<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 2000
REGISTRATION NOS. 2-99715
811-4386
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 46 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 47 [X]
</TABLE>
VAN KAMPEN TAX FREE TRUST
(Exact Name of Registrant as Specified in Agreement and Declaration of Trust)
1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181-5555
(Address of Principal Executive Offices)
(630) 684-6000
(Registrant's Telephone Number)
A. THOMAS SMITH III
Executive Vice President, General Counsel and Secretary
Van Kampen Investments Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
(Name and Address of Agent for Service)
Copies to:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, IL 60606
(312) 407-0700
Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE: (CHECK APPROPRIATE
BOX)
[X] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (B)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE CHECK THE FOLLOWING:
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
TITLE OF SECURITIES BEING REGISTERED SHARES OF BENEFICIAL INTEREST, PAR
VALUE $0.01 PER SHARE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains one Prospectus and one Statement of
Additional Information describing one series of the Registrant. The Registration
Statement is organized as follows:
Facing Page
Prospectus for the Van Kampen California Municipal Income Fund
Statement of Additional Information for the Van Kampen California Municipal
Income Fund
Part C Information
Exhibits
-------------------------
No changes are being made to the Prospectuses and Statements of Additional
Information with respect to each of Van Kampen Tax Free High Income Fund, Van
Kampen Insured Tax Free Income Fund, Van Kampen California Insured Tax Free
Fund, Van Kampen Municipal Income Fund, Van Kampen Intermediate Term Municipal
Income Fund, Van Kampen Florida Insured Tax Free Income Fund, and Van Kampen New
York Tax Free Income Fund, seven other series of the Registrant, which are
included in Post-Effective Amendment No. 45 to the Registration Statement of the
Registrant.
No changes are being made to the Prospectuses and Statements of Additional
Information with respect to each of Van Kampen Michigan Tax Free Income Fund,
Van Kampen Missouri Tax Free Income Fund and Van Kampen Ohio Tax Free Income
Fund, three other series of the Registrant, which are included in Post-
Effective Amendment No. 31 to the Registration Statement of the Registrant.
<PAGE> 3
[VAN KAMPEN FUNDS LOGO]
VAN KAMPEN
CALIFORNIA MUNICIPAL
INCOME FUND
Van Kampen California Municipal Income Fund is
a mutual fund with the investment objective to
provide investors with a high level of current
income exempt from federal and California
income taxes, consistent with preservation of
capital. The Fund is designed for investors
who are residents of California for California
tax purposes.
Shares of the Fund have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulator, and
neither the SEC nor any state regulator has
passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary
is a criminal offense.
This Prospectus is dated MARCH 7, 2000.
<PAGE> 4
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary............................... 3
Fees and Expenses of the Fund..................... 5
Investment Objective, Policies and Risks.......... 6
Investment Advisory Services...................... 14
Purchase of Shares................................ 15
Redemption of Shares.............................. 21
Distributions from the Fund....................... 23
Shareholder Services.............................. 23
California Taxation............................... 25
Federal Income Taxation........................... 26
Appendix - Description of Securities Ratings...... A-1
</TABLE>
<PAGE> 5
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund is a mutual fund with the investment objective to provide investors a
high level of current income exempt from federal and California income taxes,
consistent with preservation of capital. The Fund is designed for investors who
are residents of California for California tax purposes.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund's investment adviser seeks to achieve
the Fund's investment objective by investing at least 65% of the Fund's total
assets in a portfolio of California municipal securities that are investment
grade at the time of purchase. Investment grade securities are securities rated
BBB or higher by Standard and Poor's ("S&P") or Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or an equivalent rating by another
nationally recognized statistical rating organization ("NRSRO") and comparably
rated short-term securities or unrated securities believed by the Fund's
investment adviser to be of comparable quality. Under normal market conditions,
up to 35% of the Fund's total assets may consist of securities rated below
investment grade (but not rated lower than B- by S&P or B3 by Moody's) or
comparably rated short-term securities and unrated securities believed by the
Fund's investment adviser to be of comparable quality at the time of purchase.
Securities rated BB or below by S&P, Ba or below by Moody's or unrated
securities of comparable quality are commonly referred to as "junk bonds" and
involve special risks as compared to investments in higher-grade securities. For
a description of securities ratings, see the appendix to this prospectus.
The Fund's investment adviser actively manages the Fund's portfolio and adjusts
the duration, or sensitivity to interest-rate changes, of portfolio investments
based upon its expectations about the direction of interest rates and other
economic factors. The Fund buys and sells municipal securities with a view
towards seeking a high level of current income consistent with safety of
principal. The Fund's investment adviser seeks those securities that it believes
entail reasonable credit risk considered in relation to the Fund's investment
policies. In selecting securities for investment, the Fund's investment adviser
considers a number of factors including general market and economic conditions
and the credit quality of the issuer. Portfolio securities are typically sold
when the Fund's investment adviser's assessments materially change.
The Fund may invest all or a substantial portion of its assets in municipal
securities that are subject to the federal alternative minimum tax. The Fund may
purchase or sell certain derivative instruments (such as options, futures,
options on futures, and interest rate swaps or other interest rate-related
transactions) for various portfolio management purposes. The Fund may purchase
or sell securities on a when-issued or delayed delivery basis.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. There can be no assurance that the Fund
will achieve its investment objective.
MARKET RISK. Market risk is the possibility that the market values of securities
owned by the Fund will decline. The prices of debt securities tend to fall as
interest rates rise, and such declines tend to be greater among securities with
longer maturities. The Fund has no policy limiting the maturities of its
investments. To the extent the Fund invests in securities with longer
maturities, the Fund will be subject to greater market risk than a fund
investing solely in shorter-term securities. Lower-grade securities may be more
volatile and decline more in price in response to negative issuer or general
economic news than higher-grade securities.
When-issued and delayed delivery transactions are subject to changes in market
conditions from the time of the commitment until settlement. This may adversely
affect the prices or yields of the securities being purchased. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest and principal. Under normal market conditions, the Fund invests at
least 65% of its total assets in investment-grade securities and the Fund may
invest up to 35% of its total assets in securities below investment-grade credit
quality. Therefore, the Fund is subject to a higher level of credit risk than a
fund that invests solely in investment-grade securities. Securities rated BBB by
S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium-grade obligations, which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a
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3
<PAGE> 6
weakened capacity of the issuer to make principal and interest payments than in
the case of higher-rated securities. The credit quality of "noninvestment grade"
securities is considered speculative by recognized rating agencies with respect
to the issuer's continuing ability to pay interest and principal. Lower-grade
securities may have less liquidity and a higher incidence of default than
higher-grade securities. The Fund may incur higher expenses to protect the
Fund's interest in such securities. The credit risks and market prices of
lower-grade securities generally are more sensitive to negative issuer
developments, such as reduced revenues or increased expenditures, or adverse
economic conditions, such as a recession, than are the prices of higher-grade
securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short and long term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of municipal
securities with high interest rates will prepay or "call" their securities
before their maturity dates. In this event, the proceeds from the called
securities would likely be reinvested by the Fund in securities bearing the new,
lower interest rates, resulting in a possible decline in the Fund's income and
distributions to shareholders.
MUNICIPAL SECURITIES RISK. The Fund invests substantially all of its assets in
municipal securities. The yields of municipal securities may move differently
and adversely compared to the yields of the overall debt securities markets.
Although the interest received from municipal securities generally is exempt
from federal income tax, the Fund may invest all or a substantial portion of its
total assets in municipal securities subject to federal alternative minimum tax.
In addition, there could be changes in applicable tax laws or tax treatments
that reduce or eliminate the current federal or state income tax exemption on
municipal securities or otherwise adversely affect the current federal or state
tax status of municipal securities.
STATE-SPECIFIC RISKS. Because the Fund invests substantially all of its assets
in a portfolio of California municipal securities, the Fund is more susceptible
to political, economic, regulatory or other factors affecting issuers of
California municipal securities than a fund that does not limit its investments
to such issuers.
RISKS OF USING DERIVATIVE INSTRUMENTS. In general terms, a derivative instrument
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures, options on futures, and
interest rate swaps and other interest rate-related transactions are examples of
derivatives. Derivative instruments involve risks different from direct
investment in underlying securities. These risks include imperfect correlation
between the value of the instruments and the underlying assets; risks of default
by the other party to certain transactions; risks that the transactions may
result in losses that partially or completely offset gains in portfolio
positions; risks that the transactions may not be liquid; and manager risk.
MANAGER RISK. As with any managed fund, the Fund's investment adviser may not be
successful in selecting the best-performing securities or investment techniques,
and the Fund's performance may lag behind that of similar funds.
INVESTOR PROFILE
In light of the Fund's investment objective and strategies, the Fund may be
appropriate for investors who:
- - Seek current income
- - Are in a high federal income tax bracket (although the Fund may invest all or
a substantial portion of its total assets in securities subject to the federal
alternative minimum tax and thus may not be suitable for investors who are
already or who could become subject to the federal alternative minimum tax as
a result of an investment in the Fund)
- - Are subject to California income tax
- - Wish to add to their investment portfolio a fund that invests substantially
all of its assets in California municipal securities
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
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4
<PAGE> 7
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment, and the Fund should not be used as a trading vehicle.
PERFORMANCE INFORMATION
The Fund had not commenced investment operations prior to the date of this
prospectus. Accordingly, the Fund had no investment performance as of the date
of this prospectus and thus has no historical calendar year annual performance
or comparative performance tables.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
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<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
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</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 4.75%(1) None None
................................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) 4.00%(3) 1.00%(4)
................................................................
Maximum sales charge
(load) imposed on
reinvested dividends None None None
................................................................
Redemption fees None None None
................................................................
Exchange fee None None None
................................................................
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
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<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Management fees(5) 0.55% 0.55% 0.55%
................................................................
Distribution and/or
service (12b-1)
fees(6) 0.25% 1.00%(7) 1.00%(7)
................................................................
Other expenses(8) 0.50% 0.50% 0.50%
................................................................
Total annual fund(5)
operating expenses
1.30% 2.55% 2.55%
................................................................
</TABLE>
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares--Class A Shares."
(3) The maximum deferred sales charge is 4.00% in the first year after purchase,
declining thereafter as follows:
Year 1-4.00%
Year 2-3.75%
Year 3-3.50%
Year 4-2.50%
Year 5-1.50%
Year 6-1.00%
After-None
See "Purchase of Shares--Class B Shares."
(4) The maximum deferred sales charge is 1.00% in the first year after purchase
and 0.00% thereafter. See "Purchase of Shares--Class C Shares."
(5) The Fund's investment adviser has agreed to waive or reimburse a portion of
the Fund's management fees or other expenses such that actual total annual
fund operating expenses do not exceed 0.88% for Class A Shares, 1.63% for
Class B Shares and 1.63% for Class C Shares for the Fund's first six months
of operations.
(6) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."
(7) Because distribution and/or service (12b-1) fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
(8) Other expenses have been estimated for the Fund's current fiscal year.
Example:
The following example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same each year. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
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5
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<TABLE>
<CAPTION>
One Three
Year Years
- -----------------------------------------------------
<S> <C> <C> <C>
Class A Shares $601 $868
.....................................................
Class B Shares $608 $993
.....................................................
Class C Shares $308 $643
.....................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three
Year Years
- -----------------------------------------------------
<S> <C> <C> <C>
Class A Shares $601 $868
.....................................................
Class B Shares $208 $643
.....................................................
Class C Shares $208 $643
.....................................................
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment objective is to provide investors a high level of current
income exempt from federal and California income taxes, consistent with
preservation of capital. The Fund is designed for investors who are residents of
California for California tax purposes. The Fund's investment objective may be
changed by the Fund's Board of Trustees without shareholder approval, but no
change is anticipated. If there is a change in the investment objective of the
Fund, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs. There
are risks inherent in all investments in securities; accordingly there can be no
assurance that the Fund will achieve its investment objective.
The Fund's investment adviser buys and sells securities for the Fund's portfolio
with a view towards seeking a high level of current income exempt from federal
and California income taxes and selects securities that it believes entail
reasonable credit risk considered in relation to the investment policies of the
Fund. As a result, the Fund will not necessarily invest in the highest yielding
California municipal securities permitted by its investment policies if the
Fund's investment adviser determines that market risks or credit risks
associated with such investments would subject the Fund's portfolio to undue
risk. The potential realization of capital gains or losses resulting from
possible changes in interest rates will not be a major consideration and
frequency of portfolio turnover generally will not be a limiting factor if the
Fund's investment adviser considers it advantageous to purchase or sell
securities.
Under normal market conditions, the Fund's investment adviser seeks to achieve
the investment objective by investing at least 65% of the Fund's total assets in
a portfolio of California municipal securities that are investment grade at the
time of purchase. Investment grade securities are securities rated BBB or higher
by S&P, Baa or higher by Moody's or an equivalent rating by another NRSRO and
comparably rated short-term securities or unrated securities believed by the
Fund's investment adviser to be of comparable quality. Under normal market
conditions, up to 35% of the Fund's total assets may consist of securities rated
below investment grade (but not rated lower than B- by S&P or B3 by Moody's) or
comparably rated short-term securities and unrated securities believed by the
Fund's investment adviser to be of comparable quality at the time of purchase.
Securities rated BB or below by S&P, Ba or below by Moody's or unrated
securities of comparable quality are commonly referred to as "junk bonds" and
involve special risks as compared to investments in higher-grade securities.
UNDERSTANDING
QUALITY RATINGS
Bond ratings are based on the issuer's ability to pay interest and repay the
principal. Bonds with ratings above the line are considered "investment
grade" while those with ratings below the line are regarded as
"noninvestment grade." A detailed explanation of these and other ratings can
be found in the appendix to this prospectus.
Moody's S&P Meaning
- ------------------------------------------------------
Aaa AAA Highest quality
................................................................................
Aa AA High quality
................................................................................
A A Above-average quality
................................................................................
Baa BBB Average quality
- ------------------------------------------------------
Ba BB Below-average quality
................................................................................
B B Marginal quality
................................................................................
Caa CCC Poor quality
................................................................................
Ca CC Highly speculative
................................................................................
C C Lowest quality
................................................................................
-- D In default
................................................................................
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<PAGE> 9
The Fund's investment adviser actively manages the Fund's portfolio and adjusts
the duration, or sensitivity to interest-rate changes, of portfolio investments
based upon its expectations about the direction of interest rates and other
economic factors. The Fund buys and sells municipal securities with a view
towards seeking a high level of current income consistent with safety of
principal. The Fund's investment adviser seeks those securities that it believes
entail reasonable credit risk considered in relation to the Fund's investment
policies. In selecting securities for investment, the Fund's investment adviser
considers a number of factors including general market and economic conditions
and the credit quality of the issuer. Portfolio securities are typically sold
when the Fund's investment adviser's assessments materially change. The Fund may
invest all or a substantial portion of its assets in municipal securities that
are subject to the federal alternative minimum tax.
MUNICIPAL SECURITIES
Municipal securities are obligations issued by or on behalf of states,
territories or possessions of the United States, the District of Columbia and
their political subdivisions, agencies and instrumentalities, the interest on
which, in the opinion of bond counsel or other counsel to the issuers of such
securities, is, at the time of issuance, exempt from federal income tax. The
Fund may invest all or a substantial portion of its assets in municipal
securities that are subject to the federal alternative minimum tax.
California municipal securities are municipal securities, the interest on which,
in the opinion of bond counsel or other counsel to the issuers of such
securities, is, at the time of purchase, exempt from federal and California
income taxes. Distributions to corporations subject to the California franchise
tax will be included in such corporations' gross income for purposes of
determining the California franchise tax. In addition, corporations subject to
the California corporate income tax may, in certain circumstances, be subject to
such taxes with respect to distributions from the Fund. Accordingly, an
investment in shares of the Fund may not be appropriate for corporations subject
to either tax.
The issuers of municipal securities obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, highways, bridges, schools, hospitals, housing, mass transportation,
streets and water and sewer works. Other public purposes for which municipal
securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to lend to other public
institutions and facilities. Certain types of municipal securities are issued to
obtain funding for privately operated facilities.
The yields of municipal securities depend on, among other things, general money
market conditions, general conditions of the municipal securities market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P and Moody's represent their opinions of the quality of
the municipal securities they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal securities with the same maturity, coupon and rating may
have different yields while municipal securities of the same maturity and coupon
with different ratings may have the same yield.
The two principal classifications of municipal securities are "general
obligation" and "revenue" or "special delegation" securities. "General
obligation" securities are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. "Revenue" securities
are usually payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. Industrial development bonds are usually
revenue securities, the credit quality of which is normally directly related to
the credit standing of the industrial user involved.
Within these principal classifications of municipal securities, there are a
variety of types of municipal securities, including fixed and variable rate
securities, municipal notes, variable rate demand notes, municipal leases,
custodial receipts, participation certificates and derivative municipal
securities (which include terms or elements similar in to certain strategic
transactions described below). Variable rate securities bear rates of interest
that are adjusted periodically according to formulae intended to reflect market
rates of interest. The Fund also may also invest in derivative variable rate
securities, such as inverse floaters whose rates vary inversely with changes in
market rates of interest. Investment in such securities involve special risks as
compared to a fixed rate municipal security. The extent of increases and
decreases in the value of derivative variable rate
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7
<PAGE> 10
securities and the corresponding change to the net asset value of the Fund
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate municipal security having similar credit
quality, redemption provisions and maturity. The markets for such securities may
be less developed and have less liquidity than the markets for conventional
municipal securities. The Fund will not invest more than 15% of its total assets
in derivative variable rate securities, such as inverse floaters whose rates
vary inversely with changes in market rates of interest or range floaters or
capped floaters whose rates are subject to periodic or lifetime caps. Municipal
notes include tax, revenue and bond anticipation notes of short maturity,
generally less than three years, which are issued to obtain temporary funds for
various public purposes. Variable rate demand notes are obligations which
contain a floating or variable interest rate adjustment formula and which are
subject to a right of demand for payment of the principal balance plus accrued
interest either at any time or at specified intervals. The interest rate on a
variable rate demand note may be based on a known lending rate, such as a bank's
prime rate, and may be adjusted when such rate changes, or the interest rate may
be a market rate that is adjusted at specified intervals. The adjustment formula
maintains the value of the variable rate demand note at approximately the par
value of such note at the adjustment date. Municipal leases are obligations
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. Certain municipal lease obligations may include
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Custodial receipts are
underwritten by securities dealers or banks and evidence ownership of future
interest payments, principal payments or both on certain municipal securities.
Participation certificates are obligations issued by state or local governments
or authorities to finance the acquisition of equipment and facilities. They may
represent participations in a lease, an installment purchase contract, or a
conditional sales contract. Municipal securities may not be backed by the faith,
credit and taxing power of the issuer. 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 Fund's Statement of
Additional Information. The Fund's Statement of Additional Information can be
obtained by investors free of charge as described on the back cover of this
prospectus.
Under normal market conditions, longer term municipal securities generally
provide a higher yield than shorter term municipal securities. The Fund has no
limitation as to the maturity of municipal securities in which it may invest.
The Fund's investment adviser may adjust the average maturity of the Fund's
portfolio from time to time depending on its assessment of the relative yields
available on securities of different maturities and its expectations of future
changes in interest rates.
The net asset value of the Fund will change with changes in the value of its
portfolio securities. Because the Fund invests primarily in fixed income
municipal securities, the net asset value of the Fund can be expected to change
as general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed income securities generally can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested in fixed income securities generally can be expected to decline. The
prices of longer term municipal securities generally are more volatile with
respect to changes in interest rates than the prices of shorter term municipal
securities. Volatility may be greater during periods of general economic
uncertainty.
Municipal securities, like other debt obligations, are subject to the credit
risk of nonpayment. The ability of issuers of municipal securities to make
timely payments of interest and principal may be adversely impacted in general
economic downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such nonpayment
would result in a reduction of income to the Fund, and could result in a
reduction in the value of the municipal securities experiencing nonpayment and a
potential decrease in the net asset value of the Fund. In addition, the Fund may
incur expenses to work out or restructure a distressed or defaulted security.
Securities below investment-grade involve special risks compared to higher-grade
securities. See "Risks of Investing in Lower Grade Municipal Securities" below.
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8
<PAGE> 11
The Fund may invest all or a substantial portion of its total assets in
municipal securities that are subject to the federal alternative minimum tax.
Accordingly, the Fund may not be a suitable investment for investors who are
already subject to the federal alternative minimum tax or who could become
subject to the federal alternative minimum tax as a result of an investment in
the Fund.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the current federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected and the Fund
would re-evaluate its investment objective and policies and consider changes in
its structure.
The Fund generally considers investments in municipal securities not to be
subject to industry concentration policies (issuers of municipal securities as a
group are not an industry) and the Fund may invest in municipal securities
issued by entities having similar characteristics. The issuers may be located in
the same geographic area or may pay their interest obligations from revenue of
similar projects, such as hospitals, airports, utility systems and housing
finance agencies. This may make the Fund's investments more susceptible to
similar economic, political or regulatory occurrences. As the similarity in
issuers increases, the potential for fluctuation in the Fund's net asset value
also increases. The Fund may invest 25% or more of its total assets in a segment
of the municipal securities market with similar characteristics if the Fund's
investment adviser determines that the yields available from obligations in a
particular segment justify the additional risks of a larger investment in such
segment. The Fund may not, however, invest 25% or more of its total assets in
industrial development revenue bonds issued for companies in the same industry.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of such issuers or any such related projects or facilities
experience financial difficulties.
From time to time, the Fund's investments may include securities as to which the
Fund, by itself or together with other funds or accounts managed by the Fund's
investment adviser, holds a major portion or all of an issue of municipal
securities. Because there may be relatively few potential purchasers for such
investments and, in some cases, there may be contractual restrictions on
resales, the Fund may find it more difficult to sell such securities at a time
when the Fund's investment adviser believes it is advisable to do so.
From time to time, the Fund temporarily may invest up to 10% of its total assets
in tax-exempt money market funds and such instruments will be treated as
investments in municipal securities. Investment in other mutual funds may
involve duplication of management fees and certain other expenses.
RISKS OF INVESTING IN LOWER GRADE
MUNICIPAL SECURITIES
Under normal market conditions, the Fund may invest up to 35% of its total
assets in securities rated below investment grade (but not lower than B- by S&P
or B3 by Moody's) or comparably rated short term securities and in unrated
securities considered by the Fund's investment adviser to be of comparable
quality at the time of purchase. With respect to such investments, the Fund has
not established any limit on the percentage of its portfolio which may be
invested in securities in any one rating category.
Lower grade securities generally provide higher yields than higher-grade
securities of similar maturity, but generally are also subject to greater risks,
such as greater credit risk, greater market risk and volatility, greater
liquidity concerns and potentially greater manager risk. Investors should
carefully consider the risks of owning shares of a fund which invests in
lower-grade securities before making an investment in the Fund.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Lower-grade securities are considered more susceptible
to nonpayment of interest and principal or default than higher-grade securities.
Increases in interest rates or changes in the economy may significantly affect
the ability of issuers of lower-grade income securities to pay interest and to
repay principal, to meet projected financial goals or to obtain additional
financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal and interest and
such issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's securities relate.
Further, the Fund may incur additional expenses to the extent that it is
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required to seek recovery upon a default in the payment of interest or the
repayment of principal on its portfolio holdings, and the Fund may be unable to
obtain full recovery on such amounts.
Market risk relates to changes in market value of a security that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the debt securities market and as a result of real or perceived
changes in credit risk. The value of the Fund's investments can be expected to
fluctuate over time. 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. Income securities with
longer maturities, which may have higher yields, may increase or decrease in
value more than income securities with shorter maturities. The Fund has no
policy limiting the maturities of the individual debt securities in which it may
invest. However, the secondary market prices of lower-grade income securities
generally are less sensitive to changes in interest rate and are more sensitive
to general adverse economic changes or specific developments with respect to the
particular issuers than are the secondary market prices of higher-grade income
securities. A significant increase in interest rates or a general economic
downturn could severely disrupt the market for lower-grade securities and
adversely affect the market value of such securities. Such events also could
lead to a higher incidence of default by issuers of lower-grade securities as
compared with higher-grade securities. In addition, changes in credit risks,
interest rates, the credit markets or periods of general economic uncertainty
can be expected to result in increased volatility in the market price of the
lower-grade securities in the Fund and thus in the net asset value of the Fund.
Adverse publicity and investor perceptions, whether or not based on rational
analysis, may affect the value, volatility and liquidity of lower-grade
securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. Liquidity relates to the ability of a fund to sell a
security in a timely manner at a price which reflects the value of that
security. To the extent that there is no established retail market for some of
the lower-grade securities in which the Fund may invest, trading in such
securities may be relatively inactive. Prices of lower-grade securities may
decline rapidly in the event a significant number of holders decide to sell.
Changes in expectations regarding an individual issuer of lower-grade securities
generally could reduce market liquidity for such securities and make their sale
by the Fund more difficult, at least in the absence of price concessions. The
effects of adverse publicity and investor perceptions may be more pronounced for
securities for which no established retail market exists as compared with the
effects on securities for which such a market does exist. An economic downturn
or an increase in interest rates could severely disrupt the market for such
securities and adversely affect the value of outstanding securities or the
ability of the issuers to repay principal and interest. Further, the Fund may
have more difficulty selling such securities in a timely manner and at their
stated value than would be the case for securities for which an established
retail market does exist.
The Fund's investment adviser is responsible for determining the net asset value
of the Fund, subject to the supervision of the Fund's Board of Trustees. During
periods of reduced market liquidity or in the absence of readily available
market quotations for lower-grade securities held in the Fund's portfolio, the
ability of the Fund's investment adviser to value the Fund's securities becomes
more difficult and the judgment of the Fund's investment adviser may play a
greater role in the valuation of the Fund's securities due to the reduced
availability of reliable objective data.
The Fund may invest in securities not producing immediate cash income, including
securities in default, zero-coupon securities or pay-in-kind securities, when
their effective yield over comparable instruments producing cash income make
these investments attractive. Prices on non-cash-paying instruments may be more
sensitive to changes in the issuer's financial condition, fluctuation in
interest rates and market demand/supply imbalances than cash-paying securities
with similar credit ratings, and thus may be more speculative. In addition, the
accrued interest income earned on such instruments is included in investment
company taxable income, thereby increasing the required minimum distributions to
shareholders without providing the corresponding cash flow with which to pay
such distributions. The Fund's investment adviser will weigh these concerns
against the expected total returns from such instruments.
Many lower-grade income securities are not listed for trading on any national
securities exchange, and many issuers of lower-grade income securities choose
not
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<PAGE> 13
to have a rating assigned to their obligations by any nationally recognized
statistical rating organization. As a result, the Fund's portfolio may consist
of a higher portion of unlisted or unrated securities as compared with an
investment company that invests solely in higher-grade securities. Unrated
securities are usually not as attractive to as many buyers as are rated
securities, a factor which may make unrated securities less marketable. These
factors may have the effect of limiting the availability of the securities for
purchase by the Fund and may also limit the ability of the Fund to sell such
securities at their fair value either to meet redemption requests or in response
to changes in the economy or the financial markets. Further, to the extent the
Fund owns or may acquire illiquid or restricted lower-grade securities, these
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties.
The Fund will rely on its investment adviser's judgment, analysis and experience
in evaluating the creditworthiness of an issue. The amount of available
information about the financial condition of certain lower-grade issuers may be
less extensive than other issuers. In its analysis, the Fund's investment
adviser may consider the credit ratings of recognized securities rating
organizations in evaluating securities although the investment adviser does not
rely primarily on these ratings. Credit ratings of securities rating
organizations evaluate only the safety of principal and interest payments, not
the market value risk. In addition, ratings are general and not absolute
standards of quality, and credit ratings are subject to the risk that the
creditworthiness of an issuer may change and the rating agencies may fail to
change such ratings in a timely fashion. A rating downgrade does not require the
Fund to dispose of a security. The Fund's investment adviser continuously
monitors the issuers of securities held in the Fund. Because of the number of
investment considerations involved in investing in lower-grade securities,
achievement of the Fund's investment objectives may be more dependent upon the
investment adviser's credit analysis than is the case of a fund investing solely
in higher-grade securities.
New or proposed laws may have an impact on the market for lower-grade
securities. The Fund's investment adviser is unable at this time to predict what
effect, if any, legislation may have on the market for lower-grade securities.
ADDITIONAL INFORMATION REGARDING
CERTAIN INCOME SECURITIES
Zero-coupon securities are income securities that do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer.
Because such securities do not entitle the holder to any periodic payments of
interest prior to maturity, this prevents any reinvestment of interest payments
at prevailing interest rates if prevailing interest rates rise. On the other
hand, because there are no periodic interest payments to be reinvested prior to
maturity, "zero-coupon" securities eliminate the reinvestment risk and may lock
in a favorable rate of return to maturity if interest rates drop.
Payment-in-kind securities are income securities that pay interest through the
issuance of additional securities. Prices on such non-cash-paying instruments
may be more sensitive to changes in the issuer's financial condition,
fluctuations in interest rates and market demand/supply imbalances than
cash-paying securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically in cash.
The amount of non-cash interest income earned on zero-coupon securities and
payment-in-kind securities is included, for federal income tax purposes, in the
Fund's calculation of income that is required to be distributed to shareholders
for the Fund to maintain its desired federal income tax status (even though such
non-cash paying securities do not provide the Fund with the cash flow with which
to pay such distributions). Accordingly, the Fund may be required to borrow or
to liquidate portfolio securities at a time that it otherwise would not have
done so in order to make such distributions. The Fund's investment adviser will
weigh these concerns against the expected total returns from such instruments.
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<PAGE> 14
SPECIAL CONSIDERATIONS REGARDING
CALIFORNIA MUNICIPAL SECURITIES
The Fund invests substantially all of its assets in California municipal
securities, which are municipal securities the interest on which, in the opinion
of bond counsel or other counsel to the issuers of such securities, is, at the
time of issuance, exempt from federal and California income taxes. Because the
Fund invests substantially all of its assets in California municipal securities,
the Fund is more susceptible to political, economic, regulatory or other factors
affecting issuers of California municipal securities than a fund which does not
limit its investments to such issuers. These risks include possible legislative,
state constitutional or regulatory amendments that may affect the ability of
state and local governments or regional governmental authorities to raise money
to pay principal and interest on their municipal securities. Economic, fiscal
and budgetary conditions throughout the state may also influence the Fund's
performance.
The following information is a summary of a more detailed description of certain
factors affecting California municipal securities which is contained in the
Statement of Additional Information. Investors should obtain a copy of the
Statement of Additional Information for the more detailed discussion of such
factors. Such information is derived from certain official statements of the
State of California published in connection with the issuance of specific
California municipal securities, as well as from other publicly available
documents. Such information has not been independently verified by the Fund and
may not apply to all California municipal securities acquired by the Fund. The
Fund assumes no responsibility for the completeness or accuracy of such
information.
California state and local government obligations may be adversely affected by
political and economic conditions and developments within the State of
California and the nation as a whole. With respect to an investment in the Fund,
through popular initiative and legislative activity, the ability of the State of
California and its local governments to raise money through property taxes and
to increase spending has been the subject of considerable debate and change in
recent years. Various State Constitutional amendments, for example, have been
adopted which have the effect of limiting property tax and spending increases,
while legislation has sometimes added to these limitations and has at other
times sought to reduce their impact. To date, these Constitutional, legislative
and budget developments do not appear to have severely decreased the ability of
the State and local governments to pay principal and interest on their
obligations. It can be expected that similar types of State legislation or
Constitutional proposals will continue to be introduced. The impact of future
developments in these areas is unclear.
Although revenue obligations of the State of California or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the portfolio of the Fund or the ability of the
respective obligors to make timely payments of principal and interest on such
obligations.
The value of California municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
federal income tax rates, the supply of tax-exempt bonds, the credit quality and
rating of the issues and perceptions with respect to the level of interest
rates.
There can be no assurance that there will not be a decline in economic
conditions or that particular California municipal securities in the portfolio
of the Fund will not be adversely affected by any such changes.
More detailed information concerning California municipal securities and the
State of California is included in the Fund's Statement of Additional
Information.
DERIVATIVE INSTRUMENTS
The Fund may, but is not required to, use various investment strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Although the Fund's investment adviser seeks to use the
practices to further the Fund's investment objective, no assurance can be given
that these practices will achieve this result.
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 and other interest rate indices and other financial instruments,
purchase and sell financial futures contracts and options on futures and enter
into various interest rate transactions such as swaps, caps, floors or collars.
Collectively, all of the above
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are referred to as "Strategic Transactions." Strategic Transactions may be used
to attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Fund's portfolio resulting from securities
markets fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the investment adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
Strategic Transactions have risks associated with them including the imperfect
correlation between the value of such instruments and the underlying assets, the
possible default by the other party to the transaction, illiquidity of the
derivative instrument, and, to the extent the investment adviser's view as to
certain market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale of
portfolio securities at inopportune times or for prices other than at current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the risk management or hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and their risks are described more fully in the Fund's Statement of
Additional Information. Income earned or deemed to be earned by the Fund from
its Strategic Transactions, if any, generally will be taxable income of the
Fund.
OTHER INVESTMENTS AND RISK FACTORS
The Fund may purchase and sell securities on a "when-issued" or "delayed
delivery" basis whereby the Fund buys or sells a security with payment and
delivery taking place in the future. The payment obligation and the interest
rate are fixed at the time the Fund enters into the commitment. No income
accrues to the Fund on securities in connection with such transactions prior to
the date the Fund actually takes delivery of such securities. These transactions
are subject to market risk as the value or yield of a security at delivery may
be more or less than the purchase price or the yield generally available on
securities when delivery occurs. In addition, the Fund is subject to
counterparty risk because it relies on the buyer or seller, as the case may be,
to consummate the transaction, and failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring these
securities, but the Fund may sell these securities prior to settlement if it is
deemed advisable. No specific limitation exists as to the percentage of the
Fund's assets which may be used to acquire securities on a "when-issued" or
"delayed delivery" basis.
The Fund may invest up to 15% of the Fund's net assets in illiquid securities
and certain restricted securities. Such securities may be difficult or
impossible to sell at the time and the price that the Fund would like. Thus, the
Fund may have to sell such securities at a lower price, sell other securities
instead to obtain cash or forego other investment opportunities.
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<PAGE> 16
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information.
The Fund may sell securities without regard to the length of time they have been
held in order to take advantage of new investment opportunities, or yield
differentials, or for other reasons. The portfolio turnover rate may vary from
year to year. A high portfolio turnover rate (100% or more) increases a fund's
transactions costs (including brokerage commissions or dealer costs) and a high
portfolio turnover rate may result in the realization of more short-term capital
gains than if a fund had a lower portfolio turnover rate. Increases in a fund's
transaction costs would adversely impact the fund's performance. The turnover
rate will not be a limiting factor, however, if the Fund's investment adviser
considers portfolio changes appropriate.
TEMPORARY DEFENSIVE STRATEGY. When market conditions dictate a more "defensive"
investment strategy, the Fund may invest on a temporary basis a portion or all
of its assets in high-quality, short-term California municipal obligations. If
such municipal obligations are not available or, in the Fund's investment
adviser's judgment, do not afford sufficient protection against adverse market
conditions, the Fund may invest in high-quality municipal securities of issuers
other than issuers of California municipal securities. Furthermore, if such
high-quality securities are not available or, in the Fund's investment adviser's
judgment, do not afford sufficient protection against adverse market conditions,
the Fund may invest in taxable obligations. Such taxable obligations may include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, other investment-grade quality income securities, prime
commercial paper, certificates of deposit, bankers' acceptances and other
obligations of domestic banks having total assets of at least $500 million, and
repurchase agreements. In taking such a defensive position, the Fund would not
be pursuing and may not achieve its investment objective.
INVESTMENT ADVISORY SERVICES
THE ADVISER. Van Kampen Investment Advisory Corp. is the Fund's investment
adviser (the "Adviser" or "Advisory Corp."). The Adviser is a wholly owned
subsidiary of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $90 billion under management or supervision as of
December 31, 1999. Van Kampen Investments' more than 50 open-end and 39
closed-end funds and more than 2,700 unit investment trusts are professionally
distributed by leading authorized dealers nationwide. Van Kampen Funds Inc., the
distributor of the Fund (the "Distributor") and the sponsor of the funds
mentioned above, is also a wholly owned subsidiary of Van Kampen Investments.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co. The Adviser's principal office is located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee based
upon an annual rate applied to the average daily net assets of the Fund as
follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- ------------------------------------------------------
<S> <C> <C> <C>
First $500 million 0.550 of 1.00%
......................................................
Next $500 million 0.500 of 1.00%
......................................................
Over $1 billion 0.450 of 1.00%
......................................................
</TABLE>
The Fund's average daily net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month.
The Adviser furnishes offices, necessary facilities and equipment and provides
administrative services to the Fund. The Fund reimburses the Adviser for the
cost
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<PAGE> 17
of the Fund's accounting services, which include maintaining its financial books
and records and calculating its daily net asset value. The Fund also pays all
charges and expenses of its day-to-day operations including the compensation of
trustees of the Fund (other than those who are affiliated persons of the
Adviser, Distributor or Van Kampen Investments), the charges and expenses of
legal counsel and independent accountants, distribution fees, service fees,
custodian fees, the costs of providing reports to shareholders, and all other
ordinary business expenses not specifically assumed by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or by reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Asset Management
Inc. ("Asset Management").
PERSONAL INVESTMENT POLICIES. The Fund, the Adviser and the Distributor have
adopted Codes of Ethics designed to recognize the fiduciary relationship among
the Fund, the Adviser and the Distributor and their employees. The Codes of
Ethics permit directors, trustees, officers and employees to buy and sell
securities for their personal accounts subject to certain restrictions. Persons
with access to certain sensitive information are subject to pre-clearance and
other procedures designed to prevent conflicts of interest.
PORTFOLIO MANAGEMENT. The Fund is managed by portfolio managers headed by Joseph
A. Piraro, a Vice President of the Adviser. Mr. Piraro has been employed by the
Adviser since 1992. Wayne D. Godlin, a Senior Vice President of the Adviser, and
James D. Phillips, a Vice President of the Adviser, assist in the management of
the Fund's portfolio. Mr. Godlin has been employed by Asset Management since
1988 and by the Adviser since 1995. Mr. Godlin became a Vice President of Asset
Management in 1993 and of the Adviser in 1995. Mr. Phillips has been employed by
Asset Management since 1991 and by the Adviser since 1995. Mr. Phillips became a
Vice President of Asset Management and of the Adviser in 1998.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares. Initial investments must be at least $1,000 for each class of shares,
and subsequent investments must be at least $25 for each class of shares.
Minimum investment amounts may be waived by the Distributor for plans involving
periodic investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) each class of shares
has exclusive voting rights with respect to approvals of the Rule 12b-1
distribution plan and service plan (each as described below) under which its
distribution fee and/or service fee is paid, (iii) each class of shares has
different exchange privileges, (iv) certain classes of shares are subject to a
conversion feature and (v) certain classes of shares have different shareholder
service options available.
The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charges, where applicable). The net asset values per share
of the Class A Shares, Class B Shares and Class C Shares are generally expected
to be substantially the same. In certain circumstances, however, the per share
net asset values of the classes of shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fees and
transfer agency costs applicable to the Class B Shares and Class C Shares and
the differential in the dividends that may be paid on each class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading, except on any day on which no purchase or redemption orders
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<PAGE> 18
are received or there is not a sufficient degree of trading in the Fund's
portfolio securities such that the Fund's net asset value per share might be
materially affected. The Fund's Board of Trustees reserves the right to
calculate the net asset value per share and adjust the offering price based
thereon more frequently than once daily if deemed desirable. Net asset value per
share for each class is determined by dividing the value of the Fund's portfolio
securities, cash and other assets (including accrued interest) attributable to
such class, less all liabilities (including accrued expenses) attributable to
such class, by the total number of shares of the class outstanding. Portfolio
securities are valued by using market quotations, prices provided by market
makers or estimates of market values determined in good faith based upon yield
data relating to instruments or securities with similar characteristics in
accordance with procedures established by the Board of Trustees of the Fund.
Securities for which market quotations are not readily available and other
assets are valued at their fair value as determined in good faith by the Adviser
in accordance with procedures established by the Board of Trustees of the Fund.
Short-term investments with remaining maturities of 60 days or less are valued
at cost plus interest earned (amortized cost) which approximates market value.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund also has adopted a service
plan (the "Service Plan") with respect to each class of its shares. Under the
Distribution Plan and the Service Plan, the Fund pays distribution fees in
connection with the sale and distribution of its shares and service fees in
connection with the provision of ongoing services to shareholders and the
maintenance of such shareholders' accounts.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution and service fees and other expenses of the Fund associated with
such class of shares. To assist investors in comparing classes of shares, the
tables under the heading "Fees and Expenses of the Fund" provide a summary of
sales charges and expenses and an example of the sales charges and expenses of
the Fund applicable to each class of shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through members
of the NASD who are acting as securities dealers ("dealers") and NASD members or
eligible non-NASD members who are acting as brokers or agents for investors
("brokers"). "Dealers" and "brokers" are sometimes referred to herein as
"authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares by
selecting the correct Fund number on the account application form accompanying
the prospectus. Sales personnel of authorized dealers distributing the Fund's
shares are entitled to receive compensation for selling such shares and may
receive differing compensation for selling Class A Shares, Class B Shares or
Class C Shares.
The offering price for shares is based upon the next calculation of net asset
value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such date. Orders received by authorized dealers after the close of
the Exchange or transmitted to Investor Services after its close of business are
priced based on the date of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such date. It is the responsibility of authorized dealers to
transmit
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16
<PAGE> 19
orders received by them to Investor Services so they will be received in a
timely manner.
The Fund and the Distributor reserve the right to refuse any order for the
purchase of shares. The Fund also reserves the right to suspend the sale of the
Fund's shares in response to conditions in the securities markets or for other
reasons. Shares of the Fund may be sold in foreign countries where permissible.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investor Services Inc., PO Box 218256,
Kansas City, MO 64121-8256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund may impose a
contingent deferred sales charge of 1.00% on certain redemptions made within
one year of the purchase. The contingent deferred sales charge is assessed
on an amount equal to the lesser of the then current market value or the
cost of the shares being redeemed. Accordingly, no sales charge is imposed
on increases in net asset value above the initial purchase price.
No sales charge is imposed on Class A Shares received from reinvestment of
dividends or capital gain dividends.
Under the Distribution Plan and Service Plan, the Fund may spend up to a total
of 0.25% per year of the Fund's average daily net assets with respect to the
Class A Shares of the Fund. From such amount, under the Service Plan, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets with
respect to the Class A Shares of the Fund.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge if redeemed within six years of purchase as
shown in the table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- ------------------------------------------------
<S> <C> <C> <C>
First 4.00%
................................................
Second 3.75%
................................................
Third 3.50%
................................................
Fourth 2.50%
................................................
Fifth 1.50%
................................................
Sixth 1.00%
................................................
Seventh and After None
................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class B
Shares in an amount of $500,000 or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for each purchase of Class B Shares
until the time of redemption of such shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the shares being redeemed first are any shares in
the
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17
<PAGE> 20
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class B Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class B Shares of the
Fund.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the dollar amount subject to charge
if redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gain dividends. It
is presently the policy of the Distributor not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge applies to a
redemption, it is assumed that the shares being redeemed first are any shares in
the shareholder's Fund account that are not subject to a contingent deferred
sales charge followed by shares held the longest in the shareholder's account.
Under the Distribution Plan, the Fund may spend up to 0.75% per year of the
Fund's average daily net assets with respect to the Class C Shares of the Fund.
In addition, under the Service Plan, the Fund may spend up to 0.25% per year of
the Fund's average daily net assets with respect to the Class C Shares of the
Fund.
CONVERSION FEATURE
Class B Shares, including Class B Shares received from reinvestment of dividends
through the dividend reinvestment plan, automatically convert to Class A Shares
eight years after the end of the calendar month in which the shares were
purchased. Such conversion will be on the basis of the relative net asset values
per share, without the imposition of any sales load, fee or other charge. The
conversion schedule applicable to a share of the Fund acquired through the
exchange privilege from another Van Kampen fund participating in the exchange
program is determined by reference to the Van Kampen fund from which such share
was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or capital gain dividends
constituting "preferential dividends" under the federal income tax law and (ii)
the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) for
required minimum distributions from an individual retirement account ("IRA") or
certain other retirement plan distributions, (iii) for withdrawals under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if the reinvestment is made within 180 days after the redemption. For a more
complete description of contingent deferred sales charge waivers, please refer
to the Fund's Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to
-
18
<PAGE> 21
pay reduced or no sales charges. Investors, or their authorized dealers, must
notify the Fund at the time of the purchase order whenever a quantity discount
is applicable to purchases. Upon such notification, an investor will pay the
lowest applicable sales charge. Quantity discounts may be modified or terminated
at any time. For more information about quantity discounts, investors should
contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds currently owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating investments over a 13-month period
to determine the sales charge as out-lined in the Class A Shares sales charge
table. The size of investment shown in the Class A Shares sales charge table
includes purchases of shares of the Participating Funds over a 13-month period
based on the total amount of intended purchases plus the value of all shares of
the Participating Funds previously purchased and still owned. An investor may
elect to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
The initial purchase must be for an amount equal to at least 5% of the minimum
total purchase amount of the level selected. If trades not initially made under
a Letter of Intent subsequently qualify for a lower sales charge through the
90-day backdating provisions, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower sales charge. Such adjustment
in sales charge will be used to purchase additional shares. The Fund initially
will escrow shares totaling 5% of the dollar amount of the Letter of Intent to
be held by Investor Services in the name of the shareholder. In the event the
Letter of Intent goal is not achieved within the specified period, the investor
must pay the difference between the sales charge applicable to the purchases
made and the reduced sales charge previously paid. Such payments may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain the difference.
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.
-
19
<PAGE> 22
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.
In order to obtain these special benefits, the Fund requires that all dividends
and other distributions from the Fund must be reinvested in additional shares
and there cannot be any systematic withdrawal program. There will be no minimum
for reinvestments from unit investment trusts. The Fund will send account
activity statements to such participants on a quarterly basis only, even if
their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired trustees or directors of funds advised by Morgan Stanley
Dean Witter & Co. and any of its subsidiaries and such persons' families and
their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries; employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21 years
of age when purchasing for any accounts they beneficially own, or, in the
case of any such financial institution, when purchasing for retirement plans
for such institution's employees; provided that such purchases are otherwise
permitted by such institutions.
(4) Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.
(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
(6) Beneficial owners of shares of Participating Funds held by a retirement plan
or held in a tax-advantaged retirement account who purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.
(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
(8) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code and assets held by an employer
or trustee in connection with an eligible deferred compensation plan under
Section 457 of the Code. Such plans will qualify for purchases at net asset
value provided for plans initially establishing accounts with the
Distributor in the Participating Funds after January 1, 2000 that (1) the
total plan assets are at least $1 million or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have received
proposals from the Distributor prior to January 1, 2000 based on net asset
value purchase privileges previously in effect will be
-
20
<PAGE> 23
qualified to purchase shares of the Participating Funds at net asset value.
Section 403(b) and similar accounts for which Van Kampen Trust Company
serves as custodian will not be eligible for net asset value purchases based
on the aggregate investment made by the plan or the number of eligible
employees, except under certain uniform criteria established by the
Distributor from time to time. For purchases on February 1, 1997 and
thereafter, a commission will be paid on purchases as follows: 1.00% on
sales to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the
next $47 million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the Fund
and Participating Funds, (iv) has a membership that the authorized dealer
can certify as to the group's members and (v) satisfies other uniform
criteria established by the Distributor for the purpose of realizing
economies of scale in distributing such shares. A qualified group does not
include one whose sole organizational nexus, for example, is that its
participants are credit card holders of the same institution, policy holders
of an insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
contingent deferred sales charge of 1.00% in the event of redemption within
one year of purchase, and a commission will be paid to authorized dealers
who initiate and are responsible for such sales to each individual as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age,
grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described above
on purchases made under options (3) through (9). The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
REDEMPTION OF SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian/trustee of a
retirement plan account may involve additional fees charged by the dealer or
custodian/trustee.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
receipt by Investor Services of the request and any other necessary documents in
proper form as described below. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the SEC. Such payment may,
under certain circumstances, be paid wholly or in part by a distribution-in-kind
of portfolio securities which may result in brokerage costs and a gain or loss
for federal income tax purposes when such securities are sold. If the shares to
be redeemed have been recently purchased by check, Investor Services may delay
the payment of redemption proceeds until it confirms the purchase check has
cleared, which may take up to 15 days. A taxable gain or loss will be recognized
by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor
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21
<PAGE> 24
Services Inc., PO Box 218256, Kansas City, MO 64121-8256. The request for
redemption should indicate the number of shares or dollar amount to be redeemed,
the Fund name and class designation of such shares and the shareholder's account
number. The redemption request must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption request to be in proper form.
In some cases, however, additional documents may be necessary. In the case of
shareholders holding certificates, the certificates for the shares being
redeemed must be properly endorsed for transfer and must accompany the
redemption request. In the event a redemption is requested by and registered to
a corporation, partnership, trust, fiduciary estate or other legal entity, a
copy of the corporate resolution or other legal documentation appointing the
authorized signer and certified within the prior 120 days must accompany the
redemption request. Retirement plan distribution requests should be sent to the
custodian/trustee to be forwarded to Investor Services. Contact the
custodian/trustee for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. The redemption price for such shares is
the net asset value per share next calculated after an order in proper form is
received by an authorized dealer provided such order is transmitted to the
Distributor prior to the Distributor's close of business on such day. It is the
responsibility of authorized dealers to transmit redemption requests received by
them to the Distributor so they will be received prior to such time. Redemptions
completed through an authorized dealer may involve additional fees charged by
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. A shareholder
automatically has telephone redemption privileges unless the shareholder
indicates otherwise by checking the applicable box on the application form
accompanying the prospectus. For accounts that are not established with
telephone redemption privileges, a shareholder may call the Fund at (800)
341-2911 to request that a copy of the Telephone Redemption Authorization form
be sent to the shareholder for completion. To redeem shares, contact the
telephone transaction line at (800) 421-5684. Shares may also be redeemed by
phone through FundInfo(R) (automated phone system) which is accessible 24 hours
a day, seven days a week at (800) 847-2424. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
none of Van Kampen Investments, Investor Services or the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
Telephone redemptions may not be available if the shareholder cannot reach
Investor Services by telephone, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
other redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for most
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and
-
22
<PAGE> 25
sent to the address of record for the account or wired directly to their
predesignated bank account. This privilege is not available if the address of
record has been changed within 30 days prior to a telephone redemption request.
Proceeds from redemptions payable by wire transfer are expected to be wired on
the next business day following the date of redemption. The Fund reserves the
right at any time to terminate, limit or otherwise modify this redemption
privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account that
has a value on the date of the notice of redemption less than the minimum
initial investment as specified in this prospectus. At least 60 days' advance
written notice of any such involuntary redemption will be provided to the
shareholder and such shareholder will be given an opportunity to purchase the
required value of additional shares at the next determined net asset value
without sales charge. Any involuntary redemption may only occur if the
shareholder account is less than the minimum initial investment due to
shareholder redemptions.
DISTRIBUTIONS
FROM THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive distributions from the Fund of dividends and capital
gain dividends.
DIVIDENDS. Interest earned from investments is the Fund's main source of net
investment income. The Fund's present policy, which may be changed at any time
by the Fund's Board of Trustees, is to declare daily and distribute monthly all
or substantially all of its net investment income as dividends to shareholders.
Dividends are automatically applied to purchase additional shares of the Fund at
the next determined net asset value unless the shareholder instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAIN DIVIDENDS. The Fund may realize capital gains or losses when it
sells securities, depending on whether the sales prices for the securities are
higher or lower than purchase prices. The Fund distributes any capital gains to
shareholders at least annually. As in the case of dividends, capital gain
dividends are automatically reinvested in additional shares of the Fund at the
next determined net asset value unless the shareholder instructs otherwise.
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gain dividends in shares of the
Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gain dividend.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 341-2911 ((800)
421-2833 for the hearing impaired) or by writing to Investor Services. The
investor may, on the initial application or prior to any declaration, instruct
that dividends and/or capital gain dividends be paid in cash, be reinvested in
the Fund at net asset value or be invested in another Van Kampen fund at net
asset value.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to debit the shareholder's bank
account on a regular basis to invest pre-determined amounts in the Fund.
Additional information is available from the Distributor or your authorized
dealer.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are not in escrow may write
checks against such shareholder's account by completing the Authorization for
Redemption by
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23
<PAGE> 26
Check form and the appropriate section of the application and returning the form
and the application to Investor Services. Once the form is properly completed,
signed and returned, a supply of checks (redemption drafts) will be sent to the
Class A shareholder. Checks can be written to the order of any person in any
amount of $100 or more.
When a check is presented to the custodian bank State Street Bank and Trust
Company (the "Bank") for payment, full and fractional Class A Shares required to
cover the amount of the check are redeemed from the shareholder's account by
Investor Services at the next determined net asset value per share. Check
writing redemptions represent the sale of Class A Shares. Any gain or loss
realized on the redemption of shares is a taxable event.
Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's account, the check will be
returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or by
the Bank and neither shall incur any liability for such amendment or termination
or for effecting redemptions to pay checks reasonably believed to be genuine or
for returning or not paying on checks which have not been accepted for any
reason. Retirement plans and accounts that are subject to backup withholding are
not eligible for the check writing privilege.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund prior to
implementing an exchange. A prospectus of any of the Participating Funds may be
obtained from an authorized dealer or the Distributor.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the Adviser,
under normal circumstances, not to approve such requests.
When shares that are subject to a contingent deferred sales charge are exchanged
among Participating Funds, the holding period for purposes of computing the
contingent deferred sales charge is based upon the date of the initial purchase
of such shares from a Participating Fund. When such shares are redeemed and not
exchanged for shares of another Participating Fund, the shares are subject to
the contingent deferred sales charge schedule imposed by the Participating Fund
from which such shares were originally purchased.
Exchanges of shares are sales of shares of one Participating Fund and purchases
of shares of another Participating Fund. The sale may result in a gain or loss
for federal income tax purposes. If the shares sold have been held for less than
91 days, the sales charge paid on such shares is carried over and included in
the tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services, by contacting the telephone transaction line at (800)
421-5684, through FundInfo(R) (automated phone system) at (800) 847-2424 or
through the internet at www.vankampen.com. A shareholder automatically has these
telephone exchange privileges unless the shareholder indicates otherwise by
checking the applicable box on the application form accompanying the prospectus.
Van Kampen Investments and its subsidiaries, including Investor Services, and
the Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, none of Van Kampen Investments, Investor Services or
the Fund will be liable for following telephone instructions which it
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<PAGE> 27
reasonably believes to be genuine. If the exchanging shareholder does not have
an account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gain dividend
options (except dividend diversification) and authorized dealer of record as the
account from which shares are exchanged, unless otherwise specified by the
shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund, however,
an exchanging shareholder must submit a specific request. The Fund reserves the
right to reject any order to acquire its shares through exchange. In addition,
the Fund and other Participating Funds may restrict exchanges by shareholders
engaged in excessive trading by limiting or disallowing the exchange privilege
to such shareholders. For further information on these restrictions see the
Fund's Statement of Additional Information. The Fund may modify, restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of such shareholder's securities, the
security upon which the highest sales charge rate was previously paid is deemed
exchanged first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares of the fund which the
shareholder is redeeming will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the fund that the shareholder is
purchasing will also normally be purchased at the net asset value per share,
plus any applicable sales charge, next determined on the date of receipt.
Exchange requests received on a business day after the time shares of the funds
involved in the request are priced will be processed on the next business day in
the manner described herein.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments and its
subsidiaries, including Investor Services, and the Fund employ procedures
considered by them to be reasonable to confirm that instructions communicated
through the internet are genuine. Such procedures include requiring use of a
personal identification number prior to acting upon internet instructions and
providing written confirmation of instructions communicated through the
internet. If reasonable procedures are employed, none of Van Kampen Investments,
Investor Services or 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.
CALIFORNIA TAXATION
Under existing California income tax law, if at the close of each quarter of the
Fund's taxable year at least 50% of the value of its total assets consists of
obligations that, when held by individuals, pay interest that is exempt from tax
under California law, shareholders of the Fund who are subject to the California
personal income tax will not be subject to such tax on distributions with
respect to their shares of the Fund to the extent that such distributions are
attributable to such tax-exempt interest from such obligations (less expenses
applicable thereto). If such distributions are received by a corporation subject
to the California franchise tax, however, the distributions will be includable
in its gross income for purposes of determining its California franchise tax.
Corporations subject to the California corporate income tax may be subject to
such taxes with respect to distributions from the Fund. Under California
personal property tax law, securities owned by the Fund and any interest thereon
are exempt from such personal property tax.
The state tax discussion set forth above is for general information only.
Prospective investors should consult their own tax advisers regarding the
specific state tax consequences of holding and disposing of shares, as well as
the effects of federal, local and foreign tax law and any proposed tax law
changes.
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<PAGE> 28
FEDERAL INCOME TAXATION
The Fund intends to invest in sufficient tax-exempt municipal securities to
permit payment of "exempt-interest dividends" (as defined under applicable
federal income tax law). Exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. Exempt-interest dividends are included in determining what
portion, if any, of a person's social security and railroad retirement benefits
will be includable in gross income subject to federal income tax.
Under applicable federal income tax law, the interest on certain municipal
securities may be an item of tax preference subject to the federal alternative
minimum tax. The Fund may invest a portion of its assets in municipal securities
subject to this provision so that a portion of its exempt-interest dividends may
be an item of tax preference to the extent such dividends represent interest
received from such municipal securities. Accordingly, investment in the Fund
could cause shareholders to be subject to (or result in an increased liability
under) the alternative minimum tax.
Although exempt-interest dividends from the Fund generally may be treated by
shareholders as interest excluded from their gross income, each shareholder is
advised to consult his or her tax adviser with respect to whether
exempt-interest dividends retain this exclusion given the investor's tax
circumstances. For example, exempt-interest dividends may not be excluded if the
shareholder would be treated as a "substantial user" (or a "related person" of a
substantial user, as each term is defined by applicable federal income tax law)
of the facilities financed with respect to any of the tax-exempt obligations
held by the Fund.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible for federal income tax purposes if
the Fund distributes exempt-interest dividends during the shareholder's taxable
year. If a shareholder receives an exempt-interest dividend with respect to any
shares and such shares are held for six months or less, any loss on the sale or
exchange of the shares will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the Fund expects that a major portion of its income will constitute
tax-exempt interest, a significant portion of the Fund's income may consist of
investment company taxable income (generally taxable income and net short-term
capital gain). Distributions of investment company taxable income are taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gain (which is the excess of net long-term capital
gain over net short-term capital loss) as capital gain dividends, if any, are
taxable to shareholders as long-term capital gains, whether paid in cash or
reinvested in additional shares, and regardless of how long the shares of the
Fund have been held by such shareholders. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming such shares are held as a capital asset).
Although distributions generally are treated as taxable in the year they are
paid, distributions declared in October, November or December, payable to
shareholders of record on a specified date in such month and paid during January
of the following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The aggregate
amount of dividends designated as exempt-interest dividends cannot exceed,
however, the excess of the amount of interest exempt from tax under Section 103
of the Code received by the Fund during the year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. Since the percentage of
dividends which are exempt-interest dividends is determined on an average annual
method for the taxable year, the percentage of income designated as tax-exempt
for any particular dividend may be substantially different from the percentage
of the Fund's income that was tax exempt during the period covered by the
dividend. Fund distributions generally will not qualify for the dividends
received deduction for corporations.
The sale or exchange of shares may be a taxable transaction for federal income
tax purposes. Shareholders who sell their shares will generally recognize gain
or loss in an amount equal to the difference between their adjusted tax basis in
the shares sold and the amount received. If the shares are held as a capital
asset, the gain or loss will be a capital gain or loss.
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26
<PAGE> 29
Any recognized capital gains may be taxed at different rates depending on how
long the shareholder held such shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least an amount equal to 90% of its investment company taxable
income and 90% of its net tax-exempt interest income, the Fund will not be
required to pay federal income taxes on any income it distributes to
shareholders. If the Fund distributes less than an amount equal to the sum of
98% of its ordinary income and 98% of its capital gain net income, then the Fund
will be subject to a 4% excise tax on such undistributed amounts.
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
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<PAGE> 30
APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P corporate or municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the obligor or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT
Investment Grade
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
Speculative Grade
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
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<PAGE> 31
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: Debt rated "C" is currently highly vulnerable to nonpayment. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r: This symbol highlights derivative, hybrid and certain other obligations that
S&P believes may experience high volatility or high variability in expected
returns as a result of non credit risks. Examples include: obligations linked or
indexed to equities, currencies, or commodities; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
2. MUNICIPAL NOTES
A S&P note rating reflects the liquidity factors and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- -- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
- -- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong or strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse Financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
3. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the due date, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any
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<PAGE> 32
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
4. TAX-EXEMPT DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or demand
feature as part of their structure. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols for the
put option (for example, 'AAA/A-1+'). With short-term demand debt, S&P's note
rating symbols are used with the commercial paper rating symbols (for example,
'SP-1+/A-1+').
MOODY'S INVESTORS SERVICE, INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other market shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
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<PAGE> 33
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date date to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM EXEMPT NOTES
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature-variable rate demand obligation. Such ratings will be designated as
VMIG, SG or, if the demand feature is not rated, as NR.
Moody's short-term ratings are designated Moody's Investment Grade as MIG 1 or
VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's assigns a MIG
or VMIG rating, all categories define an investment grade situation.
MIG 1/VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
SG. This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.
3. TAX-EXEMPT COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (on supporting institutions) have a superior ability for
repayment of short-term debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a ranges of financial markets and assured sources
of alternative liquidity.
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<PAGE> 34
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supported institutions) have an acceptable ability for
repayment of short-term debt obligations. The effect of industry characteristics
and market compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained.
Issuers rated Not Prime do not fall within any of the prime rating categories.
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<PAGE> 35
BOARD OF TRUSTEES
AND OFFICERS
BOARD OF TRUSTEES
<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*, Chairman
Mitchell M. Merin* Suzanne H. Woolsey
Jack E. Nelson Paul G. Yovovich
</TABLE>
OFFICERS
Richard F. Powers, III*
President
Dennis J. McDonnell*
Executive Vice President & Chief Investment Officer
A. Thomas Smith III*
Vice President and Secretary
Edward C. Wood III*
Vice President
Michael H. Santo*
Vice President
Peter W. Hegel*
Vice President
Stephen L. Boyd*
Vice President
John L. Sullivan*
Vice President, Chief Financial Officer & Treasurer
* "Interested Persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders,
or redemptions, call the Distributor at (800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications Device for the
Deaf (TDD), call (800) 421-2833
FUNDINFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 218256
Kansas City, MO 64121-8256
Attn: Van Kampen California Municipal Income Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street, PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen California Municipal Income Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601
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<PAGE> 36
[VAN KAMPEN FUNDS LOGO]
The Fund's Investment Company Act
File No. is 811- 4386. CAM PRO 3/00
VAN KAMPEN
CALIFORNIA MUNICIPAL
INCOME FUND
PROSPECTUS
MARCH 7, 2000
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports to
shareholders. The annual report explains the
market conditions and investment strategies
affecting the Fund's performance during its
last fiscal year.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC's Public
Reference Room in Washington, DC or on the
EDGAR database on the SEC's internet site
(http://www.sec.gov). Information on the
operation of the SEC's Public Reference Room
may be obtained by calling the SEC at
1-202-942-8090. You can also request copies of
these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail
address ([email protected]), or by writing
the Public Reference Section of the SEC,
Washington, DC 20549-0102.
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
Van Kampen California Municipal Income Fund (the "Fund") is a mutual fund
with the investment objective to provide investors a high level of current
income exempt from federal and California income taxes, consistent with
preservation of capital. The Fund is designed for investors who are residents of
California for California tax purposes.
The Fund is organized as a diversified series of Van Kampen Tax Free Trust,
an open-end, management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911 (or (800) 421-2833
for the hearing impaired).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objective, Policies and Risks.................... B-3
Strategic Transactions...................................... B-11
Investment Restrictions..................................... B-16
Trustees and Officers....................................... B-17
Investment Advisory Agreement............................... B-26
Other Agreements............................................ B-26
Distribution and Service.................................... B-27
Transfer Agent.............................................. B-29
Portfolio Transactions and Brokerage Allocation............. B-29
Shareholder Services........................................ B-31
Redemption of Shares........................................ B-33
Contingent Deferred Sales Charge-Class A.................... B-33
Waiver of Class B and Class C Contingent Deferred Sales
Charges................................................... B-33
Taxation.................................................... B-35
Fund Performance............................................ B-39
Other Information........................................... B-41
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MARCH 7, 2000.
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<PAGE> 38
GENERAL INFORMATION
The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust (the "Declaration
of Trust") dated May 10, 1995. The Declaration of Trust permits the Trustees to
create one or more separate investment portfolios and issue a series of shares
for each portfolio, such as the Fund. The Trustees may create one or more
classes of shares for each such series.
The Trust was originally organized in 1985 under the name Van Kampen
Merritt Tax Free Trust as a Massachusetts business trust (the "Massachusetts
Trust"). The Massachusetts Trust was reorganized into the Trust under the name
Van Kampen American Capital Tax Free Trust on July 31, 1995. The Trust was
created for the purpose of facilitating the Massachusetts Trust reorganization
into a Delaware business trust. On July 14, 1998, the Trust adopted its current
name.
The Fund was originally organized under the name Van Kampen Merritt
California Tax Free Income Fund as a sub-trust of the Massachusetts Trust. The
Fund was reorganized as a series of the Trust under the name Van Kampen American
Capital California Tax Free Income Fund on July 31, 1995. On July 14, 1998, the
Fund changed its name to Van Kampen California Tax Free Income Fund. On January
27, 2000, the Fund adopted its current name.
Van Kampen Investment Advisory Corp. (the "Adviser" or "Advisory Corp."),
Van Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. ("Van Kampen Investments"), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. ("Morgan Stanley Dean Witter"). The principal
office of the Trust, the Fund, the Adviser, the Distributor and Van Kampen
Investments is located at 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555. The principal office of Investor Services is located at PO Box
218256, Kansas City, Missouri 64121-8256.
Morgan Stanley Dean Witter is a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities; asset management and credit services.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and separate votes are taken by each class of a series on matters
affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.
The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").
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In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the rights of shareholders of
any series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the 1940 Act or other applicable law) and except that the Trustees cannot amend
the Declaration of Trust to impose any liability on shareholders, make any
assessment on shares or impose liabilities on the Trustees without approval from
each affected shareholder or Trustee, as the case may be.
Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of the date of this Statement of Additional Information there were no
shares of the Fund issued or outstanding.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following disclosure supplements the disclosure set forth under the
same caption in the Prospectus and does not, standing alone, present a complete
or accurate explanation of the matters disclosed. Readers must refer also to
this caption in the Prospectus for a complete presentation of the matters
disclosed below.
MUNICIPAL SECURITIES
Municipal securities include long-term obligations, which often are called
municipal bonds, as well as shorter term municipal notes, municipal leases, and
tax exempt commercial paper. Under normal market conditions, longer term
municipal securities generally provide a higher yield than shorter term
municipal securities. The Fund may invest in shorter term municipal securities
when yields are greater than yields available on longer term municipal
securities, for temporary defensive purposes or when redemption requests are
expected. The two principal classifications of municipal securities are "general
obligation" and "revenue" or "special obligation" securities, which include
"industrial revenue bonds." General obligation securities are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue or special obligation securities are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or other specific
revenue source, such as from the user of the facility being financed. The Fund
may also invest in "moral obligation" bonds which are normally issued by special
purpose public authorities. If an issuer of moral obligation bonds is unable to
meet its obligations, the repayment of such bonds becomes a moral commitment but
not a legal obligation of the state or municipality in question.
Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of state and local
governments or authorities used to finance the acquisition of equipment and
facilities. Lease obligations generally do not constitute general obligations of
the municipality for which the municipality's taxing power is pledged. A lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. A risk exists that the municipality will not, or will be unable
to, appropriate money in the future in the event of political changes, changes
in the economic viability of the project, general economic changes or for other
reasons. In addition to the "non-appropriation" risk, these securities represent
a relatively new type of financing that has not yet developed the depth of
marketability associated with more conventional bonds.
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Although "non-appropriation" lease obligations are often secured by an
assignment of the lessee's interest in the leased property, management and/or
disposition of the property in the event of foreclosure could be costly, time
consuming and result in unsatisfactory recoupment of the Fund's original
investment. Additionally, use of the leased property may be limited by state or
local law to a specified use thereby further limiting ability to rent. There is
no limitation on the percentage of the Fund's assets that may be invested in
"non-appropriation" lease obligations. In evaluating such lease obligations, the
Adviser will consider such factors as it deems appropriate, which factors may
include (a) whether the lease can be cancelled, (b) the ability of the lease
obligee to direct the sale of the underlying assets, (c) the general
creditworthiness of the lease obligor, (d) the likelihood that the municipality
will discontinue appropriating funding for the leased property in the event such
property is no longer considered essential by the municipality, (e) the legal
recourse of the lease obligee in the event of such a failure to appropriate
funding and (f) any limitations which are imposed on the lease obligor's ability
to utilize substitute property or services than those covered by the lease
obligation.
Also included in the term municipal securities are participation
certificates issued by state and local governments or authorities to finance the
acquisition of equipment and facilities. They may represent participations in a
lease, an installment purchase contract, or a conditional sales contract.
The Fund may purchase floating and variable rate demand notes, which are
municipal securities normally having a stated maturity in excess of one year,
but which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such notes normally has a corresponding
right, after a given period, to prepay at its discretion upon notice to the
noteholders the outstanding principal amount of the notes plus accrued interest.
The interest rate on a floating rate demand note is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
The Fund also may invest up to 15% of its total assets in derivative
variable rate municipal securities such as inverse floaters whose rates vary
inversely with changes in market rates of interest or range floaters or capped
floaters whose rates are subject to periodic or lifetime caps. Derivative
variable rate securities may pay a rate of interest determined by applying a
multiple to the variable rate. The extent of increases and decreases in the
value of derivative variable rate securities in response to changes in market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity.
The Fund also may acquire custodial receipts or certificates underwritten
by securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain municipal securities. The
underwriter of these certificates or receipts typically purchases municipal
securities and deposits the securities in an irrevocable trust or custodial
account with a custodian bank, which then issues receipts or certificates that
evidence ownership of the periodic unmatured coupon payments and the final
principal payment on the obligations. Although under the terms of a custodial
receipt, the Fund typically would be authorized to assert its rights directly
against the issuer of the underlying obligation, the Fund could be required to
assert through the custodian bank those rights as may exist against the
underlying issuer. Thus, in the event the underlying issuer fails to pay
principal or interest when due, the Fund may be subject to delays, expenses and
risks that are greater than those that would have been involved if the Fund had
purchased a direct obligation of the issuer. In addition, in the event that the
trust or custodial account in which the underlying security has been deposited
is determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
recognition of any taxes paid.
The "issuer" of municipal securities generally is deemed to be the
governmental agency, authority, instrumentality or other political subdivision,
or the non-governmental user of a revenue bond-financed facility, the assets and
revenues of which will be used to meet the payment obligations, or the guarantee
of such payment obligations, of the municipal securities.
Municipal securities, like other debt obligations, are subject to the risk
of non-payment. The ability of issuers of municipal securities to make timely
payments of interest and principal may be adversely impacted in general economic
downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such non-payment
would result in a reduction of income to the
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Fund, and could result in a reduction in the value of the municipal security
experiencing non-payment and a potential decrease in the net asset value of the
Fund. Issuers of municipal securities might seek protection under the bankruptcy
laws. In the event of bankruptcy of such an issuer, the Fund could experience
delays and limitations with respect to the collection of principal and interest
on such municipal securities and the Fund may not, in all circumstances, be able
to collect all principal and interest to which it is entitled. To enforce its
rights in the event of a default in the payment of interest or repayment of
principal, or both, the Fund may take possession of and manage the assets
securing the issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the net asset value of the Fund.
Any income derived from the Fund's ownership or operation of such assets may not
be tax-exempt. In addition, the Fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), may limit the extent to which the Fund may exercise its rights by
taking possession of such assets, because as a regulated investment company the
Fund is subject to certain limitations on its investments and on the nature of
its income. Further, in connection with the working out or restructuring of a
defaulted security, the Fund may acquire additional securities of the issuer,
the acquisition of which may be deemed to be a loan of money or property. Such
additional securities should be considered speculative with respect to the
capacity to pay interest or repay principal in accordance with their terms.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
As described in the Prospectus, except during temporary periods, the Fund
will invest substantially all of its assets in California municipal securities.
The portfolio of the Fund may include securities issued by the State of
California (the "State"), by its various public bodies (the "Agencies") and/or
by other municipal entities located within the State (securities of all such
entities are referred to herein as "California municipal securities").
In addition, the specific California municipal securities in which the Fund
will invest will change from time to time. The Fund is therefore susceptible to
political, economic, regulatory or other factors affecting issuers of California
municipal securities. The following information constitutes only a brief summary
of a number of the complex factors which may impact issuers of California
municipal securities and does not purport to be a complete or exhaustive
description of all adverse conditions to which issuers of California municipal
securities may be subject. Such information is derived from official statements
utilized in connection with the issuance of California municipal securities, as
well as from other publicly available documents. Such information has not been
independently verified by the Fund and the Fund assumes no responsibility for
the completeness or accuracy of such information. Additionally, many factors,
including national, economic, social and environmental policies and conditions,
which are not within the control of such issuers, could have an adverse impact
on the financial condition of such issuers. The Fund cannot predict whether or
to what extent such factors or other factors may affect the issuers of
California municipal securities, the market value or marketability of such
securities or the ability of the respective issuers of such securities acquired
by the Fund to pay interest on or principal of such securities. The
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and there is no assurance on the part of the State of California to
make payments on such local obligations. There may be specific factors that are
applicable in connection with investment in the obligations of particular
issuers located within California, and it is possible the Fund will invest in
obligations of particular issuers as to which such specific factors are
applicable. However, the information set forth below is intended only as a
general summary and not as a discussion of any specific factors that may affect
any particular issuer of California municipal securities.
State Indebtedness. The Treasurer of the State of California (the "State")
is responsible for the sale of debt obligations of the State and its various
authorities and agencies. The State has always paid the principal of and
interest on its general obligation bonds, general obligation commercial paper,
lease-purchase debt and short-term obligations, including revenue anticipation
notes and revenue anticipation warrants, when due.
Capital Facilities Financing. The State Constitution prohibits the creation
of general obligation indebtedness of the State unless a bond law is approved by
a majority of the electorate voting at a general election or a direct primary.
General obligation bond acts provide that debt service on general obligation
bonds shall be
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appropriated annually from the State's General Fund and all debt service on
general obligation bonds is paid from the General Fund. Under the State
Constitution, debt service on general obligation bonds is the second charge to
the General Fund after the application of moneys in the General Fund to the
support of the public school system and public institutions of higher education.
Certain general obligation bond programs receive revenues from sources other
than the sale of bonds or the investment of bond proceeds.
As of October 1, 1999, the State had outstanding $19,630,276,000 aggregate
principal amount of long-term general obligation bonds, and unused voter
authorizations for the future issuance of $12,827,414,000 of long-term general
obligation bonds. This latter figure consists of $4,451,734,000 of authorized
commercial paper notes, described below (of which $814,565,000 was outstanding),
which has not yet been refunded by general obligation bonds, and $8,375,680,000
of other authorized but unissued general obligation debt.
In its 1999 session, the Legislature passed and the Governor signed five
bond acts, totaling $4.69 billion in new authorizations. These bond acts will be
placed on the March 7, 2000 ballot for voter approval.
Pursuant to legislation enacted in 1995, voter approved general obligation
indebtedness may be issued either as long-term bonds, or, for some but not all
bond acts, as commercial paper notes. Commercial paper notes may be renewed or
may be refunded by the issuance of long-term bonds. The State issues long-term
general obligation bonds from time to time to retire its general obligation
commercial paper notes. Pursuant to the terms of the bank credit agreement
presently in effect supporting the general obligation commercial paper program,
not more than $1.5 billion of general obligation commercial paper notes may be
outstanding at any time; this amount may be increased or decreased in the
future. Commercial paper notes are deemed issued upon authorization by the
respective Finance Committees, whether or not such notes are actually issued. As
of October 1, 1999 the Finance Committees had authorized the issuance of up to
$4,451,734,000 of commercial paper notes; as of that date $814,565,000 aggregate
principal amount of general obligation commercial paper notes was outstanding.
In addition to general obligation bonds, the State builds and acquires
capital facilities through the use of lease-purchase borrowing. Under these
arrangements, the State Public Works Board, another State or local agency or a
joint powers authority issues bonds to pay for the construction of facilities
such as office buildings, university buildings or correctional institutions.
These facilities are leased to a State agency or the University of California
under a long-term lease which provides the source of payment of the debt service
on the lease-purchase bonds. In some cases, there is not a separate bond issue,
but a trustee directly creates certificates of participation in the State's
lease obligation, which are marketed to investors. Under applicable court
decisions, such lease arrangements do not constitute the creation of
"indebtedness" within the meaning of the Constitutional provisions which require
voter approval. For purposes of this section, "lease-purchase debt" or
"lease-purchase financing" means principally bonds or certificates of
participation for capital facilities where the rental payments providing the
security are a direct or indirect charge against the General Fund and also
includes revenue bonds for a State energy efficiency program secured by payments
made by various State agencies under energy service contracts. Certain of the
lease-purchase financings are supported by special funds rather than the General
Fund. The State had $6,578,874,434 General Fund-supported lease-purchase debt
outstanding at October 1, 1999. The State Public Works Board, which is
authorized to sell lease revenue bonds, had $2,035,434,000 authorized and
unissued as of October 1, 1999. Also, as of that date certain joint powers
authorities were authorized to issue approximately $69,500,000 of revenue bonds
to be secured by State leases.
Certain State agencies and authorities issue revenue obligations for which
the General Fund has no liability. Revenue bonds represent obligations payable
from State revenue-producing enterprises and projects, which are not payable
from the General Fund, and conduit obligations payable only from revenues paid
by private users of facilities financed by the revenue bonds. The enterprises
and projects include transportation projects, various public works projects,
public and private educational facilities (including the California State
University and University of California systems), housing, health facilities and
pollution control facilities. There are 17 agencies and authorities authorized
to issue revenue obligations (excluding lease-purchase debt). State agencies and
authorities had $26,008,006,628 aggregate principal amount of revenue bonds and
notes which are non-recourse to the General Fund outstanding as of June 30,
1999.
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State Finances and the Budget Process. The State's fiscal year begins on
July 1 and ends on June 30. The State operates on a budget basis, using a
modified accrual system of accounting, with revenues credited in the period in
which they are measurable and available and expenditures debited in the period
in which the corresponding liabilities are incurred.
The annual budget is proposed by the Governor by January 10 of each year
for the next fiscal year (the "Governor's Budget"). Under state law, the annual
proposed Governor's Budget cannot provide for projected expenditures in excess
of projected revenues and balances available from prior fiscal years. Following
the submission of the Governor's Budget, the Legislature takes up the proposal.
Under the State Constitution, money may be drawn from the Treasury only
through an appropriation made by law. The primary source of the annual
expenditure authorizations is the Budget Act as approved by the Legislature and
signed by the Governor. The Budget Act must be approved by a two-thirds majority
vote of each House of the Legislature. The Governor may reduce or eliminate
specific line items in the Budget Act or any other appropriations bill without
vetoing the entire bill. Such individual line-item vetoes are subject to
override by a two-thirds majority vote of each House of the Legislature.
Appropriations also may be included in legislation other than the Budget
Act. Bills containing appropriations (except for K-14 education) must be
approved by a two-thirds majority vote in each House of the Legislature and be
signed by the Governor. Bills containing K-14 education appropriations only
require a simple majority vote. Continuing appropriations, available without
regard to fiscal year, may also be provided by statute or the State
Constitution. There is litigation pending concerning the validity of such
continuing appropriations.
Funds necessary to meet an appropriation need not be in the State Treasury
at the time such appropriation is enacted, revenues may be appropriated in
anticipation of their receipt.
The moneys of the State are segregated into the General Fund and over 900
special funds, including bond, trust and pension funds. The General Fund
consists of revenues received by the State Treasury and not required by law to
be credited to any other fund, as well as earnings from the investment of state
moneys not allocable to another fund. The General Fund is the principal
operating fund for the majority of governmental activities and is the depository
of most of the major revenue sources of the State. The General Fund may be
expended as a consequence of appropriation measures enacted by the Legislature
and approved by the Governor, as well as appropriations pursuant to various
constitutional authorizations and initiative statutes.
The Special Fund for Economic Uncertainties ("SFEU") is funded with General
Fund revenues and was established to protect the State from unforeseen revenue
reductions and/or unanticipated expenditure increases. Amounts in the SFEU may
be transferred by the State Controller as necessary to meet cash needs of the
General Fund. The State Controller is required to return moneys so transferred
without payment of interest as soon as there are sufficient moneys in the
General Fund.
At the time of signing of the 1999 Budget Act, on June 29, 1999, the
Department of Finance projected the SFEU would have a balance of about $1.932
billion at June 30, 1999, compared to the original budgeted amount of $1.1
billion. The 1999 Budget Act projects a balance in the SFEU of $880 million at
June 30, 2000.
Local Governments. The primary units of local government in California are
the counties, ranging in population from 1,200 in Alpine County to over
9,600,000 in Los Angeles County. Counties are responsible for the provision of
many basic services, including indigent health care, welfare, jails and public
safety in unincorporated areas. There are also about 470 incorporated cities,
and thousands of special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. Counties, in particular, have had fewer options to raise revenues than
many other local government entities, and have been required to maintain many
services.
In the aftermath of Proposition 13, the State provided aid to local
governments from the General Fund to make up some of the loss of property tax
moneys, including taking over the principal responsibility for
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funding K-12 schools and community colleges. During the recession, the
Legislature eliminated most of the remaining components of post-Proposition 13
aid to local government entities other than K-14 education districts by
requiring cities and counties to transfer some of their property tax revenues to
school districts. However, the Legislature also provided additional funding
sources (such as sales taxes) and reduced certain mandates for local services.
Since then the State has also provided additional funding to counties and cities
through such programs as health and welfare realignment, welfare reform, trial
court restructuring, the COPs program supporting local public safety
departments, and various other measures.
The 1999 Budget Act includes a $150 million one-time subvention from the
General Fund to local agencies for relief from the 1992 and 1993 property tax
shifts. Legislation has been passed, subject to voter approval at the election
in November, 2000, to provide a more permanent payment to local governments to
offset the property tax shift. In addition, legislation was enacted in 1999 to
provide annually up to $50 million relief to cities based on 1997-98 costs of
jail booking and processing fees paid to counties.
In 1996, voters approved Proposition 218, entitled the "Right to Vote on
Taxes Act," which incorporates new Articles XIII C and XIII D into the
California Constitution. These new provisions place limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995, must be approved by voters in order to remain in effect. In
addition, Article XIII C clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt which will require interpretation by the courts or the
Legislature. Proposition 218 does not affect the State or its ability to levy or
collect taxes.
State Appropriations Limit. The State is subject to an annual
appropriations limit imposed by Article XIII B of the State Constitution (the
"Appropriations Limit"). The Appropriations Limit does not restrict
appropriations to pay debt service on voter-authorized bonds.
Article XIII B prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed "the cost reasonably borne by that entity in providing the
regulation, product or service," but "proceeds of taxes" exclude most state
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriation of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.
The State's Appropriations Limit in each year is based on the limit for the
prior year, adjusted annually for changes in state per capital personal income
and changes in population, and adjusted, when applicable, for any transfer of
financial responsibility of providing services to or from another unit of
government or any transfer of the financial source for the provisions of
services from tax proceeds to non tax proceeds. The measurement of change in
population is a blended average of statewide overall population growth, and
change in attendance at local school and community college ("K-14") districts.
The Appropriations Limit is tested over consecutive two-year periods. Any excess
of the aggregate "proceeds of taxes" received over such two-year period above
the combined Appropriations Limits for those two years is divided equally
between transfers to K-14 districts and refunds to taxpayers.
The Legislature has enacted legislation to implement Article XIII B which
defines certain terms used in Article XIII B and sets forth the methods for
determining the Appropriations Limit. California Government
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Code Section 7912 requires an estimate of the Appropriations Limit to be
included in the Governor's Budget, and thereafter to be subject to the budget
process and established in the Budget Act.
Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (as modified by Proposition 111, which was enacted on June 5,
1990), K-14 schools are guaranteed the greater of (a) in general, a fixed
percent of General Fund revenues ("Test 1"), (b) the amount appropriated to K-14
schools in the prior year, adjusted for changes in the cost of living (measured
as in Article XIII B by reference to State per capita personal income) and
enrollment ("Test 2"), or (c) a third test, which would replace Test 2 in any
year when the percentage growth in per capita General Fund revenues from the
prior year plus one half of one percent is less than the percentage growth in
State per capita personal income ("Test 3"). Under Test 3, schools would receive
the amount appropriated in the prior year adjusted for changes in enrollment and
per capita General Fund revenues, plus an additional small adjustment factor. If
Test 3 is used in any year, the difference between Test 3 and Test 2 would
become a "credit" to schools which would be the basis of payments in future
years when per capital General Fund revenue growth exceeds per capita personal
income growth. Legislation adopted prior to the end of the 1988-89 Fiscal Year,
implementing Proposition 98, determined the K-14 schools' funding guarantee
under Test 1 to be 40.3 percent of the General Fund tax revenues, based on
1986-87 appropriations. However, that percent has been adjusted to approximately
35 percent to account for a subsequent redirection of local property taxes,
since such redirection directly affects the share of General Fund revenues to
schools.
Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. The settlement
of this case, finalized in July, 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State is repaying
$935 million by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected as an appropriation
above the current Proposition 98 base calculation. The schools' share of the
repayment will count as appropriations that count toward satisfying the
Proposition 98 guarantee, of from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact.
Tobacco Litigation. In late 1998, the State signed a settlement agreement
with the four major cigarette manufacturers, which was later ratified by a State
court judge having jurisdiction over a pending lawsuit brought by the State
against these companies. The settlement became final in late September, 1999.
Under the settlement, the companies will pay California governments a total of
approximately $25 billion over a period of 25 years. In addition, payments of
approximately $1 billion per year will continue in perpetuity. Under the
settlement, half of these moneys will be paid to the State and half to local
governments (all counties and the cities of San Diego, Los Angeles, San
Francisco and San Jose). The State's 1999-2000 Budget includes receipt of about
$560 million of these settlement moneys to the General Fund by June 30, 2000.
The specific amount to be received by the State and local governments is,
however, subject to adjustment for a number of reasons. Various details in the
settlement allow reduction of the companies' payments because of events such as
certain federal government actions, or reductions in cigarette sales. In the
event that any of the companies goes into bankruptcy, the State could seek to
terminate the agreement with respect to those companies filing bankruptcy
actions thereby reinstating all claims against those companies. The State may
then pursue those claims in the bankruptcy litigation, or as otherwise provided
by law.
1999-2000 Fiscal Year Budget. On January 8, 1999, Governor Davis released
his proposed budget for Fiscal Year 1999-00 (the "January Governor's Budget").
The January Governor's Budget generally reported
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that general fund revenues for FY 1998-99 and FY 1999-00 would be lower than
earlier projections (primarily due to weaker overseas economic conditions
perceived in late 1998), while some caseloads would be higher than earlier
projections. The January Governor's Budget proposed $60.5 billion of general
fund expenditures in FY 1999-00, with a $415 million SFEU reserve at June 30,
2000.
The 1999 May Revision showed an additional $4.3 billion of revenues for
combined fiscal years 1998-99 and 1999-00. The completion of the 1999 Budget Act
occurred in a timely fashion. The final Budget Bill was adopted by the
Legislature on June 16, 1999, and was signed by the Governor on June 29, 1999
(the "1999 Budget Act"), meeting the Constitutional deadline for budget
enactment for only the second time in the 1990's.
The final 1999 Budget Act estimated General Fund revenues and transfers of
$63.0 billion, and contained expenditures totaling $63.7 billion after the
Governor used his line-item veto to reduce the legislative Budget Bill
expenditures by $581 million (both General Fund and Special Fund). The 1999
Budget Act also contained expenditures of $16.1 billion from special funds and
$1.5 billion from bond funds. The Administration estimated that the SFEU would
have a balance at June 30, 2000, of about $880 million. Not included in this
amount was an additional $300 million which (after the Governor's vetoes) was
"set aside" to provide funds for employee salary increases (to be negotiated in
bargaining with employee unions), and for litigation reserves. The 1999 Budget
Act anticipates normal cash flow borrowing during the fiscal year.
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund may also purchase and sell securities on a "when-issued" and
"delayed delivery" basis. No income accrues to the Fund on 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 securities at delivery may be more or less than
their purchase price, and yields generally available on securities when delivery
occurs may be higher or lower than yields on the 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 securities on such basis only with the intention of
actually acquiring these securities, but the Fund may sell such securities prior
to the settlement date if such sale is considered to be advisable. To the extent
the Fund engages in "when-issued" and "delayed delivery" transactions, it will
do so for the purpose of acquiring securities for the Fund's portfolio
consistent with the Fund's investment objectives and policies and not for the
purposes of investment leverage. No specific limitation exists as to the
percentage of the Fund's assets which may be used to acquire securities on a
"when-issued" or "delayed delivery" basis.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased
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at a discount from the market price of unrestricted securities of the same
issuer reflecting the fact that such securities may not be readily marketable
without some time delay. Investments in securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by the Adviser in accordance with procedures approved by the Fund's Board of
Trustees. Ordinarily, the Fund would invest in restricted securities only when
it receives the issuer's commitment to register the securities without expense
to the Fund. However, registration and underwriting expenses (which typically
may range from 7% to 15% of the gross proceeds of the securities sold) may be
paid by the Fund. Restricted securities which can be offered and sold to
qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A Securities are liquid include, among other things, a
security's trading history, the availability of reliable pricing information,
the number of dealers making quotes or making a market in such security and the
number of potential purchasers in the market for such security. For purposes
hereof, investments by the Fund in securities of other investment companies will
not be considered investments in restricted securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act,
as amended from time to time.
STRATEGIC TRANSACTIONS
The Fund may, but is not required to, use various Strategic Transactions
(as defined in the Prospectus) to earn income, facilitate portfolio management
and mitigate risks. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur. Although
the Fund's Adviser seeks to use such transactions to further the Fund's
investment objective, no assurance can be given that the use of these
transactions will achieve this result.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-
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money" (i.e., where the value of the underlying instrument exceeds, in the case
of a call option, or is less than, in the case of a put option, the exercise
price of the option) at the time the option is exercised. Frequently, rather
than taking or making delivery of the underlying instrument through the process
of exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only enter into OTC options that have a buy-back provision permitting
the Fund to require the Counterparty to close the option at a formula price
within seven days. The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from S&P or "P-1"
from Moody's or an equivalent rating from any other NRSRO. The staff of the SEC
currently takes the position that, in general, OTC options on securities other
than U.S. Government securities purchased by the Fund, and portfolio securities
"covering" the amount of the Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Fund's limitation on illiquid securities
described herein.
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities that are traded on securities exchanges
and in the over-the-counter markets and related futures on such contracts. All
calls sold by the Fund must be "covered" (i.e., the Fund must own the securities
or futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though
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the Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes the Fund during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold. In the event of exercise of a call option
sold by the Fund with respect to securities not owned by the Fund, the Fund may
be required to acquire the underlying security at a disadvantageous price in
order to satisfy its obligation with respect to the call option.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and corporate debt securities (whether or not it holds the above
securities in its portfolio.) The Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial
futures contracts or purchase or sell put and call options on such futures as a
hedge against anticipated interest rate or fixed-income market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The purchase of a futures
contract creates a firm obligation by the Fund, as purchaser, to take delivery
from the seller the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
option.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except
for closing transactions) for other than bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options thereon would exceed 5% of the Fund's
total assets (taken at current value); however, in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The segregation requirements with
respect to futures contracts and options thereon are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option,
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an amount of cash if the closing level of the index upon which the option is
based exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
making up the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions and any combination of futures, options and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which the Fund may enter are interest rate and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate cash and
liquid securities with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must
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be covered at all times by the securities, instruments or currency required to
be delivered, or, subject to any regulatory restrictions, an amount of cash or
liquid securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash and liquid securities sufficient to purchase
and deliver the securities if the call is exercised. A call option sold by the
Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate cash and liquid securities equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate cash and liquid
securities equal to the exercise price.
OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash and liquid
securities equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out cash and liquid securities equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, and the Fund will segregate
an amount of cash and liquid securities equal to the full value of the option.
OTC options settling with physical delivery, or with an election of either
physical delivery or cash settlement, will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash and liquid securities sufficient to meet its obligation to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of cash and liquid securities with a value equal to the Fund's net obligation,
if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated cash and
liquid securities, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating cash and liquid
securities if the Fund held a futures or forward contract, it could purchase a
put option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction no segregation is required, but if it
terminates prior to such time, cash and liquid securities equal to any remaining
obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited by
the requirements of the Code for qualification as a regulated investment
company.
B-15
<PAGE> 52
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without shareholder approval by the vote of a majority
of its outstanding voting securities, which is defined by the 1940 Act as the
lesser of (i) 67% or more of the voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or (ii) more than 50% of the Fund's outstanding
voting securities. The percentage limitations contained in the restrictions and
policies set forth herein apply at the time of purchase of securities. With
respect to the limitations on illiquid securities and borrowings, the percentage
limitations apply at the time of purchase and on an ongoing basis. These
restrictions provide that the Fund shall not:
1. Invest in a manner inconsistent with its classification as a
"diversified company" as provided by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief applicable to the Fund from the provisions of the 1940
Act, as amended from time to time.
2. Issue senior securities nor borrow money, except the Fund may issue
senior securities or borrow money to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief applicable to the Fund from the
provisions of the 1940 Act, as amended from time to time.
3. Act as an underwriter of securities issued by others, except to the
extent that, in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under applicable securities laws.
4. Invest in any security if, as a result, 25% or more of the value of the
Fund's total assets, taken at market value at the time of each
investment, are in the securities of issuers in any particular industry
except (a) securities issued or guaranteed by the U.S. government and
its agencies and instrumentalities or securities of state and municipal
governments or their political subdivisions, or (b) when the Fund has
taken a temporary defensive position, or (c) as otherwise provided by
(i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief applicable to the
Fund from the provisions of the 1940 Act, as amended from time to time.
5. Purchase or sell real estate except that the Fund may: (a) acquire or
lease office space for its own use, (b) invest in securities of issuers
that invest in real estate or interests therein or that are engaged in
or operate in the real estate industry, (c) invest in securities that
are secured by real estate or interests therein, (d) purchase and sell
mortgage-related securities, (e) hold and sell real estate acquired by
the Fund as a result of the ownership of securities and (f) as otherwise
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief
applicable to the Fund from the provisions of the 1940 Act, as amended
from time to time.
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this
restriction shall not prohibit the Fund from purchasing or selling
options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial
instruments or from investing in securities or other instruments backed
by physical commodities or as otherwise permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief applicable to the Fund from the provisions of
the 1940 Act, as amended from time to time.
7. Make loans of money or property to any person, except (a) to the extent
that securities or interests in which the Fund may invest are considered
to be loans, (b) through the loan of portfolio securities, (c) by
engaging in repurchase agreements or (d) as may otherwise be permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940
B-16
<PAGE> 53
Act, as amended from time to time, or (iii) an exemption or other relief
applicable to the Fund from the provisions of the 1940 Act, as amended
from time to time.
The Fund has an operating policy not to borrow money except for temporary
purposes and then in an amount not in excess of 5% of the value of the total
assets of the Fund at the time the borrowing is made.
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and their
principal occupations for the last five years and their affiliations, if any,
with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen
Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc.
("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen
Management Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of
Illinois Inc., Van Kampen Insurance Agency of Texas Inc., Van Kampen System
Inc., Van Kampen Recordkeeping Services Inc., American Capital Contractual
Services, Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset
Management sometimes are referred to herein collectively as the "Advisers". For
purposes hereof, the term "Fund Complex" includes each of the open-end
investment companies advised by the Advisers (excluding Van Kampen Exchange
Fund).
TRUSTEES
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Trustee/Director of each of the
1632 Morning Mountain Road funds in the Fund Complex. Co-founder, and prior to
Raleigh, NC 27614 August 1996, Chairman, Chief Executive Officer and
Date of Birth: 07/14/32 President, MDT Corporation (now known as
Age: 67 Getinge/Castle, Inc., a subsidiary of Getinge
Industrier AB), a company which develops,
manufactures, markets and services medical and
scientific equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company.
53 Monarch Bay Drive Trustee/Director of each of the funds in the Fund
Dana Point, CA 92629 Complex. Prior to January 1999, Chairman and Chief
Date of Birth: 09/16/38 Executive Officer of The Allstate Corporation
Age: 61 ("Allstate") and Allstate Insurance Company. Prior to
January 1995, President and Chief Executive Officer of
Allstate. Prior to August 1994, various management
positions at Allstate.
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Trustee/Director of each of the funds in
233 South Wacker Drive the Fund Complex. Prior to 1997, Partner, Ray &
Suite 7000 Berndtson, Inc., an executive recruiting and
Chicago, IL 60606 management consulting firm. Formerly, Executive Vice
Date of Birth: 06/03/48 President of ABN AMRO, N.A., a Dutch bank holding
Age: 51 company. Prior to 1992, Executive Vice President of La
Salle National Bank. Trustee on the University of
Chicago Hospitals Board, Vice Chair of the Board of
The YMCA of Metropolitan Chicago and a member of the
Women's Board of the University of Chicago. Prior to
1996, Trustee of The International House Board.
</TABLE>
B-17
<PAGE> 54
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States, an independent U.S. foundation created
Washington, D.C. 20016 to deepen understanding, promote collaboration and
Date of Birth: 02/29/52 stimulate exchanges of practical experience between
Age: 48 Americans and Europeans. Trustee/Director of each of
the funds in the Fund Complex. Formerly, advisor to
the Dennis Trading Group Inc., a managed futures and
option company that invests money for individuals and
institutions. Prior to 1992, President and Chief
Executive Officer, Director and Member of the
Investment Committee of the Joyce Foundation, a
private foundation.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset
Two World Trade Center Management of Morgan Stanley Dean Witter since
66th Floor December 1998. President and Director since April 1997
New York, NY 10048 and Chief Executive Officer since June 1998 of Morgan
Date of Birth: 08/13/53 Stanley Dean Witter Advisors Inc. and Morgan Stanley
Age: 46 Dean Witter Services Company Inc. Chairman, Chief
Executive Officer and Director of Morgan Stanley Dean
Witter Distributors Inc. since June 1998. Chairman and
Chief Executive Officer since June 1998, and Director
since January 1998, of Morgan Stanley Dean Witter
Trust FSB. Director of various Morgan Stanley Dean
Witter subsidiaries. President of the Morgan Stanley
Dean Witter Funds and Discover Brokerage Index Series
since May 1999. Trustee/Director of each of the funds
in the Fund Complex. Previously Chief Strategic
Officer of Morgan Stanley Dean Witter Advisors Inc.
and Morgan Stanley Dean Witter Services Company Inc.
and Executive Vice President of Morgan Stanley Dean
Witter Distributors Inc. April 1997-June 1998, Vice
President of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series May 1997-April 1999,
and Executive Vice President of Dean Witter, Discover
& Co.
Jack E. Nelson............................ President and owner, Nelson Investment Planning
423 Country Club Drive Services, Inc., a financial planning company and
Winter Park, FL 32789 registered investment adviser in the State of Florida.
Date of Birth: 02/13/36 President and owner, Nelson Ivest Brokerage Services
Age: 64 Inc., a member of the National Association of
Securities Dealers, Inc. and Securities Investors
Protection Corp. Trustee/Director of each of the funds
in the Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer of Van
1 Parkview Plaza Kampen Investments. Chairman, Director and Chief
P.O. Box 5555 Executive Officer of the Advisers, the Distributor,
Oakbrook Terrace, IL 60181-5555 Van Kampen Advisors Inc. and Van Kampen Management
Date of Birth: 02/02/46 Inc. Director and officer of certain other
Age: 54 subsidiaries of Van Kampen Investments.
Trustee/Director and President of each of the funds in
the Fund Complex. Trustee, President and Chairman of
the Board of other investment companies advised by the
Advisers and their affiliates, and Chief Executive
Officer of Van Kampen Exchange Fund. Prior to May
1998, Executive Vice President and Director of
Marketing at Morgan Stanley Dean Witter and Director
of Dean Witter Discover & Co. and Dean Witter Realty.
Prior to 1996, Director of Dean Witter Reynolds Inc.
</TABLE>
B-18
<PAGE> 55
<TABLE>
<CAPTION>
Principal Occupations or
Name, Address and Age Employment in Past 5 Years
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman (since April 1997) and Director (since
One ServiceMaster Way 1994) of The ServiceMaster Company, a business and
Downers Grove, IL 60515 consumer services company. Director of Illinois Tool
Date of Birth: 07/08/44 Works, Inc., a manufacturing company and the Urban
Age: 55 Shopping Centers Inc., a retail mall management
company. Trustee, University of Notre Dame.
Trustee/Director of each of the funds in the Fund
Complex. Prior to 1998, Director of Stone Smurfit
Container Corp., a paper manufacturing company. From
May 1996 through February 1997 he was President, Chief
Executive Officer and Chief Operating Officer of Waste
Management, Inc., an environmental services company,
and from November 1984 through May 1996 he was
President and Chief Operating Officer of Waste
Management, Inc.
Fernando Sisto............................ Professor Emeritus. Prior to August 1996, a George M.
155 Hickory Lane Bond Chaired Professor with Stevens Institute of
Closter, NJ 07624 Technology, and prior to 1995, Dean of the Graduate
Date of Birth: 08/02/24 School, Stevens Institute of Technology. Director,
Age: 75 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee/Director of each of the funds in the
Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate,
333 West Wacker Drive Meagher & Flom (Illinois), legal counsel to the funds
Chicago, IL 60606 in the Fund Complex, and other investment companies
Date of Birth: 08/22/39 advised by the Advisers or Van Kampen Management Inc.
Age: 60 Trustee/Director of each of the funds in the Fund
Complex, and Trustee/ Managing General Partner of
other investment companies advised by the Advisers or
Van Kampen Management Inc.
Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy of
2101 Constitution Ave., N.W. Sciences/ National Research Council, an independent,
Room 206 federally chartered policy institution, since 1993.
Washington, D.C. 20418 Director of Neurogen Corporation, a pharmaceutical
Date of Birth: 12/27/41 company, since January 1998. Director of the German
Age: 58 Marshall Fund of the United States, Trustee of
Colorado College, and Vice Chair of the Board of the
Council for Excellence in Government. Trustee/Director
of each of the funds in the Fund Complex. Prior to
1993, Executive Director of the Commission on
Behavioral and Social Sciences and Education at the
National Academy of Sciences/National Research
Council. From 1980 through 1989, Partner of Coopers &
Lybrand.
Paul G. Yovovich.......................... Private investor. Director of 3Com Corporation, which
Sears Tower provides information access products and network
233 South Wacker Drive system solutions, COMARCO, Inc., a wireless
Suite 9700 communications products company and APAC Customer
Chicago, IL 60606 Services, Inc., a provider of outsourced customer
Date of Birth: 10/29/53 contact services. Trustee/Director of each of the
Age: 46 funds in the Fund Complex. Prior to May 1996,
President of Advance Ross Corporation, an
international transaction services and pollution
control equipment manufacturing company.
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. Merin and
Powers are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter or its affiliates.
B-19
<PAGE> 56
OFFICERS
Messrs. McDonnell, Smith, Santo, Hegel, Sullivan, and Wood are located at 1
Parkview Plaza, Oakbrook Terrace, IL 60181-5555. The Fund's other officers are
located at 2800 Post Oak Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell.................. Currently Executive Vice President and Director of Van
Date of Birth: 05/20/42 Kampen Investments, and employed by Van Kampen Investments
Age: 57 since March 1983. President, Chief Operating Officer and
Executive Vice President and Chief Director of the Advisers, Van Kampen Advisors Inc., and
Investment Officer Van Kampen Management Inc. Executive Vice President and
Chief Investment Officer of each of the funds in the Fund
Complex, since 1998. Chief Investment Officer, Executive
Vice President and Trustee/ Managing General Partner of
other investment companies advised by the Advisers or Van
Kampen Management Inc., since the inception of funds
advised by Advisory Corp. and Van Kampen Management Inc.
and since 1998 for funds advised by Asset Management.
Director of Global Decisions Group LLC, a financial
research firm, and its affiliates MCM Asia Pacific and MCM
Europe. Prior to 1998, President, Chief Operating Officer
and a Director of the Advisers, Van Kampen American
Capital Management, Inc.; Director of Van Kampen American
Capital, Inc.; and President, Chief Executive Officer and
Trustee of each of the funds advised by Advisory Corp.
Prior to July 1998, Director and Executive Vice President
of VK/AC Holding, Inc. (predecessor of Van Kampen
Investments). Prior to April 1998, President and Director
of Van Kampen Merritt Equity Advisors Corp. Prior to April
1997, Director of Van Kampen Merritt Equity Holdings Corp.
Prior to September 1996, Chief Executive Officer and
Director of MCM Group, Inc. and McCarthy, Crisanti &
Maffei, Inc., a financial research firm, and Chairman of
MCM Asia Pacific Company, Limited and MCM (Europe)
Limited. Prior to December 1991, Senior Vice President of
Van Kampen Merritt Inc.
</TABLE>
B-20
<PAGE> 57
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
A. Thomas Smith III.................. Executive Vice President, General Counsel, Secretary and
Date of Birth: 12/14/56 Director of Van Kampen Investments, the Advisers, Van
Age: 43 Kampen Advisors Inc., Van Kampen Management Inc., the
Vice President and Secretary Distributor, American Capital Contractual Services, Inc.,
Van Kampen Exchange Corp., Van Kampen Recordkeeping
Services Inc., Investor Services, Van Kampen Insurance
Agency of Illinois Inc. and Van Kampen System Inc. Vice
President and Secretary/Vice President, Principal Legal
Officer and Secretary of other investment companies
advised by the Advisers or their affiliates. Vice
President and Secretary of each of the funds in the Fund
Complex. Prior to January 1999, Vice President and
Associate General Counsel to New York Life Insurance
Company ("New York Life"), and prior to March 1997,
Associate General Counsel of New York Life. Prior to
December 1993, Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior Associate,
Willkie Farr & Gallagher. Prior to January 1989, Staff
Attorney at the Securities and Exchange Commission,
Division of Investment Management, Office of Chief
Counsel.
Michael H. Santo..................... Executive Vice President, Chief Administrative Officer and
Date of Birth: 10/22/55 Director of Van Kampen Investments, the Advisers, the
Age: 44 Distributor, Van Kampen Advisors Inc., Van Kampen
Vice President Management Inc. and Van Kampen Investor Services Inc., and
serves as a Director or Officer of certain other
subsidiaries of Van Kampen Investments. Vice President of
each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers and their
affiliates. Prior to 1998, Senior Vice President and
Senior Planning Officer for Individual Asset Management of
Morgan Stanley Dean Witter and its predecessor since 1994.
From 1990-1994, First Vice President and Assistant
Controller in Dean Witter's Controller's Department.
Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Vice
Age: 43 President of each of the funds in the Fund Complex and
Vice President certain other investment companies advised by the Advisers
or their affiliates. Prior to September 1996, Director of
McCarthy, Crisanti & Maffei, Inc, a financial research
company.
Stephen L. Boyd...................... Vice President and Chief Investment Officer for Equity
Date of Birth: 11/16/40 Investments of the Advisers. Vice President of each of the
Age: 59 funds in the Fund Complex and certain other investment
Vice President companies advised by the Advisers or their affiliates.
Prior to October 1998, Vice President and Senior Portfolio
Manager with AIM Capital Management, Inc. Prior to
February 1998, Senior Vice President of Van Kampen
American Capital Asset Management, Inc., Van Kampen
American Capital Investment Advisory Corp. and Van Kampen
American Capital Management, Inc.
</TABLE>
B-21
<PAGE> 58
<TABLE>
<CAPTION>
Name, Age, Positions and Principal Occupations
Offices with Fund During Past 5 Years
------------------------ ---------------------
<S> <C>
John L. Sullivan..................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Vice President, Chief Financial Officer and
Age: 44 Treasurer of each of the funds in the Fund Complex and
Vice President, Chief Financial certain other investment companies advised by the Advisers
Officer and Treasurer or their affiliates.
Edward C. Wood, III.................. Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Age: 44 President and Chief Operating Officer of the Distributor.
Vice President Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information there
are 64 operating funds in the Fund Complex. Each trustee/director who is not an
affiliated person of Van Kampen Investments, the Advisers or the Distributor
(each a "Non-Affiliated Trustee") is compensated by an annual retainer and
meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows trustees/directors to defer receipt of their compensation
and earn a return on such deferred amounts. Deferring compensation has the
economic effect as if the Non-Affiliated Trustee reinvested his or her
compensation into the funds. Each fund in the Fund Complex provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
The compensation of each Non-Affiliated Trustee includes an annual retainer
in an amount equal to $50,000 per calendar year, due in four quarterly
installments on the first business day of each quarter. Payment of the annual
retainer is allocated among the funds in the Fund Complex on the basis of the
relative net assets of each fund as of the last business day of the preceding
calendar quarter. The compensation of each Non-Affiliated Trustee includes a per
meeting fee from each fund in the Fund Complex in the amount of $200 per
quarterly or special meeting attended by the Non-Affiliated Trustee, due on the
date of the meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
B-22
<PAGE> 59
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
PENSION OR ESTIMATED MAXIMUM COMPENSATION
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) REGISTRANT(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan $15,220 $40,303 $60,000 $126,000
Jerry D. Choate(1) 6,754 0 60,000 88,700
Linda Hutton Heagy 15,220 5,045 60,000 126,000
R. Craig Kennedy 15,220 3,571 60,000 125,600
Jack E. Nelson 15,220 21,664 60,000 126,000
Phillip B. Rooney 13,820 7,787 60,000 113,400
Fernando Sisto 15,220 72,060 60,000 126,000
Wayne W. Whalen 15,220 15,189 60,000 126,000
Suzanne H. Woolsey(1) 6,754 0 60,000 88,700
Paul G. Yovovich(1) 14,020 2,845 60,000 126,000
</TABLE>
- ---------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Yovovich became a member of the Board of Trustees for the Trust
and other funds in the Fund Complex on October 22, 1998 and thus does not
have a full fiscal year of information to report. Mr. Choate and Ms. Woolsey
became members of the Board of Trustees for the Trust and other funds in the
Fund Complex on May 26, 1999 and therefore do not have a full calendar year
information to report.
(2) For the Fund's first fiscal year, the estimated aggregate compensation from
the Fund per trustee is anticipated to be approximately $1,000-$2,000. The
trustees may defer compensation from the Fund. The amounts shown in this
column represent the Aggregate Compensation before Deferral with respect to
the Trust's fiscal year ended September 30, 1999. The detail of aggregate
compensation before deferral for each series is shown in Table A below. The
detail of amounts deferred for each series is shown in Table B below.
Amounts deferred are retained by the Fund and earn a rate of return
determined by reference to either the return on the common shares of the
Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The detail of cumulative
deferred compensation (including interest) owed to the Trustees, including
former Trustees, by each series is shown in Table C below. The deferred
compensation plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating investment companies in the Fund Complex
for each of the Trustees for the funds' respective fiscal years ended in
1999. The retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such trustee's anticipated retirement. The
retirement plan is described above the Compensation Table. Each
Non-Affiliated Trustee of the Board of Trustees has served as a member of
the Board of Trustees since he or she was first appointed or elected in the
year set forth in Table D below.
(5) The amounts shown in this column represent the aggregate compensation paid
by all funds in the Fund Complex as of December 31, 1999 before deferral by
the trustees under the deferred compensation plan. Because the funds in the
Fund Complex have different fiscal year ends, the amounts shown in this
column are presented on a calendar year basis. Certain trustees deferred all
or a portion of their aggregate
B-23
<PAGE> 60
compensation from the Fund Complex during the calendar year ended December
31, 1999. The deferred compensation earns a rate of return determined by
reference to the return on the shares of the funds in the Fund Complex as
selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, the Fund may
invest in securities of those investment companies selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The Advisers and their affiliates also serve as investment
adviser for other investment companies; however, with the exception of Mr.
Whalen, the Non-Affiliated Trustees were not trustees of such investment
companies. Combining the Fund Complex with other investment companies
advised by the Advisers and their affiliates, Mr. Whalen received Total
Compensation of $279,250 during the calendar year ended December 31, 1999.
The Fund, the Adviser and the Distributor have adopted Codes of Ethics
(collectively, the "Code of Ethics") that set forth general and specific
standards relating to the securities trading activities of their employees. The
Code of Ethics does not prohibit employees from acquiring securities that may be
purchased or held by the Fund, but is intended to ensure that all employees
conduct their personal transactions in a manner that does not interfere with the
portfolio transactions of the Fund or other Van Kampen funds, or that such
employees take unfair advantage of their relationship with the Fund. Among other
things, the Code of Ethics prohibits certain types of transactions absent prior
approval, imposes various trading restrictions (such as time periods during
which personal transactions may or may not be made) and requires quarterly
reporting of securities transactions and other reporting obligations. All
reportable securities transactions and other required reports are to be reviewed
by appropriate personnel for compliance with the Code of Ethics. Additional
restrictions apply to portfolio managers, traders, research analysts and others
who may have access to nonpublic information about the trading activities of the
Fund or other Van Kampen funds, or who otherwise are involved in the investment
advisory process. Exceptions to these and other provisions of the Code of Ethics
may be granted in particular circumstances after review by appropriate
personnel.
As of the date of this Statement of Additional Information, no trustees or
officers of the Fund owned shares of the Fund.
B-24
<PAGE> 61
TABLE A
1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
TRUSTEE
FISCAL -----------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN
--------- -------- -------- ------ ----- ------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund...... 9/30 $ 3,322 $1,483 $ 3,322 $ 3,322 $ 3,322 $ 3,122 $ 3,322 $ 3,322
Tax Free High Income Fund......... 9/30 2,998 1,366 2,998 2,998 2,998 2,798 2,998 2,998
California Insured Tax Free
Fund............................ 9/30 1,692 745 1,692 1,692 1,692 1,492 1,692 1,692
California Municipal Income
Fund*........................... 9/30 0 0 0 0 0 0 0 0
Municipal Income Fund............. 9/30 2,781 1,241 2,781 2,781 2,781 2,581 2,781 2,781
Intermediate Term Municipal Income
Fund............................ 9/30 1,460 631 1,460 1,460 1,460 1,260 1,460 1,460
Florida Insured Tax Free Income
Fund............................ 9/30 1,488 646 1,488 1,488 1,488 1,288 1,488 1,488
New York Tax Free Income Fund..... 9/30 1,479 642 1,479 1,479 1,479 1,279 1,479 1,479
------- ------ ------- ------- ------- ------- ------- -------
Trust Total..................... $15,220 $6,754 $15,220 $15,220 $15,220 $13,820 $15,220 $15,220
======= ====== ======= ======= ======= ======= ======= =======
<CAPTION>
TRUSTEE
------------------
FUND NAME WOOLSEY YOVOVICH
--------- ------- --------
<S> <C> <C>
Insured Tax Free Income Fund...... $1,483 $ 3,122
Tax Free High Income Fund......... 1,366 2,798
California Insured Tax Free
Fund............................ 745 1,492
California Municipal Income
Fund*........................... 0 0
Municipal Income Fund............. 1,241 2,581
Intermediate Term Municipal Income
Fund............................ 631 1,260
Florida Insured Tax Free Income
Fund............................ 646 1,288
New York Tax Free Income Fund..... 642 1,479
------ -------
Trust Total..................... $6,754 $14,020
====== =======
</TABLE>
- ---------------
*The California Municipal Income Fund had not commenced investment operations as
of September 30, 1999.
TABLE B
1999 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
TRUSTEE
FISCAL ---------------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ------ ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund....................... 9/30 $ 3,322 $ 819 $ 3,322 $1,661 $ 3,322 $ 3,122 $1,661 $ 3,322 $ 2,373
Tax Free High Income Fund.... 9/30 2,998 769 2,998 1,499 2,998 2,798 1,499 2,998 2,165
California Insured Tax Free
Fund....................... 9/30 1,692 471 1,692 846 1,692 1,492 846 1,692 1,216
California Municipal Income
Fund*...................... 9/30 0 0 0 0 0 0 0 0 0
Municipal Income Fund........ 9/30 2,781 707 2,781 1,391 2,781 2,581 1,391 2,781 1,991
Intermediate Term Municipal
Income Fund................ 9/30 1,460 415 1,460 730 1,460 1,260 730 1,460 1,045
Florida Insured Tax Free
Income Fund................ 9/30 1,488 423 1,488 744 1,488 1,288 744 1,488 1,069
New York Tax Free Income
Fund....................... 9/30 1,479 422 1,479 740 1,479 1,279 740 1,479 1,060
------- ------ ------- ------ ------- ------- ------ ------- -------
Trust Total................ $15,220 $4,026 $15,220 $7,611 $15,220 $13,820 $7,611 $15,220 $10,919
======= ====== ======= ====== ======= ======= ====== ======= =======
</TABLE>
- ---------------
*The California Municipal Income Fund had not commenced investment operations as
of September 30, 1999.
TABLE C
CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST AND EACH SERIES
<TABLE>
<CAPTION>
TRUSTEES
FISCAL ---------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO
--------- -------- -------- ------ ----- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund........................ 9/30 $12,061 $ 829 $13,428 $ 19,013 $ 28,191 $ 8,367 $ 6,888
Tax Free High Income Fund..... 9/30 11,230 778 12,661 18,570 27,209 7,518 4,640
California Insured Tax Free
Fund........................ 9/30 8,666 475 10,273 17,213 24,168 4,910 3,391
California Municipal Income
Fund*....................... 9/30 0 0 0 0 0 0 0
Municipal Income Fund......... 9/30 12,068 715 14,058 23,404 33,528 7,594 12,202
Intermediate Term Municipal
Income Fund................. 9/30 8,217 418 9,855 16,976 23,638 4,454 3,172
Florida Insured Tax Free
Income Fund................. 9/30 8,268 426 9,902 10,914 18,313 4,505 3,197
New York Tax Free Income
Fund........................ 9/30 4,537 425 3,611 5,706 8,667 3,632 1,967
------- ------ ------- -------- -------- ------- -------
Trust Total............... $65,047 $4,066 $73,788 $111,796 $163,714 $40,980 $35,457
======= ====== ======= ======== ======== ======= =======
<CAPTION>
TRUSTEES FORMER TRUSTEES
------------------- ----------------------------------------------
FUND NAME WHALEN YOVOVICH CARUSO GAUGHAN MILLER REES ROBINSON
--------- ------ -------- ------ ------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund........................ $ 23,050 $ 2,479 $1,296 $1,064 $10,487 $ 0 $ 17,113
Tax Free High Income Fund..... 22,228 2,257 0 1,064 10,487 0 17,113
California Insured Tax Free
Fund........................ 19,692 1,260 0 1,064 10,487 0 17,113
California Municipal Income
Fund*....................... 0 0 0 0 0 0 0
Municipal Income Fund......... 27,189 2,076 2,778 1,306 14,169 7,077 22,359
Intermediate Term Municipal
Income Fund................. 19,249 1,080 0 1,064 10,487 0 17,113
Florida Insured Tax Free
Income Fund................. 15,409 1,105 0 496 6,656 0 12,280
New York Tax Free Income
Fund........................ 7,188 1,096 0 158 2,682 0 4,783
-------- ------- ------ ------ ------- ------
Trust Total............... $134,005 $11,353 $4,074 $6,216 $65,455 $7,077 $107,874
======== ======= ====== ====== ======= ====== ========
</TABLE>
- ---------------
*The California Municipal Income Fund had not commenced investment operations as
of September 30, 1999.
TABLE D
YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST
<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------------------------
FUND NAME BRANAGAN CHOATE HEAGY KENNEDY NELSON ROONEY SISTO WHALEN WOOLSEY YOVOVICH
- --------- -------- ------ ----- ------- ------ ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund....... 1995 1999 1995 1993 1984 1997 1995 1984 1999 1998
Tax Free High Income Fund.......... 1995 1999 1995 1993 1985 1997 1995 1985 1999 1998
California Insured Tax Free Fund... 1995 1999 1995 1993 1985 1997 1995 1985 1999 1998
California Municipal Income Fund... 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
Municipal Income Fund.............. 1995 1999 1995 1993 1990 1997 1995 1990 1999 1998
Intermediate Term Municipal Income
Fund............................. 1995 1999 1995 1993 1993 1997 1995 1993 1999 1998
Florida Insured Tax Free Income
Fund............................. 1995 1999 1995 1994 1994 1997 1995 1994 1999 1998
New York Tax Free Income Fund...... 1995 1999 1995 1994 1994 1997 1995 1994 1999 1998
</TABLE>
B-25
<PAGE> 62
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate
strategy and implement the Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund and renders periodic reports to the Board of Trustees and
permits its officers and employees to serve without compensation as trustees of
the Trust or officers of the Fund if elected to such positions. The Fund pays
all charges and expenses of its day-to-day operations, including the
compensation of trustees of the Trust (other than those who are affiliated
persons of the Adviser, Distributor or Van Kampen Investments), the charges and
expenses of legal counsel and independent accountants, distribution fees,
service fees, custodian fees, the costs of providing reports to shareholders,
and all other ordinary business expenses not specifically assumed by the
Adviser. The Advisory Agreement also provides that the Adviser shall not be
liable to the Fund for any errors of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.
The Advisory Agreement also provides that, in the event the expenses of the
Fund for any fiscal year exceed the most restrictive applicable expense
limitation in any jurisdiction in which the Fund's shares are qualified for
offer and for sale, the compensation due the Adviser will be reduced by the
amount of such excess and that, if a reduction in and refund of the advisory fee
is insufficient, the Adviser will pay the Fund monthly an amount sufficient to
make up the deficiency, subject to readjustment during the fiscal year.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by a vote of a
majority of the Fund's outstanding voting securities and (b) by a vote of a
majority of the Trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
OTHER AGREEMENTS
ACCOUNTING SERVICES AGREEMENT. The Fund has entered into an accounting
services agreement pursuant to which Advisory Corp. provides accounting services
to the Fund supplementary to those provided by the custodian. Such services are
expected to enable the Fund to more closely monitor and maintain its accounts
and records. The Fund pays all costs and expenses related to such services,
including all salary and related benefits of accounting personnel, as well as
the overhead and expenses of office space and the equipment necessary to render
such services. The Fund shares together with the other Van Kampen funds in the
cost of providing such services, with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and the
remaining 75% of such costs based proportionally on their respective net assets
per fund.
LEGAL SERVICES AGREEMENT. The Fund and certain of the other Van Kampen
funds advised by the Adviser or its affiliates and distributed by the
Distributor have entered into legal services agreements pursuant to which Van
Kampen Investments provides legal services, including without limitation:
accurate maintenance of each fund's minute books and records, preparation and
oversight of each fund's regulatory reports and other information provided to
shareholders, as well as responding to day-to-day legal issues on behalf of the
funds. Payment by the funds for such services is made on a cost basis for the
salary and salary-related benefits, including but not limited to bonuses, group
insurance and other regular wages for the employment of personnel, as well as
overhead and the expenses related to the office space and the equipment
necessary to render the legal services. Other funds distributed by the
Distributor also receive legal services from Van Kampen Investments. Of the
total costs for legal services provided to funds distributed by the Distributor,
one half of such costs are allocated equally to each fund and the remaining one
half of such costs are allocated to specific funds based on monthly time
records.
B-26
<PAGE> 63
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) by a vote of a majority of the Fund's outstanding voting
securities and (b) by a vote of a majority of Trustees who are not parties to
the Distribution and Service Agreement or interested persons of any party, by
votes cast in person at a meeting called for such purpose. The Distribution and
Service Agreement provides that it will terminate if assigned, and that it may
be terminated without penalty by either party on 90 days' written notice.
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-------------------------------------------------
REALLOWED TO
AS % OF NET DEALERS AS
AS % OF AMOUNT A % OF
SIZE OF INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE
------------------ ------------------ ----------- --------------
<S> <C> <C> <C>
Less than $100,000..................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000........................ 3.75% 3.90% 3.25%
$250,000 but less than $500,000........................ 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000...................... 2.00% 2.04% 1.75%
$1,000,000 or more..................................... * * *
</TABLE>
- ---------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although the Fund may impose a contingent deferred sales
charge of 1.00% on certain redemptions made within one year of the purchase. A
commission or transaction fee will be paid by the Distributor at the time of
purchase directly out of the Distributor's assets (and not out of the Fund's
assets) to authorized dealers who initiate and are responsible for purchases
of $1 million or more computed on a percentage of the dollar value of such
shares sold as follows: 1.00% on sales to $2 million, plus 0.80% on the next
$1 million and 0.50% on the excess over $3 million.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to,
B-27
<PAGE> 64
and sponsor business seminars for, qualifying authorized dealers for certain
services or activities which are primarily intended to result in sales of shares
of the Fund or other Van Kampen funds. Fees may include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives for meetings or seminars of a business nature. In
some instances additional compensation or promotional incentives may be offered
to brokers, dealers or financial intermediaries that have sold or may sell
significant amounts of shares during specified periods of time. The Distributor
may provide additional compensation to Edward D. Jones & Co. or an affiliate
thereof based on a combination of its quarterly sales of shares of the Fund and
other Van Kampen funds and increases in net assets of the Fund and other Van
Kampen funds over specified thresholds. All of the foregoing payments are made
by the Distributor out of its own assets. Such fees paid for such services and
activities with respect to the Fund will not exceed in the aggregate 1.25% of
the average total daily net assets of the Fund on an annual basis. These
programs will not change the price an investor will pay for shares or the amount
that a Fund will receive from such sale.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through the Distribution and Service Agreement with the Distributor of each
class of the Fund's shares and sub-agreements between the Distributor and
members of the NASD who are acting as securities dealers and NASD members or
eligible non-members who are acting as brokers or agents and similar agreements
between the Fund and financial intermediaries who are acting as brokers
(collectively, "Selling Agreements") that may provide for their customers or
clients certain services or assistance, which may include, but not be limited
to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
Certain financial intermediaries may be prohibited under law from providing
certain underwriting or distribution services. If a financial intermediary were
prohibited from acting in any capacity or providing any of the described
services, the Distributor would consider what action, if any, would be
appropriate. The Distributor does not believe that termination of a relationship
with a financial intermediary would result in any material adverse consequences
to the Fund.
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
For Class A Shares in any given year in which the Plans are in effect, the
Plans generally provide for the Fund to pay the Distributor the lesser of (i)
the amount of the Distributor's actual expenses incurred during such year less
any deferred sales charges (if any) it received during such year (the "actual
net expenses") or (ii) the distribution and service fees at the rates specified
in the Prospectus (the "plan fees"). Therefore, to the extent the Distributor's
actual net expenses in a given year are less that the plan fees for such year,
the Fund only pays the actual net expenses. Alternatively, to the extent the
Distributor's actual net expenses in a
B-28
<PAGE> 65
given year are less that the plan fees for such year, the Fund only pays the
plan fees for such year. For Class A Shares, there is no carryover of any
unreimbursed actual net expenses to succeeding years.
The Plans for Class B Shares and Class C Shares are similar to Plans for
Class A Shares, except that any actual net expenses which exceed plan fees for a
given year are carried forward and are eligible for payment in future years by
the Fund so long as the Plans remain in effect. Thus, for each of the Class B
Shares and Class C Shares, in any given year in which the Plans are in effect,
the Plans generally provide for the Fund to pay the Distributor the lesser of
(i) the applicable amount of the Distributor's actual net expenses incurred
during such year for such class of shares plus any actual net expenses from
prior years that is still unpaid by the Fund for such class of shares or (ii)
the applicable plan fees for such class of shares. Except as may be mandated by
applicable law, the Fund does not impose any limit with respect to the number of
years into the future that such unreimbursed actual net expenses may be carried
forward (on a Fund level basis). These unreimbursed actual net expenses may or
may not be recovered through plan fees or contingent deferred sales charges in
future years.
Because of fluctuation in net asset value, the plan fees with respect to a
particular Class B Share or Class C Share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class.
If the Plans are terminated or not continued, the Fund would not be
contractually obligated to pay the Distributor for any expenses not previously
reimbursed by the Fund or recovered through contingent deferred sales charges.
Because the Fund is a series of the Trust, amounts paid to the Distributor
as reimbursement for expenses of one series of the Trust may indirectly benefit
the other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.
TRANSFER AGENT
The Fund's transfer agent, shareholder service agent and dividend
disbursing agent is Van Kampen Investor Services Inc., PO Box 218256, Kansas
City, MO 64121-8256. The transfer agency prices are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed bonds on a exchange, which are effected through brokers who charge a
commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio
B-29
<PAGE> 66
transactions is prompt execution of orders in an effective manner at the most
favorable price. In selecting broker/dealers and in negotiating prices and any
brokerage commissions on such transactions, the Adviser considers the firm's
reliability, integrity and financial condition and the firm's execution
capability, the size and breadth of the market for the security, the size of and
difficulty in executing the order, and the best net price. There are many
instances when, in the judgment of the Adviser, more than one firm can offer
comparable execution services. In selecting among such firms, consideration may
be given to those firms which supply research and other services in addition to
execution services. The Adviser is authorized to pay higher commissions to
brokerage firms that provide it with investment and research information than to
firms which do not provide such services if the Adviser determines that such
commissions are reasonable in relation to the overall services provided. No
specific value can be assigned to such research services which are furnished
without cost to the Adviser. Since statistical and other research information is
only supplementary to the research efforts of the Adviser to the Fund and still
must be analyzed and reviewed by its staff, the receipt of research information
is not expected to reduce its expenses materially. The investment advisory fee
is not reduced as a result of the Adviser's receipt of such research services.
Services provided may include (a) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Fund, the Adviser or the
Distributor and with brokerage firms participating in the distribution of the
Fund's shares if it reasonably believes that the quality of execution and the
commission are comparable to that available from other qualified firms.
Similarly, to the extent permitted by law and subject to the same considerations
on quality of execution and comparable commission rates, the Adviser may direct
an executing broker to pay a portion or all of any commissions, concessions or
discounts to a firm supplying research or other services or to a firm
participating in the distribution of the Fund's shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which require that the commissions paid to
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require the Adviser to furnish reports to the Trustees and to
maintain records in connection with such reviews. After consideration of all
factors deemed relevant, the Trustees will consider from time to time whether
the advisory fee for the Fund will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.
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<PAGE> 67
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds (as defined in the Prospectus) will receive statements
quarterly from Investor Services showing any reinvestments of dividends and
capital gain dividends and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gain dividends. Additional shares may be purchased at any time through
authorized dealers or by mailing a check directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption of the shares represented by the certificate. In addition, if such
certificates are lost the shareholder must write to Van Kampen Funds Inc., c/o
Investor Services, PO Box 218256, Kansas City, MO 64121-8256, requesting an
"Affidavit of Loss" and obtain a Surety Bond in a form acceptable to Investor
Services. On the date the letter is received, Investor Services will calculate
the fee for replacing the lost certificate equal to no more than 1.50% of the
net asset value of the issued shares, and bill the party to whom the replacement
certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Money Purchase and Profit Sharing
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS
Shareholders can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemption proceeds transferred to a
bank account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemption proceeds are to be deposited together with the
completed application. Once Investor Services has received the application and
the voided check or deposit slip, such shareholder's designated bank account,
following any redemption, will be credited with the proceeds of such redemption.
Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing Investor Services or by calling (800) 341-2911 ((800) 421-4833
for the hearing impaired).
B-31
<PAGE> 68
DIVIDEND DIVERSIFICATION
A shareholder may upon written request, by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and capital gain dividends paid on a class of shares of the Fund invested into
shares of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a monthly, quarterly, semiannual or annual
withdrawal plan if the shareholder owns shares in a single account valued at
$10,000 or more at the next determined net asset value per share at the time the
plan is established. If a shareholder owns shares in a single account valued at
$5,000 or more at the next determined net asset value per share at the time the
plan is established, the shareholder may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each payment
represents the proceeds of a redemption of shares on which any capital gain or
loss will be recognized. The planholder may arrange for monthly, quarterly,
semiannual or annual checks in any amount, not less than $25. Such a systematic
withdrawal plan may also be maintained by an investor purchasing shares for a
retirement plan established on a form made available by the Fund.
Class B Shareholders and Class C Shareholders who establish a systematic
withdrawal plan may redeem up to 12% annually of the shareholder's initial
account balance without incurring a contingent deferred sales charge. Initial
account balance means the amount of the shareholder's investment at the time the
election to participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic payment. Dividends and capital gain dividends on shares
held in accounts with systematic withdrawal plans are reinvested in additional
shares at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gain dividends, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Redemptions made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program upon 30 days' notice to its shareholders.
EXCHANGE PRIVILEGE
All shareholders are limited to eight exchanges per fund during a rolling
365-day period.
Exchange privileges will be suspended on a particular fund if more than
eight exchanges out of that fund are made by a shareholder during a rolling
365-day period. If exchange privileges are suspended, subsequent exchange
requests during the stated period will not be processed. Exchange privileges
will be restored when the account history shows fewer than eight exchanges in
the rolling 365-day period.
This policy change does not apply to money market funds, systematic
exchange plans, or employer-sponsored retirement plans.
REINSTATEMENT PRIVILEGE
A Class A Shareholder or Class B Shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C Shareholder
B-32
<PAGE> 69
who has redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value per share (without sales charge)
next determined after the order is received, which must be made within 180 days
after the date of the redemption. Reinstatement at net asset value per share is
also offered to participants in those eligible retirement plans held or
administered by Van Kampen Trust Company for repayment of principal (and
interest) on their borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekends or holidays;
(b) the SEC determines trading on the Exchange is restricted; (c) the SEC
determines an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges and a gain or loss for federal income tax purposes upon
the sale of portfolio securities so received in payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A
As described in the Prospectus under "Purchase of Shares -- Class A
Shares," there is no sales charge payable on Class A Shares at the time of
purchase on investments of $1 million or more, but a contingent deferred sales
charge ("CDSC -- Class A") may be imposed on certain redemptions made within one
year of purchase. For purposes of the CDSC-Class A, when shares of one fund are
exchanged for shares of another fund, the purchase date for the shares of the
fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC-Class A rather than a front-end load sales charge. In determining whether
a CDSC-Class A is payable, it is assumed that shares being redeemed first are
any shares in the shareholder's account not subject to a contingent deferred
sales charge followed by shares held the longest in the shareholder's account.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGES
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge ("CDSC-Class B and C"). The CDSC-Class B and C is waived on redemptions
of Class B Shares and Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury
B-33
<PAGE> 70
with such proof as he or she may require, the Distributor will require
satisfactory proof of death or disability before it determines to waive the
CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The CDSC-Class B and C will be waived upon the tax-free rollover or
transfer of assets to another retirement plan invested in one or more
Participating Funds; in such event, as described below, the Fund will "tack" the
period for which the original shares were held on to the holding period of the
shares acquired in the transfer or rollover for purposes of determining what, if
any, CDSC-Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be waived on
any redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), the financial hardship of the
employee pursuant to United States Treasury Regulation Section 401(k) - 1(d)(2),
or from the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge will be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO THE FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan with
respect to the shareholder's investment in the Fund. Under the systematic
withdrawal plan, a dollar amount of a participating shareholder's investment in
the Fund will be redeemed systematically by the Fund on a periodic basis, and
the proceeds sent to the designated payee of record. The amount to be redeemed
and frequency of the systematic withdrawals will be specified by the shareholder
upon his or her election to participate in the systematic withdrawal plan. The
CDSC-Class B and C will be waived on redemptions made under the systematic
withdrawal plan.
The amount of the shareholder's investment in the Fund at the time the
election to participate in the systematic withdrawal plan is made with respect
to the Fund is hereinafter referred to as the "initial account balance." The
amount to be systematically redeemed from the Fund without the imposition of a
CDSC-Class B and C may not exceed a maximum of 12% annually of the shareholder's
initial account balance. The Fund reserves the right to change the terms and
conditions of the systematic withdrawal plan and the ability to offer the
systematic withdrawal plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" in the Prospectus.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the value of the
account up to the
B-34
<PAGE> 71
required minimum balance. The Fund will waive the CDSC-Class B and C upon such
involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.
REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
FEDERAL INCOME TAXATION OF THE FUND
The Trust and each of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund intends to elect
and to qualify, and intends to continue to qualify each year, to be treated as a
regulated investment company under Subchapter M of the Code. To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and
diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least an amount equal to the sum of (i) 90% of its investment company taxable
income (generally taxable income and net short-term capital gain, but not net
capital gain, which is the excess of net long-term capital gain over net
short-term capital loss) and (ii) 90% of its net tax-exempt interest income, and
meets certain other requirements, it will not be required to pay federal income
taxes on any income it distributes to shareholders. The Fund intends to
distribute at least the minimum amount necessary to satisfy the 90% distribution
requirement. The Fund will not be subject to federal income tax on any net
capital gain distributed to shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income (not including tax-exempt income) for such year and (ii) 98%
of its capital gain net income (the latter of which generally is computed on the
basis of the one-year period ending on October 31st of such year), plus any
amounts that were not distributed in previous taxable years. For purposes of the
excise tax, any ordinary income or capital gain net income retained by, and
subject to federal income tax in the hands of, the Fund will be treated as
having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). 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.
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<PAGE> 72
Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund, affect the holding period of the securities held by the Fund and alter the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to invest in sufficient tax-exempt municipal securities to
permit payment of "exempt-interest dividends" (as defined in the Code).
Dividends paid by the Fund from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of municipal securities exempt from federal income tax
under Section 103(a) of the Code.
Certain limitations on the use and investment of the proceeds of state and
local government bonds and other funds must be satisfied in order to maintain
the exclusion from gross income for interest on such bonds. These limitations
generally apply to bonds issued after August 15, 1986. In light of these
requirements, bond counsel qualify their opinions as to the federal tax status
of bonds issued after August 15, 1986 by making them contingent on the issuer's
future compliance with these limitations. Any failure on the part of an issuer
to comply could cause the interest on its bonds to become taxable to investors
retroactive to the date the bonds were issued.
Except as provided below, exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. The percentage of the total dividends paid by the Fund
during any taxable year that qualify as exempt-interest dividends will be the
same for all shareholders of the Fund receiving dividends during such year.
Interest on certain "private-activity bonds" is an item of tax preference
subject to the alternative minimum tax on individuals and corporations. The Fund
invests a portion of its assets in municipal securities subject to this
provision so that a portion of its exempt-interest dividends is an item of tax
preference to the extent such dividends represent interest received from these
private-activity bonds. Accordingly, investment in the Fund could cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax. Per capita volume limitations on certain
private-activity bonds could limit the amount of such bonds available for
investment by the Fund.
Exempt-interest dividends are included in determining what portion, if any,
of a person's social security and railroad retirement benefits will be
includable in gross income subject to federal income tax.
Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the shareholder would be
treated as a "substantial user" (or a "related person" of a substantial user) of
the facilities financed with respect to any of the tax-exempt obligations held
by the Fund. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses in his trade or business a part
of any facilities financed with
B-36
<PAGE> 73
the tax-exempt obligations and whose gross revenues derived from such facilities
exceed 5% of the total revenues derived from the facilities by all users, or who
occupies more than 5% of the useable area of the facilities or for whom the
facilities or a part thereof were specifically constructed, reconstructed or
acquired. Examples of "related persons" include certain related natural persons,
affiliated corporations, a partnership and its partners and an S corporation and
its shareholders.
While the Fund expects that a major portion of its income will consist
tax-exempt interest, a significant portion may consist of investment company
taxable income. Distributions of the Fund's investment company taxable income
are taxable to shareholders as ordinary income to the extent of the Fund's
earnings and profits, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net capital gain as capital gain dividends, if any,
are taxable to shareholders as long-term capital gains regardless of the length
of time shares of the Fund have been held by such shareholders. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming such shares are
held as a capital asset). For a summary of the maximum tax rates applicable to
capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Interest on indebtedness which is incurred to purchase or carry shares of
a mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Tax-exempt shareholders not subject
to federal income tax on their income generally will not be taxed on
distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund generally will not be eligible for the corporate dividends received
deduction. The aggregate amount of dividends designated as exempt-interest
dividends cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Fund during the year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
Since the percentage of dividends which are exempt-interest dividends is
determined on an average annual method for the taxable year, the percentage of
income designated as tax-exempt for any particular dividend may be substantially
different from the percentage of the Fund's income that was tax exempt during
the period covered by the dividend. Fund distributions generally will not
qualify for the dividends received deduction for corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
SALE OF SHARES
The sale of shares (including transfers in connection with a redemption or
repurchase of shares) may be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the maximum tax rates
applicable to capital gains (including capital gain dividends), see "Capital
Gains Rates" below. Any loss recognized upon a taxable disposition of shares
held for six months or less will be treated as a long-term capital loss to the
extent of any capital gain dividends received with respect to such shares. For
purposes of determining whether shares have been held for six months or less,
the holding period is suspended
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<PAGE> 74
for any periods during which the shareholder's risk of loss is diminished as a
result of holding one or more other positions in substantially similar or
related property or through certain options or short sales.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers investing in the Fund is (i) the
same as the maximum ordinary income tax rate for capital assets held for one
year or less or (ii) 20% for capital assets held for more than one year. The
maximum long-term capital gains rate for corporations is 35%.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
INFORMATION REPORTING
The Fund must report annually to the IRS and to each shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
with respect to such dividends.
GENERAL
The federal income tax discussion set forth above is for general
information only. Prospective investors and shareholders should consult their
advisors regarding the specific federal tax consequences of purchasing, holding
and disposing of shares, as well as the effects of state, local and foreign tax
law and any proposed tax law changes.
CALIFORNIA
<TABLE>
<CAPTION>
FEDERAL STATE COMBINED
SINGLE RETURN JOINT RETURN TAX BRACKET TAX BRACKET* TAX BRACKET*
------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
$ 0- 25,750 $ 0- 43,050 15.00% 6.00% 20.10%
25,750- 62,450 43,050-104,050 28.00% 9.30% 34.70%
62,450-130,250 104,050-158,550 31.00% 9.30% 37.40%
130,250-283,150 158,550-283,150 36.00% 9.30% 42.00%
Over 283,150 Over 283,150 39.60% 9.30% 45.20%
</TABLE>
- ---------------
* Please note that the table does not reflect (i) any federal or state
limitations on the amounts of allowable itemized deductions, phase-outs of
personal or dependent exemption credits or other allowable credits, (ii) any
local taxes imposed, or (iii) any taxes other than personal income taxes. The
table assumes that federal taxable income is equal to state income subject to
tax, and in cases where more than one state rate falls within a federal
bracket, the highest state rate corresponding to the highest income within
that federal bracket is used.
B-38
<PAGE> 75
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes the maximum sales charge for Class A Shares);
that all income dividends or capital gain dividends during the period are
reinvested in Fund shares at net asset value; and that any applicable contingent
deferred sales charge has been paid. The Fund's total return will vary depending
on market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and unrealized net capital gains or losses during the period.
Total return is based on historical earnings and asset value fluctuations and is
not intended to indicate future performance. No adjustments are made to reflect
any income taxes payable by shareholders on dividends and capital gain dividends
paid by the Fund.
Average annual total return quotations are computed by finding the average
annual compounded rate of return over the period that would equate the initial
amount invested to the ending redeemable value.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares.
Non-standardized total return calculations do not reflect the imposition of
a contingent deferred sales charge, and if any such contingent deferred sales
charge imposed at the time of redemption were reflected, it would reduce the
performance quoted.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. The investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. Total return figures for Class A Shares include the
maximum sales charge. Total return figures for Class B Shares and Class C Shares
include any applicable contingent deferred sales charge. Because of the
differences in sales charges and distribution fees, the total returns for each
class of shares will differ.
B-39
<PAGE> 76
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
From time to time marketing materials may provide a portfolio manager
update, an Adviser update and discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top sector holdings, and largest holdings and other Fund
information, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes the Fund compares relative to other Van Kampen funds.
Materials may also discuss the Dalbar Financial Services study from 1984 to 1994
which studied investor cash flow into and out of all types of mutual funds. The
ten year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless of whether shareholders purchased their fund shares
in direct or sales force distribution channels. The study showed that investors
working with a professional representative have tended over time to earn higher
returns than those who invested directly. The performance of the funds purchased
by the investors in the Dalbar study and the conclusions based thereon are not
necessarily indicative of future performance of such funds or conclusions that
may result from similar studies in the future. The Fund may also be marketed on
the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, other
appropriate indices of investment securities, or with investment or savings
vehicles. The performance information may also include evaluations of the Fund
published by nationally recognized ranking or ratings services and by nationally
recognized financial publications. Such comparative performance information will
be stated in the same terms in which the comparative data or indices are stated.
Such advertisements and sales material may also include a yield quotation as of
a current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of the Fund's shares. For these purposes, the
performance of the Fund, as well as the performance of other mutual funds or
indices, do not reflect sales charges, the inclusion of which would reduce Fund
performance. The Fund will include performance data for each class of shares of
the Fund in any advertisement or information including performance data of the
Fund.
The Fund may also utilize performance information in hypothetical
illustrations. For example, the Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
(3) illustrate allocations among different types of mutual funds for investors
at different stages of their lives; and (4) in reports or other communications
to shareholders or in advertising material, illustrate the benefits of
compounding at various assumed rates of return.
Tax-equivalent yield demonstrates the taxable yield required to produce an
after-tax yield equivalent to that of the Fund's yield. The Fund's
tax-equivalent yield quotation for a 30 day period as described above is
computed by dividing that portion of the yield of the Fund (as computed above)
which is tax-exempt by a percentage equal to 100% minus a stated percentage
income tax rate and adding the result to that portion of the Fund's yield, if
any, that is not tax-exempt.
B-40
<PAGE> 77
The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the cover of this Statement of Additional Information.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company as Custodian. The Custodian also
provides accounting services to the Fund.
SHAREHOLDER REPORTS
Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS
KPMG LLP, the independent accountants for the Fund, performs an annual
audit of the Fund's financial statements.
LEGAL COUNSEL
Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).
B-41
<PAGE> 78
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<C> <C> <S>
(a)(1) -- Agreement and Declaration of Trust(1)
(2) -- Certificate of Amendment(10)
(3) -- Second Amended and Restated Certificate of Designation for:
(i) Van Kampen Insured Tax Free Income Fund(10)
(ii) Van Kampen Tax Free High Income Fund(10)
(iii) Van Kampen California Insured Tax Free Fund(10)
(iv) Van Kampen Municipal Income Fund(10)
(v) Van Kampen Florida Insured Tax Free Income Fund(10)
(vi) Van Kampen New York Tax Free Income Fund(10)
(vii) Van Kampen Michigan Tax Free Income Fund(10)
(viii) Van Kampen Missouri Tax Free Income Fund(10)
(ix) Van Kampen Ohio Tax Free Income Fund(10)
-- Third Amended and Restated Certificate of Designation for:
(x) Van Kampen Intermediate Term Municipal Income Fund(10)
(xi) Van Kampen California Municipal Income Fund+
(b) -- By-Laws(1)
(c) -- Specimen Certificate of Share of Beneficial Interest of:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Municipal Income Fund+
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(d) -- Investment Advisory Agreement for:
(i) Van Kampen Insured Tax Free Income Fund(3)
(ii) Van Kampen Tax Free High Income Fund(3)
(iii) Van Kampen California Insured Tax Free Fund(3)
(iv) Van Kampen Municipal Income Fund(3)
(v) Van Kampen Intermediate Term Municipal Income Fund(3)
(vi) Van Kampen Florida Insured Tax Free Income Fund(3)
(vii) Van Kampen New York Tax Free Income Fund(3)
(viii) Van Kampen California Municipal Income Fund+
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(e)(1) -- Distribution and Service Agreement for:
(i) Van Kampen Insured Tax Free Income Fund(3)
(ii) Van Kampen Tax Free High Income Fund(3)
(iii) Van Kampen California Insured Tax Free Fund(3)
(iv) Van Kampen Municipal Income Fund(3)
(v) Van Kampen Intermediate Term Municipal Income Fund(3)
(vi) Van Kampen Florida Insured Tax Free Income Fund(3)
(vii) Van Kampen New York Tax Free Income Fund(3)
(viii) Van Kampen California Municipal Income Fund+
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
</TABLE>
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<PAGE> 79
<TABLE>
<C> <C> <S>
(2) -- Form of Dealer Agreement(4)
(3) -- Form of Broker Fully Disclosed Selling Agreement(4)
(4) -- Form of Bank Fully Disclosed Selling Agreement(4)
(f)(1) -- Form of Trustee Deferred Compensation Plan(11)
(f)(2) -- Form of Trustee Retirement Plan(11)
(g)(1) -- Custodian Contract for:
(i) Van Kampen Insured Tax Free Income Fund(5)
(ii) Van Kampen Tax Free High Income Fund(5)
(iii) Van Kampen California Insured Tax Free Fund(5)
(iv) Van Kampen Municipal Income Fund(5) and (6)
(v) Van Kampen Intermediate Term Municipal Income Fund(5)
(vi) Van Kampen Florida Insured Tax Free Income Fund(5)
(vii) Van Kampen New York Tax Free Income Fund(5)
(viii) Van Kampen California Municipal Income Fund(2) and (5)
(ix) Van Kampen Michigan Tax Free Income Fund(2) and (7)
(x) Van Kampen Missouri Tax Free Income Fund(2) and (7)
(xi) Van Kampen Ohio Tax Free Income Fund(2) and (7)
(2) -- Transfer Agency and Service Agreement(5)
(h)(2) -- Fund Accounting Agreement(5)
(3) -- Legal Services Agreement(3)
(i)(1) -- Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois) for:
(i) Van Kampen Insured Tax Free Income Fund(8)
(ii) Van Kampen Tax Free High Income Fund(8)
(iii) Van Kampen California Insured Tax Free Fund(8)
(iv) Van Kampen Municipal Income Fund(8)
(v) Van Kampen Intermediate Term Municipal Income Fund(8)
(vi) Van Kampen Florida Insured Tax Free Income Fund(8)
(vii) Van Kampen New York Tax Free Income Fund(8)
(viii) Van Kampen California Municipal Income Fund+
(ix) Van Kampen Michigan Tax Free Income Fund++
(x) Van Kampen Missouri Tax Free Income Fund++
(xi) Van Kampen Ohio Tax Free Income Fund++
(2) -- Consent of Skadden, Arps, Slate, Meagher and Flom (Illinois) (12)
(j) -- Consents of KPMG LLP for:
(i) Van Kampen Insured Tax Free Income Fund(12)
(ii) Van Kampen Tax Free High Income Fund(12)
(iii) Van Kampen California Insured Tax Free Fund(12)
(iv) Van Kampen Municipal Income Fund(12)
(v) Van Kampen Intermediate Term Municipal Income Fund(12)
(vi) Van Kampen Florida Insured Tax Free Income Fund(12)
(vii) Van Kampen New York Tax Free Income Fund(12)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(k) -- Not applicable
(l) -- Letter of understanding relating to initial capital(9)
</TABLE>
C-2
<PAGE> 80
<TABLE>
<C> <C> <S>
(m)(1) -- Plan of Distribution Pursuant to Rule 12b-1 for:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Municipal Income Fund+
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(2) -- Form of Shareholder Assistance Agreement(4)
(3) -- Form of Administrative Services Agreement(4)
(4) -- Service Plan for:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Municipal Income Fund+
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(n) -- Not applicable
(o) -- Amended Multi-Class Plan(8)
(p) -- Form of Code of Ethics+
(q) -- Power of Attorney+
(z)(1) -- List of Investment Companies in response to Item 27(a)+
(2) -- List of Officers and Directors of Van Kampen Funds Inc. in response
to Item 27(b)+
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on April 29, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on September 30, 1994.
(3) Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on April 30, 1998.
(4) Incorporated herein by reference to Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on August 1, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 50 to Van
Kampen American Capital Comstock Fund, File No. 2-27778 filed on April 27,
1998.
(6) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed May 25, 1990.
(7) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration
on Form N-1A, File Number 2-99715, filed February 22, 1988.
(8) Incorporated herein by reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on April 29, 1997.
(9) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A, File Number 2-99715, filed August 15, 1985.
(10) Incorporated herein by reference to Post-Effective Amendment No. 42 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on November 25, 1998.
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<PAGE> 81
(11) Incorporated herein by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on January 7, 2000.
(12) Incorporated herein by reference to Post-Effective Amendment No. 45 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on January 28, 1999.
+ Filed herewith.
++ To be filed by future amendments.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statements of Additional Information.
ITEM 25. INDEMNIFICATION.
Pursuant to Del. Code Ann. Title 12 Section 3817, a Delaware business trust
may provide in its governing instrument for the indemnification of its officers
and trustees from and against any and all claims and demands whatsoever.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust. Article 8, Section 8.4 of the Agreement and
Declaration of Trust provides that each officer and trustee of the Registrant
shall be indemnified by the Registrant against all liabilities incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which the officer or trustee may be or
may have been involved by reason of being or having been an officer or trustee,
except that such indemnity shall not protect any such person against a liability
to the Registrant or any shareholder thereof to which such person would
otherwise be subject by reason of (i) not acting in good faith in the reasonable
belief that such person's actions were not in the best interests of the Trust,
(ii) willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office or (iii) for a criminal
proceeding, not having a reasonable cause to believe that such conduct was
unlawful (collectively, "Disabling Conduct"). Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of Disabling Conduct in the conduct of his or her office, the decision by
the Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of Disabling
Conduct in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter
C-4
<PAGE> 82
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Pursuant to Section 7 of the Distribution and Service Agreement, the
Registrant agrees to indemnify and hold harmless Van Kampen Funds Inc. (the
"Distributor") and each of its trustees and officers and each person, if any,
who controls the Distributor within the meaning of Section 15 of the 1933 Act)
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damages,
or expense and reasonable counsel fees) arising by reason of any person
acquiring any shares, based upon the ground that the registration statement,
prospectus, shareholder reports or other information filed or made public by the
Registrant (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. The Registrant does not agree to indemnify
the Distributor or hold it harmless to the extent that the statement or omission
was made in reliance upon, and in conformity with, information furnished to the
Registrant by or on behalf of the Distributor. In no case is the indemnity of
the Registrant in favor of the Distributor or any person indemnified to be
deemed to protect the Distributor or any person against any liability to the
Fund or its security holders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the agreement.
Pursuant to the agreement by which Van Kampen Investor Services Inc.
("Investor Services") is appointed transfer agent of the Fund, the Registrant
agrees to indemnify and hold Investor Services harmless against any losses
damages, costs, charges, payments, liabilities and expenses (including
reasonable counsel fees) arising out of or attributable to:
(1) the performance of Investor Services under the agreement provided that
Investor Services acted in good faith with due diligence and without negligence
or willful misconduct.
(2) reliance by Investor Services on, or reasonable use by, Investor
Services of information, records and documents which have been prepared on
behalf of, or have been furnished by, the Fund, or the carrying out by Investor
Services of any instructions or requests of the Fund.
(3) the offer or sale of the Fund's shares in violation of any federal or
state law or regulation or ruling by any federal agency unless such violation
results from any failure by Investor Services to comply with written
instructions from the Fund that such offers or sales were not permitted under
such law, rule or regulation.
(4) the refusal of the Fund to comply with terms of the agreement, or the
Fund's lack of good faith, negligence or willful misconduct or breach of any
representation or warranty made by the Fund under the agreement provided that if
the reason for such failure is attributable to any action of the Fund's
investment adviser or distributor or any person providing accounting or legal
services to the Fund, Investor Services only will be entitled to indemnification
if such entity is otherwise entitled to the indemnification from the Registrant.
See also "Investment Advisory Agreement" in the Statement of Additional
Information.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Investment
Advisory Agreement, "Other Agreements," and "Trustees and Officers" in the
Statement of Additional Information for information regarding the business of
Van Kampen Investment Advisory Corp. (the "Adviser"). For information as to the
business, profession, vocation and employment of a substantial nature of
directors and officers of the Adviser, reference is made to the Adviser's
current Form ADV (File No. 801-18161) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference.
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<PAGE> 83
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The Registrant's sole principal underwriter is Van Kampen Funds Inc.
(the "Distributor"), which acts as principal underwriter for certain investment
companies and unit investment trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc., which is an affiliated person of an affiliated
person of the Registrant, is the only principal underwriter for the Registrant.
The name, principal business address and positions and offices with Van Kampen
Funds Inc. of each of its directors and officers are disclosed in Exhibit
(z)(2). Except as disclosed under the heading "Trustees and Officers" in Part B
of this Registration Statement, none of such persons has any position or office
with the Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents of the Registrant required to be
maintained by Section 31(a) of the Investment Company Act of 1940, as amended,
and the Rules thereunder (i) by the Registrant will be maintained at its
offices, located at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois
60181-5555, or at Van Kampen Investors Services Inc., 7501 Tiffany Springs
Parkway, Kansas City, Missouri 64153, or at State Street Bank and Trust Company,
1776 Heritage Drive, North Quincy, Massachusetts 02171; (ii) by the Adviser,
will be maintained at its offices, located at 1 Parkview Plaza, PO Box 5555,
Oakbrook Terrace, Illinois 60181-5555 and (iii) all such accounts, books and
other documents required to be maintained by the Adviser and by the Distributor,
will be maintained at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois
60181-5555.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
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<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant,
VAN KAMPEN TAX FREE TRUST, certifies that it meets all of the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the 1933 Act and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Oakbrook Terrace and the State of Illinois, on the 7th
day of March, 2000.
VAN KAMPEN TAX FREE TRUST
By: /s/ A. THOMAS SMITH III
---------------------------------------
A. Thomas Smith III,
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the 1933 Act, this Amendment to this
Registration Statement has been signed on March 7, 2000 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:
/s/ RICHARD F. POWERS, III* Trustee and President
- -----------------------------------------------------
Richard F. Powers, III
Principal Financial Officer:
/s/ JOHN L. SULLIVAN* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
J. Miles Branagan
/s/ JERRY D. CHOATE* Trustee
- -----------------------------------------------------
Jerry D. Choate
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
R. Craig Kennedy
/s/ MITCHELL M. MERIN* Trustee
- -----------------------------------------------------
Mitchell M. Merin
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
Jack E. Nelson
/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
/s/ SUZANNE H. WOOLSEY* Trustee
- -----------------------------------------------------
Suzanne H. Woolsey
/s/ PAUL G. YOVOVICH* Trustee
- -----------------------------------------------------
Paul G. Yovovich
- ------------
* Signed by A. Thomas Smith III pursuant to a power of attorney filed herewith.
/s/ A. THOMAS SMITH III March 7, 2000
- -----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>
C-7
<PAGE> 85
SCHEDULE OF EXHIBITS TO
POST-EFFECTIVE AMENDMENT 46 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C> <C> <C> <C>
(a) (3) (xi) -- Third Amended and Restated Certificate of Designation
(c) (viii) -- Specimen Certificate of Share of Beneficial Interest
(d) (viii) -- Investment Advisory Agreement
(e) (1) (viii) -- Distribution and Service Agreement
Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(i) (1) (viii) -- (Illinois)
(j) (viii) -- Consent of KPMG LLP
(m) (1) (viii) -- Plan of Distribution Plan
(m) (4) (viii) -- Service Plan
(p) -- Form of Code of Ethics
(q) -- Power of Attorney
(z) (1) -- List of Investment Companies in response to Item 27(a)
List of Officers and Directors of Van Kampen Funds Inc. in
(2) -- response to Item 27(b)
</TABLE>
<PAGE> 1
EXHIBIT (a)(3)(xi)
VAN KAMPEN TAX FREE TRUST
Third Amended and Restated Certificate of Designation
of
Van Kampen California Municipal Income Fund
The undersigned, being the Secretary of Van Kampen Tax Free Trust, a Delaware
business trust (the "Trust"), pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the Trustees
does hereby amend and restate in its entirety the Second Amended and Restated
Certificate of Designation of the Van Kampen California Tax Free Income Fund
Series of the Trust dated July 14, 1998 by redesignating such Series as the Van
Kampen California Municipal Income Fund Series (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate Series
of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund.
3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Class B Share Shares of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Shares of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a particular
Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in this
Certificate of Designation, in which case this Certificate of Designation shall
govern.
8. Amendments, etc. Subject to the provisions and limitations of Section 9.5 of
the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
any officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the affected
Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.
January 28, 2000
/s/ A. Thomas Smith III
-------------------------
A. Thomas Smith III
Vice President and Secretary
<PAGE> 1
EXHIBIT (c) (viii)
NUMBER SHARES
- -------- --------
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND, a series of
VAN KAMPEN TAX FREE TRUST
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
--------------
CUSIP
--------------
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen California Municipal Income Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated
{VAN KAMPEN CALIFORNIA MUNICIPAL
INCOME FUND
DELAWARE SEAL]
A. THOMAS SMITH III RICHARD F. POWERS, III
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by VAN KAMPEN INVESTOR SERVICES, INC.
P.O. BOX 218256, KANSAS CITY, MO 64121-8256
TRANSFER AGENT
By
-------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
NUMBER CLASS A SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
VAN KAMPEN INVESTOR SERVICES
P.O. BOX 218256
KANSAS CITY, MISSOURI 64121-8256
--------------------------------
--------------------------------
--------------------------------
<PAGE> 2
- -------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE. REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- -------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the Common Shares of Beneficial Interest represented by the within
Certificate, and do hereby irrevocable constitute and appoint
- -------------------------------------------- Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Trust with
full power of substitution in the premises.
Dated, 20
--------------------------------- ----
--------------------------------------------------------
Owner
--------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN CON - as tenants UNIF GIFT WIN. ACT. Custodian
in common --------- ----------
(Cust) (Minor)
under Uniform Gifts to
Minors Act
TEN ENT - as tenants by
the entireties
------------------------------
(State)
JT TEN - as joint tenants
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 3
NUMBER SHARES
- -------- --------
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND, a series of
VAN KAMPEN TAX FREE TRUST
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
--------------
CUSIP
--------------
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen California Municipal Income Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated
{VAN KAMPEN CALIFORNIA MUNICIPAL
INCOME FUND
DELAWARE SEAL]
A. THOMAS SMITH III RICHARD F. POWERS, III
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by VAN KAMPEN INVESTOR SERVICES, INC.
P.O. BOX 418266, KANSAS CITY, MO 64141-9258
TRANSFER AGENT
By
-------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
NUMBER CLASS B SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
VAN KAMPEN INVESTOR SERVICES
P.O. BOX 218256
KANSAS CITY, MISSOURI 84121-9256
--------------------------------
--------------------------------
--------------------------------
<PAGE> 4
- -------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE. REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- -------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------------
Shares of Beneficial Interest Shares
- -------------------------------------------------------------------------
of the Common Shares of Beneficial Interest represented by the within
Certificate, and do hereby
irrevocable constitute and appoint
--------------------------------------------
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Trust with
full power of substitution in the premises.
Dated, 20
--------------------------------- ----
--------------------------------------------------------
Owner
--------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN CON - as tenants UNIF GIFT WIN. ACT. Custodian
in common --------- ----------
(Cust) (Minor)
under Uniform Gifts to
Minors Act
TEN ENT - as tenants by
the entireties
------------------------------
(State)
JT TEN - as joint tenants
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 5
NUMBER SHARES
- -------- --------
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND, a series of
VAN KAMPEN TAX FREE TRUST
CLASS C
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
--------------
CUSIP
--------------
fully paid and nonassessable shares of beneficial interest of the par value of
$0.01 per share of Van Kampen California Municipal Income Fund, transferable on
the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated
{VAN KAMPEN CALIFORNIA MUNICIPAL
INCOME FUND
DELAWARE SEAL]
A. THOMAS SMITH III RICHARD F. POWERS, III
SECRETARY PRESIDENT
KC 002717
- --------------------------------------------------------------------------------
COUNTERSIGNED by VAN KAMPEN INVESTOR SERVICES, INC.
P.O. BOX 418266, KANSAS CITY, MO 64141-9258
TRANSFER AGENT
By
-------------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
NUMBER CLASS C SHARES
KC
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:
VAN KAMPEN INVESTOR SERVICES
P.O. BOX 218256
KANSAS CITY, MISSOURI 84121-9256
--------------------------------
--------------------------------
--------------------------------
<PAGE> 6
- -------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:
A BANK OR TRUST COMPANY; A BROKER/DEALER; A CREDIT UNION; A NATIONAL SECURITIES
EXCHANGE. REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND
LOAN ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- -------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the Common Shares of Beneficial Interest represented by the within
Certificate, and do hereby irrevocable constitute and appoint
-------------------
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Trust with
full power of substitution in the premises.
Dated, 20
--------------------------------- ----
--------------------------------------------------------
Owner
--------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN CON - as tenants UNIF GIFT WIN. ACT. Custodian
in common --------- ----------
(Cust) (Minor)
under Uniform Gifts to
Minors Act
TEN ENT - as tenants by
the entireties
------------------------------
(State)
JT TEN - as joint tenants
with right of sur-
vivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT(d)(viii)
AMENDMENT ONE
TO THE
INVESTMENT ADVISORY AGREEMENT
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
DATED MAY 31, 1997
THIS AMENDMENT ONE to the Investment Advisory Agreement dated May 31,
1997 by and between Van Kampen California Municipal Income Fund (f/k/a
Van Kampen California Tax Free Income Fund), a Delaware business trust
(hereinafter referred to as the "Fund") and Van Kampen Investment Advisory
Corp., a Delaware Corporation (hereinafter referred to as the "Adviser").
WITNESSETH
WHEREAS, the Fund wishes to amend the current Investment Advisory
Agreement in accordance with the terms set forth by The Board of Trustees of the
Fund at a Meeting held on January 28, 2000;
NOW, THEREFORE, in consideration of the promises and mutual covenants
spelled out in the Agreement and herein, it is hereby agreed that Section 2 of
the Agreement be amended as follows:
2. (a) FEE. For the services and facilities described in
Section 1, the Fund will accrue daily and pay to the Adviser at the end
of each calendar month an investment management fee computed based on a
fee rate (expressed as a percentage per annum) applied to the average
daily net assets of the Fund as follows:
FEE PERCENT
PER ANNUM OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
---------- ----------
First $500 millions 0.550 of 1.00%
Next $500 millions 0.500 of 1.00%
Thereafter 0.450 of 1.00%
IN WITNESS WHEREOF, the parties have caused this Amendment One to be
executed this 28th day of January, 2000.
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
By: /s/ John L. Sullivan
------------------------------
John L. Sullivan
Vice President, Chief Financial Officer and Treasurer
VAN KAMPEN INVESTMENT ADVISORY CORP.
By: /s/ Dennis J. McDonnell
------------------------------
Dennis J. McDonnell
President
<PAGE> 1
Exhibit (e)(1)(viii)
DISTRIBUTION AND SERVICE AGREEMENT
THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of January 28, 2000,
(the "Agreement") by and between VAN KAMPEN TAX FREE Trust, a Delaware business
trust (the "Trust"), on behalf of its series, VAN KAMPEN CALIFORNIA MUNICIPAL
INCOME FUND (the "Fund"), and VAN KAMPEN FUNDS INC., a Delaware corporation (the
"Distributor").
1. Appointment of Distributor. The Fund appoints the Distributor as a
principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund, subject to different combinations of
front-end sales charges, distribution fees, service fees and contingent deferred
sales charges. Classes of shares, if any, subject to a front-end sales charge
and a distribution and/or service fee are referred to herein as "FESC Classes"
and the Shares of such classes are referred to herein as "FESC Shares." Classes
of shares, if any, subject to a contingent-deferred sales charge and a
distribution and/or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares." The Fund reserves the right to refuse at any time or times
to sell Shares hereunder for any reason deemed adequate by the Board of Trustees
of the Fund.
The Distributor will use its best efforts to sell, through its
organization and through other dealers and agents, the Shares which the
Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares.
The Distributor agrees that it will not take any long or short
positions in the Shares, except for long positions in those Shares purchased by
the Distributor in accordance with any systematic sales plan described in the
then current Prospectus of the Fund and except as permitted by Section 2 hereof,
and that so far as it can control the situation, it will prevent any of its
trustees, officers or shareholders from taking any long or short positions in
the Shares, except for legitimate investment purposes.
2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth. Such
exclusive right hereby granted shall not apply to Shares issued or transferred
or sold at net asset value: (a) in connection with the merger or consolidation
of the Fund with any other investment company or the acquisition by the Fund of
all or substantially all of the assets of or the outstanding Shares of any
investment company; (b) in connection with a pro rata distribution directly to
the holders of Fund Shares in the nature of a stock dividend or stock split or
in connection with any other recapitalization approved by the Board of Trustees;
(c) upon the exercise of purchase or subscription rights granted to the holders
of Shares on a pro rata basis; (d) in connection with the automatic reinvestment
of dividends and distributions from the Fund; or (e) in connection with the
issue and sale of Shares to trustees, officers and employees of the Fund; to
directors, officers and employees of the investment adviser of the Fund or any
principal underwriter (including the Distributor) of the Fund; to retirees of
the Distributor that purchased shares of any mutual fund distributed by the
Distributor prior to retirement; to directors, officers and employees of Van
Kampen Investments Inc. (formerly The Van Kampen American Capital, Inc.) (the
parent of the Distributor) and to the subsidiaries of Van Kampen Investments
Inc.; and to any trust, pension, profit-sharing or other benefit plan for any of
the aforesaid persons as permitted by Rule 22d-1 under the Investment Company
Act of 1940 (the "1940 Act").
1
<PAGE> 2
The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission and cancellation of
orders) to fill unconditional orders for Shares received by the Distributor from
dealers, agents and investors during each period when particular net asset
values and public offering prices are in effect as provided in Section 3 hereof;
and the price which the Distributor shall pay for the Shares so purchased shall
be the respective net asset value used in determining the public offering price
on which such orders were based. The Distributor shall notify the Fund at the
end of each such period, or as soon thereafter on that business day as the
orders received in such period have been compiled, of the number of Shares of
each class that the Distributor elects to purchase hereunder.
3. Public Offering Price. The public offering price per Share shall be
determined in accordance with the then current Prospectus of the Fund. In no
event shall the public offering price exceed the net asset value per Share,
plus, with respect to the FESC Shares, a front-end sales charge not in excess of
the applicable maximum sales charge permitted under the Rules of Fair Practice
of the National Association of Securities Dealers, Inc., as in effect from time
to time. The net asset value per share for each class of Shares, respectively,
shall be determined in the manner provided in the Declaration of Trust and
By-Laws of the Trust as then amended, the Certificate of Designation with
respect to the Fund, as amended, and in accordance with the then current
Prospectus of the Fund consistent with the terms and conditions of the exemptive
order with respect to the Fund (Release No. IC-19600) issued by the Securities
and Exchange Commission on July 28, 1993, as it may be amended from time to time
or succeeded by other exemptive orders or rules promulgated by the Securities
and Exchange Commission under the 1940 Act. The Fund will cause immediate notice
to be given to the Distributor of each change in net asset value as soon as it
is determined. Discounts to dealers purchasing FESC Shares from the Distributor
for resale and to brokers and other eligible agents making sales of FESC Shares
to investors and compensation payable from the Distributor to dealers, brokers
and other eligible agents making sales of CDSC Shares and Combination Shares
shall be set forth in the selling agreements between the Distributor and such
dealers or agents, respectively, as from time to time amended, and, if such
discounts and compensation are described in the then current Prospectus for the
Fund, shall be as so set forth.
4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund Shares,
the Distributor will in all respects duly comply with all state and federal laws
relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., and all
applicable rules and regulations of the Securities and Exchange Commission under
the 1940 Act, and will indemnify and save the Fund harmless from any damage or
expense on account of any unlawful act by the Distributor or its agents or
employees. The Distributor is not, however, to be responsible for the acts of
other dealers or agents, except to the extent that they shall be acting for the
Distributor or under its direction or authority. None of the Distributor, any
dealer, any agent or any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus heretofore or hereafter filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act") (as any such Registration Statement and Prospectus may have
been or may be amended from time to time), covering the Shares, and in any
supplemental information to any such Prospectus approved by the Fund in
connection with the offer or sale of Shares. None of the Distributor, any
dealer, any broker or any other person is authorized to act as agent for the
Fund in connection with the offering or sale of Shares to the public or
otherwise. All such sales shall be made by the Distributor as principal for its
own account.
In selling Shares to investors, the Distributor will adopt and comply
with certain standards, as set forth in Exhibit III attached hereto as to when
each respective class of Shares may appropriately be sold to particular
investors. The Distributor will require every broker, dealer and other eligible
agent participating in the offering of the Shares to agree to adopt and comply
with such standards as a condition precedent to their participation in the
offering.
2
<PAGE> 3
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration
of Shares under the federal securities laws, and
the Fund will exercise its best efforts to obtain
said registration and qualification;
(ii) all expenses in connection with the printing of
any notices of shareholders' meetings, proxy and
proxy statements and enclosures therewith, as well
as any other notice or communication sent to
shareholders in connection with any meeting of the
shareholders or otherwise, any annual, semiannual
or other reports or communications sent to the
shareholders, and the expenses of sending
prospectuses relating to the Shares to existing
shareholders;
(iii) all expenses of any federal or state
original-issue tax or transfer tax payable upon
the issuance, transfer or delivery of Shares from
the Fund to the Distributor; and
(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent
Shares.
(b) The Distributor will also permit its officers and
employees to serve without compensation as trustees and officers of the Fund if
duly elected to such positions.
(c) The Fund shall reimburse the Distributor for
out-of-pocket costs and expenses actually incurred by it in connection with
distribution of each class of Shares respectively in accordance with the terms
of a plan (the "12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under
the 1940 Act as such 12b-1 Plan may be in effect from time to time; provided,
however, that no payments shall be due or paid to the Distributor hereunder with
respect to a class of Shares unless and until this Agreement shall have been
approved for each such class by a majority of the Board of Trustees of the Fund
and by a majority of the "Disinterested Trustees" (as such term is defined in
such 12b-1 Plan) by vote cast in person at a meeting called for the purpose of
voting on this Agreement. A copy of such 12b-1 Plan as in effect on the date of
this Agreement is attached as Exhibit I hereto. The Fund reserves the right to
terminate such 12b-1 Plan with respect to a class of Shares at any time, as
specified in the Plan. The persons authorized to direct the payment of funds
pursuant to this Agreement and the 12b-1 Plan shall provide to the Fund's Board
of Trustees, and the Trustees shall review, at least quarterly, a written report
with respect to each of the classes of Shares of the amounts so paid and the
purposes for which such expenditures were made for each such class of Shares.
(d) The Fund shall compensate the Distributor for providing
services to, and the maintenance of, shareholder accounts in the Fund (including
prepaying service fees to eligible brokers, dealers and financial intermediaries
and expenses incurred in connection therewith) and the Distributor may pay as
agent for and on behalf of the Fund a service fee with respect to each class of
Shares to brokers, dealers and financial intermediaries for the provision of
shareholder services and the maintenance of shareholder accounts in the Fund in
the amount with respect to each class of Shares set forth from time to time in
the Fund's prospectus. The Fund shall compensate the Distributor for such
expenses in accordance with the terms of a service plan (the "Service Plan"), as
such Service Plan may be in effect from time to time; provided, however, that no
service fee payments shall be due or paid to the Distributor hereunder with
respect to a class of Shares unless and until this Agreement shall have been
approved for each such class by a majority of the Board of Trustees of the Fund
and by a majority of the Disinterested Trustees by vote cast in person at a
meeting called for the purpose of voting on this Agreement. A copy of such
Service Plan as in effect on the date of this Agreement is attached as Exhibit
II hereto. The Fund reserves the right to terminate such Service Plan with
respect to a class of Shares at any time, as specified in the Plan. The persons
authorized to direct the payment of funds pursuant to this Agreement and the
Service Plan shall provide to the Fund's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report with respect to each of the
classes of Shares of the amounts paid as service fees for each such class of
Shares.
3
<PAGE> 4
6. Redemption of Shares. In connection with the Fund's redemption of
its Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.
(a) Subject to and in conformity with all applicable federal
and state legislation, any applicable rules of the National Association of
Securities Dealers, Inc., and any applicable rules and regulations of the
Securities and Exchange Commission under the 1940 Act, the Distributor may
accept offers of holders of Shares to resell such Shares to the Fund on such
terms and conditions and at such prices as described and provided for in the
then current Prospectus of the Fund.
(b) The Distributor agrees to notify the Fund at such times
as the Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such repurchases,
and the Fund shall notify the Distributor of the prices and, in the case of a
class of CDSC Shares or Combination Shares, of the deferred sales charge as
described below, if any, applicable to repurchases of Shares of such class.
(c) The Fund shall have the right to suspend or revoke the
foregoing authorization at any time; unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by telegraph or by written instrument from any of the Fund's officers.
In the event that the Distributor's authorization is, by the terms of such
notice, suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote of the
Board of Trustees of the Fund.
(d) The Distributor agrees that all repurchases of Shares
made by the Distributor shall be made only as agent for the Fund's account and
pursuant to the terms and conditions herein set forth.
(e) The Fund agrees to authorize and direct its Custodian to
pay, for the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so repurchased for the Fund
against the authorized transfer of book shares from an open account and against
delivery of any other documentation required by the Board of Trustees of the
Fund or, in the case of certificated Shares, against delivery of the
certificates representing such Shares in proper form for transfer to the Fund.
(f) The Distributor shall receive no commissions or other
compensation in respect of any repurchases of FESC Shares for the Fund under the
foregoing authorization and appointment as agent. With respect to any repurchase
of CDSC Shares or Combination Shares, the Distributor shall receive the deferred
sales charge, if any, applicable to the respective class of Shares that have
been held for less than a specified period of time with respect to such class as
set forth from time to time in the Fund's Prospectus. The Distributor shall
receive no other commission or other compensation in respect of any repurchases
of CDSC Shares or Combination Shares for the Fund under the foregoing
authorization and appointment as agent.
(g) If any FESC Shares sold to the Distributor under the
terms of this Agreement are redeemed or repurchased by the Fund or by the
Distributor as agent or are tendered for redemption within seven business days
after the date of the Distributor's confirmation of the original purchase by the
Distributor, the Distributor shall forfeit the amount above the net asset value
received by it in respect of such Shares, provided that the portion, if any, of
such amount re-allowed by the Distributor to dealers or agents shall be
repayable to the Fund only to the extent recovered by the Distributor from the
dealer or agent concerned. The Distributor shall include in agreements with such
dealers and agents a corresponding provision for the forfeiture by them of their
concession with respect to FESC Shares purchased by them or their principals and
redeemed or repurchased by the Fund or by the Distributor as agent within seven
business days after the date of the Distributor's confirmation of such initial
purchases.
4
<PAGE> 5
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Distributor and each of its trustees and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground that
the registration statement, Prospectus, shareholder reports or other information
filed or made public by the Fund (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading under the 1933 Act
or any other statute or the common law. However, the Fund does not agree to
indemnify the Distributor or hold it harmless to the extent that the statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Fund by or on behalf of the Distributor. In no case (i) is the
indemnity of the Fund in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any liability to the
Fund or its securityholders to which the Distributor or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Fund to be liable under its indemnity agreement contained in this Section with
respect to any claim made against the Distributor or any person indemnified
unless the Distributor or any such person shall have notified the Fund in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon the Distributor or any such person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to the Distributor or any person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund shall be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce any claims, but if the Fund elects to assume the
defense, the defense shall be conducted by counsel chosen by it and satisfactory
to the Distributor or person or persons, defendant or defendants in the suit. In
the event the Fund elects to assume the defense of any suit and retain counsel,
the Distributor, officers or trustees or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Fund does not elect to assume the
defense of any suit, it will reimburse the Distributor, officers or trustees or
controlling person or persons, defendant or defendants in the suit for the
reasonable fees and expenses of any counsel retained by them. The Fund agrees to
notify the Distributor promptly of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of any of the Shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Fund and each of its trustees and officers and each person, if
any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim or
expense and reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any Shares, based upon the 1933 Act or any other
statute or common law, alleging any wrongful act of the Distributor or any of
its employees or alleging that the registration statement, Prospectus,
shareholder reports or other information filed or made public by the Fund (as
from time to time amended) included an untrue statement of a material fact or
omitted to state a material fact required to be stated or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, insofar as the statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund by or on behalf
of the Distributor. In no case (i) is the indemnity of the Distributor in favor
of the Fund or any person indemnified to be deemed to protect the Fund or any
such person against any liability to which the Fund or such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligation and duties under this Amended Agreement, or (ii) is
the Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Fund or
5
<PAGE> 6
person (or after the Fund or such person shall have received notice of service
on any designated agent). However, failure to notify the Distributor of any
claim shall not relieve the Distributor from any liability which it may have to
the Fund or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. In the case of
any notice to the Distributor, it shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense, of any suit
brought to enforce the claim, but if the Distributor elects to assume the
defense, the defense shall be conducted by counsel chosen by it and satisfactory
to the Fund, to its officers and trustees and to any controlling person or
persons, defendant or defendants in the suit. In the event that the Distributor
elects to assume the defense of any suit and retain counsel, the Fund or
controlling persons, defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the Fund, officers and
trustees or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The
Distributor agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any of the Shares.
8. Essential Personnel. For a period of one year commencing on the
effective date of this Agreement, the Distributor and the Fund agree that the
retention of (i) the chief executive officer, president, chief financial officer
and secretary of the Distributor and (ii) each director, officer and employee of
the Distributor or any of its Affiliates (as defined in the Investment Company
Act of 1940, as amended (the "1940 Act")) who serves as an officer of the Fund
(each person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest
of the Fund and the Fund's shareholders. In connection with the Distributor's
acceptance of employment hereunder, the Distributor hereby agrees and covenants
for itself and on behalf of its Affiliates that neither the Distributor nor any
of its Affiliates shall make any material or significant personnel changes or
replace or seek to replace any Essential Person or cause to be replaced any
Essential Person, in each case without first informing the Board of Trustees of
the Fund in a timely manner. In Addition, neither the Distributor nor any
Affiliate of the Distributor shall change or seek to change or cause to be
changed, in any material respect, the duties and responsibilities of any
Essential Person, in each case without first informing the Board of Trustees of
the Fund in a timely manner.
9. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the Fund,
on written notice to the Distributor; (b) this Agreement shall immediately
terminate in the event of its assignment; and (c) this Agreement may be
terminated by the Distributor on ninety (90) days' written notice to the Fund.
Upon termination of this Agreement with respect to either class of Shares of the
Fund, the obligations of the parties hereunder shall cease and terminate with
respect to such class of Shares as of the date of such termination, except for
any obligation to respond for a breach of this Agreement committed prior to such
termination.
This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.
For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall have
the meanings defined in the 1940 Act, as amended.
6
<PAGE> 7
10. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.
11. Notice. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office of
such party or at such other address as such party shall have designated in
writing.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
VAN KAMPEN TAX FREE TRUST,
on behalf of its series,
VAN KAMPEN CALIFORNIA
MUNICIPAL INCOME FUND
By: /s/ John L. Sullivan
--------------------------------
Name: John L. Sullivan
Title: Vice President, Chief Financial
Officer and Treasurer
VAN KAMPEN FUNDS INC.
By: /s/ John H. Zimmermann, III
--------------------------------
Name: John H. Zimmermann, III
Title: President
7
<PAGE> 1
EXHIBIT (i)(1)(viii)
March 7, 2000
Van Kampen Tax Free Trust
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Re: Post-Effective Amendment No. 46 to the
Registration Statement on Form N-1A
for the Van Kampen Tax Free Trust, on
behalf of its series Van Kampen
California Municipal Income Fund
(File Nos. 2-99715 and 811-4386)
--------------------------------
Ladies and Gentlemen:
We have acted as counsel to Van Kampen Tax Free Trust (the
"Trust"), a Delaware business trust, on behalf of its series Van Kampen
California Municipal Income Fund (the "Fund") in connection with the preparation
of Post-Effective Amendment No. 46 to the Trust's Registration Statement on Form
N-1A (as amended, the "Registration Statement") to be filed under the Securities
Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), with the Securities and Exchange Commission
(the "Commission") on or about, March 7, 2000. The Registration Statement
relates to the registration under the 1933 Act and the 1940 Act of an indefinite
number of each of Class A Shares of beneficial interest, $.01 par value per
share, Class B Shares of beneficial interest, $.01 par value per share, and
Class C Shares of beneficial interest, $.01 par value per share, of the Trust on
behalf of the Fund (collectively, the "Shares").
<PAGE> 2
Van Kampen Tax Free Trust
March 7, 2000
Page 2
This opinion is delivered in accordance with the requirements
of Item 23(i) of Form N-1A under the 1933 Act and the 1940 Act.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Certificate of Trust filed with the Secretary of State of Delaware, as amended
to the date hereof, (ii) the Agreement and Declaration of Trust of the Trust, as
amended to the date hereof (the "Declaration of Trust"), (iii) the By-Laws of
the Trust, as amended to the date hereof (the "By-Laws"), (iv) the Certificate
of Designation establishing the series of the Trust, as amended to the date
hereof (v) the resolutions adopted by the Board of Trustees of the Trust
relating to the authorization of the issuance and sale of the Shares, the filing
of the Registration Statement and any amendments or supplements thereto and
other related matters and (vi) such other documents, certificates and records as
we have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In such examination we have assumed the legal capacity of
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic, or other
copies and the authenticity of the originals of such latter documents. As to any
facts material to such opinion which were not independently established, we have
relied on statements or representations of officers and other representatives
of the Trust or others.
Members of our firm are admitted to the practice of law in the
State of Illinois and we do not express any opinion as to the law of any other
jurisdiction other than matters relating to the Delaware business organizational
statutes (including statutes relating to Delaware business trusts) and the
federal laws of the United States of America to the extent specifically referred
to herein.
Based upon and subject to the foregoing, we are of the opinion
that the issuance and sale of Shares by the Trust on behalf of the Fund have
been validly authorized and, assuming certificates therefor have been duly
executed, counter signed, registered and delivered or the shareholders' accounts
have been duly credited and the Shares represented thereby have been fully paid
for, such Shares will be validly issued, fully paid and nonassessable.
<PAGE> 3
Van Kampen Tax Free Trust
March 7, 2000
Page 3
We hereby consent to the filing of this opinion with the
Commission as Exhibit (i) to the Registration Statement. We also consent to the
reference to our firm under the heading "Legal Counsel" in the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the 1933 Act or
the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom
(Illinois)
<PAGE> 1
EXHIBIT (j)(viii)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Van Kampen California Municipal Income Fund
We consent to the reference to us under the heading "For More Information"
in the Prospectus constituting part of this Post-Effective Amendment No. 46 to
the registration statement on Form N-1A (the "Registration Statement") of Van
Kampen Tax Free Trust and to the reference to us under the heading "Other
Information" in the Statement of Additional Information which also constitutes
part of this Registration Statement.
/s/ KPMG LLP
Chicago, Illinois
March 7, 2000
<PAGE> 1
Exhibit (m)(1)(viii)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
The plan set forth below (the "Distribution Plan") is the written plan
contemplated by Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), for the VAN KAMPEN CALIFORNIA MUNICIPAL
INCOME FUND (the "Fund"), a series of the VAN KAMPEN TAX FREE TRUST (the
"Trust"). This Distribution Plan describes the material terms and conditions
under which assets of the Fund may be used in connection with financing
distribution related activities with respect to each of its classes of shares of
beneficial interest (the "Shares"), each of which is offered and sold subject to
a different combination of front-end sales charges, distribution fees, service
fees and contingent deferred sales charges.(1) Classes of shares, if any,
subject to a front-end sales charge and a distribution and/or service fee are
referred to herein as "Front-End Classes" and the Shares of such classes are
referred to herein as "Front-End Shares." Classes of shares, if any, subject to
a contingent-deferred sales charge and a distribution and/or a service fee are
referred to herein as "CDSC Classes" and Shares of such classes are referred to
herein as "CDSC Shares." Classes of shares, if any, subject to a front-end sales
charge, a contingent-deferred sales charge and a distribution and/or service fee
are referred to herein as "Combination Classes" and Shares of such class are
referred to herein as "Combination Shares."
The Fund has adopted a service plan (the "Service Plan") pursuant to
which the Fund is authorized to expend on an annual basis a portion of its
average net assets attributable to any or each class of Shares in connection
with the provision by the principal underwriter (within the meaning of the 1940
Act) of the Shares and by brokers, dealers and other financial intermediaries
(collectively, "Financial Intermediaries") of personal services to holders of
Shares and/or the maintenance of shareholder accounts. The Fund also has entered
into a distribution and services agreement (the "Distribution and Services
Agreement") with Van Kampen Funds Inc. (the "Distributor"), pursuant to which
the Distributor acts as the principal underwriter with respect to each class of
Shares and provides services to the Fund and acts as agent on behalf of the Fund
in connection with the implementation of the Service Plan. The Distributor may
enter into selling agreements (the "Selling Agreements") with Financial
Intermediaries in order to implement the Distribution and Services Agreement,
the Service Plan and this Distribution Plan.
1. The Fund hereby is authorized to pay the Distributor a distribution fee
with respect to each class of its Shares to compensate the Distributor for
activities which are primarily intended to result in the sale of such Shares
("distribution related activities") performed by the Distributor with respect to
the respective class of Shares of the Fund. Such distribution related activities
include without limitation: (a) printing and distributing copies of any
prospectuses and annual and interim reports of the Fund (after the Fund has
prepared and set in type such materials) that are used by such Distributor in
connection with the offering of Shares; (b) preparing, printing or otherwise
manufacturing and distributing any other literature or materials of any nature
used by such Distributor in connection with promoting, distributing or offering
the Shares; (c) advertising, promoting and selling Shares to broker-dealers,
banks and the public; (d) distribution related overhead and the provision of
information programs and shareholder services intended to enhance the
attractiveness of investing in the Fund; (e) incurring initial outlay expenses
in connection with compensating Financial Intermediaries for (i) selling CDSC
Shares and Combination Shares and (ii) providing personal services to
shareholders and the maintenance of shareholder accounts of all classes of
Shares, including paying interest on and incurring other carrying costs on funds
borrowed to pay such initial outlays; and (f) acting as agent for the Fund in
connection
- ----------------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to a
Rule 18f-3 Plan adopted under the 1940 Act.
1
<PAGE> 2
with implementing this Distribution Plan pursuant to the Selling Agreements.
2. The amount of the distribution fee hereby authorized with respect to
each class of Shares of the Fund shall be as follows:
3. With respect to Class A Shares, the distribution fee authorized hereby
and the service fee authorized pursuant to the Service Plan, in the aggregate,
shall not exceed on an annual basis 0.25% of the Fund's average daily net assets
attributable to Class A Shares sold on or after the date on which this
Distribution Plan is first implemented with respect to Class A Shares. The Fund
may pay a distribution fee as determined from time to time by its Board of
Trustees in an annual amount not to exceed the lesser of (i) (A) 0.25% of the
Fund's average daily net asset value during such year attributable to Class A
Shares sold on or after the date on which this Distribution Plan was first
implemented with respect to Class A Shares minus (B) the amount of the service
fee with respect to the Class A Shares actually expended during such year by the
Fund pursuant to the Service Plan and (ii) the actual amount of distribution
related expenses incurred by the Distributor with respect to Class A Shares.
4. With respect to Class B Shares, the distribution fee authorized hereby
and the service fee authorized pursuant to the Service Plan, in the aggregate,
shall not exceed on an annual basis 1.00% of the Fund's average daily net assets
attributable to Class B Shares sold on or after the date on which this
Distribution Plan is first implemented with respect to the Class B Shares. The
Fund may pay a distribution fee with respect to the Class B Shares as determined
from time to time by its Board of Trustees in an annual amount not to exceed the
lesser of (A) 0.75% of the Fund's average daily net asset value during such year
attributable to Class B Shares sold on or after the date on which this
Distribution Plan is first implemented with respect to the Class B Shares and
(B) the actual amount of distribution related expenses incurred by the
Distributor during such year plus prior unreimbursed distribution related
expenses less the amount of any contingent deferred sales charge paid to the
Distributor, in each case with respect to the Class B Shares sold on or after
the date on which this Distribution Plan is first implemented with respect to
the Class B Shares.
5. With respect to Class C Shares, the distribution fee authorized hereby
and the service fee authorized pursuant to the Service Plan, in the aggregate,
shall not exceed on an annual basis 1.00% of the Fund's average daily net assets
attributable to Class C Shares sold on or after the date on which this
Distribution Plan is first implemented with respect to the Class C Shares. The
Fund may pay a distribution fee with respect to the Class C Shares as determined
from time to time by its Board of Trustees in an annual amount not to exceed the
lesser of (A) 0.75% of the Fund's average daily net asset value during such year
attributable to Class C Shares sold on or after the date on which this
Distribution Plan is first implemented with respect to the Class C Shares and
(B) the actual amount of distribution related expenses incurred by the
Distributor during such year plus prior unreimbursed distribution related
expenses less the amount of any contingent deferred sales charge paid to the
Distributor, in each case with respect to the Class C Shares sold on or after
the date on which this Distribution Plan is first implemented with respect to
the Class C Shares.
6. Payments pursuant to this Distribution Plan shall not be made more often
than monthly upon receipt by the Fund of a separate written expense report with
respect to each class of Shares setting forth the expenses qualifying for such
reimbursement allocated to each class of Shares and the purposes thereof.
2
<PAGE> 3
7. In the event that amounts payable hereunder with respect to shares of a
Front-End Class do not fully reimburse the Distributor for its actual
distribution related expenses with respect to the Shares of such class, there is
no carryforward of reimbursement obligations to succeeding years. In the event
the amounts payable hereunder with respect to shares of a CDSC Class or a
Combination Class do not fully reimburse the Distributor for its actual
distribution related expenses with respect to the Shares of the respective
class, such unreimbursed distribution expenses will be carried forward and paid
by the Fund hereunder in future years so long as this Distribution Plan remains
in effect, subject to applicable laws and regulations. Reimbursements for
distribution related expenses payable hereunder with respect to a particular
class of Shares may not be used to subsidize the sale of Shares of any other
class of Shares.
8. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any
distribution related expenses incurred with respect to a class of Shares prior
to the later of (a) the implementation of this Distribution Plan with respect to
such class of Shares or (b) the date that such Financial Intermediary enters
into a Selling Agreement with the Distributor.
9. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Trustees of the Trust
and a majority of the Disinterested Trustees (within the meaning of the 1940
Act) by a vote cast in person at a meeting called for the purpose of voting on
such Selling Agreements. The Distributor may reallocate all or a portion of its
distribution fee to such Financial Intermediaries as compensation for the
above-mentioned activities and services. Such reallocation shall be in an amount
as set forth from time to time in the Fund's prospectus. Such Selling Agreements
shall provide that the Financial Intermediaries shall provide the Distributor
with such information as is reasonably necessary to permit the Distributor to
comply with the reporting requirements set forth in Paragraphs 3 and 8 hereof.
10. Subject to the provisions of this Distribution Agreement, the Fund is
hereby authorized to pay a distribution fee to any person that is not an
"affiliated person" or "interested person" of the Fund or its "investment
adviser" or "principal underwriter" (as such terms are defined in the 1940 Act)
who provides any of the foregoing services for the Fund. Such fee shall be paid
only pursuant to written agreements between the Fund and such other person the
terms of which permit payments to such person only in accordance with the
provisions of this Distribution Agreement and which have the approval of a
majority of the Disinterested Trustees by vote cast separately with respect to
each class of Shares and cast in person at a meeting called for the purpose of
voting on such written agreement.
11. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Trustees on a quarterly basis summarizing all payments made by them with respect
to each class of Shares pursuant to this Distribution Plan, the Service Plan and
the agreements contemplated hereby, the purposes for which such payments were
made and such other information as the Board of Trustees or the Disinterested
Trustees may reasonably request from time to time, and the Board of Trustees
shall review such reports and other information.
12. This Distribution Plan shall become effective upon its approval by (a) a
majority of the Board of Trustees and a majority of the Disinterested Trustees
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
13. This Distribution Plan and any agreement contemplated hereby shall
continue in effect beyond the first anniversary of its adoption by the Board of
Trustees of the Fund only so long as (a) its continuation is approved at least
annually in the manner set forth in clause (a) of paragraph 9 above and
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(b) the selection and nomination of those trustees of the Fund who are not
"interested persons" of the Fund are committed to the discretion of such
trustees.
14. This Distribution Plan may be terminated with respect to a class of
Shares without penalty at any time by a majority of the Disinterested Trustees
or by a "majority of the outstanding voting securities" of the respective class
of Shares of the Fund.
15. This Distribution Plan may not be amended to increase materially the
maximum amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund and may not be amended in any other material respect except
with the approval of a majority of the Disinterested Trustees. Amendments
required to conform this Distribution Plan to changes in the Rule or to other
changes in the 1940 Act or the rules and regulations thereunder shall not be
deemed to be material amendments.
16. To the extent any service fees paid by the Fund pursuant to the Service
Plan are deemed to be payments for the financing of any activity primarily
intended to result in the sale of Shares issued by the Fund within the meaning
of the Rule, the terms and provisions of such plan and any payments made
pursuant to such plan hereby are authorized pursuant to this Distribution Plan
in the amounts and for the purposes authorized in the Service Plan without any
further action by the Board of Trustees or the shareholders of the Fund. To the
extent the terms and provisions of the Service Plan conflict with the terms and
provisions of this Distribution Plan, the terms and provisions of the Service
Plan shall prevail with respect to amounts payable pursuant thereto. This
paragraph 13 is adopted solely due to the uncertainty that may exist with
respect to whether payments to be made by the Fund pursuant to the Service Plan
constitute payments primarily intended to result in the sale of Shares issued by
the Fund within the meaning of the Rule.
17. The Trustees of the Trust have adopted this Distribution Plan as
trustees under the Declaration of Trust of the Trust and the policies of the
Trust adopted hereby are not binding upon any of the Trustees or shareholders of
the Trust individually, but bind only the trust estate.
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Exhibit (m)(4)(viii)
VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND
SERVICE PLAN
The plan set forth below (the "Service Plan") for the VAN KAMPEN
CALIFORNIA MUNICIPAL INCOME FUND (the "Fund"), a series of the VAN KAMPEN TAX
FREE TRUST (the "Trust") describes the material terms and conditions under which
assets of the Fund may be used to compensate the Fund's principal underwriter,
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), brokers, dealers and other financial intermediaries (collectively
"Financial Intermediaries") for providing personal services to shareholders
and/or the maintenance of shareholder accounts with respect to each of its Class
A Shares of beneficial interest (the "Class A Shares"), its Class B Shares of
beneficial interest (the "Class B Shares"), and its Class C Shares of beneficial
interest (the "Class C Shares") The Class A Shares, Class B Shares and Class C
Shares sometimes are referred to herein collectively as the "Shares." Each class
of Shares is offered and sold subject to a different combination of front-end
sales charges, distribution fees, service fees and contingent deferred sales
charges. (1) Classes of shares, if any, subject to a front-end sales charge and
a distribution and/or service fee are referred to herein as "Front-End Classes"
and the Shares of such classes are referred to herein as "Front-End Shares."
Classes of shares, if any, subject to a contingent-deferred sales charge and a
distribution and or a service fee are referred to herein as "CDSC Classes" and
Shares of such classes are referred to herein as "CDSC Shares." Classes of
shares, if any, subject to a front-end sales charge, a contingent-deferred sales
charge and a distribution and/or service fee are referred to herein as
"Combination Classes" and Shares of such class are referred to herein as
"Combination Shares."
The Fund has adopted a distribution plan (the "Distribution Plan")
pursuant to which the Fund is authorized to expend on an annual basis a portion
of its average net assets attributable to each class of Shares in connection
with financing distribution related activities. The Fund also has entered into a
distribution and services agreement (the "Distribution and Services Agreement")
with Van Kampen American Capital Distributors, Inc. (the "Distributor"),
pursuant to which the Distributor acts as agent on behalf of the Fund in
connection with the implementation of the Service Plan and acts as the principal
underwriter with respect to each class of Shares. The Distributor may enter into
selling agreements (the "Selling Agreements") with brokers, dealers and other
financial intermediaries ("Financial Intermediaries") in order to implement the
Distribution Agreement, the Distribution Plan and this Service Plan.
1. The Fund hereby is authorized to pay a service fee with respect to its
Class A Shares, Class B Shares and Class C Shares to any person who sells such
Shares and provides personal services to shareholders and/or maintains
shareholder accounts in an annual amount not to exceed 0.25% of the average
annual net asset value of the Shares maintained in the Fund by such person that
were sold on or after the date on which this Service Plan was first implemented.
The aggregate annual amount of all such payments with respect to each such class
of Shares may not exceed 0.25% of the Fund's average annual net assets
attributable to the respective class of Shares sold on or after the date on
which this Service Plan was first implemented and maintained in the Fund more
than one year.
2. Payments pursuant to this Service Plan may be paid or prepaid on behalf
of the Fund by the Distributor acting as the Fund's agent.
- ---------------------------
(1) The Fund is authorized to offer multiple classes of shares pursuant to a
Rule 18f-3 Plan adopted under the 1940 Act.
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3. Payments by the Fund to the Distributor pursuant to this Service Plan
shall not be made more often than monthly upon receipt by the Fund of a separate
written expense report with respect to each class of Shares setting forth the
expenses qualifying for such reimbursement allocated to each class of Shares and
the purposes thereof.
4. In the event that amounts payable hereunder with respect to a class of
Shares do not fully reimburse the Distributor for pre-paid service fees, such
unreimbursed service fee expenses will be carried forward and paid by the Fund
hereunder in future years so long as this Service Plan remains in effect,
subject to applicable laws and regulations. Reimbursements for service fee
related expenses payable hereunder with respect to a particular class of Shares
may not be used to subsidize services provided with respect to any other class
of Shares.
5. The Fund shall not compensate the Distributor, and neither the Fund nor
the Distributor shall compensate any Financial Intermediary, for any service
related expenses incurred with respect to a class of Shares prior to the later
of (a) the implementation of this Service Plan with respect to such class of
Shares or (b) the date that such Financial Intermediary enters into a Selling
Agreement with the Distributor.
6. The Fund hereby authorizes the Distributor to enter into Selling
Agreements with certain Financial Intermediaries to provide compensation to such
Financial Intermediaries for activities and services of the type referred to in
Paragraph 1 hereof. Prior to the implementation of a Selling Agreement, such
agreement shall be approved by a majority of the Board of Trustees of the Trust
and a majority of the Disinterested Trustees (within the meaning of the 1940
Act) by a vote cast in person at a meeting called for the purpose of voting on
such Selling Agreements. Such Selling Agreements shall provide that the
Financial Intermediaries shall provide the Distributor with such information as
is reasonably necessary to permit the Distributor to comply with the reporting
requirements set forth in Paragraphs 3 and 8 hereof.
7. Subject to the provisions of this Service Agreement, the Fund is hereby
authorized to pay a service fee to any person that is not an "affiliated person"
or "interested person" of the Fund or its "investment adviser" or "principal
underwriter" (as such terms are defined in the 1940 Act) who provides any of the
foregoing services for the Fund. Such fee shall be paid only pursuant to written
agreements between the Fund and such other person the terms of which permit
payments to such person only in accordance with the provisions of this Service
Agreement and which have the approval of a majority of the Disinterested
Trustees by vote cast separately with respect to each class of Shares and cast
in person at a meeting called for the purpose of voting on such written
agreement.
8. The Fund and the Distributor shall prepare separate written reports for
each class of Shares and shall submit such reports to the Fund's Board of
Trustees on a quarterly basis summarizing all payments made by them with respect
to each class of Shares pursuant to this Service Plan and the agreements
contemplated hereby, the purposes for which such payments were made and such
other information as the Board of Trustees or the Disinterested Trustees may
reasonably request from time to time, and the Board of Trustees shall review
such reports and other information.
9. This Service Plan may be terminated with respect to a class of Shares
without penalty at any time by a majority of the Disinterested Trustees or by a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund.
10. This Service Plan shall become effective upon its approval by (a) a
majority of the Board of Trustees and a majority of the Disinterested Trustees
by vote cast separately with respect to each class of Shares cast in person at a
meeting called for the purpose of voting on this Distribution Plan, and (b) with
respect to each class of Shares, a "majority of the outstanding voting
securities" (as such phrase is defined in the 1940 Act) of such class of Shares
voting separately as a class.
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<PAGE> 3
11. This Service Plan and any agreement contemplated hereby shall continue
in effect beyond the first anniversary of its adoption by the Board of Trustees
of the Fund only so long as (a) its continuation is approved at least annually
in the manner set forth in clause (a) of paragraph 10 above and (b) the
selection and nomination of those trustees of the Fund who are not "interested
persons" of the Fund are committed to the discretion of such trustees.
12. This Service Plan may not be amended to increase materially the maximum
amounts permitted to be expended hereunder except with the approval of a
"majority of the outstanding voting securities" of the respective class of
Shares of the Fund. This Service Plan may not be amended in any material respect
except with the approval of a majority of the Disinterested Trustees. Amendments
required to conform this Service Plan to changes in Rule 12b-1 under the 1940
Act, the rules and regulations thereunder or the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. shall not be deemed to be
material amendments.
The Trustees of the Trust have adopted this Service Plan as trustees
under the Declaration of Trust of the Trust and the policies of the Trust
adopted hereby are not binding upon any of the Trustees or shareholders of the
Trust individually, but bind only the trust estate.
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<PAGE> 1
EXHIBIT(p)
FORM OF
CODE OF ETHICS
I. INTRODUCTION
Each of the Van Kampen Open-End Funds listed on Schedule 1 attached hereto
(each a "Fund" and collectively the "Funds"), Van Kampen Asset Management Inc.
("Asset Management"), Van Kampen Investment Advisory Corp. ("Advisory Corp.")
(each of Asset Management and Advisory Corp. are sometimes referred herein as
the "Adviser" or collectively as the "Advisers") and Van Kampen Funds Inc. (the
"Distributor") (the Advisers and the Distributor are collectively referred to
as "Van Kampen") has adopted this Code of Ethics. The Advisers are fiduciaries
that provide investment advisory services to the Funds and private investment
management accounts, and the Distributor acts as the principal underwriter for
the Funds.
II. GENERAL PRINCIPLES
A. Shareholder and Client Interests Come First
Every trustee/director, officer and employee of a Fund and every
director, officer and employee of Van Kampen owes a fiduciary duty to
the investment account and the respective investors of such Fund or
private investment management account (collectively, the "Clients").
This means that in every decision relating to investments, such
persons must recognize the needs and interests of the Clients and be
certain that at all times the Clients' interests are placed ahead of
any personal interest of such person.
B. Avoid Actual and Potential Conflicts of Interest
The restrictions and requirements of this Code are designed to
prevent behavior which conflicts, potentially conflicts or raises the
appearance of an actual or potential conflict with the interests of
Clients. It is of the utmost importance that the personal securities
transactions of trustee/directors, officers and employees of a Fund
and directors,
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officers and employees of Van Kampen be conducted in a manner
consistent with both the letter and spirit of the Code, including
these principles, to avoid any actual or potential conflict of
interest or any abuse of such person's position of trust and
responsibility.
C. Avoiding Personal Benefit
Trustee/directors, officers and employees of the Funds and directors,
officers and employees of Van Kampen should ensure that they do not
acquire personal benefit or advantage as a result of the performance
of their normal duties as they relate to Clients. Consistent with the
principle that the interests of Clients must always come first is the
fundamental standard that personal advantage deriving from management
of Clients' money is to be avoided.
III. OBJECTIVE
Section 17(j) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), makes it unlawful for certain persons associated
investment companies to engage in conduct which is deceitful, fraudulent or
manipulative, or which involves false or misleading statements, in connection
with the purchase or sale of a security held or proposed to be acquired by an
investment company. In addition, Section 204A of the Investment Advisers Act of
1940, as amended (the "Investment Advisers Act"), requires investment advisers
to establish, maintain and enforce written policies and procedures designed to
prevent misuse of material non-public information. The objective of this Code
is to require trustee/directors, officers and employees of the Funds and
directors, officers and employees of Van Kampen to conduct themselves in
accordance with the general principles set forth above, as well as to prevent
trustee/directors, officers and employees of the Funds or the Distributor from
engaging in conduct prohibited by the Investment Company Act and directors,
officers and employees of the Advisers from engaging in conduct prohibited by
the Investment Company Act and the Investment Advisers Act.
IV. DEFINITIONS
A. "Access Person" means (i) any trustee/director or officer of a
Fund, (ii) any director or officer of a Fund's Adviser, (iii) any
employee of a Fund or the Fund's Adviser (or any company in a control
relationship
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<PAGE> 3
to the Fund or Adviser) who, in connection with such person's regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Covered Security by a Client, or
whose functions relate to the making of any recommendations with
respect to such purchases or sales; (iv) any natural person in a
control relationship to the Fund or the Fund's Adviser who obtains
information concerning recommendations made to a Client with regard to
the purchase or sale of a Covered Security by such Client, and (v) any
director or officer of the Distributor, who, in the ordinary course of
business, makes, participates in or obtains information regarding, the
purchase or sale of a Covered Security by a Client for which it acts
as principal underwriter, or whose functions relate to the making of
any recommendations with respect to such purchases or sales.
B. "Beneficial Ownership" is interpreted in the same manner as it is
under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in determining whether a person is the
beneficial owner of a security for purposes of Section 16 of the 1934
Act and the rules and regulations thereunder, which includes "any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in" a security. The term "pecuniary
interest" is further defined to mean "the opportunity, directly or
indirectly, to profit or share in any profit derived from a
transaction in the subject securities." "Beneficial ownership"
includes (i) securities held by members of a person's immediate family
sharing the same household and includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law" and includes adoptive relationships
and (ii) aright to acquire securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable.
Any report required to be made by this Code may contain a statement
that the report shall not be construed as an admission by the person
making such report that he has any direct or indirect Beneficial
Ownership in the security to which the report relates.
C. "Chief Compliance Officer" is the individual set forth in Exhibit A.
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D. "Code of Ethics Review Committee" consists of the individuals set
forth in Exhibit A.
E. "Control" has the same meaning as in Section 2(a)(9) of the Investment
Company Act.
F. "Covered Security" refers not only to the instruments set forth in
Section 2(a)(36) of the Investment Company Act but to any instrument
into which such instrument may be converted or exchanged, any warrant
of any issuer that has issued the instrument and any option written
relating to such instrument, provided, however, that it does not
include: (a) any direct obligation of the United States Government,
(b) banker's acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements, and (c) shares issued by any open-end
investment companies registered under the Investment Company Act.
G. "Disinterested Trustee/Director" means a trustee or director of an
Fund who is not an "interested person" of such Fund within the meaning
of Section 2(a)(19) of the Investment Company Act.
H. "Employee Account" means any brokerage account or unit investment
trust account in which the Van Kampen Employee has any direct or
indirect beneficial ownership.
I. "General Counsel" is the individual set forth in Exhibit A.
J. "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer of which, immediately before the
registration, was not subject to the reporting requirements of
sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
K. "Investment Personnel" means (i) any employee of a Fund (or of any
company in a control relationship to the Fund), (ii) Portfolio
Managers, security analysts, traders and any other employees of a
Fund's Adviser (or of any company in a control relationship to the
Fund's Adviser) who, in connection with his or her regular functions
or
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duties, makes or participates in making investment recommendations
regarding the purchase or sale of securities by the Fund or other
Clients; and (iii) any natural person who controls a Fund or Adviser
and who obtains information concerning recommendations made to such
Fund or other Client regarding the purchase or sale of securities.
L. "Limited Offering" is an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) of
the Securities Act or pursuant to Rule 504, Rule 505 or Rule 506 under
the Securities Act.
M. "Portfolio Manager" means any person who exercises investment
discretion on behalf of an Adviser for a Client.
N. "Van Kampen Employee" includes any director, officer or employee of
Van Kampen.
V. STANDARDS OF CONDUCT FOR PERSONAL SECURITIES TRANSACTIONS
A. Van Kampen Employee Brokerage Accounts
1. All brokerage accounts of Van Kampen Employees must be maintained
through Morgan Stanley Dean Witter & Co. ("MSDW") and/or Morgan
Stanley Dean Witter Online ("MSDWO"). No other brokerage accounts
are permitted unless permission is granted by the Chief
Compliance Officer or General Counsel.
If any Van Kampen Employee maintains accounts outside MSDW or
MSDWO, such person must transfer such accounts to a MSDW branch
or MSDWO within 120 days from his or her date of hire.
a. Each Van Kampen Employee must inform the appropriate person
in the compliance department as set forth in Exhibit A, in
writing, of their MSDW and MSDWO brokerage accounts, or, if
applicable, their outside
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<PAGE> 6
brokerage accounts. The Van Kampen compliance department
shall direct the brokerage firm to provide duplicate
confirmations and account statements to the Van Kampen
compliance department.
1) Van Kampen Employees shall notify the appropriate
persons in the Van Kampen compliance department as set
forth in Exhibit A when opening a brokerage account.
B. Pre-Clearance
1. Except as set forth below, all Van Kampen Employees must
pre-clear purchases or sales of Covered Securities in their
Employee Accounts with the appropriate person in the Van Kampen
compliance department as set forth in Exhibit A.
2. Exceptions from the Pre-Clearance Requirement.
a. Persons otherwise subject to pre-clearance are not required
to pre-clear the acquisition of the following Covered
Securities:
1) Covered Securities acquired through automatic
reinvestment plans.
2) Covered Securities acquired through employee
purchase plans.
3) Covered Securities acquired through the exercise of
rights issued by an issuer pro-rata to all holders of a
class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so
acquired.
4) Morgan Stanley Dean Witter & Co. common stock
(including exercise of stock option grants),
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a) The restrictions imposed by the Firm on senior
management and other persons in connection with
transactions in such stock are not affected by
this exemption.
5) Units in unit investment trusts.
3. Pre-cleared securities transactions must be effected timely.
a. All approved Covered Securities transactions must take place
on the same day that the authorization is obtained. If the
transaction is not completed on the date of clearance, a new
clearance must be obtained.
b. Purchases through an issuer direct purchase plan must be
pre-cleared on the date the purchaser writes the check to
the issuer's agent
1) Authorization for purchases through an issuer direct
purchase plan are effective until the issuer's agent
purchases the Covered Securities.
4. Pre-Clearance Procedure
a. Van Kampen Employees shall pre-clear their transactions by
submitting a Trade Authorization Form (a copy of which is
attached as Exhibit B) to the appropriate persons in the
compliance department as set forth in Exhibit A.
1) The compliance department shall pre-clear the purchase
or sale of a Covered Security if the transaction does
not violate the Code.
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<PAGE> 8
a) The compliance department shall verify that the
transaction is in compliance with the Code.
b) The compliance department shall sign the Trade
Authorization Form.
c) The compliance department shall communicate
authorization of the trade to the Van Kampen
Employee.
d) The time at which the trade authorization is
communicated to the Van Kampen Employee shall be
documented on the Trade Authorization Form.
e) The compliance department shall maintain the
originally executed Trade Authorization Form. A
copy of the executed Trade Authorization Form will
be forwarded to the Van Kampen Employee.
f) The compliance department shall review Van Kampen
Employee duplicate confirmations and statements to
verify that all personal transactions in Covered
Securities have been properly pre-cleared.
C. Other Restrictions
1. Van Kampen Employee trades for which pre-clearance has been
obtained, including short sales and permissible option trades,
are subject to 30-day holding period from the trade date.
2. Van Kampen Employees are prohibited from trading in futures,
options on futures, and forward contacts. Van Kampen
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<PAGE> 9
Employees may trade listed equity and index options and equity
warrants, however, there is a 30-day holding period from the
trade date. In addition, Van Kampen Employees are also prohibited
from trading in warrants or options (with the exception of listed
warrants or options) on physical commodities and currencies.
3. Van Kampen Employees shall not purchase Covered Securities during
an initial or secondary public offering.
4. Van Kampen Employees shall not enter into limit orders which
extend beyond one day.
5. Van Kampen Employees shall not participate in an investment club.
6. Van Kampen Employees shall not purchase shares of an investment
company that is managed by Van Kampen if such investment company
is not generally available to the public.
7. Van Kampen Employees shall not purchase shares of an open end
investment company that is managed by Van Kampen if as a result
of such purchase the Van Kampen Employee shall own 1% or more of
the assets of such investment company.
8. Van Kampen Employees are prohibited from the following activities
unless they have obtained prior written approval from the Code of
Ethics Review Committee:
a. Van Kampen Employees may not purchase a Covered Security in
a private placement or any other Limited Offering.
b. Van Kampen Employees may not serve on the boards of
directors of a public or private company. Requests to serve
on the board of a religious, charitable or educational
organization as set forth in Section 503(c) of the IRS Code
will generally be approved.
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D. Additional Responsibilities of Access Persons
In addition to the requirements set forth above, the following
prohibitions and reporting obligations are applicable to Access
Persons.
1. Access Persons shall not purchase or sell a Covered Security on a
day during which a Client has a pending purchase or sale order in
that same Covered Security.
2. Initial/Annual Reporting: Within ten days after becoming an
Access Person and thereafter, annually, each Access Person must
furnish a report to the Chief Compliance Officer showing (i) the
date of the report, (ii) the title, number of shares and
principal amount of each Covered Security owned directly or
indirectly by the Access Person on the date such person become an
Access Person (for initial reports) or as of a date no more than
30 prior to the date of the report (for annual reports) and (iii)
the name of any broker, dealer or bank with an account holding
any securities for the direct or indirect benefit of the Access
Person as of the date such person became an Access Person (for
initial reports) or as of a date no more than 30 prior to the
date of the report (for annual reports).
a. Exclusion: A Disinterested Trustee/Director who would be
required to make this report solely by reason of being a
Fund trustee/director is excluded from the initial and
annual reporting requirement for Access Persons.
3. Quarterly Reporting: On a calendar quarterly basis, each Access
Persons must furnish a report to the Chief Compliance Officer
within ten days after the end of each calendar quarter, on forms
sent to the Access Person each quarter:
a. With respect to any transactions in Covered Securities in
which the Access Person had direct or indirect Beneficial
Ownership, a report showing (i) the date of the report; (ii)
the date of the transaction, the title, the interest rate
and maturity date (if applicable), the num-
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ber of shares, and the principal amount of each Covered
Security involved; (iii) the nature of the transaction
(i.e., purchase, sale or any other type of acquisition or
disposition); (iv) the price at which the transaction was
effected; and (v) the name of the broker, dealer or bank
with or through which the transaction was effected; and
b. With respect to any account established by the Access Person
in which any securities were held during the quarter for
direct or indirect benefit of the Access Person, a report
showing (i) the date of the report; (ii) the name of the
broker, dealer or bank with which established the account;
and (iii) the date the account was established.
c. Exclusion: A Disinterested Trustee/Director who would be
required to make this report solely by reason of being a
Fund trustee/director is excluded from the quarterly
reporting requirement for Access Persons unless the
trustee/director knew or, in the ordinary course of
fulfilling his or her official duties as a Fund
trustee/director, should have known that during the 15-day
period immediately before or after the trustee/director's
transaction in a Covered Security, the Fund purchased or
sold the Covered Security, or the Fund or its investment
adviser considered purchasing or selling the Covered
Security.
d. Exclusion: An Access Person need not make a quarterly
transaction report if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, the Adviser and the
Distributor with respect to the Access Person in the time
period required above if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the records of
the Fund, the Adviser and the Distributor.
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E. Additional Responsibilities of Investment Personnel
In addition to the requirements set forth above, the following
prohibitions and reporting obligations are applicable to Investment
Personnel.
1. Investment Personnel shall not sell a Covered Security purchased
within the previous 60 calendar days from the trade date, except
that a Covered Security held for at least 30 days from the trade
date may be sold at a loss or no gain. Any profits realized on
trades executed within the 60-day holding period shall be
disgorged to the Client or a charitable organization as
determined by the Chief Compliance Officer.
2. All Investment Personnel shall disclose all personal and
beneficial Covered Securities holdings upon the commencement of
employment and thereafter on an annual basis to the compliance
department.
3. Investment Personnel of a Fund or its investment adviser must
obtain approval from the Fund or the Fund's investment adviser
before directly or indirectly acquiring beneficial ownership in
any securities in an Initial Public Offering or in a Limited
Offering.
F. Additional Responsibilities of Portfolio Managers
In addition to the requirements set forth above for Van Kampen
Employees, Access Persons and Investment Personnel, the following
additional requirements are applicable to Portfolio Managers.
12
<PAGE> 13
1. A Portfolio Manager may not buy or sell a Covered Security within
7 calendar days before or after any Client, over which such
Portfolio Manager exercises investment discretion, trades in such
Covered Security.
2. A Portfolio Manager may not purchase shares of a closed-end
investment company over which such Portfolio Manager exercises
investment discretion.
G. Insiders
1. Each Van Kampen Employee shall comply with all laws and
regulations, and prohibitions against insider trading. Trading on
or communicating material non-public information, or "inside
information," of any sort, whether obtained in the course of
research activities, through a Client relationship or otherwise,
is strictly prohibited.
2. Van Kampen Employees shall not disclose any non-public
information relating to a Client's account portfolio or
transactions or to the investment recommendations of Van Kampen,
nor shall any Van Kampen Employee disclose any non-public
information relating to the business or operations of the members
of Van Kampen, unless properly authorized to do so.
3. No Van Kampen Employee who is required to file a statement of
ownership pursuant to Section 16 of the Exchange Act may purchase
or sell or sell and purchase a company-sponsored closed-end
investment company within a six month period and realize a profit
on such transaction.
H. Exceptions
1. Notwithstanding the foregoing, the Chief Compliance Officer or
his or her designee, in keeping with the general principles and
objectives of this Code, may refuse to grant clearance of a
personal transaction in their sole discretion without being
required to specify any reason for the refusal.
13
<PAGE> 14
2. Upon proper request by a Van Kampen Employee, a Code of Ethics
Review Committee (the "Committee") will consider for relief or
exemption from any restriction, limitation or procedure contained
herein, which restriction, limitation or procedure is claimed to
cause a hardship for such Van Kampen Employee. The Chief
Compliance Officer will in his sole discretion determine whether
the request is appropriate for consideration by the Committee.
The Committee shall meet on an ad hoc basis, as deemed necessary
upon the Van Kampen Employee's written request outlining the
basis for his or her request for relief. The decision is within
the sole discretion of the Committee.
VI. ADMINISTRATION OF THE CODE
A. The administration of this Code shall be the responsibility of the
Chief Compliance Officer or his or her designee whose duties shall
include:
1. Continuously maintaining a list of all Access Persons who are
under a duty to make reports or pre-clear transactions under this
Code.
2. Providing each such person with a copy of this Code and informing
them of their duties and obligations hereunder.
3. Reviewing all quarterly securities transactions and holdings
reports required to be filed pursuant to this Code, and
maintaining a record of such review, including the name of the
compliance personnel performing the review.
4. Reviewing all initial and annual securities position reports
required to be filed pursuant to this Code, and maintaining a
record of such review, including the name of the compliance
personnel performing the review.
5. Preparing listings of all transactions effected by persons
subject to reporting requirements under the Code and comparing
all reported personal securities transactions with completed
14
<PAGE> 15
portfolio transactions of the Clients and securities being
considered for purchase or sale by Clients to determine whether a
violation of this Code may have occurred.
6. Conducting such inspections or investigations as shall reasonably
be required to detect and report any apparent violations of this
Code to any person or persons appointed by Van Kampen to deal
with such information and to the Fund's Board of
Directors/Trustees.
7. Submitting a written report, no less frequently than annually, to
the Board of Directors/Trustees of each Fund containing a
description of issues arising under the Code or procedures since
the last report, including, but not limited to, material
violations of the Code or procedures and sanctions imposed in
response to material violations.
8. Submitting a certification, no less frequently than annually, to
the Board of Directors/Trustees of each Fund from the Fund, the
respective Adviser and the Distributor that it has adopted
procedures reasonably necessary to prevent Access Persons from
violating the Code.
VII. RECORDS
The Fund, the Advisers and the Distributor shall, at its principal place
of business, maintain records of the following:
A. A copy of any code of ethics adopted by the such entity which is or
has been in effect during the past five years must be maintained in an
easily accessible place;
B. A copy of any record or report of any violation of the code of ethics
of such entity and any action taken thereon maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
15
<PAGE> 16
C. A copy of each report made by an Access Person as required by this
Code, including any information provided in lieu of the reports,
must be maintained for at least five years after the end of the
fiscal year in which the report is made or the information is
provided, the first two years in an easily accessible place;
D. A record of all persons, currently or within the past five years,
who are or were required to make reports under this Code, or who are
or were responsible for reviewing these reports, must be maintained
in an easily accessible place; and
E. A copy of each written report required to be provided to the Board
of Directors/Trustees of each Fund containing a description of
issues arising under the Code or procedures since the last report,
including, but not limited to, material violations of the Code or
procedures and sanctions imposed in response to material violations
must be maintained for at least five years after the end of the
fiscal year in which it is made, the first two years in an
easily accessible place.
F. A Fund or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by Investment Personnel of securities in an Initial
Public Offering or in a Limited Offering.
G. A copy of any decision and reasons supporting such decision to
approve a pre-clearance transaction pursuant to this Code, made
within the past five years after the end of the fiscal year in which
such approval is granted.
VIII. SANCTIONS
Upon discovering a violation of this Code, Van Kampen may impose such
sanctions as it deems appropriate, including, but not limited to, a reprimand
(orally or in writing), demotion, and suspension or termination of employment.
The General Counsel of Van Kampen, in his sole discretion, is authorized to
determine the choice of sanctions to be imposed in specific cases, including
termination of employment of any employee.
16
<PAGE> 17
IX. APPROVAL OF CODE OF ETHICS
A. Van Kampen shall provide to the Board of Directors/Trustees of each
Fund the following:
1. A copy of the Fund's Code, the Adviser's Code and the
Distributor's Code for such Board's review and approval.
2. Promptly, a copy of any amendments to such Codes.
3. Upon request, copies of any reports made pursuant to the Code by
any person as to an investment company client.
4. Immediately, without request by an investment company client, all
material information regarding any violation of the Code by any
person as to such investment company client.
5. Certification, no less frequently than annually, to the Board of
Directors/Trustees of each Fund from the Fund, the respective
Adviser and the Distributor that it has adopted procedures
reasonably necessary to prevent Access Persons from violating the
Code.
B. Prior to adopting this Code, the Board of Trustees/Directors of
each Fund, including a majority of Disinterested Trustee/Directors,
reviewed and approved this Code with respect to the Fund, each adviser
of the Fund and the principal underwriter of the Fund, including all
procedures or provisions related to the enforcement of this Code. The
Board based its approval of this Code on, among other things, (i)
certifications from the Fund, the respective Adviser and the
Distributor that it has adopted procedures reasonably necessary to
prevent violations of the Code and (ii) a determination that such Code
is adequate and contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by Rule
17j-1(b).
17
<PAGE> 18
X. EFFECTIVE DATE
All Van Kampen Employees are required to sign a copy of this Code
indicating their agreement to abide by the terms of the Code.
In addition, Van Kampen Employees will be required to certify
annually that (i) they have read and understand the terms of this Code and
recognize the responsibilities and obligations incurred by their being subject
to this Code, and (ii) they are in compliance with the requirements of the Code.
Approved this _____ day of _______________.
18
<PAGE> 1
EXHIBIT (q)
POWER OF ATTORNEY
The undersigned, being Officers and Trustees of each of the Van Kampen
Open End Trusts (individually, a "Trust") as indicated on Schedule 1 attached
hereto and incorporated by reference, each a Delaware business trust, except for
the Van Kampen Pennsylvania Tax Free Income Fund being a Pennsylvania trust, and
being Officers and Directors of Van Kampen Series Fund, Inc. (the
"Corporation"), a Maryland corporation, do hereby, in the capacities shown
below, appoint Richard F. Powers, III, Stephen L. Boyd and A. Thomas Smith III,
each of Oakbrook Terrace, Illinois, as agents and attorneys-in-fact with full
power of substitution and resubstitution, for each of the undersigned, to
execute and deliver, for and on behalf of the undersigned, any and all
amendments to the Registration Statement filed by each Trust or the Corporation
with the Securities and Exchange Commission pursuant to the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: January 28, 2000
Signature Title
--------- -----
/s/ Richard F. Powers
- --------------------------------------- President, Trustee/Director
Richard F. Powers, III
/s/ John L. Sullivan Vice President, Chief Financial
- --------------------------------------- Officer and Treasurer
John L. Sullivan
/s/ J. Miles Branagan
- --------------------------------------- Trustee/Director
J. Miles Branagan
/s/ Jerry D. Choate
- --------------------------------------- Trustee/Director
Jerry D. Choate
/s/ Linda Hutton Heagy
- --------------------------------------- Trustee/Director
Linda Hutton Heagy
/s/ R. Craig Kennedy
- --------------------------------------- Trustee/Director
R. Craig Kennedy
/s/ Mitchell M. Merin
- --------------------------------------- Trustee/Director
Mitchell M. Merin
/s/ Jack E. Nelson
- --------------------------------------- Trustee/Director
Jack E. Nelson
/s/ Phillip B. Rooney
- --------------------------------------- Trustee/Director
Phillip B. Rooney
/s/ Fernando Sisto, Sc. D.
- --------------------------------------- Trustee/Director
Fernando Sisto, Sc. D.
/s/ Wayne W. Whalen
- --------------------------------------- Trustee/Director
Wayne W. Whalen
/s/ Suzanne H. Woolsey
- --------------------------------------- Trustee/Director
Suzanne H. Woolsey
/s/ Paul G. Yovovich
- --------------------------------------- Trustee/Director
Paul G. Yovovich
<PAGE> 2
SCHEDULE 1
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN EQUITY TRUST II
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
<PAGE> 1
EXHIBIT (z)(1)
Item 27(a)
- ----------
Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen Municipal Income Fund
Van Kampen Intermediate Term Municipal Income Fund
Van Kampen Florida Insured Tax Free Income Fund
Van Kampen New York Tax Free Income Fund
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Growth Fund
Van Kampen Small Cap Value Fund
Van Kampen Utility Fund
Van Kampen Equity Trust II
Van Kampen Technology Fund
Van Kampen Pennsylvania Tax Free Income Fund
Van Kampen Tax Free Money Fund
Van Kampen Prime Rate Income Trust
Van Kampen Senior Floating Rate Fund
Van Kampen Comstock Fund
Van Kampen Corporate Bond Fund
Van Kampen Emerging Growth Fund
Van Kampen Enterprise Fund
Van Kampen Equity Income Fund
Van Kampen Exchange Fund
The Explorer Institutional Trust
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
<PAGE> 2
Van Kampen Limited Maturity Government Fund
Van Kampen Global Managed Assets Fund
Van Kampen Government Securities Fund
Van Kampen Growth and Income Fund
Van Kampen Harbor Fund
Van Kampen High Income Corporate Bond Fund
Van Kampen Life Investment Trust on behalf of its series
Asset Allocation Portfolio
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio
Van Kampen Pace Fund
Van Kampen Real Estate Securities Fund
Van Kampen Reserve Fund
Van Kampen Tax Exempt Trust
Van Kampen High Yield Municipal Fund
Van Kampen U.S. Government Trust for Income
Van Kampen World Portfolio Series Trust
Van Kampen Global Government Securities Fund
Van Kampen Series Fund, Inc.
Van Kampen American Value Fund
Van Kampen Asian Growth Fund
Van Kampen Emerging Markets Debt Fund*
Van Kampen Emerging Markets Fund
Van Kampen Equity Growth Fund
Van Kampen European Equity Fund
Van Kampen Focus Equity Fund
Van Kampen Global Equity Allocation Fund
Van Kampen Global Equity Fund
Van Kampen Global Fixed Income Fund
Van Kampen Global Franchise Fund
Van Kampen Growth and Income Fund II*
Van Kampen High Yield & Total Return Fund
Van Kampen International Magnum Fund
Van Kampen Japanese Equity Fund*
Van Kampen Latin American Fund
Van Kampen Mid Cap Growth Fund
Van Kampen Value Fund
Van Kampen Worldwide High Income Fund
* Funds that have not commenced investment operations.
<PAGE> 3
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 419
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 129
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 160
New York Insured Municipals Income Trust Series 149
THE DOW(SM) STRATEGIC 10 TRUST February 2000
SERIES
THE DOW(SM) STRATEGIC 10 TRUST February 2000
TRADITIONAL
SERIES
THE DOW(SM) STRATEGIC 5 TRUST February 2000
SERIES
THE DOW(SM) STRATEGIC 5 TRUST February 2000
TRADITIONAL
SERIES
EAFE STRATEGIC 20 TRUST February 2000
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST February 2000
SERIES
NASDAQ Strategic 10 Trust February 2000 Series
Dow 30 Index Trust Series 9
Dow & Tech Strategic 10 Trust Series 3/00
Global Energy Trust Series 12
Financial Institutions Trust Series 3a
Financial Institutions Trust Series 3b
Edward Jones Select Growth Trust February 2000
Series
Internet Trust Series 19A
Internet Trust Series 19B
Morgan Stanley High-Technology 35 Index Trust Series 11A
Morgan Stanley High-Technology 35 Index Trust Series 11B
Pharmaceutical Trust Series 9A
Pharmaceutical Trust Series 9B
Telecommunications & Bandwidth Trust Series 9A
Telecommunications and Bandwidth Trust Series 9B
Semi-Conductor Trust Series 1A
Semi-Conductor Trust Series 1B
Global Wireless Trust Series 2A
Global Wireless Trust Series 2B
Roaring 2000s Trust Series 5a
Roaring 2000s Trust Series 5b
Roaring 2000s Trust Traditional Series 4
Software Trust Series 2A
Software Trust Series 2B
Natcity - Great American Equities Trust Series 3
Natcity - Great American Value Trust Series 1
Josephthal - The New Millennium Consumer Trust, Retail.com Portfolio 1
</TABLE>
<PAGE> 1
EXHIBIT (z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Richard F. Powers III Chairman & Chief Executive Officer Oakbrook Terrace, IL
John H. Zimmerman III President Oakbrook Terrace, IL
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary;
Vice President and Secretary of the Funds
William R. Rybak Executive Vice President, Chief
Financial Officer & Treasurer Oakbrook Terrace, IL
Michael H. Santo Executive Vice President & Chief
Operations & Technology Officer Oakbrook Terrace, IL
Colette M. Saucedo Executive Vice President & Houston, TX
Chief Administrative Officer
A. Thomas Smith III Executive Vice President, General Oakbrook Terrace, IL
Counsel & Secretary; Vice President
and Secretary of the Funds
Steven M. Massoni Executive Vice President Oakbrook Terrace, IL
David Swanson Executive Vice President and Chief
Marketing Officer Oakbrook Terrace, IL
Laurence J. Althoff Sr. Vice President & Controller Oakbrook Terrace, IL
Don J. Andrews Sr. Vice President & Chief Compliance Oakbrook Terrace, IL
Officer
Sara L. Badler Sr. Vice President, Deputy Oakbrook Terrace, IL
General Counsel & Assistant Secretary;
Assistant Secretary of the Funds
James J. Boyne Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Glenn M. Cackovic Senior Vice President Laguna Niguel, CA
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
John E. Doyle Sr. Vice President Oakbrook Terrace, IL
Richard G. Golod Sr. Vice President Annapolis, MD
Eric J. Hargens Senior Vice President Orlando, FL
Carl Mayfield Senior Vice President Lakewood, CO
Mark R. McClure Senior Vice President Oakbrook Terrace, IL
Robert F. Muller, Jr. Senior Vice President Oakbrook Terrace, IL
Walter E. Rein Sr. Vice President Oakbrook Terrace, IL
James J. Ryan Sr. Vice President Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Weston B. Wetherell Senior Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds
James R. Yount Senior Vice President Mercer Island, WA
Patricia A. Bettlach 1st Vice President Chesterfield, MO
Gregory Heffington 1st Vice President Ft. Collins, CO
David S. Hogaboom 1st Vice President Oakbrook Terrace, IL
Dominic C. Martellaro 1st Vice President Danville, CA
Maura A. McGrath 1st Vice President New York, NY
Thomas Rowley 1st Vice President St. Louis, MO
Andrew J. Scherer 1st Vice President Oakbrook Terrace, IL
James D. Stevens 1st Vice President North Andover, MA
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
Matthew Baker Vice President Oakbrook Terrace, IL
Shakeel Anwar Barkat Vice President Annapolis, MD
Scott C. Bernstiel Vice President Plainsboro, NJ
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
William Edwin Bond Vice President New York, NY
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Elizabeth M. Brown Vice President Houston, TX
Michael Winston Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Juanita E. Buss Vice President Kennesaw, GA
Christine Cleary Byrum Vice President Tampa, FL
Richard J. Charlino Vice President Oakbrook Terrace, IL
Deanne Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Kevin J. Connors Vice President Oakbrook Terrace, IL
Gina Costello Vice President Oakbrook Terrace, IL
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Sarah Kessler Gieser Vice President Oakbrook Terrace, IL
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John G. Hansen Vice President Oakbrook Terrace, IL
Joseph Hays Vice President Cherry Hill, NJ
Michael D. Hibsch Vice President Oakbrook Terrace, IL
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
Bryn M. Hoggard Vice President Houston, TX
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Laurie L. Jones Vice President Oakbrook Terrace, IL
Robert Daniel Kendall Vice President Oakbrook Terrace, IL
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
Tony E. Leal Vice President Daphne, AL
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
S. William Lehew III Vice President Charlotte, NC
Jonathan Linstra Vice President Oakbrook Terrace, IL
Ivan R. Lowe Vice President Houston, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Linda S. MacAyeal Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
Stuart R. Moehlman Vice President Houston, TX
Carin Elizabeth Morgan Vice President Oakbrook Terrace, IL
Ted Morrow Vice President Plano, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
James A. O'Brien Vice President New York, NY
Allyn O' Connor Vice President & Assoc. General Counsel Oakbrook Terrace, IL
Gregory S. Parker Vice President Houston, TX
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Richard J. Poli Vice President Philadelphia, PA
Ronald E. Pratt Vice President Marietta, GA
Daniel D. Reams Vice President Royal Oak, MI
Theresa Marie Renn Vice President Oakbrook Terrace, IL
Kevin Wayne Reszel Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Jeffrey L. Rose Vice President Houston, TX
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Brett Van Bortel Vice President Oakbrook Terrace, IL
Larry Brian Vickery Vice President Oakbrook Terrace, IL
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey M. Scott Vice President Oakbrook Terrace, IL
Gwen L. Shaneyfalt Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorenson Vice President Oakbrook Terrace, IL
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Richard Stefanec Vice President Los Angles, CA
William C. Strafford Vice President Granger, IN
Mark A. Syswerda Vice President Oakbrook Terrace, IL
Charles S. Thompson Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Thomas J. Sauerborn Vice President New York, NY
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Sharon Wells Coicou Vice President Oakbrook Terrace, IL
Frank L. Wheeler Vice President Oakbrook Terrace, IL
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Joel John Wilczewski Vice President Oakbrook Terrace, IL
Thomas M. Wilson Vice President Oakbrook Terrace, IL
Barbara A. Withers Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
David M. Wynn Vice President Phoenix, AZ
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Scott F. Becker Asst. Vice President Oakbrook Terrace, IL
Brian E. Binder Asst. Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Lynn Chadderton Asst. Vice President Oakbrook Terrace, IL
Phillip Ciulla Asst. Vice President Oakbrook Terrace, IL
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Paula Duerr Asst. Vice President Oakbrook Terrace, IL
Tammy Echevarria-Davis Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Nancy Johannsen Asst. Vice President Oakbrook Terrace, IL
Thomas Johnson Asst. Vice President New York NY
Tara Jones Asst. Vice President Oakbrook Terrace, IL
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Holly Lieberman Asst. Vice President Oakbrook Terrace, IL
Gregory Mino Asst. Vice President Oakbrook Terrace, IL
Christopher Perozek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Leah Richardson Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Regina Rosen Asst. Vice President Oakbrook Terrace, IL
Pamela S. Salley Asst. Vice President Houston, TX
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Katherine Scherer Asst. Vice President Oakbrook Terrace, IL
Heather Schmitt Asst. Vice President Oakbrook Terrace, IL
Laurel Shipes Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Damienne Trippiedi Asst. Vice President Oakbrook Terrace, IL
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Judy Wooley Asst. Vice President Houston, TX
Cathy Napoli Assistant Secretary Oakbrook Terrace, IL
William R. Rybak Treasurer Oakbrook Terrace, IL
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Rebecca Newman Officer Houston, TX
Theresa M. Renn Officer Oakbrook Terrace, IL
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
Richard F. Powers III Director Oakbrook Terrace, IL
Michael H. Santo Director Oakbrook Terrace, IL
A. Thomas Smith III Director Oakbrook Terrace, IL
William R. Rybak Director Oakbrook Terrace, IL
John H. Zimmerman III Director Oakbrook Terrace, IL
</TABLE>
