales charge which, at the election of
the purchaser, may be imposed (a) at the time of purchase ("Class A Shares") or
(b) on a contingent deferred basis
16
<PAGE> 17
(Class A Share accounts over $1 million, "Class B Shares" and "Class C Shares").
Class A Share accounts over $1 million or otherwise subject to a CDSC, Class B
Shares and Class C Shares sometimes are referred to herein collectively as
"Contingent Deferred Sales Charge Shares" or "CDSC Shares."
The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
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 or Class C Shares. 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.
An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
accounts under $1 million, a purchaser of such Class A Shares would not have all
of his or her funds invested initially and, therefore, would initially own fewer
shares than if Class B Shares or Class C Shares had been purchased. On the other
hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC may wish to defer the sales charge and have
all his or her funds initially invested in Class B Shares or Class C Shares. If
such an investor anticipates that he or she will redeem such shares prior to the
expiration of the CDSC period applicable to Class B Shares, the investor may
wish to acquire Class C Shares. Investors must weigh the benefits of deferring
the sales charge and having all of their funds invested against the higher
aggregate distribution and service fee applicable to Class B Shares and Class C
Shares (discussed below).
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to such class and
(iii) has a different exchange privilege. Generally, a class of shares subject
to a higher ongoing distribution and service fee or subject to the conversion
feature will have a higher expense ratio and pay lower dividends than a class of
shares subject to a lower ongoing distribution and service fee or not subject to
the conversion feature. The per share net asset values of the different classes
of shares are expected to be substantially the same; from time to time, however,
the per share net asset values of the classes may differ. The net asset value
per share of each class of shares of the Fund will be determined as described in
this Prospectus under "Purchase of Shares -- Net Asset Value."
The administrative expenses that may be allocated to a specific class of
shares may consist of (i) Investor Services' expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) Securities and Exchange Commission (the "SEC") registration fees incurred
by a class of shares; (iv) the expense of administrative personnel and services
as required to support the shareholders of a specific class; (v) Trustees' fees
or expense incurred as a result of issues relating to one class of shares; (vi)
accounting expenses relating solely to one class of shares; and (vii) any other
incremental expenses subsequently identified that should be properly allocated
to one or more classes of shares. All such expenses incurred by a class will be
borne on a pro rata basis by the outstanding shares of such class. All
allocations of administrative expenses to a particular class of shares will be
limited to the extent necessary to preserve the Fund's qualification as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The Fund offers three classes of shares to the public on a continuous basis
through the Distributor, as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares also are offered
through
17
<PAGE> 18
members of the National Association of Securities Dealers, Inc. ("NASD") acting
as securities dealers ("dealers") and through NASD members acting as brokers for
investors ("brokers") or eligible non-NASD members acting as agents for
investors ("financial intermediaries"). The Fund reserves the right to suspend
or terminate the continuous public offering of its shares at any time and
without prior notice.
The Fund's shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or directly with the Distributor plus
any applicable sales charge. Sales personnel or brokers, dealers and financial
intermediaries distributing the Fund's shares may receive different compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Fund generally will determine net asset value once each
business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.
The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary 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
broker, dealer or financial intermediary at the public offering price during
such programs. Also, the Distributor in its discretion may from time to time,
pursuant to objective criteria established by it, pay fees to, and sponsor
business seminars for, qualifying brokers, dealers or financial intermediaries
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. Such payments to
brokers, dealers and financial intermediaries for sales contests, other sales
programs and seminars are made by the Distributor out of its own assets and not
out of the assets of the Fund. 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 pays for shares or the amount that the Fund will
receive from such sale.
CLASS A SHARES
The public offering price of Class A Shares is the net asset value plus a
sales charge. The table below shows total sales charges and dealer concessions
reallowed to dealers and agency commissions paid to brokers with respect to
sales of Class A Shares. The sales charge is allocated between the investor's
broker, dealer or financial intermediary and the Distributor. As indicated
previously, at the discretion of the Distributor, the entire sales charge may be
reallowed to such broker, dealer or financial intermediary. The staff of the SEC
has taken the position that dealers who receive 90% or more of the sales charge
may be deemed to be underwriters for purposes of the Securities Act of 1933, as
amended.
18
<PAGE> 19
SALES CHARGE TABLE
<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
--------------------------------- --------------
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............................. 3.75 3.90 3.25
$250,000 but less than $500,000............................. 2.75 2.83 2.25
$500,000 but less than $1,000,000........................... 2.00 2.04 1.75
$1,000,000 or more*......................................... * * *
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission will
be paid to brokers, dealers or financial intermediaries who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million and 0.50% on the excess
over $3 million. See "Purchase of Shares--Deferred Sales Charge
Alternatives" for additional information with respect to CDSCs.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors, or their brokers, dealers or financial intermediaries, 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 broker, dealer or financial intermediary 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 is section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by the Adviser or Van Kampen Asset Management Inc. ("Asset
Management") and distributed by the Distributor as determined from time to time
by the Fund's Board of Trustees.
VOLUME DISCOUNTS. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person at any one
time in Class A Shares of the Fund, or in any combination of shares of the Fund
and shares of other Participating Funds, although other Participating Funds may
have different sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in Class A Shares of the Fund with other shares of the Fund and shares of
Participating Funds, plus the current offering price of all shares of the Fund
and other 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 amount being invested over a
13-month period to determine the sales charge as outlined in the preceding sales
charge table. The size of investment shown in the preceding sales charge table
includes the amount of intended purchases of Class A Shares of the Fund with
other shares of the Fund and shares of the Participating Funds plus the value of
all shares of the Fund and other Participating Funds previously purchased during
such 13-month period and still owned. An investor may elect to compute the
13-month period starting up to 90 days before the date of execution of a Letter
of Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provision, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the
19
<PAGE> 20
lower charge. If the goal is not achieved within the 13-month period, the
investor must pay the difference between the sales charge applicable to the
purchases made and the sales charges previously paid. When an investor signs a
Letter of Intent, shares equal to at least 5% of the total purchase amount of
the level selected will be restricted from sale or redemption by the investor
until the Letter of Intent is satisfied or any additional sales charges have
been paid; if the Letter of Intent is not satisfied by the investor and any
additional sales charges are not paid, sufficient restricted shares will be
redeemed by the Fund to pay such charges. Additional information is contained in
the application accompanying this Prospectus.
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 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 broker, dealer or
financial intermediary, 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 broker, dealer, financial intermediary 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 the Adviser
or Asset Management and such persons' families and their beneficial
accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and children under 21 years of age when purchasing for any
accounts they beneficially own, or, in the case of any such financial
institution, when purchasing for retirement plans for such institution's
employees: provided that such purchases are otherwise permitted by such
institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay Participating 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
20
<PAGE> 21
are subject to certain minimum size and operational requirements. Trustees
and other fiduciaries should refer to the Statement of Additional
Information for further detail with respect to such alliance programs.
(6) Beneficial owners of shares of a Participating Fund 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 broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary 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 served 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. A commission will be paid on the foregoing purchases as follows:
1.00% on sales to $2 million, plus 0.80% on the next $1 million, plus
0.50% on the next $47 million and 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 economics 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 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 brokers, dealers or financial intermediaries as described above or
directly with Investor Services, 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 broker, dealer or financial intermediary 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 brokers, dealers or financial intermediaries will be paid a service
fee as described herein under "Distribution and Service Plans" 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.
DEFERRED SALES CHARGE ALTERNATIVES
Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales
21
<PAGE> 22
charge so that the Fund may invest the full amount of the investor's purchase
payment. The Distributor will compensate brokers, dealers and financial
intermediaries participating in the continuous public offering of the CDSC
Shares out of its own assets, and not out of assets of the Fund, at a percentage
rate of the dollar value of the CDSC Shares purchased from the Fund by such
brokers, dealers and other financial intermediaries, which percentage rate will
be equal to (i) with respect to Class A Shares, 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million; (ii)
4.00% with respect to Class B Shares; and (iii) 1.00% with respect to Class C
Shares. Such compensation will not change the price an investor will pay for
CDSC Shares or the amount that the Fund will receive from such sale.
CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchases of CDSC Shares, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.
Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents and for selling such
shares. The combination of the CDSC and the distribution fee facilitates the
ability of the Fund to sell such CDSC Shares without a sales charge being
deducted at the time of purchase.
In determining whether a CDSC is applicable to a redemption of CDSC Shares, it
will be assumed that the redemption is made first of any CDSC Shares acquired
pursuant to reinvestment of dividends or distributions, second of CDSC Shares
that have been held for a sufficient period of time such that the CDSC no longer
is applicable to such shares, third of Class A Shares in the shareholder's Fund
account that have converted from Class B Shares or Class C Shares, if any, and
fourth of CDSC Shares held longest during the period of time that a CDSC is
applicable to such CDSC Shares. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
To provide an example, assume an investor purchased 100 Class B Shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional Class B Shares upon dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to charge because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 3.75% (the
applicable rate in the second year after purchase).
CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments in Class A Shares of $1 million or more,
although for such investments the Fund imposes a CDSC of 1.00% on redemptions
made within one year of the purchase. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
1.00% on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million.
CLASS B SHARES. Class B Shares redeemed within seven years of purchase
generally will be subject to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto:
22
<PAGE> 23
<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....................................... 0.00%
</TABLE>
The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services--Systematic Withdrawal
Plan."
CLASS C SHARES. Class C Shares redeemed within the first 12 months of purchase
generally will be subject to a CDSC of 1.00% of the dollar amount subject
thereto. Class C Shares redeemed thereafter will not be subject to a CDSC.
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 acquired through the
exchange privilege is determined by reference to the Participating Fund from
which such share originally was purchased. The conversion of such shares to
Class A Shares is subject to the continuing availability of an opinion of
counsel to the effect that (i) the assessment of the higher distribution fee and
transfer agency costs with respect to such shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) that the
conversion of such shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares: (i) following the death or disability (as
defined in the Code) of a shareholder; (ii) in connection with required minimum
distributions from an IRA or another retirement plan; (iii) pursuant to the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account; (iv) in circumstances under which no commission a
transaction fee is paid to authorized dealers at the time of purchase of such
shares; and (v) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
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 8 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.
NET ASSET VALUE
The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares, and dividing the result by the number of
shares of such class outstanding. The net asset value for the Fund is computed
once daily as of 5:00 p.m. Eastern time Monday through Friday, except on
customary business holidays, or except on any day on which no purchase or
redemption orders are received, or there is not a sufficient degree of trading
in the Fund's portfolio securities such that the Fund's net asset value per
share might be materially affected. The Fund reserves the right to calculate the
net asset value and to adjust the public offering price based thereon more
frequently than once a day if deemed desirable. The net asset value per
23
<PAGE> 24
share of the different class of shares are expected to be substantially the
same; from time to time, however, the per share net asset value of the different
class of shares may differ.
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 Trust, of
which the Fund is a series. 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 Trust 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 Trust.
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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. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.
INVESTMENT ACCOUNT. Investor Services, transfer agent for the Fund and a
wholly owned subsidiary of Van Kampen, performs bookkeeping, data processing and
administration services related to the maintenance of shareholder accounts. Each
shareholder has an investment account under which the Investor's shares of the
Fund are held by Investor Services. Except as described in this Prospectus,
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 quarterly statements 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 brokers, dealers or
financial intermediaries or by mailing a check directly to Investor Services.
SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen Funds, c/o Van Kampen Investor Services Inc., P.O. Box
418256, Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to
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.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or 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 in 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. For further
information, see "Distributions from the Fund."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to debit a bank account on a regular
basis to invest predetermined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 341-2911 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder. If the qualified pre-existing account does not
exist, the shareholder must establish a new account subject to
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<PAGE> 25
minimum investment and other requirements of the fund into which distributions
would be invested. Distributions are invested into the selected fund at its net
asset value as of the payable date of the distribution only if shares of such
selected fund have been registered for sale in the investor's state.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based upon the next computed net asset value of
each fund after requesting the exchange without any sales charge, subject to
certain limitations. Shareholders seeking an exchange into a Participating Fund
should obtain and read a current prospectus for such Participating Fund.
SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE
FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name for at least 30 days prior to an exchange. Shares of the
Fund registered in a shareholder's name for less than 30 days may only be
exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A Shares of Van Kampen funds that generally impose an initial sales
charge are not subject to any sales charge upon exchange into the Fund. Class A
Shares of Van Kampen funds that generally do not impose an initial sales charge
are subject to the appropriate sales charge applicable to Class A Shares of the
Fund.
When Class B shares and Class C shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund (the
"Original Fund"). Upon redemption shares from the Participating Funds' complex
of funds, Class B shares and Class C shares are subject to the CDSC schedule
imposed by the Original Fund.
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) 341-2911 ((800) 421-2833 for the hearing impaired). A shareholder
automatically has telephone exchange privileges unless otherwise designated in
the application form accompanied by this Prospectus. Van Kampen and its
subsidiaries, including Investor Services (collectively, "VK"), 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, a shareholder agrees that neither VK nor the Fund will
be liable for following telephone instructions which it reasonably believes to
be genuine. VK and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. If the
exchanging shareholder does not have an account in the fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification options) and
broker, dealer or financial intermediary 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 an exchanging shareholder must file a
specific written request. The Fund reserves the right to reject any order to
acquire shares through exchange. In addition, the Fund may modify, restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
A prospectus of any of these mutual funds may be obtained from any broker,
dealer or financial intermediary or the Distributor. An investor considering an
exchange to one of such funds should refer to the prospectus for additional
information regarding such fund prior to investing.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
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<PAGE> 26
Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with the purchase of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. Any gain or loss realized by the shareholder upon the redemption of
shares is a taxable event.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint 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 such
shareholder. These checks may be made payable by the holder of Class A Shares 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 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 Class A 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 Share account, the check
will be returned and the shareholder may be subject to additional charges.
Holders of Class A Shares 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. See the Statement of Additional Information for
further information regarding the establishment of the privilege.
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.
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.van-
kampen.com for further instruction. VK 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 instruction and providing
written confirmation of instructions communicated through the internet. If
reasonable procedures are employed, neither VK 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.
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
26
<PAGE> 27
directly to Van Kampen Investor Services Inc., P. O. Box 418256, Kansas City,
Missouri 64141-9256, by placing the redemption request through an authorized
dealer or by calling the Fund.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to Investor Services, the redemption request should indicate the number of
shares to be redeemed, the class designation of such shares, the account number
and be signed exactly as the shares are registered. Signatures must conform
exactly to the account registration. If the proceeds of the redemption would
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. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown in the account registration, a copy of
the corporate resolution or other legal documentation appointing the authorized
signer and certified within the prior 120 days must accompany the redemption
request.
In the case of redemption requests sent directly to Investor Services, the
redemption price is the net asset value per share next determined after the
request is received. Payment for shares redeemed (less any sales charge, if
applicable) ordinarily will be made by check mailed within three business days
after acceptance by Investor Services of the request and any other necessary
documents in proper order. Such payments 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
mailing a redemption check until it confirms that the purchase check has
cleared, which may take up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a 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 dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to 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 accompanying this Prospectus or call the Fund at (800) 341-2911
((800) 421-2833 for the hearing impaired) 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. VK 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, a shareholder agrees that neither VK nor the Fund will
be liable for following instructions which it reasonably believes to be genuine.
VK and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach 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
procedures previously described. Requests received by Investor Services prior to
4:00 p.m., New York time, on a regular business day will be processed at the net
asset value per share determined that day. These privileges are available for
all accounts other than retirement accounts. The telephone redemption privilege
is not available for shares represented by certificates. If the shares to be
redeemed have been recently purchased by check, Investor Services may delay
mailing a redemption check or wiring redemption proceeds until it confirms that
the purchase check has cleared, usually a period of up to 15 days. If an account
has multiple owners, Investor Services may rely on the instructions of any one
owner.
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<PAGE> 28
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check ordinarily will be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire ordinarily will be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
involuntary redemption may only occur if the shareholder account is less than
the minimum investment due to shareholder redemptions.
REDEMPTION UPON DEATH OR DISABILITY. The Fund will waive the CDSC on
redemptions following the death or disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
CDSC on Class B Shares and Class C Shares.
In cases of death or disability, the CDSCs on Class B Shares and Class C
Shares will be waived where the decedent or disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the death or initial
determination of disability. This waiver of the CDSC on Class B Shares and Class
C Shares applies to a total or partial redemption, but only to redemptions of
shares held at the time of the death or initial determination of disability.
REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
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. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privilege") next determined after the order is received, which must be
within 180 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge." Reinstatement at net
asset value 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.
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DISTRIBUTION AND SERVICE PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers and financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year of
the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and Service Plan. From such amount, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by
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<PAGE> 29
brokers, dealers or financial intermediaries and in connection with the
maintenance of such shareholders' accounts. The Fund pays the Distributor the
lesser of the balance of the 0.25% not paid to such brokers, dealers or
financial intermediaries or the amount of the Distributor's actual
distribution-related expense.
CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.
CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to a class of CDSC Shares (for
purposes of this section, excluding any Class A Shares that may be subject to a
CDSC) for any given year may exceed the amounts payable to the Distributor with
respect to such class of CDSC Shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Fund does not impose any limit with respect to the number
of years into the future that such unreimbursed expenses may be carried forward
(on a Fund level basis). Because such expenses are accounted on a Fund level
basis, in periods of extreme net asset value fluctuation such amounts with
respect to a particular CDSC Share may be greater or less than the amount of the
initial commission (including carrying cost) paid by the Distributor with
respect to such CDSC Share. In such circumstances, a shareholder of such CDSC
Share may be deemed to incur expenses attributable to other shareholders of such
class. As of December 31, 1997, there were $524,578 and $9,982 of unreimbursed
distribution related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 4.00% and 0.97% of the Fund's net assets attributable
to Class B Shares and Class C Shares, respectively. If the Distribution Plan was
terminated or not continued, the Fund would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through CDSCs.
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 CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.
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DISTRIBUTIONS FROM THE FUND
- --------------------------------------------------------------------------------
The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all
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<PAGE> 30
interest income, dividends, and other ordinary income earned by the Fund, less
all expenses of the Fund attributable to the class of shares in question. Net
short-term capital gains, if any, may be distributed throughout the year.
Expenses of the Fund are accrued each day. Net realized long-term capital gains,
if any, are expected to be distributed, to the extent permitted by applicable
law, to shareholders at least annually. Distributions cannot be assured, and the
amount of each monthly distribution may vary.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee will be lower than distributions
with respect to a class of shares subject to a lower distribution fee.
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.
Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Persons wishing to utilize this service should
complete the appropriate section of the account application accompanying this
Prospectus or available from Van Kampen Funds, c/o Van Kampen Investor Services
Inc. P.O. Box 418256, Kansas City, MO 64141-9256. After Investor Services
receives this completed form, distribution checks will be sent to the bank or
other person so designated by such shareholder.
PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the Reinvestment Plan is automatic. Instruction may be made by
telephone by calling (800) 341-2911 ((800) 421-2833 for the hearing impaired) or
in writing to Investor Services. See "Shareholder Services -- Reinvestment
Plan."
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TAX STATUS
- --------------------------------------------------------------------------------
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 on 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. The Fund has elected and qualified and intends to
continue to qualify each year of the Fund 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
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<PAGE> 31
necessary to satisfy the 90% distribution requirement. The Fund will not be
subject to federal income tax on any net capital gains distributed to
shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including 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.
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<PAGE> 32
Interest on certain "private-activity bonds" is an item of tax preference
subject to the alternative minimum tax on individuals and corporations. The Fund
invests a portion of its assets in municipal securities subject to this
provision so that a portion of its exempt-interest dividends is an item of tax
preference to the extent such dividends represent interest received from these
private-activity bonds. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax. Per capita volume limitations on certain private-
activity bonds could limit the amount of such bonds available for investment by
the Fund.
Exempt-interest dividends are included in determining what portion, if any, of
a person's social security and railroad retirement benefits will be includable
in gross income subject to federal income tax.
Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the shareholder would be
treated as a "substantial user" (or a "related person" of a substantial user) of
the facilities financed with respect to any of the tax-exempt obligations held
by the Fund, 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.
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 Under the 1997 Tax Act" below. 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. 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 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
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<PAGE> 33
The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.
SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss and will be long-term if such shares
have been held for more than one year. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates Under the 1997 Tax Act" below. Any
loss recognized upon a taxable disposition of shares held for six months or less
will be treated as a long-term capital loss to the extent of any capital gains
dividends received with respect to such shares. Any short-term capital loss on
the sale or exchange of shares held for six months or less will be disallowed to
the extent of any exempt-interest dividends received with respect to such
shares. For purposes of determining whether shares have been held for six months
or less, the holding period is suspended for any periods during which the
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less, (ii) 28% for capital assets held for more than one year but not more than
18 months and (iii) 20% for capital assets held for more than 18 months. The
maximum net capital gains tax rate for corporations remains at 35%. The tax
rates for capital gains described above will apply to distributions of capital
gain dividends by the Fund (if, as expected, the Fund designates capital gain
dividends as 28% rate gain distributions or 20% rate gain distributions, in
accordance with its holding periods for the securities sold that generated such
capital gain dividends) as well as to sales and exchanges of shares in the Fund.
With respect to capital losses recognized on dispositions of shares held six
months or less where such losses are treated as long-term capital losses to the
extent of prior distributions of capital gain dividends received on such shares
(see "Sale of Shares" above), it is unclear how such capital losses offset the
capital gains referred to above. Shareholders should consult their own tax
advisers as to the application of the new capital gains rates to their
particular circumstances.
GENERAL. The federal, state and local 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.
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DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of the Van Kampen Tax Free Trust, a Delaware business
trust which was organized as of May 10, 1995 and which adopted its current name
on July 14, 1998 (the "Trust"). The Fund was originally organized in 1994 under
the name Van Kampen Merritt New York Tax Free Income Fund as a sub-trust of Van
Kampen Merritt Tax Free Fund, a Massachusetts business trust. The Fund was
reorganized as a series of the Trust as of July 31, 1995 and on July 14, 1998
adopted its current name. 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.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into three classes,
designated Class A Shares, Class B Shares and Class C Shares. Each class of
shares represents an interest in the same assets of the Fund and are identical
in all respects except that each class bears certain distribution expenses and
has exclusive voting rights with respect to its distribution fee. See
"Distribution and Service Plans."
The Fund is permitted to issue an unlimited number of classes of shares. Each
class of shares is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. There are no conversion, preemptive or other subscription rights,
except with respect to the conversion of Class B Shares and certain Class C
Shares into Class A Shares as described above. In the event of liquidation, each
of the shares of the Fund is entitled to its portion of all of the Fund's net
assets after all debt and expenses of the Fund have been paid.
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<PAGE> 34
Since Class B Shares and Class C Shares pay higher distribution expenses, the
liquidation proceeds to holders of Class B Shares and Class C Shares are likely
to be lower than to other shareholders.
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 Trust will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed information concerning the Trust is set forth in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
At the Joint Quarterly Meeting of the Board of Trustees held on July 30, 1998,
the Trustees approved the changing of the fiscal year end of the Fund to
September 30. Previously, the Fund's fiscal year end was December 31. The Fund
sends to its shareholders, at least semi-annually, reports showing the Fund's
portfolio and other information. An Annual Report, containing financial
statements audited by the Fund's independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive federal income
tax information regarding dividends and capital gains distributions.
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<PAGE> 35
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) 421-5666.
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833.
FOR AUTOMATED TELEPHONE
SERVICES DIAL (800) 847-2424.
VAN KAMPEN NEW YORK TAX FREE
INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
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
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 36
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NEW YORK TAX FREE
INCOME FUND
- --------------------------------------------------------------------------------
P R O S P E C T U S
APRIL 30, 1998, AS SUPPLEMENTED
ON JULY 14, 1998 AND OCTOBER 27, 1998
VAN KAMPEN FUNDS LOGO
NYTF PRO 10/98
