VAN KAMPEN TAX FREE TRUST, 485APOS, 2000-01-07

VAN KAMPEN TAX FREE TRUST
485APOS, 2000-01-07

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 2000

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

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. 44 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 45 [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)

[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)

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

[X] 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This Registration Statement contains one Prospectus and one Statement of
Additional Information describing one series of the Registrant (the "Applicable
Series"). 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
-------------------------

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, included in Post-Effective Amendment No.
43 to the Registration Statement of the Registrant, an incorporated herein by
reference and no changes thereto are affected hereby. 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, included in
Post-Effective Amendment No. 31 to the Registration Statement of the Registrant,
are incorporated herein by reference and no changes thereto are affected hereby.

<PAGE> 3

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

SUBJECT TO COMPLETION -- DATED JANUARY 7, 2000

VAN KAMPEN
CALIFORNIA MUNICIPAL
INCOME FUND

Van Kampen California Municipal Income Fund is
a mutual fund with an 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 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
ruled on the accuracy or adequacy of this
prospectus. Any representation to the contrary
is a criminal offense.

This Prospectus is dated MARCH , 2000.

[VAN KAMPEN FUNDS LOGO]
<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...................... 13
Purchase of Shares................................ 14
Redemption of Shares.............................. 21
Distributions from the Fund....................... 22
Shareholder Services.............................. 23
California Taxation............................... 25
Federal Income Taxation........................... 25
Appendix - Description of Securities Ratings...... A-1
</TABLE>
<PAGE> 5

RISK/RETURN SUMMARY

INVESTMENT OBJECTIVE

The Fund is a mutual fund with an investment objective to provide investors a
high level of current income exempt from federal and California income taxes,
consistent with preservation of capital. The Fund is designed for investors who
are residents of California for 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 rated
investment grade at the time of purchase. Investment grade securities are
securities rated BBB or higher by Standard and Poor's ("S&P") or Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or an equivalent rating by
another nationally recognized statistical rating organization ("NRSRO") and
comparably rated short-term securities 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) and
comparably rated short-term securities or 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 (see
sidebar for an explanation of quality ratings). The Fund may invest a
substantial portion of its assets in municipal securities that are subject to
federal alternative minimum tax. The Fund may purchase or sell certain
derivative instruments (such as options, futures and 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 issues 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 as well as any
portfolio securities held for payment of such commitments. The greater the
Fund's outstanding commitments for these securities, the greater the Fund's
exposure to market price fluctuation.

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> 6

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. 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.

UNDERSTANDING
MUNICIPAL SECURITIES

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

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.
While 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 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 INVESTMENTS. In general terms, a derivative investment
is one whose value depends on (or is derived from) the value of an underlying
asset, interest rate or index. Options, futures and options on futures, interest
rate swaps and other interest rate-related transactions are examples of
derivatives. Derivative investments involve risks different from the 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
incur 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

4
<PAGE> 7

- - 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
alternative minimum tax and may not be suitable for investors who are or may
become subject to the federal alternative minimum tax)

- - Are subject to California income tax

- - Wish to add to their personal investment portfolios a fund that invests
primarily 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.

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.

FEES AND EXPENSES
OF THE FUND

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>

SHAREHOLDER FEES

(fees paid directly from your investment)
- ----------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering 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>
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
- ----------------------------------------------------------------
Management fees % % %
................................................................
Distribution and/or
service (12b-1)
fees(5) % %(6) %(6)
................................................................
Other expenses(7) % % %
................................................................
Total annual fund
operating expenses % % %
................................................................
</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) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."
(6) Because distribution and/or service (12b-1) fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
(7) Other expenses are based on estimated amounts for the 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:

<TABLE>
<CAPTION>
One Three
Year Years
- --------------------------------------------------
<S> <C> <C>
Class A Shares $ $
..................................................
Class B Shares $ $
..................................................
Class C Shares $ $
..................................................
</TABLE>

5
<PAGE> 8

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

<TABLE>
<CAPTION>
One Three
Year Years
- -----------------------------------------------------
<S> <C> <C>
Class A Shares $ $
.....................................................
Class B Shares $ $
.....................................................
Class C Shares $ $
.....................................................
</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 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 will buy and sell securities for the Fund's
portfolio with a view to seeking a high level of current income exempt from
federal and California income taxes and will select securities which the Fund's
investment adviser believes entail reasonable credit risk considered in relation
to the investment policies of the Fund. As a result, the Fund will not
necessarily invest in the highest yielding California municipal securities
permitted by its investment policies if the Fund's investment adviser determines
that market risks or credit risks associated with such investments would subject
the Fund's portfolio to undue risk. The 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
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) and
comparably rated short-term securities or 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 may invest a substantial portion of its assets in municipal securities that
are subject to alternative minimum tax. From time to time, the Fund temporarily
may invest up to 10% of its total assets in tax exempt money market funds and
such instruments will be treated as investments in municipal securities.

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 a substantial portion of its assets in municipal securities that
are subject to 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

6
<PAGE> 9

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 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

7
<PAGE> 10

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

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

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the current federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected and the Fund
would re-evaluate its investment objective and policies and consider changes in
its structure.

The Fund generally considers investments in municipal securities not to be
subject to industry concentration policies (issuers of municipal securities as a
group are not an industry) and the Fund may invest in municipal securities
issued by entities having similar characteristics. The issuers may be located in
the same geographic area or may pay their interest obligations from revenue of
similar projects, such as hospitals, airports, utility systems and housing
finance agencies. This may make the Fund's investments more susceptible to
similar economic, political or regulatory occurrences. As the similarity in
issuers increases, the potential for fluctuation in the Fund's net asset value
also increases. The Fund may invest more than 25% of its total assets in a
segment of the municipal securities market with similar characteristics if the
Fund's investment adviser determines that the yields available from obligations
in a particular segment justify the additional risks of a larger investment in
such segment. The Fund may not, however, invest more than 25% of its total
assets in industrial development 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

8
<PAGE> 11

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.

RISKS OF INVESTING IN LOWER GRADE

MUNICIPAL INVESTMENT 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) and comparably rated short term securities or 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
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

9
<PAGE> 12

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 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 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

10
<PAGE> 13

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.

SPECIAL CONSIDERATIONS REGARDING

CALIFORNIA MUNICIPAL SECURITIES

The Fund invests primarily 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
primarily 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

11
<PAGE> 14

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 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 the use of 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 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

12
<PAGE> 15

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.

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 otherwise. 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 may
result in the realization of more short-term capital gains than if a fund had
lower portfolio turnover. Increase 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.

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

13
<PAGE> 16

"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 $79 billion under management or supervision as of September 30, 1999. Van
Kampen Investments' more than 50 open-end and 39 closed-end funds and more than
2,500 unit investment trusts are professionally distributed by leading
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, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.

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

<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- -----------------------------------------------------
<S><C>
%
.....................................................
%
.....................................................
%
.....................................................
%
.....................................................
</TABLE>

Under the Advisory Agreement, the Adviser furnishes offices, necessary
facilities and equipment and provides administrative services to the Fund. The
Fund pays all charges and expenses of its day-to-day operations including
service fees, distribution fees, custodial fees, legal and accounting fees, the
costs of reports and proxies to shareholders, trustees' fees (other than those
who are affiliated persons of the Adviser, Distributor or Van Kampen
Investments) and all other 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 and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.

PORTFOLIO MANAGEMENT. 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 1990 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. Both
minimums may be waived by the Distributor for plans involving periodic
investments.

14
<PAGE> 17

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

The offering price of the Fund's shares is based upon the Fund's net asset value
per share (plus sales charge, 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 5:00 p.m. Eastern time Monday through Friday, except on:
customary business holidays, any day on which no purchase or redemption orders
are received or there is not a sufficient degree of trading in the Fund's
portfolio securities such that the Fund's net asset value per share might be
materially affected. The Fund'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 with remaining maturities of 60 days or less are valued at amortized
cost when amortized cost is determined in good faith by or under the direction
of the Board of Trustees of the Fund to be representative of the fair value at
which it is expected such securities may be resold. Any securities or other
assets for which current market quotations are not readily available are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees of the Fund.

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 National
Association of Securities Dealers, Inc. (the "NASD"). The net income
attributable to a class of shares will be reduced by the amount of the
distribution 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, PO
Box 5555, 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

15
<PAGE> 18

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.
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 purchased 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 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 or transmitted to Investor Services after
its close of business are priced based on the date of the next computed net
asset value per share provided they are received by Investor Services prior to
Investor Services' close of business on such date. It is the responsibility of
authorized dealers to transmit orders received by them to Investor Services so
they will be received in a timely manner.

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

Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gain dividends,
unless the investor instructs the Fund otherwise. Investors wishing to receive
cash instead of additional shares should contact the Fund at (800) 341-2911 or
by writing to the Fund, c/o Van Kampen Investors Services Inc., PO Box 218256,
Kansas City, MO 64121-9256.

CLASS A SHARES

Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:

CLASS A SHARES

SALES CHARGE SCHEDULE

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

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund 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 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 for the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and for
the maintenance of such shareholders' accounts.

16
<PAGE> 19

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>
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 the 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 shares being redeemed first are any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge followed by shares held the longest in the shareholder's account.

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

CLASS C SHARES

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

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

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

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

CONVERSION FEATURE

Class B Shares and any dividend reinvestment plan Class B Shares received on
such shares, automatically convert to Class A Shares eight years after the end
of the calendar month in which the shares were purchased. 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

17
<PAGE> 20

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 withdrawal under the
Fund's systematic withdrawal plan but limited to 12% annually of the initial
value of the account, (iv) if no commission or transaction fee is paid to
authorized dealers at the time of purchase of such shares and (v) if made by
involuntary liquidation by the Fund of a shareholder's account as described
under the heading "Redemption of Shares." Subject to certain limitations, a
shareholder who has redeemed Class C Shares of the Fund may reinvest in Class C
Shares at net asset value with credit for any contingent deferred sales charge
if 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 pay reduced or no sales charges. Investors, or their
authorized dealers, must notify the Fund at the time of the purchase order
whenever a quantity discount is applicable to purchases. Upon such notification,
an investor will pay the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.

A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.

As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.

VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds currently owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as out-lined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table also includes purchases of shares of the Participating Funds over a
13-month period based on the total amount of intended purchases plus the value
of all shares of the Participating Funds previously purchased and still owned.
An investor may elect to compute the 13-month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. The initial purchase must be for an amount equal to at
least 5% of the minimum total

18
<PAGE> 21

purchase amount of the level selected. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provisions, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. Such adjustment in
sales charge will be used to purchase additional shares for the shareholder at
the applicable discount category. The Fund initially will escrow shares totaling
5% of the dollar amount of the Letter of Intent to be held by Investor Services
in the name of the shareholder. In the event the Letter of Intent goal is not
achieved within the period, the investor must pay the difference between the
sales charge applicable to the purchases made and the sales charges previously
paid. Such payments may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain the difference.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced or no initial sales
charges in connection with the unit investment trust reinvestment program and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Fund or the Distributor. The Fund reserves the right to
modify or terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit investment trust distributions will be 1.00% of the
offering price (1.01% of net asset value). Of this amount, the Distributor will
pay to the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the terms and conditions that apply to the program,
should contact their authorized dealer or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each investor participating in the program in a computerized
format fully compatible with Investor Services' processing system.

In order to obtain these special benefits, the Fund also requires that all
dividends and other distributions by 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

19
<PAGE> 22

behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over
a 12-month period.

(5) Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.

(6) Beneficial owners of shares of Participating Funds held by a retirement plan
or held in a tax-advantaged retirement account who purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.

(7) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.

(8) Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by non-profit organizations
defined under Section 501(c)(3) of the Code and assets held by an employer
or trustee in connection with an eligible deferred compensation plan under
Section 457 of the Code. Such plans will qualify for purchases at net asset
value provided, for plans initially establishing accounts with the
Distributor in the Participating Funds after January 1, 2000 that (1) the
total plan assets are at least $1,000,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have received
proposals from the Distributor prior to January 1, 2000 based on net asset
value purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value. Section 403(b) and
similar accounts for which Van Kampen Trust Company serves as custodian will
not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employees, except
under certain uniform criteria established by the Distributor from time to
time. For purchases on February 1, 1997 and thereafter, a commission will be
paid as follows: 1.00% on sales to $2 million, plus 0.80% on the next $1
million, plus 0.50% on the next $47 million, plus 0.25% on the excess over
$50 million.

(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the Fund
and Participating Funds, (iv) has a membership that the authorized dealer
can certify as to the group's members and (v) satisfies other uniform
criteria established by the Distributor for the purpose of realizing
economies of scale in distributing such shares. A qualified group does not
include one whose sole organizational nexus, for example, is that its
participants are credit card holders of the same institution, policy holders
of an insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
contingent deferred sales charge of 1.00% in the event of redemption within
one year of purchase, and a commission will be paid to authorized dealers
who initiate and are responsible for such sales to each individual as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the

20
<PAGE> 23

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 of a
retirement plan account may involve additional fees charged by the dealer or
custodian.

Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
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 Services
Inc., PO Box 218256, Kansas City, MO 64121-9256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption 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 the redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator, and the name and title
of the individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 120 days must
accompany the redemption request. IRA redemption requests should be sent to the
IRA custodian to be forwarded to Investor Services. Contact the IRA custodian
for further information.

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

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

21
<PAGE> 24

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. 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 all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.

OTHER REDEMPTION INFORMATION. The Fund may redeem 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 two kinds of distributions from the Fund: dividends and
capital gains 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 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

22
<PAGE> 25

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

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

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

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

Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the share holder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or the
Bank. Retirement plans and accounts that are subject to backup withholding are
not eligible for the privilege.

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 these Participating Funds may
be obtained from any authorized dealer or the Distributor.

To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. It is the policy of the

23
<PAGE> 26

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 or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has 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 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 privileges to such shareholders. For further
information on these restrictions see the 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

24
<PAGE> 27

communicated through the internet. If reasonable procedures are employed,
neither Van Kampen Investments, Investor Services nor the Fund will be liable
for following instructions through the internet which it reasonably believes to
be genuine. If an account has multiple owners, Investor Services may rely on the
instructions of any one owner.

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.

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

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

FEDERAL INCOME TAXATION

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

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

Although exempt-interest dividends from the Fund generally may be treated by
shareholders as interest excluded from their gross income, each shareholder is
advised to consult his or her tax adviser with respect to whether
exempt-interest dividends retain this exclusion given the investor's tax
circumstances. For example, exempt-interest dividends may not be excluded if the
shareholder would be treated as a "substantial user" (or a "related person" of a
substantial user, as each term is defined by applicable federal income tax law)
of the facilities financed with respect to any of the tax-exempt obligations
held by the Fund.

Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible for federal income tax purposes if
the Fund distributes exempt-interest dividends during the shareholder's taxable
year. If a shareholder receives an exempt-interest dividend with respect to any
shares and such shares are held for six months or less, any loss on the sale or
exchange of the shares will be disallowed to the extent of the amount of such
exempt-interest dividend.

25
<PAGE> 28

While the Fund expects that a major portion of its net investment income
(consisting generally of tax-exempt interest, taxable income and net short-term
capital gains) will constitute tax-exempt interest, a significant portion of the
Fund's net investment income may consist of taxable income. Distributions of
investment company taxable income (taxable income and net short-term capital
gain) are taxable to shareholders as ordinary income to the extent of the Fund's
earnings and profits, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net capital gains (which are the excess of net
long-term capital gains over net short-term capital losses) as capital gain
dividends, if any, are taxable to shareholders as long-term capital gains,
whether paid in cash or reinvested in additional shares, and regardless of how
long the shares of the Fund have been held by such shareholders. 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 is a taxable transaction for federal income tax
purposes. Shareholders who sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If the shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held 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 90% of its net investment 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.

26
<PAGE> 29

APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS

STANDARD & POOR'S -- A brief description of the

applicable Standard & Poor's (S&P) rating symbols

and their meanings (as published by S&P) follow:

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 creditors' rights.

LONG-TERM DEBT -- INVESTMENT GRADE

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

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

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

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

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.

CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

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

A- 1
<PAGE> 30

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

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

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

r: This symbol 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 noncredit 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.

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment-grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

COMMERCIAL PAPER

A S&P commercial paper rating is a current opinion 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: The highest category indicates that the obligor's capacity to meet its
financial commitment on the obligations 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 obligor is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher ratings category degree of safety is not as high as for issues designated
"A-1".

A-3: Issues carrying this designation exhibit adequate protection parameters.
However adverse economic conditions or changing circumstances are more likely to
lead to a weakening capacity of the obligor to meet its financial commitment on
the obligation.

B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

C: This rating is assigned to short-term debt obligations 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.

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

A- 2
<PAGE> 31

A commercial paper rating is not a recommendation to purchase, sell or hold a
financial obligation 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 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.

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

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 issue
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.

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.

A- 3
<PAGE> 32

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 data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.

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 (or supporting institutions) have a superior ability for
repayment of senior 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 range of financial markets and assured sources
of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior 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 supporting institutions) have an acceptable ability
for repayment of senior short-term 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.

PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

a: An issue which is rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.

baa: An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

ba: An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

A- 4
<PAGE> 33

ca: An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.

c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.

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

A- 5
<PAGE> 34

BOARD OF TRUSTEES
AND OFFICERS

BOARD OF TRUSTEES

<TABLE>
<S> <C>
J. Miles Branagan Richard F. Powers, III*
Jerry D. Choate Phillip B. Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen*
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

Curtis W. Morell*
Vice President & Chief Accounting Officer

Tanya M. Loden*
Controller

* "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

FUND INFO(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 64121-9256
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

-
<PAGE> 35

VAN KAMPEN
CALIFORNIA MUNICIPAL
INCOME FUND

PROSPECTUS

MARCH , 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 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 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
1-200-942-8090. 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.

[VAN KAMPEN FUNDS LOGO]

Investment Company Act File No. 811-4386. CAM PRO 3/00

<PAGE> 36

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

SUBJECT TO COMPLETION -- DATED JANUARY 7, 2000

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN CALIFORNIA MUNICIPAL INCOME FUND

Van Kampen California Municipal Income Fund (the "Fund") is a mutual fund
with an 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 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-12
Investment Restrictions..................................... B-17
Trustees and Officers....................................... B-18
Investment Advisory Agreement............................... B-27
Other Agreements............................................ B-27
Distribution and Service.................................... B-28
Transfer Agent.............................................. B-30
Portfolio Transactions and Brokerage Allocation............. B-30
Shareholder Services........................................ B-31
Redemption of Shares........................................ B-33
Contingent Deferred Sales Charge-Class A.................... B-34
Waiver of Class B and Class C Contingent Deferred Sales
Charges................................................... B-34
Taxation.................................................... B-36
Fund Performance............................................ B-39
Other Information........................................... B-41
Report of Independent Accountants........................... F-
Financial Statements........................................ F-
Notes to Financial Statements............................... F-
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MARCH , 2000.
B-1
<PAGE> 37

GENERAL INFORMATION

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust (the "Declaration
of Trust") dated May 10, 1995. The Declaration of Trust permits the Trustees to
create one or more separate investment portfolios and issue a series of shares
for each portfolio. The Trustees can further sub-divide each series of shares
into one or more classes of shares for each portfolio.

The Trust was originally organized in 1985 under the name Van Kampen
Merritt Tax Free Trust as a Massachusetts business trust (the "Massachusetts
Trust"). The Massachusetts Trust was reorganized into the Trust under the name
Van Kampen American Capital Tax Free Trust on July 31, 1995. The Trust was
created for the purpose of facilitating the Massachusetts Trust reorganization
into a Delaware business trust. On July 14, 1998, the Trust adopted its current
name.

The Fund was originally organized 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
, 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, PO Box 5555, Oakbrook Terrace,
Illinois 60181-5555.

Morgan Stanley Dean Witter and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley Dean Witter Investment Management Inc.,
an investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.

The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.

The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and separate votes are taken by each class of a series on matters
affecting an individual class of such series. For example, a change in
investment policy for a series would be voted upon by shareholders of only the
series involved and a change in the distribution fee for a class of a series
would be voted upon by shareholders of only the class of such series involved.
Except as otherwise described in the Prospectus or herein, shares do not have
cumulative voting rights, preemptive rights or any conversion, subscription or
exchange rights.

B-2
<PAGE> 38

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or rules or
regulations promulgated by the Securities and Exchange Commission ("SEC").

In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares 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 less 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 disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.

MUNICIPAL SECURITIES

Municipal securities include long-term obligations, which often are called
municipal bonds, as well as shorter term municipal notes, municipal leases, and
tax exempt commercial paper. Under normal market conditions, longer term
municipal securities generally provide a higher yield than shorter term
municipal securities. 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-

B-3
<PAGE> 39

appropriation" clauses which provide that the municipality has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. A risk exists that the
municipality will not, or will be unable to, appropriate money in the future in
the event of political changes, changes in the economic viability of the
project, general economic changes or for other reasons. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. Although "non-appropriation" lease obligations are
often secured by an assignment of the lessee's interest in the leased property,
management and/or disposition of the property in the event of foreclosure could
be costly, time consuming and result in unsatisfactory recoupment of the Fund's
original investment. Additionally, use of the leased property may be limited by
state or local law to a specified use thereby further limiting ability to rent.
There is no limitation on the percentage of the Fund's assets that may be
invested in "non-appropriation" lease obligations. In evaluating such lease
obligations, the Adviser will consider such factors as it deems appropriate,
which factors may include (a) whether the lease can be cancelled, (b) the
ability of the lease obligee to direct the sale of the underlying assets, (c)
the general creditworthiness of the lease obligor, (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property in
the event such property is no longer considered essential by the municipality,
(e) the legal recourse of the lease obligee in the event of such a failure to
appropriate funding and (f) any limitations which are imposed on the lease
obligor's ability to utilize substitute property or services than those covered
by the lease obligation.

Also included in the term municipal securities are participation
certificates issued by state and local governments or authorities to finance the
acquisition of equipment and facilities. They may represent participations in a
lease, an installment purchase contract, or a conditional sales contract.

The Fund may purchase floating and variable rate demand notes, which are
municipal securities normally having a stated maturity in excess of one year,
but which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such notes normally has a corresponding
right, after a given period, to prepay at its discretion upon notice to the
noteholders the outstanding principal amount of the notes plus accrued interest.
The interest rate on a floating rate demand note is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is adjusted
automatically at specified intervals.

The Fund also may invest up to 15% of its total assets in derivative
variable rate municipal securities such as inverse floaters whose rates vary
inversely with changes in market rates of interest or range floaters or capped
floaters whose rates are subject to periodic or lifetime caps. Derivative
variable rate securities may pay a rate of interest determined by applying a
multiple to the variable rate. The extent of increases and decreases in the
value of derivative variable rate securities in response to changes in market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity.

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

B-4
<PAGE> 40

facility, the assets and revenues of which will be used to meet the payment
obligations, or the guarantee of such payment obligations, of the municipal
securities.

Municipal securities, like other debt obligations, are subject to the risk
of non-payment. The ability of issuers of municipal securities to make timely
payments of interest and principal may be adversely impacted in general economic
downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such non-payment
would result in a reduction of income to the Fund, and could result in a
reduction in the value of the municipal security experiencing non-payment and a
potential decrease in the net asset value of the Fund. Issuers of municipal
securities might seek protection under the bankruptcy laws. In the event of
bankruptcy of such an issuer, the Fund could experience delays and limitations
with respect to the collection of principal and interest on such municipal
securities and the Fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may take possession of and manage the assets securing the
issuer's obligations on such securities, which may increase the Fund's operating
expenses and adversely affect the net asset value of the Fund. Any income
derived from the Fund's ownership or operation of such assets may not be
tax-exempt. In addition, the Fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), may limit the extent to which the Fund may exercise its rights by
taking possession of such assets, because as a regulated investment company the
Fund is subject to certain limitations on its investments and on the nature of
its income. Further, in connection with the working out or restructuring of a
defaulted security, the Fund may acquire additional securities of the issuer,
the acquisition of which may be deemed to be a loan of money or property. Such
additional securities should be considered speculative with respect to the
capacity to pay interest or repay principal in accordance with their terms.

DESCRIPTIONS OF CALIFORNIA MUNICIPAL SECURITIES. As described in the
Prospectus, except during temporary periods, the Fund will invest all or
substantially all of its assets in 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. The summary below does not include
all of the information pertaining to the budget, receipts and disbursements of
the State of California that would ordinarily be included in various public
documents issued thereby, such as an Official Statement prepared in connection
with the issuance of general obligation bonds of the State of California. Such
an Official Statement, together with any updates or supplements thereto, may
generally be obtained upon request to the Office of the Treasurer of the State
of California.

Constitutional Limits on Spending and Taxes. Certain California municipal
securities may be obligations of issuers which rely in whole or in part,
directly or indirectly, on ad valorem real property taxes as a source of
revenue. In 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, the Jarvis/Gann Initiative, which added
Article XIIIA to the California Constitution. The effect of Article XIIIA is to
limit ad valorem taxes on real property and to restrict the ability of taxing
entities to increase real property tax revenues. On June 18, 1992, the United
States Supreme Court upheld the constitutionality of Article XIIIA.

In 1979, the voters of California passed an amendment adding Article XIIIB
to the California Constitution, the effect of which is to significantly limit
spending by State government and by "local government" (defined as "any city,
county, city and county, school district, special district, authority, or other
political subdivision of or within the state"). Excluded from these limitations
on government entities is "debt service" (defined as "appropriations required to
pay the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally
B-5
<PAGE> 41

authorized as of January 1, 1979 or on bonded indebtedness thereafter approved"
by the voters of the issuing entity).

In November 1986, California voters approved an amendment to the California
Government Code known as Proposition 62 which added Article 3.7 to Title 5,
Division 2, Chapter 4 of the California Government Code. The effect of Article
3.7 is to limit the abilities of local governments to impose new taxes or
increase existing taxes by requiring certain legislative and voter approvals
prior to the imposition of certain taxes by any local government (defined as any
county, city, city and county, including a chartered city or county, or any
public or municipal corporation) or district (defined as any agency of the
state, formed pursuant to general law or special act, for the local performance
of governmental or proprietary functions within limited boundaries). Article 3.7
can be amended only by a vote of the electorate of the State of California. In
particular, Article 3.7, among other things, requires (i) two-thirds approval of
all members of the applicable legislative body followed by majority approval of
the voters voting in an election in order for a local government or district to
impose any general tax (defined as any tax imposed for general governmental
purposes), and (ii) two-thirds approval of the voters voting in an election in
order for a local government or district to impose any special tax (defined as
any tax imposed for a specific purpose). Those voting requirements do not apply
to ad valorem taxes to pay interest and redemption charges on any indebtedness
approved by the voters prior to the effective date of Article XIIIA of the
California Constitution. Article 3.7 requires (1) that the revenues from a
special tax be used only for the purpose or service for which the tax was
imposed, and (2) any tax subject to the measure imposed by any local government
or district on or after August 1, 1985 be ratified by majority vote of the
voters voting in an election held within two years after the effective date of
the measure in order for the tax to continue to be imposed on and after November
15, 1988. Article 3.7 contains a provision which diminishes the property tax
revenues allocated to a local government or district to the extent that the
local government or district imposed any tax not in compliance with Article 3.7.
Article 3.7 also provides that no local government or district may impose any ad
valorem tax on real property other than as permitted by Section 1 of Article
XIIIA of the California Constitution, and that no local government or district
may impose any transaction tax or sales tax on the sale of real property within
the city, county or district. A 1988 decision of the Fourth Appellate District
of the California Court of Appeals declared that the requirement of local voter
ratification provided for in Article 3.7 violated the California Constitution.
An initiative proposed to re-enact the ratification provisions of Article 3.7 as
a constitutional amendment was defeated by the voters in November 1990, but such
a proposal may be renewed in the future.

On December 19, 1991, the California Supreme Court declared a 1988 San
Diego County Ballot measure that raised sales taxes for the purpose of financing
construction of criminal detention and courthouse facilities unconstitutional
because it was not passed with two-thirds voter approval. The court concluded
that the agency established to finance the facilities is a special district
created to circumvent Article XIIIA. However, in May 1992, the California
Supreme Court let stand two lower court decisions involving sales tax increases
passed by a majority vote. The lower courts had held that the Los Angeles County
Transportation Commission and the Orange County Transportation Authority, the
agencies entitled to collect the taxes, were not formed to circumvent Article
XIIIA, and that, therefore, the taxes were validly passed. On November 10, 1993,
in a closely watched case involving a Santa Clara County transportation
authority created with the parameters of the California Supreme Court's 1991
decision in mind, a California Court of Appeal overturned a sales tax approved
by less than two-thirds of the voters. In a September 1995 decision, the State
Supreme Court affirmed the Court of Appeal, declaring Proposition 62
constitutional under the California Constitution. The decision limited itself to
cities organized by the State and left unresolved whether Proposition 62 is
constitutional as applied to cities organized under a charter. Approximately
half the population of the State resides in charter cities. In March 1996, a
Superior Court held that charter cities do not have to submit taxes to voter
approval despite the State Supreme Court's Proposition 62 ruling. These
decisions may continue to cast doubt on other projects around the State that
have been financed with sales tax increases imposed without two-thirds voter
approval. Soon after the State Supreme Court decision, Moody's Investors
Services, Inc. indicated that the ruling has broad negative implications on the
ability of the State's cities and counties to raise revenue and issue debt
supported by general fund revenues.

B-6
<PAGE> 42

On November 5, 1996, voters approved Proposition 218, entitled the "Right
to Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives.

Proposition 218 does not affect the State or its ability to levy or collect
taxes. There are a number of ambiguities concerning the Proposition and its
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature. The Legislative Analyst
estimated that enactment of Proposition 218 would reduce local government
revenues statewide by over $100 million a year, and that over time revenues to
local government would be reduced by several hundred million dollars a year
under this Proposition.

Because of the complex nature of Articles XIIIA-D, the ambiguities and
possible inconsistencies in their respective terms, and the applicability of
their respective exemptions and exceptions and the impossibility of predicting
future appropriations, it is not presently possible to determine the impact of
Article XIIIA-D or any implementing or related legislation on the California
municipal securities in which the Fund may invest, or the abilities of State or
local governments to pay the interest on, or repay the principal of such
California municipal securities.

Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined imitative 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) 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 sand 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 capita
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
appropriation. 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.

During the recession in the early 1990s, General Fund revenues for several
years were less than originally projected, so that the original Proposition 98
appropriation turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as "loan" from future years'
Proposition 98 entitlements, and also intended that he "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,200 from Fiscal year
1991-92 to Fiscal year 1993-94.

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
B-7
<PAGE> 43

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, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact.

Substantially increased General Fund revenues, above initial budget
projections, in the fiscal years 1994-95 through 1998-99 have resulted in
retroactive increase sin Proposition 98 appropriations from subsequent fiscal
years' budgets. Because of the State's increasing revenues, per-pupil funding at
the K-12 level has increased by about 44 percent from the level in place from
1991-92 through 1993-94, and is estimated at about $6,025 per ADA in 1999-00. A
significant amount of the "extra" Proposition 98 monies in the last few years
has been allocated to special programs, most particularly an initiative to allow
each classroom from grades K-3 to have no more than 20 pupils by the end of the
1997-98 school year. Furthermore, since General Fund revenue growth is expected
to continue in 1999-00, there are also new initiatives to increase school
safety, improve schools' accountability for pupil performance, provide
additional textbooks to schools, fund deferred maintenance projects, increase
beginning teacher's salaries and provide performance incentives to teachers.

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 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.

Historically, funding for the State's trial court system was divided
between the State and the counties. However, Chapter 850, Statutes of 1997,
implemented a restructuring of the State's trial court funding system. Funding
for the courts, with the exception of costs for facilities, local judicial
benefits, and revenue collection, was consolidated at the State level. The
county contribution for both their general fund and fine and penalty amounts is
capped at the 1994-95 level and becomes part of the Trial Court Trust Fund,
which supports all trial court operations. The State assumed responsibility for
future growth in trial court funding. The consolidation of funding is intended
to streamline the operation of the courts, provide a dedicated revenue source,
and relieve fiscal pressure on the counties. Beginning in 1998-99, the county
general fund contribution for court operations is reduced by $300 million, and
cities will retain $62 million in fine and penalty revenue previously remitted
to the State; the General Fund reimbursed the $362 million revenue loss to the
Trial Court

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<PAGE> 44

Trust Fund. The 1999 Budget Act includes funds to further reduce the county
general fund contribution by an additional $96 million by reducing by 100
percent the contributions of the next 18 smallest counties and by 10 percent the
general fund contribution of the remaining 21 counties.

The entire statewide welfare system has teen changed in response to the
change in federal hanged welfare law enacted in 1996. Under the CalWORKs
program, counties are given flexibility to develop their own plans, consistent
with state law, to implement the program and to administer many of its elements,
and their costs for administrative and supportive services are capped at the
1996-97 levels. Counties are also given financial incentives if, at the
individual county level or statewide, the CalWORKs program produces savings
associated with specified standards. Counties will still be required to provide
"general assistance" aid to certain persons who cannot obtain welfare from other
programs.

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 Finances. From 1990 until 1994 the State experienced the worst
economic fiscal, and budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others, have
all been severely affected. Job losses were the worst of any post-war recession.

The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-14
education, health, welfare and corrections -- growing at rates significantly
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State entered a period of chronic budget imbalance. By
the 1993-94 Fiscal Year, the accumulated deficit was so large that it was
impractical to budget to retire it in one year, so a two-year program was
implemented, using the issuance of revenue anticipation warrants to carry a
portion of the deficit over the end of the fiscal year. When the economy failed
to recover sufficiently in 1993-94, a second two-year plan was implemented in
1994-95, again using cross-fiscal year revenue anticipation warrants to partly
finance the deficit into the 1995-96 fiscal year.

Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.

For several fiscal years during the recession, the State was forced to rely
on external debt markets to meet its cash needs, as a succession of notes and
revenue anticipation warrants were issued in the period from June 1992 to July
1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.

The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and

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<PAGE> 45

continued spending restraint based on the actions taken in earlier years. The
State's cash position also improved, and no external deficit borrowing has
occurred over the end of these three fiscal years.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid. The accumulated
budget deficit from the recession years was finally eliminated. The Department
of Finance estimates that the State's budget reserve (the SFEU) totaled $639.8
million as of June 30, 1997, $1.782 billion at June 30, 1998, and $1.932 billion
at June 30, 1999.

As a result of the deterioration in the State's budget and cash situation
during the early 1990, rating agencies reduced the State's credit rating.
Between October 1991 and October 1992, the rating on the general obligation
bonds was reduced by Standard & Poor's from "AAA" to "A+", by Moody's Investors
Services, Inc. from "Aaa" to "Aa" and by Fitch Investors Services, Inc. from
"AAA" to "AA". On July 15, 1994, all three of the rating agencies rating the
State's long-term debt again lowered their ratings of the State's general
obligation bonds. Moody's Investors Services, Inc. lowered its rating from "Aa"
to "A1", Standard & Poor's lowered its rating from "A+" to "A", and Fitch
Investors Service lowered its rating from "AA" to "A". In July 1996, Standard &
Poor's raised its rating to A+ from A. In 1997, Fitch Investors Service raised
its rating to "AA-" from "A+". In October 1998, Moody's Investors Service raised
its rating to Aa3 from A1. There can be no assurance that such ratings will
continue for any given period of time or that they will not in the future be
further revised or withdrawn. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no obligation on the part of the State to make payment on such obligations in
the event of default.

When the Governor released his proposed 1998-99 Fiscal Year Budget on
January 9, 1998, he projected General Fund revenues for the 1998-99 Fiscal Year
of $55.4 billion, and proposed expenditures in the same amount. By the time the
Governor released the May Revision of the 1998-99 Budget ("May Revisions") on
May 14, 1998, the Administration projected that revenues for the 1997-98 and
1998-99 Fiscal Years combined would be more than $4.2 billion higher than was
projected in January. The Governor proposed that most of this increased revenue
be dedicated to fund a 75% cut in the Vehicle License Fee ("VLF").

The Legislature passed the 1998-99 Budget Bill on August 11, 1998, and the
Governor signed it on August 21, 1998. Some 33 companion bills necessary to
implement the budget were also signed. In signing the 1998-99 Budget Bill, the
Governor used his line-item veto power to reduce expenditures by $1.360 billion
from the General Fund, and $160 million from Special Funds. Of this total, the
Governor indicated that about $250 million of vetoed funds were "set aside" to
fund programs for education. Vetoed items included education funds, salary
increases and many individual resources and capital projects.

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 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, 19999
(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 $63.6 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

B-10
<PAGE> 46

contained expenditures of $16.1 billion form special funds and $1.5 billion from
bond funds. The Administration estimated that the SFEU would have 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.

Litigation. The State is a party to numerous legal proceedings. While the
State has recently indicated in Official Statements that none of these
proceedings, if determined adversely to the State, would affect the State's
ability to pay when due the principal or interest on the obligations offered by
such Official Statements, no assurance can be given in this regard.

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 has become final as of 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 government 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.

"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.

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<PAGE> 47

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities,
which includes securities that are not readily marketable, repurchase agreements
which have a maturity of longer than seven days and generally includes
securities that are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"). The sale of such
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of liquid
securities trading on national securities exchanges or in the over-the-counter
markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that
such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Fund's 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. 144A Securities deemed
liquid 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.

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

B-12
<PAGE> 48

Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options. The discussion below uses the OCC as
a paradigm, but is also applicable to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

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.

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<PAGE> 49

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 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,

B-14
<PAGE> 50

the in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

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.
B-15
<PAGE> 51

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate cash and
liquid securities with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate cash and
liquid securities sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by the Fund on an index will require the Fund
to own portfolio securities which correlate with the index or to segregate cash
and liquid securities equal to the excess of the index value over the exercise
price on a current basis. A put option written by the Fund requires the Fund to
segregate cash and liquid securities equal to the exercise price.

OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash and liquid
securities equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out cash and liquid securities equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, and the Fund will segregate
an amount of cash and liquid securities equal to the full value of the option.
OTC options settling with physical delivery, or with an election of either
physical delivery or cash settlement, will be treated the same as other options
settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash and liquid securities sufficient to meet its obligation to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract.

With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of cash and liquid securities with a value equal to the Fund's net obligation,
if any.

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-16
<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 shares, which is defined by the 1940 Act as the lesser
of (i) 67% or more of the voting securities present in person or by proxy at the
meeting, if the holders of more than 50% of the outstanding voting securities
are present in person or represented by proxy; or (ii) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. With respect to the limitation on borrowings, the percentage
limitations apply at the time of purchase and on an ongoing basis. The Fund may
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 Funds 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, more than 25% 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
(excluding 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 when the Fund has taken
a temporary defensive position, or 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) to the
extent that the Fund may lend money or property in connection with the
maintenance of the value of, or the Fund's interest with respect to, the
securities owned by the Fund, (d) by engaging in repurchase agreements
or (e) as may otherwise be permitted by (i) the 1940 Act, as amended
from

B-17
<PAGE> 53

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.

TRUSTEES AND OFFICERS

The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).

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 funds
1632 Morning Mountain Road in the Fund Complex. Co-founder, and prior to August
Raleigh, NC 27614 1996, Chairman, Chief Executive Officer and President,
Date of Birth: 07/14/32 MDT Corporation (now known as Getinge/Castle, Inc., a
subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment.
Jerry D. Choate........................... Director of Amgen Inc., a biotechnological company.
Barrington Place, Building 4 Trustee/Director of each of the funds in the Fund
18 E. Dundee Road, Suite 101 Complex. Prior to January 1999, Chairman and Chief
Barrington, IL 60010 Executive Officer of The Allstate Corporation
Date of Birth: 09/16/38 ("Allstate") and Allstate Insurance Company. Prior to
January 1995, President and Chief Executive Officer of
Allstate. Prior to August 1994, Mr. Choate held 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 the
233 South Wacker Drive Fund Complex. Prior to 1997, Partner, Ray & Berndtson,
Suite 7000 Inc., an executive recruiting and management consulting
Chicago, IL 60606 firm. Formerly, Executive Vice President of ABN AMRO,
Date of Birth: 06/03/48 N.A., a Dutch bank holding company. Prior to 1992,
Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board,
Vice Chair of the Board of The YMCA of Metropolitan
Chicago and a member of the Women's Board of the
University of Chicago. Prior to 1996, Trustee of The
International House Board.
</TABLE>

B-18
<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 to
Washington, D.C. 20016 deepen understanding, promote collaboration and stimulate
Date of Birth: 02/29/52 exchanges of practical experience between Americans and
Europeans. Trustee/Director of each of the funds in the
Fund Complex. Formerly, advisor to the Dennis Trading
Group Inc, a managed futures and option company that
invests money for individuals and institutions. Prior to
1992, President and Chief Executive Officer, Director and
Member of the Investment Committee of the Joyce
Foundation, a private foundation.
Mitchell M. Merin*........................ President and Chief Operating Officer of Asset Management
Two World Trade Center of Morgan Stanley Dean Witter since December 1998.
66th Floor President and Director since April 1997 and Chief
New York, NY 10048 Executive Officer since June 1998 of Morgan Stanley Dean
Date of Birth: 08/13/53 Witter Advisors Inc. and Morgan Stanley Dean Witter
Services Company Inc. Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors
Inc. since June 1998. Chairman and Chief Executive
Officer since June 1998, and Director since January 1998,
of Morgan Stanley Dean Witter Trust FSB. Director of
various Morgan Stanley Dean Witter subsidiaries.
President of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series since May 1999. Trustee
of each of the funds in the Fund Complex, and Vice
President of other investment companies advised by the
Advisers and their affiliates. 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 Services,
423 Country Club Drive Inc., a financial planning company and registered
Winter Park, FL 32789 investment adviser in the State of Florida. President and
Date of Birth: 02/13/36 owner, Nelson Ivest Brokerage Services Inc., a member of
the National Association of Securities Dealers, Inc. and
Securities Investors Protection Corp. Trustee/Director of
each of the funds in the Fund Complex.
Richard F. Powers, III*................... Chairman, President and Chief Executive Officer of Van
1 Parkview Plaza Kampen Investments. Chairman, Director and Chief
P.O. Box 5555 Executive Officer of the Advisers, the Distributor, Van
Oakbrook Terrace, IL 60181-5555 Kampen Advisors Inc. and Van Kampen Management Inc.
Date of Birth: 02/02/46 Director and officer of certain other subsidiaries of Van
Kampen Investments. Trustee 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-19
<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
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,
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, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other investment companies advised by the
Date of Birth: 08/22/39 Advisers or Van Kampen Management Inc. Trustee/Director
of each of the funds in the Fund Complex, and
Trustee/Managing General Partner of other investment
companies advised by the Advisers or Van Kampen
Management Inc.

Suzanne H. Woolsey........................ Chief Operating Officer of the National Academy 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
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 system
233 South Wacker Drive solutions, COMARCO, Inc., a wireless communications
Suite 9700 products company and APAC Customer Services, Inc., a
Chicago, IL 60606 provider of outsourced customer contact services.
Date of Birth: 10/29/53 Trustee/Director of each of the funds in the Fund
Complex. Prior to May 1996, President of Advance Ross
Corporation, an international transaction services and
pollution control equipment manufacturing company.
</TABLE>

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

* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the

B-20
<PAGE> 56

Fund. Messrs. Merin and Powers are interested persons of the Fund and the
Advisers by reason of their positions with Morgan Stanley Dean Witter & Co. or
its affiliates.

OFFICERS

Messrs. McDonnell, Smith, Santo, Hegel, Sullivan, and Wood are located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, IL 60181-5555. The Fund's other
officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
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
Executive Vice President and Chief since March 1983. President, Chief Operating Officer and
Investment Officer Director of the Advisers, Van Kampen Advisors Inc., and 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. ("Management Inc."), since the inception of
funds advised by Advisory Corp. and 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-21
<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 Kampen
Vice President and Secretary Advisors Inc., Van Kampen Management Inc., the Distributor,
American Capital Contractual Services, Inc., Van Kampen
Exchange Corp., Van Kampen Recordkeeping Services Inc.,
Investor Services, Van Kampen Insurance Agency of Illinois
Inc. and Van Kampen System Inc. Vice President and
Secretary/Vice President, Principal Legal Officer and
Secretary of other investment companies advised by the
Advisers or their affiliates. Vice President and Secretary
of each of the funds in the Fund Complex. Prior to January
1999, Vice President and Associate General Counsel to New
York Life Insurance Company ("New York Life"), and prior to
March 1997, Associate General Counsel of New York Life.
Prior to December 1993, Assistant General Counsel of The
Dreyfus Corporation. Prior to August 1991, Senior Associate,
Willkie Farr & Gallagher. Prior to January 1989, Staff
Attorney at the Securities and Exchange Commission, Division
of Investment Management, Office of Chief Counsel.

Michael H. Santo..................... Executive Vice President, Chief Operations and Technology
Date of Birth: 10/22/55 Officer and Director of Van Kampen Investments, the
Vice President Advisers, the Distributor, Van Kampen Advisors Inc., Van
Kampen Management Inc. and Van Kampen Investor Services
Inc., and serves as a Director or officer of certain other
subsidiaries of Van Kampen Investments. Vice President of
each of the funds in the Fund Complex and certain other
investment companies advised by the Advisers and their
affiliates. Prior to 1998, Senior Vice President and Senior
Planning Officer for Individual Asset Management of Morgan
Stanley Dean Witter and its predecessor since 1994. From
1990-1994 First Vice President and Assistant Controller in
Dean Witter's Controller's Department.

Peter W. Hegel....................... Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. 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. 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
Vice President funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates. Prior
to October 1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President of Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital Investment
Advisory Corp. and Van Kampen American Capital Management,
Inc.

John L. Sullivan..................... Senior Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Vice President, Chief Financial Officer and
Vice President, Chief Financial Treasurer of each of the funds in the Fund Complex and
Officer and Treasurer certain other investment companies advised by the Advisers
or their affiliates.

Curtis W. Morell..................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
</TABLE>

B-22
<PAGE> 58

<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Edward C. Wood III................... Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Advisers
or their affiliates.

Tanya M. Loden....................... Vice President of Van Kampen Investments and the Advisers.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
Controller other investment companies advised by the Advisers or their
affiliates.
</TABLE>

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 65 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-23
<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) FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan $ $ $ $
Jerry D. Choate(1)
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen
Suzanne H. Woolsey(1)
Paul G. Yovovich(1)
</TABLE>

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

(1) Trustees not eligible for compensation or retirement benefits are not shown
in the table. Mr. Paul G. Yovovich became a member of the Board of Trustees
effective October 22, 1998 and thus does not have a full fiscal year of
information to report. Mr. Choate and Ms. Woolsey became members of the
Board of Trustees for the Fund and other funds in the Fund Complex on May
26, 1999 and therefore do not have a full year information to report.

(2) 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,
including the Fund, is shown in Table A below. The detail of amounts
deferred for each series, including the Fund, is shown in Table B below.
Amounts deferred are retained by the Fund and earn a rate of return
determined by reference to either the return on the common shares of the
Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The detail of cumulative
deferred compensation (including interest) owed to current Trustees by each
series, including the Fund, is shown in Table C below. The deferred
compensation plan is described above the Compensation Table.

(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for their respective fiscal years ended in 1998. The retirement
plan is described above the Compensation Table.

(4) This is the sum of the estimated maximum annual benefits payable by the
operating investment companies in the Fund Complex for each year of the
10-year period commencing in the year of such trustee's anticipated
retirement. The Retirement Plan is described above the Compensation Table.
Each Non-Affiliated Trustee of the Board of Trustees has served as a member
of the Board of Trustees since he or she was first appointed or elected in
the year set forth in Table D below.

(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1999 before deferral by the trustees under the deferred compensation plan.
Because the funds in the Fund Complex have different fiscal year ends, the
amounts shown in this column are presented on a calendar year basis. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1999. The deferred
compensation earns a rate of return determined by reference to the

B-24
<PAGE> 60

return on the shares of the funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
Advisers and their affiliates also serve as investment adviser for other
investment companies; however, with the exception of Mr. Whalen, the
trustees were not trustees of such investment companies. Combining the Fund
Complex with other investment companies advised by the Advisers and their
affiliates, Mr. Whalen received Total Compensation of $ during the
calendar year ended December 31, 1999.

As of , 2000, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-25
<PAGE> 61

TABLE A

1999 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END* BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund.............. 9/30 $ $ $ $ $ $ $ $
Tax Free High Income Fund................ 9/30
California Insured Tax Free Fund......... 9/30
Municipal Income Fund.................... 9/30
Intermediate Term Municipal Income
Fund................................... 9/30
Florida Insured Tax Free Income Fund..... 9/30
New York Tax Free Income Fund............ 9/30
California Municipal Income Fund......... 9/30
------ ------ ------ ------ ------ ------ ------ --
Trust Total............................ $ $ $ $ $ $ $ $
====== ====== ====== ====== ====== ====== ====== ==
</TABLE>

TABLE B

1999 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST
AND EACH SERIES
<TABLE>
<CAPTION>
TRUSTEES
FISCAL --------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
--------- -------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund........................ 9/30 $ $ $ $ $ $ $ $
Tax Free High Income
Fund..................... 9/30
California Insured Tax Free
Fund..................... 9/30
Municipal Income Fund...... 9/30
Intermediate Term Municipal
Income Fund.............. 9/30
Florida Insured Tax Free
Income Fund.............. 9/30
New York Tax Free Income
Fund..................... 9/30
California Municipal Income
Fund..................... 9/30
------- ------- ------- -------- ------- ------- ------- --
Trust Total............ $ $ $ $ $ $ $ $
======= ======= ======= ======== ======= ======= ======= ==

<CAPTION>
FORMER TRUSTEES
-----------------------------------------------------------------
FUND NAME CARUSO GAUGHAN LIPSHIE MILLER REES ROBINSON VERNON
--------- ------ ------- ------- ------ ---- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income
Fund........................ $ $ $ $ $ $ $
Tax Free High Income
Fund.....................
California Insured Tax Free
Fund.....................
Municipal Income Fund......
Intermediate Term Municipal
Income Fund..............
Florida Insured Tax Free
Income Fund..............
New York Tax Free Income
Fund.....................
California Municipal Income
Fund.....................
------ ------- ------ ------- ------ ------- ------
Trust Total............ $ $ $ $ $ $ $
====== ======= ====== ======= ====== ======= ======
</TABLE>

TABLE D

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY SISTO WHALEN YOVOVICH
- --------- -------- ----- ------- ------ ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund........................... 1995 1995 1993 1984 1997 1995 1984 1998
Tax Free High Income Fund............................ 1995 1995 1993 1985 1997 1995 1985 1998
California Insured Tax Free Fund..................... 1995 1995 1993 1985 1997 1995 1985 1998
Municipal Income Fund................................ 1995 1995 1993 1990 1997 1995 1990 1998
Intermediate Term Municipal Income Fund.............. 1995 1995 1993 1993 1997 1995 1993 1998
Florida Insured Tax Free Income Fund................. 1995 1995 1994 1994 1997 1995 1994 1998
New York Tax Free Income Fund........................ 1995 1995 1994 1994 1997 1995 1994 1998
California Municipal Income Fund.....................
</TABLE>

B-26
<PAGE> 62

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes offices,
necessary facilities and equipment, provides administrative services, 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 actions or omissions if it acted without willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.

The Advisory Agreement also provides that, in the event the expenses of the
Fund for any fiscal year exceed the most restrictive expense limitation
applicable in the states where the Fund's shares are qualified for sale, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Fund monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year.

The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.

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 each of the other Van Kampen funds
advised by the Adviser and distributed by the Distributor have entered into
Legal Services Agreements pursuant to which Van Kampen Investments provides
legal services, including without limitation: accurate maintenance of the fund's
minute books and records, preparation and oversight of the fund's regulatory
reports, and other information provided to shareholders, as well as responding
to day-to-day legal issues on behalf of the funds. Payment by the Fund for such
services is made on a cost basis for the salary and salary related benefits,
including but not limited to bonuses, group insurance and other regular wages
for the employment of personnel, as well as overhead and the expenses related to
the office space and the equipment necessary to render the legal services. Other
funds distributed by the Distributor also receive legal services from Van Kampen
Investments. Of the total costs for legal services provided to funds distributed
by the Distributor, one half of such costs are allocated equally to each fund
and the remaining one half of such costs are allocated to specific funds based
on monthly time records.

B-27
<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 the affirmative vote of a majority of Trustees who are not
parties to the Distribution and Service Agreement or interested persons of any
party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 90 days'
written notice.

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 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. A commission or transaction fee will be paid by the
Distributor at the time of purchase directly out of the Distributor's assets
(and not out of the Fund's assets) to authorized dealers who initiate and are
responsible for purchases of $1 million or more computed based on a percentage
of the dollar value of such shares sold as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million.

With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.

Proceeds from any contingent deferred sales charge and any distribution
fees on Class B Shares and Class C Shares of the Fund are paid to the
Distributor and are used by the Distributor to defray its distribution related
expenses in connection with the sale of the Fund's shares, such as the payment
to authorized dealers for selling such shares. With respect to Class C Shares,
the authorized dealers generally are paid the ongoing commission and transaction
fees of up to 0.75% of the average daily net assets of the Fund's Class C Shares
annually commencing in the second year after purchase.

In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide,

B-28
<PAGE> 64

among other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Fund or other Van Kampen funds.
Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by the Distributor, pay fees to, and sponsor
business seminars for, qualifying authorized dealers for certain services or
activities which are primarily intended to result in sales of shares of the
Fund. Fees may include payment for travel expenses, including lodging, incurred
in connection with trips taken by invited registered representatives for
meetings or seminars of a business nature. In some instances additional
compensation or promotional incentives may be offered to brokers, dealers or
financial intermediaries that have sold or may sell significant amounts of
shares during specified periods of time. The Distributor may provide additional
compensation to Edward D. Jones & Co. or an affiliate thereof based on a
combination of its sales of shares and increases in assets under management. All
of the foregoing payments are made by the Distributor out of its own assets.
Such fees paid for such services and activities with respect to the Fund will
not exceed in the aggregate 1.25% of the average total daily net assets of the
Fund on an annual basis. These programs will not change the price an investor
will pay for shares or the amount that a Fund will receive from such sale.

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through an agreement (the "Distribution and Service Agreement") with the
Distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."

Certain financial intermediaries may be prohibited under law from providing
certain underwriting or distribution services. If a financial intermediary was
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 consequence
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.

The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any deferred sales
charges it received. For Class A Shares, to the extent the Distributor is not
fully reimbursed in a given year, there is no carryover of such unreimbursed
amounts to succeeding years. For each of the Class B
B-29
<PAGE> 65

Shares and Class C Shares, to the extent the Distributor is not fully reimbursed
in a given year, any unreimbursed expenses for such class will be carried
forward and paid by the Fund in future years so long as such Plans are in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular Class B Share 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 were terminated
or not continued, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund or recovered
through deferred sales charge.

Because the Fund is a series of the Trust, amounts paid to the Distributor
as reimbursement for expenses of one series of the Trust may indirectly benefit
the other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of shares to defray distribution-related expenses
attributable to any other class of shares.

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 64121-9256. The transfer agency prices are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
benchmarks.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the trustees of the Fund.

As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed bonds on a exchange, which are effected through brokers who charge a
commission for their services.

The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are

B-30
<PAGE> 66

furnished without cost to the Adviser. Since statistical and other research
information is only supplementary to the research efforts of the Adviser to the
Fund and still must be analyzed and reviewed by its staff, the receipt of
research information is not expected to reduce its expenses materially. The
investment advisory fee is not reduced as a result of the Adviser's receipt of
such research services. Services provided may include (a) furnishing advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or pur-chasers or sellers
of securities; (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy, and the
performance of accounts; and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody). Research services furnished by firms through which the Fund effects
its securities transactions may be used by the Adviser in servicing all of its
advisory accounts; not all of such services may be used by the Adviser in
connection with the Fund.

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.

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
B-31
<PAGE> 67

Services showing any reinvestments of dividends and capital gain dividends and
any other activity in the account since the preceding statement. Such
shareholders also will receive separate confirmations for each purchase or sale
transaction other than reinvestment of dividends and capital gain dividends and
systematic purchases or redemptions. Additional shares may be purchased at any
time through authorized dealers or by mailing a check directly to Investor
Services.

SHARE CERTIFICATES

Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon an exchange or
redemption of the shares represented by the certificate. In addition, if such
certificates are lost the shareholder must write to Van Kampen Funds Inc., c/o
Investor Services, PO Box 218256, Kansas City, MO 64121-9256, requesting an
"Affidavit of Loss" and obtain a Surety Bond in a form acceptable to Investor
Services. On the date the letter is received, Investor Services will calculate
the fee for replacing the lost certificate equal to no more than 2.00% of the
net asset value of the issued shares, and bill the party to whom the replacement
certificate was mailed.

RETIREMENT PLANS

Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS

Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. 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.

DIVIDEND DIVERSIFICATION

A shareholder may upon written request, or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and 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.

B-32
<PAGE> 68

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may establish a monthly, quarterly, semi-annual 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 after receipt of instructions. 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 during a rolling 365-day period. If
exchange privileges are suspended, subsequent exchange requests for redemptions
out of that fund 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 who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class C Shares of the Fund with credit given for any contingent deferred sales
charge paid upon such redemption. Such reinstatement is made at the net asset
value per share (without sales charge) next determined after the order is
received, which must be within 180 days after the date of the redemption.
Reinstatement at net asset value per share is also offered to participants in
those eligible retirement plans held or administered by Van Kampen Trust Company
for repayment of principal (and interest) on their borrowings on such plans.

REDEMPTION OF SHARES

Redemptions are not made on days during which the 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

B-33
<PAGE> 69

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 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 ("CDSC-CLASS B AND C")

As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge. The CDSC-Class B and C is waived on redemptions of Class B Shares and
Class C Shares in the circumstances described below:

REDEMPTION UPON DEATH OR DISABILITY

The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Fund does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC-Class B and C.

In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.

B-34
<PAGE> 70

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
employees pursuant to Code 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 mailed to the shareholder. The amount to be redeemed and frequency
of the systematic withdrawals will be specified by the shareholder upon his or
her election to participate in the 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 a 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.

INVOLUNTARY REDEMPTIONS OF SHARES

The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the value of the
account up to the required minimum balance. The Fund will waive the CDSC-Class B
and C upon such involuntary redemption.

REINVESTMENT OF REDEMPTION PROCEEDS

A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all 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.

B-35
<PAGE> 71

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 has elected and
qualified, and intends to continue to qualify each year, to be treated as a
regulated investment company under Subchapter M of the Code. To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and
diversification of its assets.

If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including tax-exempt interest, taxable
income and net short-term capital gain, but not net capital gain, which is the
excess of net long-term capital gains over net short-term capital losses) 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 of net investment income necessary to
satisfy the 90% distribution requirement. The Fund will not be subject to
federal income tax on any net capital 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.

Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
B-36
<PAGE> 72

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.

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, or by the Trust if it is required to qualify as a regulated
investment company as described below. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses in his
trade or business a part of any facilities financed with the tax-exempt
obligations and whose gross revenues derived from such facilities exceed 5% of
the total revenues derived from the facilities by all users, or who occupies
more than 5% of the useable area of the facilities or for whom the facilities or
a part thereof were specifically constructed, reconstructed or acquired.
Examples of "related persons" include certain related natural persons,
affiliated corporations, a partnership and its partners and an S corporation and
its shareholders.

While the Fund expects that a major portion of its net investment income
will constitute tax-exempt interest, a significant portion may consist of
investment company taxable income. Distributions of the Fund's net investment
company taxable income are taxable to shareholders as ordinary income to the
extent of the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gain as capital gain
dividend, 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

B-37
<PAGE> 73

such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming such shares are held as a capital asset). For a summary of
the tax rates applicable to capital gains (including capital gain dividends),
see "Capital Gains Rates" below. Interest on indebtedness which is incurred to
purchase or carry shares of a mutual fund which distributes exempt interest
dividends during the year is not deductible for federal income tax purposes.
Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.

The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The aggregate
amount of dividends designated as exempt-interest dividends cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. Since the percentage of dividends
which are exempt-interest dividends is determined on an average annual method
for the taxable year, the percentage of income designated as tax-exempt for any
particular dividend may be substantially different from the percentage of the
Fund's income that was tax exempt during the period covered by the dividend.
Fund distributions generally will not qualify for the dividends received
deduction for corporations.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.

SALE OF SHARES

The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the shares
and the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss. For a summary of the tax rates applicable
to capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Any loss recognized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends received with respect to such shares. For purposes of
determining whether shares have been held for six months or less, the holding
period is suspended for any periods during which the shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

CAPITAL GAINS RATES

The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum
ordinary income tax rate for capital assets held for one year or less or (ii)
20% for capital assets held for more than one year. 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
B-38
<PAGE> 74

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.

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 a 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 CDSC has been paid.
The Fund's total return will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and unrealized
net capital gains or losses during the period. Total return is based on
historical earnings and asset value fluctuations and is not intended to indicate
future performance. No adjustments are made to reflect any income taxes payable
by shareholders on dividends and capital gain dividends paid by the Fund.

B-39
<PAGE> 75

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum 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
of the classes will differ.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.

From time to time marketing materials may provide a portfolio manager
update, an Adviser update 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.

B-40
<PAGE> 76

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 funds in direct or sales force distribution
channels. The study showed that investors working with a professional
representative have tended over time to earn higher returns than those who
invested directly. The Fund 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.

The Fund's Annual Report and Semiannual Report contain additional
performance information. A copy of the Annual Report or Semiannual Report may be
obtained without charge by calling or writing the Fund at the telephone number
and address printed on the back cover of the Prospectus.

OTHER INFORMATION

CUSTODY OF ASSETS

All securities owned by the Fund and all cash, including proceeds from the
sale of shares of the Fund and of securities in the Fund's investment portfolio,
are held by State Street Bank and Trust Company, 225 West Franklin Street,
Boston, Massachusetts 02110, as Custodian. The Custodian also provides
accounting services to the Fund.

SHAREHOLDER REPORTS

Semiannual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.

B-41
<PAGE> 77

INDEPENDENT ACCOUNTANTS

KPMG LLP, 303 East Wacker Drive, Chicago, Illinois 60601, the independent
accountants for the Fund, performs an annual audit of the Fund's financial
statements.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

B-42

<PAGE> 78

PART C: OTHER INFORMATION

ITEM 23. EXHIBITS.

<TABLE>
<S> <C>
(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
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(ix) Van Kampen Michigan Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(x) Van Kampen Missouri Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(xi) Van Kampen Ohio Tax Free Income Fund
1. Class A Shares(2)
2. Class B Shares(2)
3. Class C Shares(2)
(d) -- Investment Advisory Agreement for:
(i) Van Kampen Insured Tax Free Income Fund(3)
(ii) Van Kampen Tax Free High Income Fund(3)
(iii) Van Kampen California Insured Tax Free Fund(3)
(iv) Van Kampen Municipal Income Fund(3)
(v) Van Kampen Intermediate Term Municipal Income Fund(3)
(vi) Van Kampen Florida Insured Tax Free Income Fund(3)
(vii) Van Kampen New York Tax Free Income Fund(3)
(viii) Van Kampen California Municipal Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
</TABLE>

C-1
<PAGE> 79

<TABLE>
<S> <C>
(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(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(2) -- Form of Dealer Agreement(4)
(3) -- Form of Broker Agreement(4)
(4) -- Form of Bank Agreement(4)
(f)(1) -- Form of Trustee Deferred Compensation Plan+
(f)(2) -- Form of Trustee Retirement Plan+
(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) -- 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++
(j) -- Consents of KPMG LLP for:
(i) Van Kampen Insured Tax Free Income Fund(11)
(ii) Van Kampen Tax Free High Income Fund(11)
(iii) Van Kampen California Insured Tax Free Fund(11)
(iv) Van Kampen Municipal Income Fund(11)
(v) Van Kampen Intermediate Term Municipal Income Fund(11)
(vi) Van Kampen Florida Insured Tax Free Income Fund(11)
</TABLE>

C-2
<PAGE> 80

<TABLE>
<S> <C>
(vii) Van Kampen New York Tax Free Income Fund(11)
(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)
(k) -- Not applicable
(l) -- Letter of understanding relating to initial capital(9)
(m)(1) -- Plan of Distribution Pursuant to Rule 12b-1 for:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Municipal Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(2) -- Form of Shareholder Assistance Agreement(4)
(3) -- Form of Administrative Services Agreement(4)
(4) -- Service Plan for:
(i) Van Kampen Insured Tax Free Income Fund(1)
(ii) Van Kampen Tax Free High Income Fund(1)
(iii) Van Kampen California Insured Tax Free Fund(1)
(iv) Van Kampen Municipal Income Fund(1)
(v) Van Kampen Intermediate Term Municipal Income Fund(1)
(vi) Van Kampen Florida Insured Tax Free Income Fund(1)
(vii) Van Kampen New York Tax Free Income Fund(1)
(viii) Van Kampen California Municipal Income Fund(2)
(ix) Van Kampen Michigan Tax Free Income Fund(2)
(x) Van Kampen Missouri Tax Free Income Fund(2)
(xi) Van Kampen Ohio Tax Free Income Fund(2)
(n) -- Not applicable
(o) -- Amended Multi-Class Plan(8)
(p) -- Power of Attorney+
(z)(1) -- List of Investment Companies in response to Item 27(a)+
(z)(2) -- List of Officers and Directors of Van Kampen Funds Inc. in response
to Item 27(b)+
</TABLE>

- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on April 29, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on September 30, 1994.
(3) Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on April 30, 1998.
(4) Incorporated herein by reference to Post-Effective Amendment No. 37 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on August 1, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 50 to Van
Kampen American Capital Comstock Fund, File No. 2-27778 filed on April 27,
1998.
(6) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed May 25, 1990.
(7) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration
on Form N-1A, File Number 2-99715, filed February 22, 1988.
(8) Incorporated herein by reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on April 29, 1997.
C-3
<PAGE> 81

(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.

(11) Incorporated herein by reference to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A, File Number 2-99715,
filed on January 28, 1999.

+ Filed herewith.

++ To be filed by further amendment.

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 "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful
C-4
<PAGE> 82

defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

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 Securities
Act of 1933 (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 Fund.

See also "Investment Advisory Agreement" in the Statement of Additional
Information.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in the Prospectus and "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.

C-5
<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 Registrant, is the sole principal underwriter for Registrant. The
name, principal business address and positions and offices with Van Kampen Funds
Inc. of each of its directors and officers are disclosed in Exhibit (z)(2).
Except as disclosed under the heading "Trustees and Officers" in Part B of this
Registration Statement, none of such persons has any position or office with
Registrant.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of the Registrant, 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. All such accounts, books and other documents
required to be maintained by the Adviser and by Van Kampen Funds Inc., the
principal underwriter, will be maintained at 1 Parkview Plaza, PO Box 5555,
Oakbrook Terrace, Illinois 60181-5555.

ITEM 29. MANAGEMENT SERVICES.

Not applicable.

ITEM 30. UNDERTAKINGS.

Not applicable.

C-6
<PAGE> 84

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN TAX FREE TRUST, has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Oakbrook
Terrace and the State of Illinois, on the 7th day of January, 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 Securities Act of 1933, this Amendment
to this Registration Statement has been signed on January 7, 2000 by the
following persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
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 January 7, 2000
- -----------------------------------------------------
A. Thomas Smith III
Attorney-in-Fact
</TABLE>

C-7
<PAGE> 85

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 44 TO FORM N-1A

AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
(f)(1) -- Form of Trustee Deferred Compensation Plan
(f)(2) -- Form of Trustee Retirement Plan
(p) -- 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 response
(z)(2) -- to Item 27(b)
</TABLE>

<PAGE> 1
EXHIBIT (f) (1)

FORM OF
DEFERRED COMPENSATION AGREEMENT

AGREEMENT, made on this ____ day of _______________, _________
by and between each of the funds listed on Schedule A attached hereto as may be
amended from time to time, each a registered investment company having its
principal offices at 1 Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois
60181-5555 (collectively the "Funds" or individually the "Fund"), and
Trustee/Director's Name, residing at Trustee/Director's Address (the "Trustee").

WHEREAS, the Fund and the Trustee desire to enter into an
agreement whereby the Fund will provide to the Trustee a vehicle under which the
Trustee can defer receipt of trustees' fees payable by the Fund.

NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Fund and the Trustee hereby agree
as follows:

1. DEFINITION OF TERMS AND CONSTRUCTION

1.1 Definitions. Unless a different meaning is plainly implied
by the context, the following terms as used in this Agreement shall have the
following meanings:

(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after the death of
the Trustee.

(b) "Board of Trustees" shall mean the Board of Trustees
or Board of Directors, as the case may be, of the Fund.

(d) "Compensation" shall mean the amount of trustee's fees
paid by the Fund to the Trustee during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement.

(e) "Compensation Deferral" shall mean the amount or
amounts of the Trustee's Compensation deferred under the provisions of Section 3
of this Agreement.

(f) "Deferral Account" shall mean the account maintained
to reflect the Trustee's Compensation Deferral made pursuant to Section 3 hereof
and any other credits or debits thereto.

<PAGE> 2

(g) "Deferral Year" shall mean each calendar year during
which the Trustee makes, or is entitled to make, a Compensation Deferral under
Section 3 hereof.

(h) "Valuation Date" shall mean any day upon which the
Fund makes a valuation of the Deferral Account and shall, at a minimum, be the
last business day of each calendar quarter.

1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.

1.3 Headings. The headings and subheadings in this Agreement
are inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.

2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED

2.1 Commencement of Compensation Deferrals. The Trustee may
elect, on a form provided by, and submitted to, the President of the Fund, to
commence Compensation Deferrals under Section 3 hereof for the period beginning
on the later of (i) the date this Agreement is executed or (ii) the date such
form is submitted to the President of the Fund.

2.2 Termination of Deferrals. The Trustee shall not be
eligible to make Compensation Deferrals after the earlier of the following
dates:

(a) The date of which he ceases to serve as a Trustee of
the Fund; or

(b) The effective date of the termination of this
Agreement.

3. COMPENSATION DEFERRALS

3.1 Compensation Deferral Elections.

(a) The Trustee may elect, on the form described in
Section 2.1 hereof, to defer the receipt of all or a portion of the Compensation
for such Deferral Year. Such writing shall set forth the amount of such
Compensation Deferral (in whole percentage amounts). Such election shall
continue in effect for all subsequent Deferral Years unless it is canceled or
modified as provided below.

<PAGE> 3

(b) Compensation Deferrals shall be withheld from each
payment of Compensation by the Fund to the Trustee based upon the percentage
amount elected by the Trustee under Section 3.1(a) hereof.

(c) The Trustee may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the President of
the Fund a revised Compensation Deferral election form. Such change will be
effective as of the first day following the date such revision is submitted to
the President of the Fund.

3.2 Valuation of Deferral Account.

(a) The Fund shall establish a bookkeeping Deferral
Account to which will be credited an amount equal to the Trustee's Compensation
Deferrals under this Agreement. Compensation Deferrals shall be allocated to the
Deferral Account on the first business day following the date such Compensation
Deferrals are withheld from the Trustee's Compensation. The Deferral Account
shall be debited to reflect any distributions from such Account. Such debits
shall be debited to the Deferral Account as of the date such distributions are
made.

(b) Any Compensation Deferrals made into a Trustee's
Deferral Account will be valued as if such amounts are invested in the manner
set forth under Section 3.3 beginning as of the close of business on the last
day of the month in which such Compensation Deferrals were credited to such
Trustee's Deferral Account. As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Account is invested in the manner est
forth herein) attributable to the period following the next preceding Valuation
Date shall be credited to and/or deducted from the Trustee's Deferral Account.

3.3 Investment of Deferral Account Balance.

(a) (1) The Trustee may select, from various options made
available by the Fund, the investment media in which all or part of his Deferral
Account shall be deemed to be invested.

(2) The Trustee shall make an investment designation
on a form provided by the President of the Fund which shall remain effective
until another valid direction has been made by the Trustee as herein provided.
On the investment designation form, the Trustee may select from underlying
investment securities from the options made available to the Trustee pursuant to
Section 3.3(a)(1). The Trustee may amend the investment designation only once
each calendar quarter by giving written direction to the President of the Fund.
Unless otherwise specified, a Trustee's amendment to an investment designation
applies only to future compensation Deferrals. A Trustee may amend the
investment designation for existing amounts in the Trustee's Deferral Account
provided, however, that such changes in investment designation will only be
valid and applied to the existing amounts in the Trustee's Deferral Account if
the Trustee provides sufficient instruction regarding amounts to be exchanged. A
change in

<PAGE> 4

investment designation will be valid only if, after giving effect to such change
in investment designation, the Trustee has selected investment securities from
the options made available to the Trustee pursuant to Section 3.3(a)(1). A
timely, valid change in a Trustee's investment designation shall become
effective as of the close of business on the last day of the calendar quarter
following receipt by the President of the Fund.

(3) The investment media deemed to be made available
to the Trustee, and any limitation on the maximum or minimum percentages of the
Trustee's Deferral Account that may be invested in any particular medium, shall
be the same as from time to time communicated to the Trustee by the President of
the Fund.

(b) Except as provided below, the Trustee's Deferral
Account shall be deemed to be invested in accordance with the investment
designations, provided such designations conform to the provisions of this
Section. If:

(1) the Trustee does not furnish the President of the
Fund with written investment instructions,

(2) the written investment instructions from the
Trustee are unclear, or

(3) less than all of the Trustee's Deferral Account is
covered by such written investment instructions,

then the Trustee's Deferral Account shall be deemed to be invested in the Fund
until such time as the Trustee shall provide the President of the Fund with
complete investment instructions. Notwithstanding the above, the Board of
Trustees, in its sole discretion, may disregard the Trustee's election and
determine that all Compensation Deferrals shall be deemed to be invested in the
Fund.

The Fund shall provide an annual statement to the Trustee
showing such information as is appropriate, including the aggregate amount in
the Deferral Account, as of a reasonably current date.

4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT

4.1 In General. Distributions from the Trustee's Deferral Account shall
be paid in cash, in generally equal annual installments over a period of five
(5) years beginning on the date of the Trustee's retirement or disability,
except that the Board of Trustees may, in its sole discretion, accelerate or,
with the consent of the Trustee, extend the distribution of such Deferral
Account. Notwithstanding the foregoing, in the event of the liquidation,
dissolution or winding up of the Fund or the distribution of all or
substantially all of the Fund's assets and property relating to one or more
series of its shares to the shareholders (for this purpose a sale, conveyance or
transfer of the Fund's assets to a trust, partnership, association or
corporation in exchange for cash, shares or other securities with the transfer
being made subject to, or with the assumption by the

<PAGE> 5

transferee of, the liabilities of the Fund shall not be deemed a termination of
the Fund or such a distribution), all unpaid amounts in the Deferral Account as
of the effective date thereof shall be paid in a lump sum on such effective
date.

4.2 Death Prior to Distribution of Deferral Account. Upon the death of
the Trustee prior to the commencement of the distribution of the amounts
credited to the Deferral Account, the Deferral Account shall be distributed to
the Beneficiary over a period of five (5) years beginning as soon as practicable
after the Trustee's death. In the event of the death of the Trustee after the
commencement of such distribution, but prior to the complete distribution of the
Deferral Account, the balance of the amounts in the Deferral Account shall be
distributed to the Beneficiary over the remaining period during which such
amounts were distributable to the Trustee under Section 4.1 hereof. In the event
the Trustee survives the designated Beneficiary, the balance of such Deferral
Account shall be paid in a lump sum to such Trustee's estate. Notwithstanding
the above, the Board of Trustees may, in its sole discretion, accelerate or,
with the consent of the Beneficiary or the Trustee's estate, as applicable,
extend the distribution of the Deferral Account.

4.3 Designation of Beneficiary. For purposes of Section 4.2 hereof, the
Trustee's Beneficiary shall be the person or persons so designated by the
Trustee in a written instrument submitted to the President of the Fund. In the
event the Trustee fails to properly designate a Beneficiary, the balance of such
Trustee's Deferred Account shall be paid in a lump sum to such Trustee's estate.

4.4 Payments Due Missing Persons. The Fund shall make a reasonable
effort to locate all persons entitled to benefits under this Agreement. However,
notwithstanding any provisions of this Agreement to the contrary, if, after a
period of five (5) years from the date such benefit shall be due, any such
persons entitled to benefits have not been located, their rights under this
Agreement shall stand suspended. Before this provision becomes operative, the
Fund shall send a certified letter to all such persons to their last known
address advising them that their benefits under this Agreement shall be
suspended. Any such suspended amounts shall be held by the Fund for a period of
three (3) additional years (or a total of eight (8) years from the time the
benefits first become payable) and thereafter, if unclaimed, such amounts shall
be forfeited.

5. AMENDMENTS AND TERMINATION

5.1 Amendments.

(a) The Fund and the Trustee may, by a written instrument
signed by both such parties, amend this Agreement at any time and in any manner.

(b) The Fund reserves the right to amend, in whole or in part,
and in any manner, any or all of the provisions of this Agreement by action of
its Board

<PAGE> 6

of Trustees for the purposes of complying with any provision of the Code or any
other technical or legal requirements, provided that:

(1) No such amendment shall make it possible for any
part of the Trustee's Deferral Account to be used for, or diverted to,
purposes other than for the exclusive benefit of the Trustee or the
Beneficiaries, except to the extent otherwise provided in this
Agreement; and

(2) No such amendment may reduce the amount of the
Trustee's Deferral Account as of the effective date of such amendment.

5.2 Termination. The Trustee and the Fund may, by written instrument
signed by both such parties, terminate this Agreement at any time. The rights of
the Trustee to the Deferral Account shall become payable as of the Valuation
Date next following the effective date of the termination of this Agreement.

6. MISCELLANEOUS.

6.1 Rights of Creditors.

(a) This Agreement is unfunded. Neither the Trustee nor any
other persons shall have any interest in any specific asset or assets of the
Fund by reason of any Deferral Account hereunder, nor any rights to receive
distribution of the Deferral Account except and as to the extent expressly
provided hereunder. The Fund shall not be required to purchase, hold or dispose
of any investments pursuant to this Agreement; however, if in order to cover its
obligations hereunder the Fund elects to purchase any investments the same shall
continue for all purposes to be a part of the general assets and property of the
Fund, subject to the claims of its general creditors and no person other than
the Fund shall by virtue of the provisions of this Agreement have any interest
in such assets other than an interest as a general creditor.

(b) The rights of the Trustee and the Beneficiaries to the
amounts held in the Deferral Account are unsecured and shall be subject to the
creditors of the Fund. With respect to the payment of amounts held under the
Deferral Account, the Trustee and the Beneficiaries have the status of unsecured
creditors of the Fund. This Agreement is executed on behalf of the Fund by an
officer of the Fund as such and not individually. Any obligation of the Fund
hereunder shall be an unsecured obligation of the Fund and not of any other
person.

6.2 Agents. The Fund may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as it deems necessary
to perform its duties under this Agreement. The Fund shall bear the cost of such
services and all other expenses it incurs in connection with the administration
of this Agreement.

<PAGE> 7

6.3 Liability and Indemnification. Except for its own gross negligence,
willful misconduct or willful breach of the terms of this Agreement, the Fund
shall be indemnified and held harmless by the Trustee against liability or
losses occurring by reason of any act or omission of the Fund or any other
person.

6.4 Incapacity. If the Fund shall receive evidence satisfactory to it
that the Trustee or any Beneficiary entitled to receive any benefit under the
Agreement is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to receive such benefit and to give a valid
release therefor, and that another person or an institution is then maintaining
or has custody of the Trustee or Beneficiary and that no guardian, committee or
other representative of the estate of the Trustee or Beneficiary shall have been
duly appointed, the Fund may make payment of such benefit otherwise payable to
the Trustee or Beneficiary to such other person or institution, including a
custodian under the Uniform Gifts to Minors Act or corresponding legislation
(such custodian shall be an adult, a guardian of the minor or a trust company),
and the release of such other person or institution shall be a valid and
complete discharge for the payment of such benefit.

6.5 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.

6.6 Governing Law. This Agreement is made and entered into in the State
of Illinois, and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Illinois.

6.7 Nonguarantee of Trusteeship. Nothing contained in this Agreement
shall be construed as a contract or guarantee of the right of the Trustee to be,
or remain as, a trustee of the Fund or to receive any, or any particular rate
of, Compensation.

6.8 Counsel. The Fund may consult with legal counsel with respect to
the meaning or construction of this Agreement or its obligations or duties
hereunder or with respect to any action or proceeding or any question of law,
and it shall be fully protected with respect to any action taken or omitted by
it in good faith pursuant to the advice of legal counsel.

6.9 Spendthrift Provision. The Trustee's and Beneficiaries' interests
in the Deferral Account may not be anticipated, sold, encumbered, pledged,
mortgaged, charged, transferred, alienated, assigned nor become subject to
execution, garnishment or attachment, and any attempt to do so by any person
shall render the Deferral Amount immediately forfeitable.

6.10 Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States

<PAGE> 8

registered or certified mail, return receipt requested, postage prepaid, or by
nationally recognized overnight delivery service providing for a signed return
receipt, addressed to the Trustee at the home address set forth in the Fund's
records and to the Fund at the address set forth on the first page of this
Agreement, provided that all notices to the Fund shall be directed to the
attention of the President of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.

6.11 Entire Agreement. This Agreement contains the entire understanding
between the Fund and the Trustee with respect to the payment of non-qualified
elective deferred compensation by the Fund to the Trustee.

6.12 Interpretation of Agreement. Interpretations of, and
determinations related to, this Agreement made by the Fund in good faith,
including any determinations of the amounts of the Deferral Account, shall be
conclusive and binding upon all parties; and the Fund shall not incur any
liability to the Trustee for any such interpretation or determination so made or
for any other action taken by it in connection with this Agreement in good
faith.

6.13 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the Fund and its successors and assigns and to
the Trustee and such Trustee's heirs, executors, administrators and personal
representatives.

6.14 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.

6.15 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.

<PAGE> 9

IN WITNESS WHEREOF, the parties hereto have caused this Deferred
Compensation Agreement to be executed as of the day and year first above
written.

On behalf of the Funds
listed on Schedule A
attached hereto:

By:
------------------------------
Name:
----------------------------
Title:
---------------------------

On behalf of the
Trustee/Director listed on
page 1 hereto:

----------------------------------
Trustee/Director's Signature

<PAGE> 1

EXHIBIT (f) (2)

FORM OF
RETIREMENT PLAN FOR EACH FUND

Van Kampen (Fund Name), a registered investment company
having its principal offices at 1 Parkview Plaza, P.O. Box 5555,Oakbrook
Terrace, Illinois 60181-5555 (the "Fund"), has adopted this Retirement Plan,
effective (date shown on Annex A) (the "Plan"), for its Eligible Trustees (as
defined herein) in order to recognize and reward the valued services provided by
such trustees or directors, as the case may be, to the Fund.

1. DEFINITION OF TERMS AND CONSTRUCTION

1.1 Definitions. Unless a different meaning is plainly implied
by the context, the following terms as used in this Plan shall have the
following meanings:

(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 6.4 hereof to receive benefits after the death of
the Eligible Trustee.

(b) "Board of Trustees" shall mean the Board of Trustees
or the Board of Directors, as the case may be, of the Fund.

(d) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.

(e) "Compensation" shall mean an amount equal to $2,500.

(f) "Disability" shall have the meaning described in
Section 5.1.

(g) "Early Retirement Benefit" shall have the meaning
described in Section 3.3.

(h) "Effective Date" shall mean.

(i) "Effective Date Trustee" means a person who is a
trustee or director, as the case may be, of the Fund on the Effective Date.

<PAGE> 2

(j) "Eligible Retirement Age" shall have the meaning
described in Section 4.1.

(k) "Eligible Trustee" shall mean a person who: (i) is or
becomes a trustee or director, as the case may be, of the Fund on or after the
Effective Date, and (ii) is, prior to the time of such trustee's or director's,
as the case may be, termination of service, receiving trustee's or director's
fees from the Fund.

(l) "Fund Complex" shall mean the funds listed on Schedule
A attached hereto as may be amended from time to time.

(m) "Mandatory Retirement Age" shall have the meaning
described in Section 4.1.

(n) "Normal Distribution" shall have the meaning described
in Section 6.1.

(o) "Normal Retirement Benefit" shall have the meaning
described in Section 3.2.

(p) "Plan Committee" shall have the meaning described in
Section 8.2.

(q) "Retirement Benefit" shall mean the applicable normal
Retirement Benefit, Early Retirement Benefit or Capped Retirement Benefit due to
such trustee or director, as the case may be.

(r) "Retirement Benefit Cap" shall mean the amount listed
on Schedule A attached hereto as may be amended from time to time.

(s) "Service Requirement" shall have the meaning described
in Section 2.1.

(t) "Years of Service" shall be counted using January 1st
of the year such trustee or director, as the case may be, begins service as a
trustee or director of the Fund and include all completed calendar years of
service prior to such trustee's or director's, as the case may be, termination
of service, including such service performed prior to the adoption of the plan.

2
<PAGE> 3

1.2 Plurals and Gender. Where appearing in this Plan the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.
References herein to "trustees" shall include trustees of a fund organized as a
trust or directors of a fund organized as a corporation, as the case may be.

1.3 Headings. The headings and subheadings in this Plan are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.

2. SERVICE REQUIREMENT

2.1 Service Requirement. Each Eligible Trustee that has
completed five (5) Years of Service as a trustee for the Fund shall be entitled
to receive retirement benefits from the Fund. An Eligible Trustee is not
entitled to benefits pursuant to the Plan merely because such trustee is an
Eligible Trustee; a trustee must meet the Years of Service requirement.

3. RETIREMENT BENEFIT

3.1 In General. The retirement benefit amount for an Eligible
Trustee meeting the Service Requirement is determined at the time of such
trustee's termination of service as a trustee. Subject to Sections 3.4 and 5.1,
an Eligible Trustee terminating service as a trustee to the Fund prior to
attaining the Eligible Retirement Age is eligible for the Early Retirement
Benefit as described in Section 3.3. Subject to Section 3.4, an Eligible Trustee
terminating service as a trustee to the fund after attaining the Eligible
Retirement Age is eligible for the Normal Retirement Benefit as described in
Section 3.2. An Eligible Trustee terminating service as a trustee to the Fund
after the Mandatory Retirement Age forfeits and is not entitled to any
retirement benefit under the Plan.

3.2 Normal Retirement Benefit. The Normal Retirement Benefit
shall be 50% of the Compensation and such benefit shall increase by 10% for each
Year of Service by such trustee in excess of five (5) Years of Service up to a
maximum amount of 100% of the Compensation for any trustee who has completed ten
(10) or more Years of Service.

3
<PAGE> 4

<TABLE>
<CAPTION>
=======================================================================
Years of Service Percentage Of Compensation
- -----------------------------------------------------------------------
<S> <C> <C>
Less than 5 0%
- -----------------------------------------------------------------------
5 50%
- -----------------------------------------------------------------------
6 60%
- -----------------------------------------------------------------------
7 70%
- -----------------------------------------------------------------------
8 80%
- -----------------------------------------------------------------------
9 90%
- -----------------------------------------------------------------------
10 or more 100%
- -----------------------------------------------------------------------
</TABLE>

3.3 Early Retirement Benefit. The Early Retirement Benefit
shall be the Normal Retirement Benefit for such trustee based upon such
trustee's Years of Service at the time of such trustee's termination of service
reduced by 3% for each year prior to the Eligible Retirement Age.

3.4 Retirement Benefit Cap. A trustee shall not receive
aggregate retirement benefits per calendar year from the Fund Complex in excess
of the Retirement Benefit Cap in effect at the time of such trustee's
termination of service. When a trustee would otherwise be entitled to aggregate
retirement benefits from the Fund Complex in excess of the Retirement Benefit
Cap but for this provision, the Fund shall only pay a Capped Retirement Benefit
to such trustee based on its pro rata portion of the retirement benefit the Fund
would have paid relative to the aggregate retirement benefits from the Fund
Complex absent such Retirement Benefit Cap.

4. RETIREMENT AGE

4.1 Retirement Age. The Eligible Retirement Age shall be upon
attaining the age of 60. A trustee may elect to continue to serve as a trustee
beyond the Eligible Retirement Age to a Mandatory Retirement Age of December
31st in the year such trustee reaches the age of 72; provided, however, that the
Mandatory Retirement Age shall be the later of the Mandatory Retirement Age as
set forth herein or as set forth in the by-laws of the Fund as may be amended
from time to time.

4
<PAGE> 5

5. DISABILITY

5.1 Disability. Disability shall have the meaning as set forth
in the Code under Section 22(e)(3). An Eligible Trustee who becomes disabled, as
defined herein, prior to reaching the Eligible Retirement Age is not subject to
the Early Retirement Benefit provision in section 3.3 but is instead eligible to
receive the lesser of the Normal Retirement Benefit or Capped Retirement Benefit
calculated as described in Section 3 using the Disability date as the date of
such trustee's termination of service.

6. PAYMENT OF RETIREMENT BENEFITS

6.1 Retirement or Disability Terminating Trustee's Service.
Subject to Sections 6.2 and 6.3, an Eligible Trustee shall receive the amount of
the applicable Retirement Benefit calculated pursuant to Section 3 for each of
the ten (10) years commencing in the fiscal year of such trustee's termination
of service (the "Normal Distribution"). Payment of benefits to an Eligible
Trustee shall commence, and be paid annually thereafter, at the end of the
Fund's fiscal year. In the event of such Eligible Trustee's death prior to
complete distribution under the Plan, such trustee's Beneficiary shall receive
the remaining retirement benefits based upon the Normal Distribution. In the
event the Eligible Trustee survives the Beneficiary or no Beneficiary has been
named, the Fund shall pay a lump sum amount equal to the actuarial present value
of the remaining retirement benefits to the Eligible Trustee's estate.

6.2 Death Terminating Trustee's Service. Subject to Section
6.3, in the event an Eligible Trustee's death causes the termination of service,
the Eligible Trustee's Beneficiary shall receive the amount of the applicable
Retirement Benefit calculated pursuant to Section 3 for each of the ten (10)
years commencing in the fiscal year of such trustee's death. Payment of benefits
to such Beneficiary shall commence, and be paid annually thereafter, at the end
of the Fund's fiscal year. In the event the Eligible Trustee survived the
Beneficiary or no Beneficiary was named, the Fund shall pay a lump sum amount
equal to the actuarial present value of the applicable retirement benefits to
the Eligible Trustee's estate.

6.3 Liquidation, Dissolution, Winding Up or Distribution of
Substantially All of the Assets of the Fund. Notwithstanding Sections 6.1 or
6.2, in the event of a liquidation, dissolution or winding up of the Fund or
distribution of all or substantially all of the Fund's assets and property, the
Fund shall pay to each Eligible Trustee serving as a trustee of the Fund on the
effective date of such liquidation, dissolution, winding up or distribution a
lump sum amount equal to the actuarial present value of the applicable Normal
Retirement Benefit or Early Retirement Benefit calculated pursuant to Section 3
using the effective date of such liquidation, dissolution, winding up or
distribution as the date of such trustee's termination

5
<PAGE> 6

of services. In the event an Eligible Trustee terminates services prior to such
liquidation, dissolution, winding up or distribution and such trustee (or such
trustee's Beneficiary) is then receiving payment of benefits pursuant to either
Section 6.1 or 6.2 at the time of such liquidation, dissolution, winding up or
distribution, the Fund shall pay to such trustee (or Beneficiary) on the
effective date of such liquidation, dissolution, winding up or distribution a
lump sum amount equal to the actuarial present value of the remaining retirement
benefits due to such trustee (or Beneficiary).

6.4 Designation of Beneficiary. The Eligible Trustee's
Beneficiary shall be the person or persons so designated by such trustee in a
written instrument submitted to the President of the Fund. In the event the
Eligible Trustee fails to properly designate a Beneficiary, the Fund shall pay a
lump sum amount equal to the actuarial present value of the applicable
retirement benefits to the Eligible Trustee's estate.

6.5 Payments Due Missing Persons. The Fund shall make a
reasonable effort to locate all persons entitled to benefits under this Plan.
However, notwithstanding any provisions of this Plan to the contrary, if, after
a period of five (5) years from the date such benefit shall be due, any such
persons entitled to benefits have not been located, their rights under this Plan
shall stand suspended. Before this provision becomes operative, the Fund shall
send a certified letter to all such persons to their last known address advising
them that their benefits under this Plan shall be suspended. Any such suspended
amounts shall be held by the Fund for a period of three (3) additional years (or
a total of eight (8) years from the time the benefits first become payable) and
thereafter, if unclaimed, such amounts shall be forfeited.

6.6 Actuarial Present Value Calculations. For purposes of this
Plan, the "actuarial present value" of any benefits shall be computed using
interest factors and other reasonable assumptions chosen by the Plan Committee.
The Plan Committee shall have sole and uncontrolled discretion with respect to
the application of the provisions of this paragraph and such exercise of
discretion shall be conclusive and binding on the Eligible Trustee, any
Beneficiary or other person.

7. AMENDMENTS AND TERMINATION

7.1 Amendments. The Fund anticipates the Plan to be permanent
but the Fund reserves the right to amend any or all of the provisions of this
Plan by action of its Board of Trustees or Board of Directors, as the case may
be, when, in the sole opinion of the Board of Trustees or Board of Directors, as
the case may be, such amendment is advisable, including for the purposes of
complying with any provision of the Code or any other technical or legal
requirements.

6
<PAGE> 7

7.2 Termination. The Fund may by action of its Board of
Trustees or Board of Directors, as the case may be, terminate this Plan at any
time.

8. MISCELLANEOUS.

8.1 Forfeiture of Benefits. Notwithstanding any other
provision of the Plan, future payment of any retirement benefit hereunder to an
Eligible Trustee, Beneficiary or other person will, at the discretion of the
Plan Committee, be discontinued and forfeited, and the Fund will have no further
obligation hereunder to such Eligible Trustee, Beneficiary or other person, if
any of the following circumstances occur:

(a) The Eligible Trustee is discharged from the Fund's
Board of Trustees or Board of Directors, as the case may be, for cause;

(b) The Eligible Trustee engages in competition with the
Fund or other acts considered detrimental or not in the best interests of the
Fund or its shareholders following such trustee's termination of service; or

(c) The Eligible Trustee performs an act or acts of wilful
malfeasance or reckless disregard of duties in connection with the service as a
trustee for the Fund.

The Plan Committee shall have the sole and uncontrolled discretion with respect
to the application of the provisions of this paragraph and such exercise of
discretion shall be conclusive and binding on the Eligible Trustee, any
Beneficiary or other person.

8.2 Administration. The Plan shall be administered by a Plan
Committee which shall be composed of three non-affiliated trustees and the
principal financial or accounting officer as designated by the Board of Trustees
or Board of Directors, as the case may be, of the Fund.

8.3 Agents. The Fund may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as it deems
necessary to perform its duties under this Plan. The Fund shall bear the cost of
such services and all other expenses it incurs in connection with the
administration of this Plan.

8.4 Funding and Rights of Creditors. The obligations of the
Fund under this Agreement are unfunded. Neither the Eligible Trustees, the
Beneficiaries nor any other persons shall have any interest in any specific
asset or assets of the Fund for the benefits hereunder, nor any rights to
receive distribution of the benefits except and as to the extent expressly
provided hereunder. The rights of the Eligible Trustees, the Beneficiaries or
any other person to the benefits hereunder are unsecured and shall have no
priority over the

7
<PAGE> 8

other creditors of the Fund. Any obligation of the Fund hereunder shall be an
unsecured obligation of the Fund and not of any other person in relation to this
Plan.

8.5 Liability and Indemnification. Except for its own gross
negligence, willful misconduct or willful breach of the terms of this Plan, the
Fund shall be indemnified and held harmless by the Eligible Trustee against
liability or losses occurring by reason of any act or omission of the Fund or
any other person.

8.6 Incapacity. If the Fund shall receive evidence
satisfactory to it that the Eligible Trustee or any Beneficiary entitled to
receive any benefit under the Plan is, at the time when such benefit becomes
payable, a minor, or is physically or mentally incompetent to receive such
benefit and to give a valid release therefor, and that another person or an
institution is then maintaining or has custody of the Eligible Trustee or
Beneficiary and that no guardian, committee or other representative of the
estate of the Eligible Trustee or Beneficiary shall have been duly appointed,
the Fund may make payment of such benefit otherwise payable to the Trustee or
Beneficiary to such other person or institution, including a custodian under the
Uniform Gifts to Minors Act or corresponding legislation (such custodian shall
be an adult, a guardian of the minor or a trust company), and the release of
such other person or institution shall be a valid and complete discharge for the
payment of such benefit.

8.7 Governing Law. This Plan is established under laws of the
State of Illinois, and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Illinois.

8.8 Nonguarantee of Trusteeship. Nothing contained in this
Plan shall be construed as a contract or guarantee of the right of the Eligible
Trustee to be, or remain as, a trustee of the Fund or to receive any, or any
particular rate of, Compensation.

8.9 Spendthrift Provision. The Eligible Trustee's and
Beneficiaries' interests in the benefits hereunder may not be anticipated, sold,
encumbered, pledged, mortgaged, charged, transferred, alienated, assigned nor
become subject to execution, garnishment or attachment, and any attempt to do so
by any person shall render the benefits immediately forfeitable.

8.10 Disclosure and Notices. The rights and benefits of
Eligible Trustees under the Plan shall not be represented or evidenced by any
form of certificate or other instrument. Each Eligible Trustee shall receive a
copy of the Plan and the Plan Committee will make available for inspection by
any Eligible Trustee a copy of the rules and regulations used by the Plan
Committee in administering the Plan. For purposes of this Plan, all notices and
other communications provided for in this Plan shall be in writing and shall be
deemed

8
<PAGE> 9

to have been duly given when delivered personally or mailed by United States
registered or certified mail, return receipt requested, postage prepaid, or by
nationally recognized overnight delivery service providing for a signed return
receipt, addressed to the Eligible Trustee at the home address set forth in the
Fund's records and to the Fund at the address set forth on the first page of
this Plan, provided that all notices to the Fund shall be directed to the
attention of the President of the Fund or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.

8.11 Interpretation of Plan. Interpretations of, and
determinations related to, this Plan made by the Plan Committee in good faith,
including any determinations of the amounts of the benefits, shall be conclusive
and binding upon all parties; and the Fund shall not incur any liability to the
Eligible Trustee for any such interpretation or determination so made or for any
other action taken by it in connection with this Plan in good faith.

8.12 Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the Fund and its successors and assigns
and to the Eligible Trustees and such trustees' heirs, executors, administrators
and personal representatives.

<PAGE> 1
EXHIBIT (p)

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, Dennis J. McDonnell 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: December 15, 1999

Signature Title
--------- -----

/s/ Richard F. Powers, III President, Trustee/Director
- ------------------------------------
Richard F. Powers, III

/s/ John L. Sullivan Vice President, Chief Financial
- ------------------------------------ Officer and Treasurer
John L. Sullivan

/s/ J. Miles Branagan Trustee/Director
- ------------------------------------
J. Miles Branagan

/s/ Jerry D. Choate Trustee/Director
- ------------------------------------
Jerry D. Choate

/s/ Linda Hutton Heagy Trustee/Director
- ------------------------------------
Linda Hutton Heagy

/s/ R. Craig Kennedy Trustee/Director
- ------------------------------------
R. Craig Kennedy

/s/ Mitchell M. Merin Trustee/Director
- ------------------------------------
Mitchell M. Merin

/s/ Jack E. Nelson Trustee/Director
- ------------------------------------
Jack E. Nelson

/s/ Phillip B. Rooney Trustee/Director
- ------------------------------------
Phillip B. Rooney

/s/ Fernando Sisto, Sc. D Trustee/Director
- ------------------------------------
Fernando Sisto, Sc. D.

/s/ Wayne W. Whalen Trustee/Director
- ------------------------------------
Wayne W. Whalen

/s/ Suzanne H. Woolsey Trustee/Director
- ------------------------------------
Suzanne H. Woolsey

/s/ Paul G. Yovovich Trustee/Director
- ------------------------------------
Paul G. Yovovich
<PAGE> 2

SCHEDULE 1

VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN TRUST
VAN KAMPEN EQUITY TRUST
VAN KAMPEN EQUITY TRUST II
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY INCOME FUND
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN LIFE INVESTMENT TRUST
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN PACE FUND
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN TAX-EXEMPT TRUST
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST

<PAGE> 1
EXHIBIT (z)(1)

Item 27(a)
- ----------

Van Kampen U.S. Government Trust
Van Kampen U.S. Government Fund
Van Kampen Tax Free Trust
Van Kampen Insured Tax Free Income Fund
Van Kampen Tax Free High Income Fund
Van Kampen California Insured Tax Free Fund
Van Kampen 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 California Tax Free Income Fund*
Van Kampen Michigan Tax Free Income Fund*
Van Kampen Missouri Tax Free Income Fund*
Van Kampen Ohio Tax Free Income Fund*
Van Kampen Trust
Van Kampen High Yield Fund
Van Kampen Short-Term Global Income Fund
Van Kampen Strategic Income Fund
Van Kampen Equity Trust
Van Kampen Aggressive Growth Fund
Van Kampen Great American Companies Fund
Van Kampen Growth Fund
Van Kampen Mid Cap Value Fund
Van Kampen Prospector Fund
Van Kampen 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

<PAGE> 3

<TABLE>
<S> <C>
Insured Municipals Income Trust Series 414
Strategic Municipal Trust, Intermediate Series 2
California Insured Municipals Income Trust Series 182
FLORIDA INSURED MUNICIPALS INCOME TRUST SERIES 127
MICHIGAN INSURED MUNICIPALS INCOME TRUST SERIES 159
Missouri Insured Municipals Income Trust Series 113
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST SERIES 245
Virginia Investors' Quality Tax-Exempt Trust Series 86
THE DOW(SM) STRATEGIC 10 TRUST OCTOBER 1999
SERIES
THE DOW(SM) STRATEGIC 10 TRUST OCTOBER 1999
TRADITIONAL
SERIES
THE DOW(SM) STRATEGIC 5 TRUST OCTOBER 1999
SERIES
THE DOW(SM) STRATEGIC 5 TRUST OCTOBER 1999
TRADITIONAL
SERIES
EAFE STRATEGIC 20 TRUST OCTOBER 1999
SERIES
STRATEGIC PICKS OPPORTUNITY TRUST OCTOBER 1999
SERIES
Great International Firms Trust Series 9
Brand Name Equity Trust Series 10
Dow 30 Index Trust Series 8
Dow 30 Index and Treasury Trust Series 10
Global Energy Trust Series 10
Financial Institutions Trust Series 1
Edward Jones Select Growth Trust August 1999
Series
Internet Trust Series 16A
Internet Trust Series 16B
Morgan Stanley High-Technology 35 Index Trust Series 8A
Morgan Stanley High-Technology 35 Index Trust Series 8B
Pharmaceutical Trust Series 7A
Pharmaceutical Trust Series 7B
Telecommunications & Bandwidth Trust Series 7A
Telecommunications and Bandwidth Trust Series 7B
New Frontier Utility Trust Series 7A
New Frontier Utility Trust Series 7B
Roaring 2000s Trust Series 3
Roaring 2000s Trust Traditional Series 3
Robert Baird - Utility & Communications Trust Series 1
Josephthal - Small Cap Focus Portfolio Series 1
Morgan Stanley Multinational Index Trust Series 1A
Morgan Stanley Multinational Index Trust Series 1B
Software Trust Series 1A
Software Trust Series 1B
Gruntal - E-Commerce Software Growth Trust Series 1
Wheat First Union - Mid-Cap Banking Opportunity Trust Series 1
</TABLE>

* Funds that have not commenced investment operations.

<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
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
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
Steven T. Johnson Sr. 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
Robert S. West Sr. Vice President Oakbrook Terrace, IL
Weston B. Wetherell Senior Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Asst. Secretary;
Assistant Secretary of the Funds
Patrick J. Woelfel Sr. Vice President Oakbrook Terrace, IL
Edward G. Wood, III Sr. Vice President,
Chief Operating Officer; Oakbrook Terrace. IL
Vice President of the Funds

Patricia A. Bettlach 1st Vice President Chesterfield, MO
Glenn M. Cackovic 1st Vice President Laguna Niguel, CA
Eric J. Hargens 1st Vice President Orlando, FL
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
Carl Mayfield 1st Vice President Lakewood, CO
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Maura A. McGrath 1st Vice President New York, NY
Robert F. Muller, Jr. 1st Vice President Oakbrook Terrace, IL
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 R. Yount 1st Vice President Mercer Island, WA

James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Timothy R. Armstrong Vice President Wellington, FL
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
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
Suzanne Cummings Vice President Oakbrook Terrace, IL
Michael E. Eccleston Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
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
Michelle Huber Vice President Oakbrook Terrace, IL
Michael B. Hughes Vice President Oakbrook Terrace, IL
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Dana R. Klein Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Senior Compliance Director Oakbrook Terrace, IL
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
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
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
Ted Morrow Vice President Plano, TX
Peter Nicholas Vice President Beverly, MA
Steven R. Norvid Vice President Oakbrook Terrace, IL
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
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
Diane Saxon Vice President & Assistant Treasurer Oakbrook Terrace, IL
Stephanie Scarlata Vice President Bedford Corners, NY
Christina L. Schmieder Vice President Oakbrook Terrace, IL
Timothy M. Scholten Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
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
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson 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
Amy Cooper Asst. Vice President Oakbrook Terrace, IL
Sarah K. Geiser Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Laurie L. Jones Asst. Vice President Houston, TX
Robin R. Jordan Asst. Vice President Oakbrook Terrace, IL
Anne S. Kochevar Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
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
Thomas J. Sauerborn Asst. Vice President New York, NY
David T. Saylor Asst. Vice President Oakbrook Terrace, IL
Lisa Schultz Asst. Vice President Oakbrook Terrace, IL
Lauren B. Sinai Asst. Vice President Oakbrook Terrace, IL
Scott Stevens Asst. Vice President Oakbrook Terrace, IL
Kristen L. Transier Asst. Vice President Houston, TX
Michael Trizil Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Sharon M. C. Wells Asst. Vice President Oakbrook Terrace, IL

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>