As filed with the Securities and Exchange Commission on May 5, 2005
Securities Act File No. 333-123451
Investment Company Act File No. 811-06362
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[x] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO. _
(CHECK APPROPRIATE BOX OR BOXES)
VAN KAMPEN MUNICIPAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
(800) 341-2929
(AREA CODE AND TELEPHONE NUMBER)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
AMY R. DOBERMAN, ESQ.
MANAGING DIRECTOR
VAN KAMPEN INVESTMENTS INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
WAYNE W. WHALEN, ESQ.
CHARLES B. TAYLOR, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
================================================================================
Approximate Date of Proposed:
As soon as practicable after this Registration Statement is declared effective.
============================================================================================================================
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ----------------------------------------------------------------------------------------------------------------------------
TITLE OF SECURITIES AMOUNT BEING PROPOSED MAXIMUM PROPOSED AMOUNT OF
BEING REGISTERED REGISTERED OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION FEE
PER UNIT OFFERING PRICE
- --------------------------------------- ----------------- --------------------- ----------------------- --------------------
Common Shares ($0.01 par value) 3,440,119 $ 14.15 (1) $ 48,677,687 $ 5,729 (2)
- --------------------------------------- ----------------- --------------------- ----------------------- --------------------
Auction Preferred Shares ($0.01 par
value) 1,000 $ 25,000 $ 25,000,000 $ 2,943 (2)
- --------------------------------------- ----------------- --------------------- ----------------------- --------------------
(1) Average of high and low reported price for common shares on May 3, 2005.
(2) Includes registration fee of $117.70 previously paid in connection with the
initial filing of the Registration Statement.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement is organized as follows:
o Questions and Answers to Van Kampen Investment Grade Municipal Trust
Shareholders
o Notice of Special Meeting of Shareholders of Van Kampen Investment
Grade Municipal Trust
o Proxy Statement/Prospectus regarding the Proposed Reorganization
of Van Kampen Investment Grade Municipal Trust into Van Kampen
Municipal Trust
o Statement of Additional Information regarding the Reorganization of
Van Kampen Investment Grade Municipal Trust into Van Kampen Municipal
Trust
o Part C Information
o Exhibits
-- MAY 2005 --
- --------------------------------------------------------------------------------
IMPORTANT NOTICE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO SHAREHOLDERS OF VAN KAMPEN INVESTMENT
GRADE MUNICIPAL TRUST
- --------------------------------------------------------------------------------
Questions & Answers
- ---------------------------------------
Although we recommend that you read the complete Proxy Statement/Prospectus, we
have provided for your convenience a brief overview of the issue to be voted on.
- ---------------------------------------
Q WHY IS A SHAREHOLDER
MEETING BEING HELD?
A You are being asked to
vote on a reorganization (the "Reorganization") of Van Kampen Investment Grade
Municipal Trust (the "Target Fund") into Van Kampen Municipal Trust (the
"Acquiring Fund"), a closed-end investment company that pursues the same
investment objective and similar investment policies as the Target Fund.
Q WHY IS THE REORGANIZATION
BEING RECOMMENDED?
A The Board of Trustees of the
Target Fund has determined that the Reorganization will benefit common
shareholders of the Target Fund. The Target Fund and the Acquiring Fund are
similar. Each Fund pursues the same investment objective to seek to provide a
high level of current income exempt from federal income tax consistent with
preservation of capital. Each Fund invests primarily in investment grade
municipal securities. After the Reorganization, it is anticipated that common
shareholders of the Target Fund will experience a reduced overall operating
expense ratio, as certain fixed administrative costs will be spread across the
combined larger asset base, while Target Fund shareholders remain invested in a
closed-end fund that has the same investment objective and similar investment
policies and is managed by the same investment advisory personnel. It is not
anticipated that the Reorganization will directly benefit holders of preferred
shares of the Target Fund; however, it is anticipated that the holders of
preferred shares of each Fund will not be adversely affected by the
Reorganization, and none of the expenses of the Reorganization will be borne by
preferred shareholders.
Q HOW WILL THE
REORGANIZATION AFFECT ME?
A Assuming shareholders of
the Target Fund approve the Reorganization, the assets and liabilities of the
Target Fund will be combined with those of the Acquiring Fund, you will become a
shareholder of the Acquiring Fund and the Target Fund will be dissolved. If you
are a holder of common shares of the Target Fund, you will receive newly-issued
common shares of the Acquiring Fund, and if you are a holder of preferred shares
of the Target Fund, you will receive newly-issued preferred shares of the
Acquiring Fund. The aggregate net asset value of the common shares you receive
in the Reorganization will equal the aggregate net asset value of the common
shares you own immediately prior to the Reorganization less the costs of the
Reorganization (though you may receive cash for fractional shares). The
aggregate liquidation preference of the preferred shares you receive in the
Reorganization will equal the aggregate liquidation preference of the preferred
shares you own immediately prior to the Reorganization. No certificates for
shares of the Acquiring Fund will be issued in connection with the
Reorganization, although such certificates will be available upon request.
Q WILL I HAVE TO PAY ANY
SALES LOAD, COMMISSION OR OTHER SIMILAR FEE IN CONNECTION WITH THE
REORGANIZATION?
A You will pay no sales loads
or commissions in connection with the Reorganization. However, if the
Reorganization is completed, the costs associated with the Reorganization,
including the costs associated with the shareholder meeting, will be borne by
the Target Fund and the Acquiring Fund in proportion to their projected declines
in total operating expenses as a consequence of the Reorganization.
Q WILL I HAVE TO PAY ANY
FEDERAL TAXES AS A RESULT OF THE REORGANIZATION?
A The Reorganization is
intended to qualify as a "reorganization" within the meaning of Section
368(a)(1) of the Internal Revenue Code of 1986, as amended. If the
Reorganization so qualifies, in general, a shareholder of the Target Fund will
recognize no gain or loss upon the receipt solely of shares of the Acquiring
Fund in connection with the Reorganization. Additionally, the Target Fund will
not recognize any gain or loss as a result of the transfer of all of its assets
and liabilities solely in exchange for the shares of the Acquiring Fund or as a
result of its dissolution.
Neither the Acquiring Fund nor its shareholders will recognize any gain
or loss in connection with the Reorganization.
Q HOW DO I VOTE MY PROXY?
A You may cast your vote by
mail, phone or internet. To vote by mail, please mark your vote on the enclosed
proxy card and sign, date and return the card in the postage-paid envelope
provided. If you choose to vote via phone or internet, please refer to the
instructions found on the proxy card accompanying this Proxy
Statement/Prospectus. To vote by phone or internet, you will need the "control
number" that appears on the proxy card.
Q HOW DOES THE BOARD OF
TRUSTEES OF THE TARGET FUND SUGGEST I VOTE?
A After careful consideration,
the Board of Trustees of the Target Fund recommend that you vote "FOR" the
Reorganization Agreement as described in the Proxy Statement/Prospectus.
Q WHOM DO I CONTACT FOR
FURTHER INFORMATION?
A You can contact your
financial adviser for further information. You may also call Van Kampen's Client
Relations Department at (800) 341-2929 (Telecommunication Device for the Deaf
users may call (800) 421-2833) or visit our web site at www.vankampen.com where
you can send us an e-mail message by selecting "Contact Us."
ABOUT THE PROXY CARD
- --------------------------------------------------------------------------------
Please vote on the proposed Reorganization using blue or black ink to mark an X
in one of the boxes provided on the proxy card.
Approval of Reorganization -- mark "For," "Against" or "Abstain."
Sign, date and return the proxy card in the enclosed postage-paid envelope. All
registered owners of an account, as shown in the address, must sign the card.
When signing as attorney, trustee, executor, administrator, custodian, guardian
or corporate officer, please indicate your full title.
<Table>
[ ] PLEASE MARK
X VOTES AS IN
THIS EXAMPLE
</Table>
VAN KAMPEN XXXXX
SPECIAL MEETING OF SHAREHOLDERS
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<Table>
<Caption>
FOR AGAINST ABSTAIN
1. The proposal to [ ] [ ] [ ] 2. To transact such other business as may
approve the properly come before the Meeting.
Reorganization
----------------------------------
</Table>
Please be sure to sign and date this Proxy, Date
Shareholder sign here Co-owner sign here
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SAMPLE
VAN KAMPEN
INVESTMENT GRADE MUNICIPAL TRUST
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 341-2929
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
TO BE HELD ON JUNE 22, 2005
Notice is hereby given that a special meeting of shareholders (the "Special
Meeting") of Van Kampen Investment Grade Municipal Trust (the "Target Fund")
will be held at the offices of Van Kampen Investments Inc., 1 Parkview Plaza,
Oakbrook Terrace, Illinois 60181-5555 on June 22, 2005 at 10:30 a.m. for the
following purposes:
1. To approve an Agreement and Plan of Reorganization between the Target
Fund and Van Kampen Municipal Trust (the "Acquiring Fund"), the
termination of the Target Fund's registration under the Investment
Company Act of 1940, as amended, and the dissolution of the Target Fund
under applicable state law; and
2. To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
Shareholders of record as of the close of business on April 25, 2005 are
entitled to vote at the Special Meeting or any adjournment thereof.
THE BOARD OF TRUSTEES OF THE TARGET FUND REQUESTS THAT YOU VOTE YOUR SHARES BY
INDICATING YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATING AND
SIGNING SUCH PROXY CARD AND RETURNING IT IN THE ENVELOPE PROVIDED, WHICH IS
ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED
STATES, OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE
INTERNET.
THE BOARD OF TRUSTEES OF THE TARGET FUND RECOMMENDS THAT YOU CAST YOUR VOTE:
FOR THE REORGANIZATION OF THE TARGET FUND PURSUANT TO THE AGREEMENT AND
PLAN OF REORGANIZATION AS DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU MAIL YOUR PROXY CARD PROMPTLY OR RECORD YOUR VOTING INSTRUCTIONS BY
TELEPHONE OR VIA THE INTERNET.
For the Board of Trustees,
LOU ANNE MCINNIS
Assistant Secretary
Van Kampen Investment Grade Municipal
Trust
May 6, 2005
---------------------
YOUR VOTE IS IMPORTANT.
PLEASE VOTE PROMPTLY BY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD OR BY RECORDING YOUR VOTING INSTRUCTIONS
BY TELEPHONE OR VIA THE INTERNET NO MATTER HOW MANY SHARES YOU OWN.
The information in this Proxy Statement/Prospectus is not complete and may
be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This Proxy Statement/Prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 5, 2005
PROXY STATEMENT/PROSPECTUS
VAN KAMPEN
INVESTMENT GRADE MUNICIPAL TRUST
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 341-2929
SPECIAL MEETING OF SHAREHOLDERS
JUNE 22, 2005
This Proxy Statement/Prospectus is furnished to you as a shareholder of Van
Kampen Investment Grade Municipal Trust (the "Target Fund"). A special meeting
of shareholders of the Target Fund (the "Special Meeting") will be held at the
offices of Van Kampen Investments Inc., 1 Parkview Plaza, Oakbrook Terrace,
Illinois 60181-5555 on June 22, 2005 at 10:30 a.m. to consider the items listed
below and discussed in greater detail elsewhere in this Proxy
Statement/Prospectus. If you are unable to attend the Special Meeting or any
adjournment thereof, the Board of Trustees of the Target Fund requests that you
vote your shares by completing and returning the enclosed proxy card or by
recording your voting instructions by telephone or via the internet. The
approximate mailing date of this Proxy Statement/Prospectus and accompanying
form of proxy is May 10, 2005.
The purposes of the Special Meeting are:
1. To approve an Agreement and Plan of Reorganization between the Target
Fund and Van Kampen Municipal Trust (the "Acquiring Fund"), the
termination of the Target Fund under the Investment Company Act of 1940,
as amended (the "1940 Act"), and the dissolution of the Target Fund under
applicable state law; and
2. To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
The Target Fund and the Acquiring Fund are sometimes referred to herein each
as a "Fund" and collectively as the "Funds". The Reorganization Agreement that
Target Fund shareholders are being asked to consider involves a transaction that
will be referred to in this Proxy Statement/Prospectus as the "Reorganization."
The Reorganization seeks to combine two similar funds to achieve certain
economies of scale and other operational efficiencies. Each Fund pursues the
same investment objective to seek to provide a high level of current income
exempt from
federal income tax consistent with preservation of capital. Each Fund invests
primarily in investment grade municipal securities.
In the Reorganization, the Acquiring Fund will acquire substantially all of
the assets and assume substantially all of the liabilities of the Target Fund in
exchange for an equal aggregate value of newly-issued common shares of
beneficial interest of the Acquiring Fund, par value $0.01 per share ("Acquiring
Fund Common Shares"), and newly-issued Series E auction preferred shares of the
Acquiring Fund with a par value of $0.01 per share and a liquidation preference
of $25,000 per share ("Acquiring Fund APS"). The Target Fund will distribute
Acquiring Fund Common Shares to holders of common shares of the Target Fund
("Target Fund Common Shares") and Acquiring Fund APS to holders of Remarketed
Preferred Shares of the Target Fund ("Target Fund RP"), and will then terminate
its registration under the 1940 Act, and dissolve under applicable state law.
The aggregate net asset value of Acquiring Fund Common Shares received in the
Reorganization will equal the aggregate net asset value of the Target Fund
Common Shares held immediately prior to the Reorganization less the costs of the
Reorganization (though holders of Target Fund Common Shares may receive cash for
their fractional shares). The aggregate liquidation preference of the Acquiring
Fund APS received in the Reorganization will equal the aggregate liquidation
preference of the Target Fund RP held immediately prior to the Reorganization.
The Acquiring Fund will continue to operate after the Reorganization as a
registered closed-end investment company with the investment objective and
policies described in this Proxy Statement/Prospectus. Acquiring Fund APS and
Target Fund RP are sometimes referred to herein collectively as "Preferred
Shares".
In the event that Target Fund shareholders do not approve the Reorganization,
the Target Fund will continue to exist and the Board of Trustees of the Target
Fund will consider what additional action, if any, to take.
This Proxy Statement/Prospectus sets forth concisely the information
shareholders of the Target Fund should know before voting on the Agreement and
Plan of Reorganization and constitutes an offering of Acquiring Fund Common
Shares and Acquiring Fund APS. Please read it carefully and retain it for future
reference. A Statement of Additional Information, dated May 6, 2005, relating to
this Proxy Statement/Prospectus (the "Reorganization Statement of Additional
Information") has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated herein by reference. If you wish to request the
Reorganization Statement of Additional Information, please ask for the
"Reorganization Statement of Additional Information." Copies of each Fund's most
recent annual report and semi-annual report can be obtained on a web site
maintained by Van Kampen Investments Inc. at www.vankampen.com. In addition,
each Fund will furnish, without charge, a copy of the Reorganization Statement
of Additional Information,
2
its most recent annual report and any more recent semi-annual report to any
shareholder upon request. Any such request should be directed to the Van Kampen
Client Relations Department by calling (800) 341-2929 (TDD users may call (800)
421-2833) or by writing to the respective Fund at 1 Parkview Plaza, P.O. Box
5555, Oakbrook Terrace, Illinois 60181-5555. The address of the principal
executive offices of the Funds is 1221 Avenue of the Americas, New York, New
York 10020, and the telephone number is (800) 341-2929.
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, file reports,
proxy statements, proxy material and other information with the SEC. Materials
filed with the SEC can be reviewed and copied at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549 or downloaded from the SEC's
web site at www.sec.gov. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at (202) 942-8090. You can
also request copies of these materials, upon payment at the prescribed rates of
a duplicating fee, by electronic request to the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, Washington, DC, 20549-0102.
The Acquiring Fund Common Shares are listed on the New York Stock Exchange
(the "NYSE") and the Chicago Stock Exchange (the "CHX") under the ticker symbol
"VKQ" and will continue to be so listed subsequent to the Reorganization. The
common shares of the Target Fund are listed on the NYSE and the CHX under the
ticker symbol "VIG." Reports, proxy statements and other information concerning
the Funds may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
This Proxy Statement/Prospectus serves as a prospectus of the Acquiring Fund
in connection with the issuance of the Acquiring Fund Common Shares and the
Acquiring Fund APS in the Reorganization. No person has been authorized to give
any information or make any representation not contained in this Proxy
Statement/ Prospectus and, if so given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities in any jurisdiction in which, or to any person to
whom, it is unlawful to make such offer or solicitation.
The Board of Trustees of the Target Fund knows of no business other than that
discussed above that will be presented for consideration at the Special Meeting.
If any other matter is properly presented, it is the intention of the persons
named in the enclosed proxy to vote in accordance with their best judgment.
---------------------
3
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is May 6, 2005.
4
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY..................................................... 6
The Proposed Reorganization............................... 6
Background and Reasons for the Proposed Reorganization.... 6
Expenses.................................................. 7
Further Information Regarding the Reorganization.......... 10
RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 11
Market Risk............................................... 11
Interest Rate Risk........................................ 12
Credit Risk............................................... 12
Income Risk............................................... 13
Nonpayment Risk........................................... 13
Call Risk................................................. 13
Municipal Securities Risk................................. 13
Risks of Using Strategic Transactions..................... 13
Manager Risk.............................................. 14
Market Discount Risk...................................... 14
Leverage Risk............................................. 14
Anti-Takeover Provisions.................................. 16
Special Risks Related to Preferred Shares................. 16
COMPARISON OF THE FUNDS..................................... 18
Investment Objective and Policies......................... 18
Other Investment Practices and Policies................... 22
Investment Restrictions................................... 30
Management of the Funds................................... 34
Other Service Providers................................... 38
Capitalization............................................ 38
Additional Information about Common Shares of the Funds... 40
Additional Information about Preferred Shares of the
Funds................................................... 43
Governing Law............................................. 50
Certain Provisions of the Declarations of Trust........... 50
Conversion to Open-End Fund............................... 52
Voting Rights............................................. 52
Financial Highlights...................................... 54
INFORMATION ABOUT THE REORGANIZATION........................ 56
General................................................... 56
Terms of the Agreement and Plan of Reorganization......... 58
Expenses of the Reorganization............................ 59
Material U.S. Federal Income Tax Consequences of the
Reorganization.......................................... 60
Shareholder Approval...................................... 62
OTHER INFORMATION........................................... 63
Voting Information and Requirements....................... 63
Shareholder Information................................... 64
Section 16(a) Beneficial Ownership Reporting Compliance... 65
Shareholder Proposals.....................................
Solicitation of Proxies................................... 65
Legal Matters............................................. 66
Other Matters to Come Before the Meeting.................. 66
EXHIBIT I: DESCRIPTION OF SECURITIES RATINGS................ I-1
</Table>
5
------------------------------------------------------------------------------
SUMMARY
------------------------------------------------------------------------------
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus and is qualified in its entirety by reference to the
more complete information contained in this Proxy Statement/Prospectus and in
the Reorganization Statement of Additional Information. Shareholders should read
the entire Proxy Statement/Prospectus carefully.
THE PROPOSED REORGANIZATION
The Board of Trustees of the Target Fund, including the trustees who are not
"interested persons" of the Target Fund (as defined in the 1940 Act), has
unanimously approved the Agreement and Plan of Reorganization. If the
shareholders of the Target Fund approve the Agreement and Plan of
Reorganization, Acquiring Fund Common Shares and Series E Acquiring Fund APS
will be issued to holders of Target Fund Common Shares and Target Fund RP,
respectively, in exchange for substantially all of the assets of the Target Fund
and the assumption of substantially all of the liabilities of the Target Fund.
The Target Fund will then terminate its registration under the 1940 Act and
dissolve under applicable state law. The aggregate net asset value of Acquiring
Fund Common Shares received in the Reorganization will equal the aggregate net
asset value of Target Fund Common Shares held immediately prior to the
Reorganization less the costs of the Reorganization (though holders of Target
Fund Common Shares may receive cash for their fractional shares). The aggregate
liquidation preference of Acquiring Fund APS received in the Reorganization will
equal the aggregate liquidation preference of Target Fund RP held immediately
prior to the Reorganization.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
The Reorganization seeks to combine two similar Funds to achieve certain
economies of scale and other operational efficiencies. Each Fund is registered
as a diversified closed-end management investment company under the 1940 Act.
Each Fund invests primarily in investment grade municipal securities. The
investment objective of each Fund is to seek to provide a high level of current
income exempt from federal income tax, consistent with preservation of capital.
The Acquiring Fund invests at least 80% of its total assets in municipal
securities rated investment grade at the time of investment. The Target Fund
invests at least 80% of its total assets in tax-exempt municipal securities
rated investment grade at the time of investment. Each Fund may invest in
municipal securities subject to the alternative minimum tax provisions of
federal tax law. The Funds are managed by the same investment advisory
personnel.
The proposed Reorganization will combine the assets of these similar Funds by
reorganizing the Target Fund into the Acquiring Fund. The Board of Trustees of
6
the Target Fund (the "Target Fund Board"), based upon its evaluation of all
relevant information, anticipates that the Reorganization will benefit holders
of Target Fund Common Shares. In particular, the Target Fund Board believes,
based on data presented by Van Kampen Asset Management, investment adviser to
each of the Funds (the "Adviser"), that holders of Target Fund Common Shares
will experience a reduced overall operating expense ratio as a result of the
Reorganization. The combined fund resulting from the Reorganization will have a
larger asset base than either of the Funds has currently; certain fixed
administrative costs, such as costs of printing shareholder reports and proxy
statements, legal expenses, audit fees, mailing costs and other expenses, will
be spread across this larger asset base, thereby lowering the expense ratio for
holders of Target Fund Common Shares.
EXPENSES
The table below illustrates the anticipated reduction in operating expenses
expected as a result of the Reorganization. The table sets forth (i) the fees,
expenses and distributions to preferred shareholders paid by the Target Fund for
the 12-month period ended October 31, 2004, (ii) the fees, expenses and
distributions to preferred shareholders paid by the Acquiring Fund for the
12-month period ended October 31, 2004 and (iii) the pro forma fees, expenses
and distributions to preferred shareholders for the Acquiring Fund for the
12-month period ended October 31, 2004, assuming the Reorganization had been
completed at the beginning of such period. As shown below, the Reorganization is
expected to result in decreased total annual expenses for shareholders of the
Target Fund (although such savings will not be immediately realized (see
footnote (c) to the table)).
7
FEE, EXPENSE AND DISTRIBUTIONS ON PREFERRED SHARES TABLE FOR COMMON SHAREHOLDERS
OF THE FUNDS
AS OF OCTOBER 31, 2004
<Table>
<Caption>
ACTUAL PRO FORMA
---------------------------------- ---------------
VAN KAMPEN
INVESTMENT GRADE VAN KAMPEN VAN KAMPEN
MUNICIPAL TRUST MUNICIPAL TRUST MUNICIPAL TRUST
---------------- --------------- ---------------
Common Shareholder Transaction
Expenses(a):
Maximum Sales Load (as a percentage
of offering price)(b)(c)......... None None None
Dividend Reinvestment Plan Fees.... None None None
Annual Expenses (as a percentage of
net assets attributable to Common
Shares):
Investment Advisory Fees(d)........ 0.82% 0.82% 0.82%
Interest Payments on Borrowed
Funds............................ 0% 0% 0%
Other Expenses..................... 0.61% 0.24% 0.24%
Total Annual Expenses(d)......... 1.43% 1.06% 1.06%
Distributions
Distributions on Preferred
Shares(e)........................ 0.56% 0.54% 0.54%
Total Annual Expenses and
Distributions on Preferred
Shares........................... 1.99% 1.60% 1.60%
</Table>
- ---------------
(a) No expense information is presented with respect to Preferred Shares because
holders of Preferred Shares do not bear any transaction or operating
expenses of either Fund and will not bear any of the Reorganization expenses
or any transaction or operating expenses of the combined fund.
(b) Common shares purchased in the secondary market may be subject to brokerage
commissions or other charges. No sales load will be charged on the issuance
of common shares in the Reorganization. Common shares are not available for
purchase from the Funds but may be purchased through a broker-dealer subject
to individually negotiated commission rates.
(c) In connection with the Reorganization, there are certain other transaction
expenses which include, but are not limited to: all costs related to the
preparation, printing and distributing of this Proxy Statement/Prospectus to
shareholders; costs related to preparation and distribution of materials
distributed to each Fund's Board; all expenses incurred in connection with
the preparation of the Agreement and Plan of Reorganization and registration
statement on Form N-14; SEC and state securities commission filing fees;
legal and audit fees; portfolio transfer taxes (if any); and any similar
expenses incurred in connection with the Reorganization. In accordance with
applicable
8
SEC rules, the Board of Trustees of each Fund reviewed the fees and expenses
that will be borne directly or indirectly by the Funds in connection with
the Reorganization. After considering various alternatives for allocating
these costs, the Board of Trustees of each Fund agreed that, in the event
the Reorganization is approved and completed, the expenses of the
Reorganization will be shared by the Target Fund and the Acquiring Fund in
proportion to their projected declines in total annual operating expenses as
a result of the Reorganization. The table below summarizes each Fund's net
assets (common shares only) at October 31, 2004, projected annual savings to
the Target Fund as a result of the Reorganization, allocation of
Reorganization expenses among the Funds in dollars and percentages, an
estimated pay-back period (in years) and the resulting effect on each Fund's
net asset value per common share at October 31, 2004. The Target Fund will
benefit more from projected annual expense savings of the Reorganization
than the Acquiring Fund. The projected annual expense savings are generally
not expected to be immediately realized. The Target Fund is projected to
benefit much sooner than the Acquiring Fund whose projected annual expenses
are not expected to change as a result of the Reorganization. If a Target
Fund shareholder sells his or her common shares prior to the estimated
pay-back period, then that shareholder may not realize any of the projected
expense savings resulting from the reduced expense ratio of the combined
fund. The net asset value per common share of the Target Fund will be
reduced at the closing date of the Reorganization to reflect the allocation
of Reorganization expenses to such Fund. The reduction in net asset value
per common share resulting from the allocation of Reorganization expenses,
when compared to the relative net asset sizes of the Funds involved in the
Reorganization, will be greater in the Target Fund than in the Acquiring
Fund. In the event the Reorganization is not completed, the Adviser will
bear the costs associated with the Reorganization. The numbers presented in
the table are estimates; actual results may differ.
<Table>
<Caption>
EFFECT ON
ESTIMATED NET ASSET
NET ASSETS PROJECTED REORGANIZATION PAYBACK VALUE PER
(COMMON ANNUAL EXPENSE ALLOCATION IN PERIOD COMMON
FUND SHARES ONLY) SAVINGS DOLLARS/PERCENTAGE (IN YEARS) SHARE
---- ------------ --------- --------------------- ---------- ---------
VIG.................. $ 50,148,362 $185,549 $248,000/100% 1.34 0.05
VKQ.................. 603,633,334 0 0/0% 0 0
Total Expenses..... 248,000/100%
</Table>
(d) Expense information has been restated to reflect permanent reductions made
to administrative fees for the Acquiring Fund effective as of June 1, 2004
and permanent reductions made to management fees for the Funds effective as
of November 1, 2004.
(e) In seeking to enhance the income for its common shareholders, each of the
Funds uses preferred shares as financial leverage. Leverage created by
9
borrowing or other forms of indebtedness would create interest expenses
which would, if used by the Funds, be charged to common shareholders (shown
above as "Interest Payments on Borrowed Funds"). Leverage created by
preferred shares creates dividend payments and/or capital gains
distributions to preferred shareholders which are charged to common
shareholders (shown above as "Distributions on Preferred Shares"). The
dividend rates are based on periodic remarketings or auctions as described
herein and thus will differ based on varying market conditions at the times
of such remarketings or auctions.
EXAMPLE. The following example is intended to help you compare the costs of
investing in the Acquiring Fund pro forma after the Reorganization with the
costs of investing in the Target Fund and the Acquiring Fund without the
Reorganization. An investor would pay the following expenses on a $1,000
investment, assuming (1) the operating expense ratio for each Fund (as a
percentage of net assets attributable to common shares) set forth in the table
above and (2) a 5% annual return throughout the period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Van Kampen Investment Grade
Municipal Trust................... $ 15 $45 $78 $171
Van Kampen Municipal Trust.......... $ 11 $34 $58 $129
Pro Forma -- Van Kampen Municipal
Trust............................. $ 11 $34 $58 $129
</Table>
The example set forth above assumes common shares of each Fund were purchased
in the initial offerings and the reinvestment of all dividends and distributions
and uses a 5% annual rate of return as mandated by SEC regulations. The example
should not be considered a representation of past or future expenses or annual
rates of return. Actual expenses or annual rates of return may be more or less
than those assumed for purposes of the example.
FURTHER INFORMATION REGARDING THE REORGANIZATION
The Target Fund Board has determined that the Reorganization is in the best
interests of holders of Target Fund Common Shares and that the interests of such
shareholders will not be diluted as a result of the Reorganization. Similarly,
the Board of Trustees of the Acquiring Fund has determined that the
Reorganization is in the best interests of holders of Acquiring Fund Common
Shares and that the interests of such shareholders will not be diluted as a
result of the Reorganization. It is not anticipated that the Reorganization will
directly benefit the holders of Preferred Shares of either Fund; however, it is
anticipated that the holders of Preferred Shares of each Fund will not be
adversely affected by the Reorganization and the expenses of the Reorganization
will not be borne by the holders of Preferred Shares of either Fund. As a result
of the Reorganization, however, a shareholder of
10
either Fund will hold a reduced percentage of ownership in the larger combined
fund than he or she did in either of the separate Funds.
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code" or "Code"). If the Reorganization so qualifies, in
general, a shareholder of the Target Fund will recognize no gain or loss upon
the receipt solely of shares of the Acquiring Fund in connection with the
Reorganization. Additionally, the Target Fund will recognize no gain or loss as
a result of the transfer of all of its assets and liabilities solely in exchange
for the shares of the Acquiring Fund or as a result of its dissolution. Neither
the Acquiring Fund nor its shareholders will recognize any gain or loss in
connection with the Reorganization.
The Target Fund Board requests that shareholders of the Target Fund approve
the proposed Reorganization at the Special Meeting to be held on June 22, 2005.
Shareholder approval of the Reorganization requires the affirmative vote of
shareholders of the Target Fund representing more than 50% of the Target Fund
Common Shares and Target Fund RP outstanding and entitled to vote, each voting
separately as a class. If shareholders of the Target Fund approve the
Reorganization, it is expected that the closing date of the transaction (the
"Closing Date") will be after the close of business on or about June 30, 2005,
but it may be at a different time as described herein.
The Target Fund Board recommends that you vote "FOR" the proposed
Reorganization.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Because each Fund, under normal market conditions, invests at least 80% of its
total assets in investment grade municipal securities, any risks inherent in
such investments are equally applicable to both Funds and will apply to the
combined fund after the Reorganization. The Reorganization is not expected to
adversely affect the rights of holders of common shares or Preferred Shares of
either Fund or to create additional risks.
MARKET RISK
Market risk is the possibility that the market values of securities owned by
each Fund will decline. The prices of debt securities tend to fall as interest
rates rise, and such declines tend to be greater among debt securities with
longer maturities. Market risk is often greater among certain types of debt
securities, such as zero coupon bonds which do not make regular interest
payments but are instead bought at a discount to their face values and paid in
full upon maturity. As interest rates change, these securities often fluctuate
more in price than securities that make regular interest payments and therefore
subject the Funds to greater market risk
11
than a fund that does not own these types of securities. When-issued and delayed
delivery transactions are subject to changes in market conditions from the time
of the commitment until settlement. This may adversely affect the prices or
yields of the securities being purchased. The greater the Funds' outstanding
commitments for these securities, the greater the Funds' exposure to market
price fluctuations.
INTEREST RATE RISK
Interest rate risk is the risk that prices of municipal securities generally
increase when interest rates decline and decrease when interest rates increase.
Prices of longer-term securities generally change more in response to interest
rate changes than prices of shorter-term securities.
CREDIT RISK
Credit risk refers to an issuer's ability to make timely payments of interest
and principal. The degree of credit risk depends on both the financial condition
of the issuer and the terms of the obligation. The Acquiring Fund invests at
least 80% of total assets in municipal bonds that are rated investment grade by
("S&P") or Moody's Investors Service Inc. ("Moody's") or comparably rated by
another nationally recognized statistical rating organization. The Target Fund
invests at least 80% of total assets in tax-exempt municipal bonds that are
rated investment grade by S&P or Moody's or comparably rated by another
nationally recognized statistical rating organization. Each Fund may invest up
to 20% of its assets in securities rated below investment grade (but not rated
lower than B- by S&P or B3 by Moody's) or unrated securities considered by such
Fund's investment adviser to be of comparable quality. Therefore, the Funds are
subject to a higher level of credit risk than a fund that invests solely in
investment grade securities. Securities rated BBB by S&P or Baa by Moody's are
in the lowest of the four investment grades and are considered by the rating
agencies to be medium-grade obligations which possess speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity of the issuer to make principal
and interest payments than in the case of higher-rated securities. The credit
quality of non-investment 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 Funds may incur
higher expenditures to protect the Funds' interests 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
higher-grade securities.
12
INCOME RISK
The income shareholders receive from a Fund is based primarily on interest
rates of securities in that Fund's portfolio, which can vary widely over the
short- and long-term. If interest rates drop, your income from such Fund may
drop as well.
NONPAYMENT RISK
Although the Funds invest at least 80% of their respective total assets in
municipal securities that are rated investment grade at the time of investment,
municipal securities, like other debt obligations, are subject to the risk of
nonpayment. The ability of issuers of municipal securities to make timely
payments of interest and principal may be adversely impacted in general economic
downturns and as relative governmental cost burdens are allocated and
reallocated among federal, state and local governmental units. Such nonpayment
would result in a reduction of income to a Fund and could result in a reduction
in the value of the municipal security experiencing nonpayment and a potential
decrease in the net asset value of a Fund.
CALL RISK
If interest rates fall, it is possible that issuers of 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 Funds in securities bearing the new, lower interest rates,
resulting in a possible decline in the Funds' income and distributions to
shareholders.
MUNICIPAL SECURITIES RISK
Under normal market conditions, the Funds invest primarily in municipal
securities. The yields of municipal securities may move differently and
adversely compared to the yields of overall debt securities markets. Although
the interest received from municipal securities generally is exempt from federal
income tax, each Fund may invest all or a substantial portion of its total
assets in municipal securities that pay interest subject to the 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 generally applicable to interest received on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities.
RISKS OF USING STRATEGIC TRANSACTIONS
Each Fund may engage in certain transactions ("Strategic Transactions")
designed to, among other things, reduce its exposure to interest rate movements.
For example, each Fund may purchase and sell exchange-listed and over-the-
counter put and call options on securities, financial futures and other
financial
13
instruments, purchase and sell financial futures contracts and enter into
various interest rate transactions such as swaps, caps, floors or collars. If a
Fund incorrectly forecasts market values, interest rates or other factors, that
Fund's performance could suffer as a result of its Strategic Transactions. Each
Fund also may suffer a loss if the other party to the Strategic Transaction
fails to meet its obligations. The Funds are not required to use Strategic
Transactions and may choose not to do so.
MANAGER RISK
As with any managed fund, the investment adviser to each Fund may not be
successful in selecting the best-performing securities or investment techniques,
and a Funds' performance may lag behind that of similar funds.
MARKET DISCOUNT RISK
Whether investors will realize gains or losses upon the sale of shares of a
Fund will depend upon the market price of the shares at the time of original
purchase and subsequent sale, which may be less or more than such Fund's net
asset value per share. Since the market price of the shares will be affected by
such factors as the relative demand for and supply of the shares in the market,
general market and economic conditions and other factors beyond the control of
the Funds, the Funds cannot predict whether shares of the Funds will trade at,
below or above net asset value. Shares of closed-end funds often trade at a
discount to their net asset values, and the Funds' shares may trade at such a
discount.
In order to reduce or eliminate a market value discount from net asset value,
the Board of Trustees of a Fund may, subject to the terms of its preferred
shares, authorize such Fund from time to time to repurchase its common shares in
the open market or to tender for its common shares at net asset value. The Board
of Trustees of a Fund, in consultation with the Adviser, will review on a
quarterly basis the possibility of open-market repurchases and/or tender offers
for such Fund's common shares. Subject to its borrowing restrictions, a Fund may
incur debt to finance such repurchases, which entails risks. The ability of a
Fund to enter into tender offers and the common share repurchases may be limited
by the 1940 Act asset coverage requirements and any additional asset coverage
requirements which may be imposed by a rating agency in connection with any
rating of the preferred shares. No assurance can be given that the Board of
Trustees of a Fund will, in fact, authorize such Fund to undertake such
repurchases and/or tender offers or that, if undertaken, such actions would
result in such Fund's common shares trading at a price which is equal or close
to net asset value.
LEVERAGE RISK
Use of leverage, through the issuance of Preferred Shares, involves certain
risks to holders of common shares of the Funds. For example, each Fund's
issuance of
14
Preferred Shares may result in higher volatility of the net asset value of its
common shares and potentially more volatility in the market value of its common
shares. In addition, changes in the short-term and medium-term dividend rates
on, and the amount of taxable income allocable to, the Preferred Shares of a
Fund will affect the yield to holders of common shares of such Fund. In certain
circumstances, when a Fund is required to allocate taxable income to holders of
its Preferred Shares, such Fund may be required to make an additional
distribution to such holders in an amount approximately equal to the tax
liability resulting from the allocation (an "Additional Dividend"). Leverage
will allow holders of each Fund's common shares to realize a higher current rate
of return than if such Fund were not leveraged as long as each Fund, while
accounting for its costs and operating expenses, is able to realize a higher net
return on its investment portfolio than the then-current dividend rate (and any
Additional Dividend) paid on its Preferred Shares. Similarly, since a pro rata
portion of the Acquiring Fund's net realized capital gains is generally payable
to holders of Acquiring Fund Common Shares, the use of leverage will increase
the amount of such gains distributed to holders of Acquiring Fund Common Shares.
However, short-term, medium-term and long-term interest rates change from time
to time as do their relationships to each other (i.e., the slope of the yield
curve) depending upon such factors as supply and demand forces, monetary and tax
policies and investor expectations. Changes in any or all of such factors could
cause the relationship between short-term, medium-term and long-term rates to
change (i.e., to flatten or to invert the slope of the yield curve) so that
short-term and medium-term rates may substantially increase relative to the
long-term obligations in which each Fund may be invested. To the extent that the
current dividend rate (and any Additional Dividend) on a Fund's Preferred Shares
approaches the net return on such Fund's investment portfolio, the benefit of
leverage to holders of common shares of such Fund will be decreased. If the
current dividend rate (and any Additional Dividend) on the Preferred Shares of a
Fund were to exceed the net return on such Fund's portfolio, holders of common
shares of such Fund would receive a lower rate of return than if the Fund were
not leveraged. Similarly, since both the costs of issuing Preferred Shares and
any decline in the value of a Fund's investments (including investments
purchased with the proceeds from any Preferred Shares offering) will be borne
entirely by holders of such Fund's common shares, the effect of leverage in a
declining market would result in a greater decrease in net asset value to
holders of common shares than if such Fund were not leveraged. If a Fund is
liquidated, holders of such Fund's Preferred Shares will be entitled to receive
liquidating distributions before any distribution is made to holders of common
shares of such Fund.
In an extreme case, a decline in net asset value could affect a Fund's ability
to pay dividends on its common shares. Failure to make such dividend payments
could adversely affect a Fund's qualification as a regulated investment company
under the federal tax laws. However, each Fund intends to take all measures
necessary to
15
make required Common Share dividend payments. If a Fund's current investment
income is ever insufficient to meet dividend payments on either its common
shares or its Preferred Shares, such Fund may have to liquidate certain of its
investments. In addition, each Fund has the authority to redeem its Preferred
Shares for any reason and may be required to redeem all or part of its Preferred
Shares in the following circumstances:
- if the asset coverage for the Preferred Shares declines below 200%, either
as a result of a decline in the value of a Fund's portfolio investments or
as a result of the repurchase of common shares in tender offers or
otherwise, or
- in order to maintain the asset coverage guidelines established by Moody's
and S&P in rating the Preferred Shares.
In addition, in the case of Target Fund RP, if on any dividend date the Target
Fund fails to generate sufficient available net tax-exempt income to pay accrued
and unpaid dividends on the RP out of solely tax-exempt income at the applicable
dividend rate, the Target Fund will be required to redeem all or part of its
Target Fund RP.
Redemption of the Preferred Shares or insufficient investment income to make
dividend payments, may reduce the net asset value of a Fund's common shares and
require a Fund to liquidate a portion of its investments at a time when it may
be disadvantageous to do so.
ANTI-TAKEOVER PROVISIONS
The Declaration of Trust of each Fund (in each case, the "Declaration of
Trust") includes provisions that could limit the ability of other entities or
persons to acquire control of that Fund or to change the composition of its
Board of Trustees. Such provisions could limit the ability of common
shareholders to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of either Fund.
SPECIAL RISKS RELATED TO PREFERRED SHARES
AUCTION/REMARKETING RISK. The dividend rate for the Acquiring Fund APS
normally is set through an auction process. In the auction, preferred
shareholders may indicate the dividend rate at which they would be willing to
hold or sell their shares or purchase additional shares. An auction fails if
there are more Acquiring Fund APS offered for sale than there are buyers, in
which case preferred shareholders may not be able to sell their Acquiring Fund
APS. Also, if preferred shareholders place bids to retain shares at an auction
only at a specified dividend rate and that rate exceeds the rate set at the
auction, they will not retain their shares. Additionally, if preferred
shareholders buy shares or elect to retain shares without specifying a dividend
rate below which they would not wish to buy or continue to
16
hold those Acquiring Fund APS, they could receive a lower rate of return on
their shares than the market rate. Finally, the dividend period for the
Acquiring Fund APS may be changed by the Acquiring Fund, subject to certain
conditions, including notice to preferred shareholders, which could also affect
the liquidity of an investment in Acquiring Fund APS.
The dividend rate on the Target Fund RP is set using a remarketing process,
which has separate risks. There can be no assurance that the remarketing agent
will be able to remarket all shares of Target Fund RP tendered in a remarketing.
If any shares of Target Fund RP tendered in a remarketing are not remarketed, a
holder of such shares may be required to hold some or all of its shares at least
until the end of the next dividend period or to sell its shares outside a
remarketing. In such case, the remarketing procedures may require an allocation
of shares of Target Fund RP on a pro rata basis to the extent practicable, or by
lot, as determined by the remarketing agent in its sole discretion, which may
result in a holder's selling a number of shares of Target Fund RP that is less
than the number of shares of Target Fund RP specified in such holder's tender
order. Additionally, while a holder or prospective purchaser of Target Fund RP
may indicate to the remarketing agent its dividend rate preferences, any such
notice given to the remarketing agent to tender or hold shares for a particular
dividend period is irrevocable and may not be conditioned upon the level at
which applicable dividend rates are set. Therefore, the actual applicable
dividend rate for such dividend period may be greater than or less than the rate
indicated and will not be determined until after a holder is required to elect
to hold or tender its shares.
SECONDARY MARKET RISK. Broker-dealers may maintain a secondary trading market
in the Preferred Shares outside of auctions or remarketings, as applicable;
however, they are not obligated to do so and there can be no assurance that such
a secondary market will develop or, if it does develop, that it will provide
preferred shareholders with a liquid trading market. It may not be possible to
sell Preferred Shares between auctions or remarketings, as applicable, or it may
only be possible to sell them for a price less than their liquidation preference
plus any accumulated dividends. An increase in the level of interest rates
likely will have an adverse effect on the secondary market price of the
Preferred Shares. Preferred Shares may only be transferred outside of auctions
or remarketings to or through broker-dealers or other persons as a Fund permits.
RATINGS AND ASSET COVERAGE RISKS. Although the Preferred Shares of each Fund
have been rated "Aaa" by Moody's and "AAA" by S&P, such ratings do not eliminate
or necessarily mitigate the risks of investing in Preferred Shares. Moody's or
S&P could downgrade its rating of the Preferred Shares or withdraw its rating at
any time, which may make the Preferred Shares less liquid at an auction or
remarketing, as applicable, or in the secondary market. If a Fund fails to
satisfy its asset coverage ratios, it will be required to redeem a sufficient
number of Preferred Shares in order to return to compliance with the asset
coverage ratios. A Fund may
17
voluntarily redeem Preferred Shares under certain circumstances in order to meet
asset coverage tests.
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVE AND POLICIES
The Funds have the same investment objective and similar investment policies.
Each Fund's investment objective is to provide common shareholders with a high
level of current income exempt from federal income tax, consistent with
preservation of capital.
Each Fund intends to achieve its objective primarily by investing in a
diversified portfolio of municipal securities which the investment adviser
believes does not involve undue risk to income or principal. Under normal market
conditions, the Acquiring Fund will invest at least 80% of its total assets in
municipal securities rated at least investment grade at the time of investment.
Up to 20% of the Acquiring Fund's total assets may be invested in unrated
municipal securities believed, at the time of investment, by the Adviser to have
credit characteristics equivalent to, and to be comparable quality as, municipal
securities that are rated investment grade. The Target Fund will invest at least
80% of its total assets in tax-exempt municipal securities rated investment
grade at the time of investment. Investment grade securities are rated BBB or
higher by S&P or Baa or higher by Moody's in the case of long-term obligations,
and have equivalent ratings in the case of short-term obligations. Securities
rated BBB by S&P are regarded by S&P as having an adequate capacity to pay
interest and repay principal; whereas such securities normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely, in the opinion of S&P, to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. Securities rated Baa by Moody's are considered by Moody's as medium
grade obligations; they are neither highly protected nor poorly secured;
interest payments and principal security appear to Moody's to be adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; in the opinion of
Moody's, they lack outstanding investment characteristics and in fact have
speculative characteristics as well. Up to 20% of each Fund's total assets may
be invested in securities rated between BB+ and B- (inclusive) by S&P or between
Ba and B3 (inclusive) by Moody's (or equivalently rated short-term obligations)
and unrated securities that the Adviser believes are of comparable quality. With
respect to such 20% of a Fund's total assets, neither Fund has established any
limit on the percentage of its portfolio which may be invested in securities in
any one rating category. Each Fund may be more dependent upon the Adviser's
investment analysis of unrated securities than is the case with respect to rated
securities.
18
The foregoing policies with respect to credit quality of portfolio investments
apply only at the time of purchase of a security, and the Funds are not required
to dispose of a security in the event that S&P or Moody's (or any other
nationally recognized statistical rating organization) downgrades its assessment
of the credit characteristics of a particular issuer or, in the case of unrated
securities, in the event the Adviser reassesses its view with respect to the
credit quality of the issuer thereof. In determining whether a Fund will retain
or sell such a security, the Adviser may consider such factors as the Adviser's
assessment of the credit quality of the issuer of such security, the price at
which such security could be sold and the rating, if any, assigned to such
security by other nationally recognized statistical rating organizations.
MUNICIPAL SECURITIES. Municipal securities are obligations issued by or on
behalf of states, certain territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is, in the opinion of bond counsel or
other counsel to the issuer of such securities, at the time of issuance, not
includable in gross income for regular federal income tax purposes. It is a
fundamental policy for the Target Fund that at least 80% of the Target Fund's
assets be invested in tax-exempt municipal securities and for the Acquiring Fund
that under normal market conditions, at least 80% of the Acquiring Fund's total
assets be invested in municipal securities. Subject to the limitations set forth
in this Proxy Statement/Prospectus, the Funds may engage in certain hedging
transactions and may purchase and sell put and call options on municipal
securities and on indices of municipal securities. Such transactions will not be
treated as investments in tax-exempt securities or in municipal securities for
the purpose of the Funds' respective 80% test. The Funds have not established
any limit on the percentage of their respective portfolios that may be invested
in municipal securities that pay interest subject to the alternative minimum tax
provisions of federal tax law, and a substantial portion of the income produced
by a Fund may be taxable under the federal alternative minimum tax.
Municipal securities include long-term obligations, often called municipal
bonds, as well as short-term municipal notes, participation certificates,
municipal leases and tax-exempt commercial paper. During ordinary market
conditions, longer-term municipal securities generally provide a higher yield
than short-term municipal securities of similar credit quality and therefore the
Funds generally expect primarily to invest and hold until maturity longer-term
municipal securities. The Funds may, however, invest in short-term municipal
securities when yields are greater than yields available on long-term municipal
securities, to stabilize net asset value and for temporary defensive purposes.
The two principal classifications of municipal bonds are "general obligation"
bonds and "revenue" or "special obligation" bonds, which include "industrial
revenue bonds." General obligation bonds are secured by the issuer's pledge of
its
19
faith, credit and taxing power for the payment of principal and interest, and
accordingly the capacity of the issuer of a general obligation bond as to the
timely payment of interest and the repayment of principal when due is affected
by the issuer's maintenance of its tax base. Revenue or special obligation bonds
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 tax or other
specific revenue source such as from the user of the facility being financed;
accordingly the timely payment of interest and, the repayment of principal in
accordance with the terms of the revenue or special obligation bond is a
function of the economic viability of such facility or such revenue source.
Although the ratings of S&P or Moody's of the municipal securities in the Funds'
portfolio are relative and subjective, and are not absolute standards of
quality, such ratings reflect the assessment of S&P or Moody's, as the case may
be, of the issuer's ability, or the economic viability of the special revenue
source, with respect to the timely payment of interest and the repayment of
principal in accordance with the terms of the obligation.
Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(collectively called "lease obligations") of municipal authorities or entities.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation ordinarily is backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. There is no limitation on the percentage of a Fund's assets
that may be invested in "non-appropriation" lease obligations.
Participation certificates are obligations 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. Some municipal leases and
participation certificates may not be readily marketable.
The "issuer" of municipal securities is generally deemed to be the
governmental agency, authority, instrumentality or other political subdivision,
or the non-governmental user of a revenue bond-financed facility, the assets and
revenues of which will be used to meet the payment obligations, or the guarantee
of such payment obligations, of the municipal securities.
Municipal securities may have fixed or variable interest rates. The Funds may
purchase floating and variable rate demand notes, which are municipal securities
20
normally having a stated maturity in excess of one year, but which permit the
holder to tender the notes for purchase at the principal amount thereof. 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 each time such rate is adjusted.
The interest rate demand note is adjusted at specified intervals. There
generally is no secondary market for these notes, although they may be tendered
for redemption at face value. Each such note purchased by the Funds will meet
the criteria established for the purchase of municipal securities.
There is no limitation as to the maturity of municipal securities in which
each Fund may invest. The Adviser may adjust the average maturity of each 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.
A Fund generally will not invest 25% or more of its total assets in any
industry, nor will either Fund generally invest more than 5% of its total assets
in the securities of any single issue. Governmental issuers of municipal
securities are not considered part of any "industry." However, municipal
securities backed only by the assets and revenues of nongovernmental users may
for this purpose be deemed to be issued by such nongovernmental users, and the
25% limitation would apply to such obligations. It is nonetheless possible that
a Fund may invest 25% or more of its total assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations or airport revenue
obligations if the Adviser determines that the yields available from obligations
in a particular segment of the market justify the additional risks associated
with a larger investment in such segment. Although such obligations could be
supported by the credit of governmental users or by the credit of
nongovernmental users engaged in a number of industries, economic, business,
political and other developments generally affecting the revenues of such users
(for example, proposed legislation or pending court decisions affecting the
financing of such projects and market factors affecting the demand for their
services or products) may have a general adverse effect on all municipal
securities in such a market segment. Additionally, each Fund reserves the right
to invest 25% or more of its assets in industrial development bonds or in
issuers located in the same state, although neither Fund has a present intention
to invest 25% or more of its total assets in issuers located in the same state.
TEMPORARY DEFENSIVE STRATEGIES. At times, the Adviser may judge that
conditions in the markets for tax-exempt municipal securities make pursuing a
Fund's basic investment strategy inconsistent with the best interests of its
shareholders. At such times, the Adviser may use alternative strategies,
primarily designed to reduce fluctuations in the value of such Fund's assets. In
implementing these "defensive" strategies, a Fund may invest to a substantial
degree in high-quality, short-term
21
municipal obligations. If these high-quality, short-term municipal obligations
are not available or, in the Adviser's judgment, do not afford sufficient
protection against adverse market conditions, a Fund may invest in taxable
obligations. Such taxable obligations may include: obligations of the U.S.
Government, its agencies or instrumentalities; other debt securities rated
within the four highest grades by either S&P or Moody's; commercial paper rated
in the highest grade by either rating service; certificates of deposit and
bankers' acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Adviser considers
consistent with such strategy. Further, each Fund may generally invest up to 20%
of its total assets in taxable obligations if such investment is determined by
the Adviser to be in the best interest of such Fund, provided, however, that the
Target Fund will not invest in taxable obligations rated below B- by S&P or
below B by Moody's or in taxable obligations regarded as comparable in quality
to such rated securities by the Adviser and the Acquiring Fund will not invest
in taxable obligations rated below Baa by Moody's or below BBB by S&P, or in
non-rated taxable obligations regarded as comparable in quality to such rated
securities by the Adviser. To the extent that the use of certain of these
strategies produces taxable income to the Target Fund, this taxable income will
be distributed exclusively to the holders of Target Fund Common Shares. To the
extent that the use of certain of these strategies produces taxable income to
the Acquiring Fund, this taxable income will be distributed on a pro rata basis
among the Acquiring Fund APS and the Acquiring Fund Common Shares. It is
impossible to predict whether, or for how long, a Fund will use any such
defensive strategies. Further, the yields on such securities may approach or be
less than the then current dividend rate payable to preferred shareholders. In
such event, the benefit of leverage to the common shareholders will diminish and
such Fund's leveraged capital structure may work to the disadvantage of the
common shareholders.
OTHER INVESTMENT PRACTICES AND POLICIES
In connection with the investment objective and policies described above, each
Fund may, but is not required to, utilize various other investment strategies as
described below to earn income, to facilitate portfolio management and to
mitigate risk. Such strategies are generally accepted by modern portfolio
managers and are regularly utilized by many investment companies and other
institutional investors. These investment practices entail risks. Although the
Adviser believes that these investment practices may further the Funds'
respective investment objectives, no assurance can be given that these
investment practices will achieve this result.
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 general, each Fund may purchase and sell (write)
options on up to 20% of its assets. In addition, many
22
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, a
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 that 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. A Fund's purchase of a call option on a security, financial future
contract, index or other instrument might be intended to protect that 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. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A 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
23
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. Each
Fund will only enter into OTC options that have a buy-back provision permitting
that Fund to require the Counterparty to close the option at a formula price
within seven days. Each 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 a Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, that 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.
Each Fund will engage in OTC option transactions only with U.S. 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
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 nationally recognized statistical
rating organization ("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 a Fund, and portfolio securities "covering" the amount
of such 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
a Fund's limitation on illiquid securities, if any, described herein.
24
If a 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 that Fund's income. The sale of put options can also provide income.
Each 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 OTC markets and related futures contracts. All calls sold by a Fund
must be "covered" (i.e., a 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 a Fund will receive the
option premium to help protect it against loss, a call sold by a Fund exposes
that 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 that Fund to hold a security or instrument which it
might otherwise have sold. In the event of exercise of a call option sold by a
Fund with respect to securities not owned by that Fund, such Fund may be
required to acquire the underlying security at a disadvantageous price to
satisfy its obligation with respect to the call option.
Each 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.) In selling put options, there is a risk that a
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
FUTURES CONTRACTS. Each Fund may enter into financial futures contracts or
purchase or sell put and call options on futures contracts as a hedge against
anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures contracts generally are
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 a Fund, as purchaser, to take delivery
from the seller of 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 contracts and Eurodollar instruments, the net cash amount). The
sale of a futures contract creates a firm obligation by a 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.
25
Each Fund's use of financial futures contracts and options on futures
contracts 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 on a
futures contract requires a 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 contracts involves payment of a premium for the
option without any further obligation on the part of a Fund. If a 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 contracts
position just as it would for any position. Futures contracts and options on
futures contracts 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.
Each Fund will not enter into a futures contract or an option on a futures
contracts (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
such Fund's total assets (taken at current value); however, in the case of an
option that is in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. The segregation requirements
with respect to futures contracts and options thereon are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. Each 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
26
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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures contracts transactions
and multiple interest rate transactions and any combination of futures
contracts, 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 a
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
each Fund may enter are interest rate and index swaps and the purchase or sale
of related caps, floors and collars. Each 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 such Fund anticipates purchasing
at a later date. Each 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 such
Fund may be obligated to pay. Interest rate swaps involve the exchange by a 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.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate cash and/or liquid
securities to the extent that such Fund's 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 a Fund to pay
or deliver
27
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, a Fund must segregate cash and/or liquid securities in an amount
at least equal to the current amount of the obligation. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate. For example, a call option
written by a Fund will require that Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash and/or liquid securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by a Fund on an index will require that Fund to own portfolio securities which
correlate with the index or to segregate cash and/or liquid securities equal to
the excess of the index value over the exercise price on a current basis. A put
option written by a Fund requires that Fund to segregate cash and/or liquid
securities equal to the exercise price.
OTC options entered into by a 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 a Fund sells these
instruments it will only segregate an amount of cash and/or 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 a 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 a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, that Fund will segregate, until the option
expires or is closed out, cash and/or liquid securities equal in value to such
excess. OCC issued and exchange listed options sold by a Fund other than those
above generally settle with physical delivery, and that Fund will segregate an
amount of cash and/or 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 on a futures contract, a Fund
must deposit initial margin and possible daily variation margin in addition to
segregating cash and/or 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, each 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 and/or liquid securities having
a value equal to the accrued excess. Caps, floors and collars require
segregation of cash and/or liquid securities with a value equal to a Fund's net
obligation, if any.
28
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each Fund also may enter into offsetting
transactions so that its combined position, coupled with any segregated cash
and/or liquid securities, equals its net outstanding obligation in related
options and Strategic Transactions. For example, a 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 that Fund. Moreover, instead of segregating cash
and/or liquid securities if a Fund held a futures contract or forward contract,
it could purchase a put option on the same futures contract or forward contract
with a strike price as high or higher than the price of the contract held. Other
Strategic Transactions also may 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/or
liquid securities equal to any remaining obligation could need to be segregated.
A Fund's activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. Income earned or gains realized or deemed to
be earned or realized, if any, by a Fund from engaging in Strategic Transactions
generally will be taxable income of such Fund. Such income earned or realized by
the Target Fund is allocated to the Target Fund Common Shares. Such income
earned or realized by the Acquiring Fund is allocated to the Acquiring Fund
Common Shares and the Acquiring Fund APS on a pro rata basis.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. Each Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to a Fund on municipal securities in connection with such
transactions prior to the date that Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher or lower than yields on the municipal securities obtained
pursuant to such transactions. Because a Fund engaging in such transactions
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 such Fund missing the opportunity of obtaining a price or yield considered to
be advantageous. When a Fund is the buyer in such a transaction, however, it
will maintain, in a segregated account with its custodian, cash or liquid
portfolio securities having an aggregate value equal to the amount of such
purchase commitments until payment is made. A Fund will make commitments to
purchase municipal securities on such basis only with the intention of actually
acquiring these securities, but a Fund may sell such securities prior to the
settlement date if such sale is considered to be advisable. To the extent a Fund
29
engages in "when issued" and "delayed delivery" transactions, it will do so for
the purpose of acquiring securities for a Fund's portfolio consistent with that
Fund's investment objective and policies and not for the purpose of investment
leverage. No specific limitation exists as to the percentage of a Fund's assets
which may be used to acquire securities on a "when issued" or "delayed delivery"
basis.
INVESTMENT RESTRICTIONS
Each Fund's investment objective, the Target Fund's policy of investing at
least 80% of its assets in tax-exempt municipal securities, the Acquiring Fund's
policy of, under normal market conditions, investing at least 80% of its total
assets in municipal securities and the following investment restrictions are
fundamental and cannot be changed without the approval of the holders of a
majority of the applicable Fund's outstanding voting securities (defined in the
1940 Act as the lesser of (i) more than 50% of the applicable Fund's outstanding
common shares and of the outstanding Preferred Shares, voting by class, or (ii)
67% of such outstanding common shares and of the outstanding Preferred Shares,
voting by class, present at a meeting at which the holders of more than 50% of
the outstanding shares of each such class are present in person or by proxy).
All other investment policies or practices are considered by the Funds not to be
fundamental and accordingly may be changed without shareholder approval. If a
percentage restriction on investment or use of assets set forth below is adhered
to at the time a transaction is effected, later changes in percentage resulting
from changing market values will not be considered a deviation from policy. With
respect to the limitations on illiquid securities and borrowings, the percentage
limitations apply at the time of purchase and on an ongoing basis.
The Acquiring Fund may not:
1. With respect to 75% of its total assets, purchase any securities (other
than tax-exempt obligations guaranteed by the United States Government or
by its agencies or instrumentalities), if as a result more than 5% of the
Fund's total assets would then be invested in securities of a single
issuer or if as a result the Fund would hold more than 10% of the
outstanding voting securities of any single issuer, except that the Fund
may purchase securities of other investment companies to the extent
permitted by (i) 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the Securities and Exchange Commission
under the 1940 Act, as amended from time to time or, (iii) an exemption or
other relief from the provisions of the 1940 Act.
2. Invest more than 25% of its total assets in a single industry; however, as
described above under "Investment Objective and Policies," the Fund may
from time to time invest more than 25% of its total assets in a particular
segment of the municipal securities market.
30
3. Issue senior securities, as defined in the 1940 Act, other than preferred
shares of beneficial interest, except to the extent such issuance might be
involved with borrowings described under subparagraph (4) below or with
respect to hedging and risk management transactions or the writing of
options within limits described in this Proxy Statement/Prospectus.
4. Borrow money, except for temporary or emergency purposes from banks or for
repurchase of the Fund's Shares, and then only in an amount not exceeding
one-third of the Fund's total assets, including the amount borrowed. The
Fund will not mortgage, pledge or hypothecate any assets except in
connection with a borrowing. The Fund will not purchase portfolio
securities during any period that such borrowings exceed 5% of the total
asset value of the Fund. Notwithstanding this investment restriction, the
Fund may enter into "when issued" and "delayed delivery" transactions as
described above under the heading "Investment Objective and Policies" in
this Proxy Statement/Prospectus.
5. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of or the Fund's interest with respect to the
municipal securities owned by the Fund.
6. Buy any securities "on margin." Neither the deposit of initial or
variation margin in connection with hedging and risk management
transactions nor short-term credits as may be necessary for the clearance
of transactions is considered the purchase of a security on margin.
7. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or options,
except as described under the heading "Investment Objective and
Policies -- Other Investment Practices and Policies" in this Proxy
Statement/Prospectus.
8. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.
9. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to municipal securities would be deemed to
constitute such control or participation, and except that the Fund may
purchase securities of other investment companies to the extent permitted
by (i) 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the Securities and Exchange Commission under
the 1940 Act, as amended from time to time or, (iii) an exemption or other
relief from the provisions of the 1940 Act.
31
10. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the extent
permitted by (i) 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the Securities and Exchange Commission
under the 1940 Act, as amended from time to time or, (iii) an exemption or
other relief from the provisions of the 1940 Act.
11. Invest in equity interests in oil, gas or other mineral exploration or
development programs except pursuant to the exercise by the Fund of its
rights under agreements relating to municipal securities.
12. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the municipal securities the Fund may invest in are
considered to be interests in real estate, commodities or commodity
contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund may
liquidate real estate acquired as a result of a default on a mortgage),
and except to the extent that financial futures and related options the
Fund may invest in are considered to be commodities or commodities
contracts.
Additionally, the Target Fund may not:
1. With respect to 75% of its total assets, purchase any securities (other
than tax-exempt obligations guaranteed by the United States Government or
by its agencies or instrumentalities), if as a result more than 5% of the
Fund's total assets would then be invested in securities of a single
issuer or if as a result the Fund would hold more than 10% of the
outstanding voting securities of any single issuer, except that the Fund
may purchase securities of other investment companies to the extent
permitted by (i) 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the Securities and Exchange Commission
under the 1940 Act, as amended from time to time or, (iii) an exemption or
other relief from the provisions of the 1940 Act.
2. Invest more than 25% of its assets in a single industry; however, as
described above under "Investment Objective and Policies," the Fund may
from time to time invest more than 25% of its assets in a particular
segment of the municipal bond market.
3. Issue senior securities, as defined in the 1940 Act, other than the RP or
other preferred shares of beneficial interest, except to the extent such
issuance might be involved with borrowings described under subparagraph
(4) below or with respect to hedging transactions or the writing of
options within limits described in this Proxy Statement/Prospectus.
32
4. Borrow money, except for temporary or emergency purposes from banks or for
repurchase of its shares, and then only in an amount not exceeding one-
third of the Fund's total assets, including the amount borrowed. The Fund
will not mortgage, pledge or hypothecate any assets except in connection
with a borrowing. The Fund will not purchase portfolio securities during
any period in which such borrowings exceed 5% of the total asset value of
the Fund. Notwithstanding this investment restriction, the Fund may enter
into "when issued" and "delayed delivery" transactions as described above
under the heading "Investment Objective and Policies" in this Proxy
Statement/Prospectus.
5. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of, or the Fund's interest with respect to, the
securities owned by the Fund.
6. Buy any securities "on margin." Neither the deposit of initial or
variation margin in connection with hedging transactions nor short-term
credits as may be necessary for the clearance of transactions is
considered the purchase of a security on margin.
7. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or options,
except as described under the heading "Investment Objective and
Policies--Other Investment Practices and Policies" in this Proxy
Statement/Prospectus.
8. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.
9. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to securities owned by the Fund would be deemed
to constitute such control or participation, and except that the Fund may
purchase securities of other investment companies to the extent permitted
by (i) 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the Securities and Exchange Commission under
the 1940 Act, as amended from time to time or, (iii) an exemption or other
relief from the provisions of the 1940 Act.
10. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and except to the extent
permitted by (i) 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the Securities and Exchange Commission
under
33
the 1940 Act, as amended from time to time or, (iii) an exemption or other
relief from the provisions of the 1940 Act.
11. Invest in equity interests in oil, gas or other mineral exploration or
development programs.
12. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the securities the Fund may invest in are considered to be
interests in real estate, commodities or commodities contracts or to the
extent the Fund exercises its rights under agreements relating to such
securities (in which case the Fund may liquidate real estate acquired as a
result of a default on a mortgage), and except to the extent the hedging
and risk management transactions the Fund may engage in are considered to
be commodities or commodities contracts.
13. Invest in illiquid investments, including securities which are subject to
legal or contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the securities is suspended or,
in the case of unlisted securities, market makers do not exist or will not
entertain bids or offers), if more than 25% of the Fund's assets (taken at
market value) would be invested in such securities. The Fund does not
treat investments in caps, swaps and floors as illiquid investments.
As a matter of operating policy, each Fund will not invest 25% or more of its
assets in a single industry; however, each Fund may from time to time invest 25%
or more of its assets in a particular segment of the municipal securities
market.
MANAGEMENT OF THE FUNDS
THE BOARDS. The Board of each Fund is responsible for the overall supervision
of the operations of its respective Fund and performs the various duties imposed
on trustees of investment companies by the 1940 Act and under applicable state
law.
THE ADVISER. The investment adviser for each Fund is Van Kampen Asset
Management. The Adviser is a wholly owned subsidiary of Van Kampen Investments
Inc. ("Van Kampen Investments"). Van Kampen Investments is a diversified asset
management company that administers more than three million retail investor
accounts, has extensive capabilities for managing institutional portfolios and
has more than $98 billion under management or supervision as of March 31, 2005.
Van Kampen Investments is an indirect wholly owned subsidiary of Morgan Stanley,
a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses: securities, asset management
and credit services. Morgan Stanley is a full service securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services. The principal business
address of the Adviser
34
and Van Kampen Investments is 1221 Avenue of the Americas, New York, New York
10020.
Pursuant to separate investment advisory agreements between each Fund and the
Adviser, each Fund pays the Adviser a monthly fee at the annual rate of 0.55% of
such Fund's average daily net assets, including assets attributable to Preferred
Shares. Effective November 1, 2004, the investment advisory fee paid by each
Fund was reduced from 0.60% to 0.55%. Subsequent to the Reorganization, the
Adviser will continue to receive compensation at the rate of 0.55% of the
average daily net assets, including assets attributable to Preferred Shares, of
the combined fund. Because the fees paid to the Adviser are calculated on net
assets including assets attributable to Preferred Shares, the fees earned by the
Adviser will be higher when Preferred Shares are outstanding.
Under a separate Accounting Services Agreement, the Adviser provides
accounting services to each Fund. The Adviser allocates the cost of such
services to each Fund. Additionally, under a separate Legal Services Agreement,
Van Kampen Investments provides legal services to each Fund. Van Kampen
Investment allocates the cost of such services to each Fund.
PORTFOLIO MANAGEMENT. Each Fund's portfolio is managed by the Adviser's
Municipal Fixed Income team. The team is made up of established investment
professionals. Current members of the team include Thomas Byron, Vice President;
Robert Wimmel, Vice President; and John Reynoldson, Executive Director.
Thomas Byron has worked for the Adviser since 1981 and began managing the
Funds in 2000. Robert Wimmel has worked for the Adviser since 1996 and began
managing the Funds in 2001. John Reynoldson has worked for the Adviser since
1987 and began managing the Funds in 2001. Prior to 2001, Messrs. Wimmel and
Reynoldson worked in an investment management capacity for the Adviser.
Thomas Byron is the lead portfolio manager of each Fund. Robert Wimmel and
John Reynoldson are co-portfolio managers of each Fund. All team members are
responsible for the day-to-day management of each Fund and for the execution of
the overall strategy of each Fund.
The Reorganization Statement of Additional Information provides additional
information about the portfolio managers' compensation, other accounts managed
by the portfolio managers and the portfolio managers' ownership of securities in
the Acquiring Fund.
PORTFOLIO TRANSACTIONS WITH AFFILIATES. The Adviser may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Funds and the Adviser if it reasonably believes that the quality of
execution and the commission are comparable to that available from other
qualified firms.
35
LEGAL PROCEEDINGS INVOLVING THE ADVISER. The Adviser, certain affiliates of
the Adviser, and certain investment companies advised by the Adviser or its
affiliates were named as defendants in a number of similar class action
complaints which were consolidated. The amended complaint also names as
defendants certain individual trustees and directors of certain investment
companies advised by affiliates of the Adviser; the complaint does not, however,
name the individual trustees of any Van Kampen funds. The complaint generally
alleges that defendants violated their statutory disclosure obligations and
fiduciary duties by failing properly to disclose (i) that the Adviser and
certain affiliates of the Adviser allegedly offered economic incentives to
brokers and others to steer investors to the funds advised by the Adviser or its
affiliates rather than funds managed by other companies, and (ii) that the funds
advised by the Adviser or its affiliates allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these funds.
The complaint seeks, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants' motion to dismiss this
action is pending. After defendants moved to dismiss, the plaintiffs filed a
motion for leave to amend the complaint, which is also pending. The proposed
amendment drops all claims against the named investment companies, which are
listed only as nominal defendants. The proposed amendment raises similar claims
against the Adviser and its affiliates with respect to the investment companies
advised by the Adviser or its affiliates, and, in addition, alleges that
affiliates of the Adviser received undisclosed compensation for steering
investors into thirteen non-affiliated fund families. The defendants intend to
continue to defend this action vigorously. While the defendants believe that
they have meritorious defenses, the ultimate outcome of this matter is not
presently determinable at this early stage of litigation.
The Adviser and certain affiliates of the Adviser are also named as defendants
in a derivative suit which additionally names as defendants individual trustees
of certain Van Kampen funds; the named investment companies are listed as
nominal defendants. The complaint alleges that defendants caused the Van Kampen
funds to pay economic incentives to a proprietary sales force to promote the
sale of Van Kampen mutual funds. The complaint also alleges that the Van Kampen
funds paid excessive commissions to Morgan Stanley and its affiliates in
connection with the sales of the funds. The complaint seeks, among other things,
the removal of the current trustees of the funds, rescission of the management
contracts for the funds, disgorgement of profits by Morgan Stanley and its
affiliates and monetary damages. This complaint has been coordinated with the
consolidated action described in the preceding paragraph. The defendants have
moved to dismiss this action and otherwise intend to defend it vigorously. This
action is currently stayed until the later of (i) a ruling on the motion to
dismiss the action described in the preceding paragraph or (ii) a ruling on a
motion to dismiss the action described in the next paragraph. While the
defendants believe that they have meritorious defenses, the
36
ultimate outcome of this matter is not presently determinable at this early
stage of litigation.
The plaintiff in the action described in the preceding paragraph recently
filed a separate derivative action against the Adviser, certain affiliates of
the Adviser, the individual trustees of certain Van Kampen funds, and certain
unaffiliated entities. The named investment companies are listed as nominal
defendants. The complaint alleges that certain unaffiliated entities engaged in
or facilitated market timing and late trading in the Van Kampen funds, and that
the Adviser, certain affiliates of the Adviser, and the trustees failed to
prevent and/or detect such market timing and late trading. The complaint seeks,
among other things, the removal of the current trustees of the funds, rescission
of the management contracts and distribution plans for the funds, disgorgement
of fees and profits from the Adviser and its affiliates, and monetary damages.
The defendants' motion to dismiss this action is pending. While the defendants
believe that they have meritorious defenses, the ultimate outcome of this matter
is not presently determinable at this early stage of litigation.
The Adviser and one of the investment companies advised by the Adviser are
named as defendants in a class action complaint generally alleging that the
defendants breached their duties of care to long-term shareholders of the
investment company by valuing portfolio securities at the closing prices of the
foreign exchanges on which they trade without accounting for significant market
information that became available after the close of the foreign exchanges but
before calculation of net asset value. As a result, the complaint alleges,
short-term traders were able to exploit stale pricing information to capture
arbitrage profits that diluted the value of shares held by long-term investors.
The complaint seeks unspecified compensatory damages, punitive damages, fees and
costs. Defendants appealed an order of the federal district court remanding this
case to state court. The federal appeals court recently reversed the federal
district court's order remanding this case to state court and directed entry of
judgment in favor of defendants.
The Adviser and individual trustees of certain Van Kampen funds are named as
defendants in a recently filed class action complaint that alleges that the
defendants breached various fiduciary and statutory duties to investors by
failing to ensure that the funds participated in securities class action
settlements involving securities held in the funds' portfolios. The complaint
seeks compensatory and punitive damages on behalf of investors in the funds.
None of the funds are named as defendants and no claims are asserted against
them. The defendants expect to move to dismiss the complaint and believe that
they have meritorious defenses.
The Adviser, one of the investment companies advised by the Adviser, and
certain officers and directors of the investment company are defendants in a
class action filed in 2001 alleging that the defendants issued a series of
prospectuses and registration statements that were materially false and
misleading. Among other things, the complaint alleges that the prospectuses and
registration statements
37
contained misleading descriptions of the method defendants used to value senior
loan interests in the fund's portfolio, and that defendants materially
overstated the net asset value of the fund. The parties recently mediated the
dispute through a court-supervised settlement conference and reached an
agreement to settle the case. The parties presented a settlement agreement for
preliminary Court approval in April 2005.
OTHER SERVICE PROVIDERS
COMMUNICATIONS SUPPORT SERVICES PROVIDER. Van Kampen Funds Inc.(the "Support
Services Provider") serves as the communications support service provider to the
Target Fund. The principal place of business of the Support Services Provider is
1221 Avenue of the Americas, New York, New York 10020. The communications
support services include telephonic and written correspondence with shareholders
and brokers. The Target Fund does not pay any fee to the Support Services
Provider but bears certain expenses incurred by the Support Services Provider.
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND DIVIDEND PAYING AGENT. State
Street Bank and Trust Company is the custodian for each of the Funds. Its
principal business address is 225 West Franklin Street, Boston, Massachusetts
02110. EquiServe Trust Company, N.A. is the transfer agent, dividend disbursing
agent and registrar for the common shares of each of the Funds. Its principal
business address is 250 Royall Street, Canton, Massachusetts 02021. Deutsche
Bank Trust Company Americas is the auction agent and paying agent for the
Acquiring Fund APS and is the paying agent with respect to the Target Fund RP.
Its principal business address is 280 Park Avenue, New York, New York 10017.
Merrill Lynch, Pierce, Fenner & Smith Incorporated is the remarketing agent for
the Target Fund RP. Its principal business address is World Financial Center,
North Tower, New York, New York 10281.
CAPITALIZATION
The Board of Trustees of each Fund may authorize separate classes of shares
together with such designation of preferences, rights, voting powers,
restrictions, limitations, qualifications or terms as may be determined from
time to time by the trustees.
38
The table below sets forth the capitalization of the Target Fund and the
Acquiring Fund as of February 28, 2005, and the pro forma capitalization of the
combined fund as if the Reorganization had occurred on that date.
CAPITALIZATION AS OF FEBRUARY 28, 2005 (UNAUDITED)
AMOUNTS IN THOUSANDS
<Table>
<Caption>
ACTUAL PRO FORMA
---------------------------------- ---------------
VAN KAMPEN
VAN KAMPEN INVESTMENT GRADE VAN KAMPEN
MUNICIPAL TRUST MUNICIPAL TRUST MUNICIPAL TRUST
--------------- ---------------- ---------------
NET ASSETS CONSIST OF:
Common Shares ($0.01 par
value)*......................... 364 48 394
Paid in surplus................... 538,413 51,563 589,746
Net unrealized appreciation....... 55,892 4,835 60,727
Accumulated undistributed net
investment income............... 3,119 (34) 3,085
Accumulated net realized gain
(loss).......................... 912 (6,527) (5,615)
NET ASSETS APPLICABLE TO COMMON
SHARES.......................... 598,700 49,885 648,337**
PREFERRED SHARES ($0.01 par value,
with liquidation preference of
$25,000 and $100,000 for
Acquiring Fund and Target Fund,
respectively)*.................. 300,000 25,000 325,000
NET ASSETS INCLUDING PREFERRED
SHARES.......................... $898,700 $74,885 $973,337
</Table>
- ---------------
* Based on the number of outstanding shares listed in "Outstanding Securities
of the Funds" table below.
** Reflect a non-recurring cost associated with the Reorganization of
approximately $248,000, with all of such $248,000 to be borne by the Target
Fund common shareholders. See "Information about the
Reorganization -- Expenses of the Reorganization" for additional information.
39
OUTSTANDING SECURITIES OF THE FUNDS AS OF FEBRUARY 28, 2005
<Table>
<Caption>
AMOUNT OUTSTANDING
AMOUNT HELD EXCLUSIVE OF AMOUNT
FOR ITS OWN SHOWN IN PREVIOUS
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT COLUMN
- -------------- ----------------- ----------- -------------------
VAN KAMPEN INVESTMENT GRADE
MUNICIPAL TRUST
Common Shares............... Unlimited 0 4,839,000
Preferred Shares............ 100,000,000 0 250
VAN KAMPEN MUNICIPAL TRUST
Common Shares............... Unlimited 0 36,365,393
Preferred Shares............ 100,000,000 0 12,000
</Table>
ADDITIONAL INFORMATION ABOUT COMMON SHARES OF THE FUNDS
GENERAL. Common shareholders of a Fund are entitled to share equally in
dividends declared by such Fund's Board of Trustees payable to holders of the
common shares and in the net assets of such Fund available for distribution to
holders of the common shares after payment of the preferential amounts payable
to preferred shareholders. Common shareholders do not have preemptive or
conversion rights, and a Fund's common shares are not redeemable. The
outstanding common shares of each Fund are fully paid and nonassessable (except
as described under "Governing Law" below). So long as any Preferred Shares of a
Fund are outstanding, holders of such Fund's common shares will not be entitled
to receive any dividends or other distributions from that Fund unless all
accrued dividends on the Fund's outstanding Preferred Shares have been paid, and
unless asset coverage (as defined in the 1940 Act) with respect to such
Preferred Shares would be at least 200% after giving effect to such
distributions.
PURCHASE AND SALE. Purchase and sale procedures for the common shares of each
of the Funds are identical. Investors typically purchase and sell common shares
of the Funds through a registered broker-dealer on the NYSE or CHX, thereby
incurring a brokerage commission set by the broker-dealer. Alternatively,
investors may purchase or sell common shares of the Funds through privately
negotiated transactions with existing shareholders.
40
COMMON SHARE PRICE DATA. The following table sets forth the high and low sales
prices for common shares of each Fund on the NYSE for each full quarterly period
within each Fund's two most recent fiscal years and for the first fiscal quarter
in the current fiscal year for each Fund, along with the net asset value and
discount or premium to net asset value for each quotation.
VAN KAMPEN MUNICIPAL TRUST
<Table>
<Caption>
NET ASSET PREMIUM NET ASSET PREMIUM
QUARTERLY PERIOD ENDING HIGH PRICE VALUE (DISCOUNT) LOW PRICE VALUE (DISCOUNT)
- ----------------------- ---------- --------- ---------- --------- --------- ----------
January 31, 2005...... $14.92 $16.57 (9.96)% $14.10 $16.28 (13.39)%
October 31, 2004...... 14.90 16.60 (10.24)% 14.30 16.25 (12.00)%
July 31, 2004......... 14.18 16.04 (11.60)% 13.30 15.40 (13.64)%
April 30, 2004........ 15.74 17.05 (7.68)% 13.79 16.05 (14.08)%
January 31, 2004...... 15.42 16.71 (7.72)% 14.53 16.42 (11.51)%
October 31, 2003...... 14.80 16.43 (9.92)% 13.93 15.69 (11.22)%
July 31, 2003......... 15.75 17.11 (7.95)% 14.02 15.69 (10.64)%
April 30, 2003........ 15.05 16.50 (8.79)% 14.20 16.25 (12.62)%
January 31, 2003...... 14.50 16.21 (10.55)% 13.90 15.92 (12.69)%
</Table>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
<Table>
<Caption>
NET ASSET PREMIUM NET ASSET PREMIUM
QUARTERLY PERIOD ENDING HIGH PRICE VALUE (DISCOUNT) LOW PRICE VALUE (DISCOUNT)
- ----------------------- ---------- --------- ---------- --------- --------- ----------
January 31, 2005...... $9.18 $10.37 (11.48)% $8.65 $10.17 (14.95)%
October 31, 2004...... 9.15 10.29 (11.08)% 8.77 10.16 (13.68)%
July 31, 2004......... 8.77 10.05 (12.74)% 8.34 9.84 (15.24)%
April 30, 2004........ 9.73 10.65 (8.64)% 8.52 10.01 (14.89)%
January 31, 2004...... 9.48 10.40 (8.85)% 8.91 10.15 (12.22)%
October 31, 2003...... 8.98 10.11 (11.18)% 8.55 9.82 (12.93)%
July 31, 2003......... 9.55 10.56 (9.56)% 8.74 9.89 (11.63)%
April 30, 2003........ 9.01 10.25 (12.10)% 8.73 10.01 (12.79)%
January 31, 2003...... 8.85 10.15 (12.81)% 8.55 9.96 (14.16)%
</Table>
As of April 25, 2005, (i) the net asset value per share for Target Fund Common
Shares was $10.26 and the market price per share was $8.94, representing a
discount to net asset value of 12.87%, and (ii) the net asset value per share
for Acquiring Fund Common Shares was $16.39 and the market price per share was
$14.03, representing a discount to net asset value of 14.40%.
Common shares of each Fund have traded at both a premium and a discount to net
asset value for extended periods since the applicable Fund's inception. In order
to reduce or eliminate a market value discount from net asset value, the Board
of Trustees of each Fund may, subject to the terms and conditions of its
Preferred Shares, authorize that Fund from time to time to repurchase the common
shares in
41
the open market or to tender for the common shares at net asset value. The Board
of Trustees of each Fund, in consultation with the Adviser, will review on a
quarterly basis the possibility of open market repurchases and/or tender offers
for the common shares. Subject to its borrowing restrictions, each Fund may
incur debt to finance such repurchases, which entails risks. The ability of a
Fund to enter into tender offers and the common share repurchases may be limited
by the 1940 Act asset coverage requirements and any additional asset coverage
requirements which may be imposed by a rating agency in connection with any
rating of the Preferred Shares. No assurance can be given that the Board of
Trustees of either Fund will, in fact, authorize that Fund to undertake such
repurchases and/or tender offers or that, if undertaken, such actions would
result in the common shares trading at a price which is equal or close to net
asset value.
DIVIDENDS AND DISTRIBUTIONS. The Funds' current policies with respect to
dividends and distributions relating to their respective common shares are
similar. It is each Fund's present policy, which may be changed by its Board of
Trustees, to make monthly distributions to holders of its common shares of
substantially all of the Fund's net investment income remaining after the
payment of dividends on any outstanding Preferred Shares. Net income of each
Fund consists of all interest income accrued on portfolio assets less all
expenses of such Fund. Under current federal tax law, the Target Fund may
allocate net capital gains and other taxable income, if any, received by the
Target Fund to the Target Fund Common Shares, allowing the Target Fund to pay
dividends to the Target Fund RP which qualify in their entirety as tax-exempt
distributions. The Acquiring Fund, however, is required to allocate net capital
gains and other taxable income, if any, received by the Acquiring Fund among the
Acquiring Fund Common Shares and Acquiring Fund APS on a pro rata basis in the
year for which such capital gains and other income is realized.
Expenses of each Fund are accrued each day. Net realized capital gains, if
any, are expected to be distributed to shareholders at least once a year. While
there are any Preferred Shares of a Fund outstanding, such Fund may not declare
any cash dividend or other distribution on its common shares, unless at the time
of such declaration, (1) all accrued Preferred Shares dividends have been paid
and (2) the value of such Fund's total assets (determined after deducting the
amount of such dividend or other distribution), less all liabilities and
indebtedness of such Fund, is at least 200% (as required by the 1940 Act) of the
liquidation value of the outstanding Preferred Shares (expected to equal the
aggregate original purchase price of the outstanding Preferred Shares plus any
accrued and unpaid dividends thereon, whether or not earned or declared on a
cumulative basis). In addition to the requirements of the 1940 Act, each Fund
may be required to comply with other asset coverage requirements as a condition
of such Fund obtaining a rating of its Preferred Shares from a nationally
recognized rating service. These requirements may include an asset coverage test
more stringent than under the 1940 Act. This
42
limitation on a Fund's ability to make distributions on its common shares could
in certain circumstances impair the ability of such Fund to maintain its
qualification for taxation as a regulated investment company. Each Fund intends,
however, to the extent possible, to purchase or redeem Preferred Shares from
time to time to maintain compliance with such asset coverage requirements and
may pay special dividends to the holders of the Preferred Shares in certain
circumstances in connection with any such impairment of such Fund's status as a
regulated investment company.
For information concerning the manner in which dividends and distributions to
holders of each Fund's common shares may be reinvested automatically in the
Fund's common shares, see "-- Dividend Reinvestment Plan" below.
DIVIDEND REINVESTMENT PLAN. Each Fund offers a Dividend Reinvestment Plan
(each a "Plan," and collectively the "Plans") pursuant to which holders of
common shares may elect to have all distributions of dividends and all capital
gains automatically reinvested in common shares pursuant to such Plan. The Plans
for the Target Fund and the Acquiring Fund are similar. Unless common
shareholders elect to participate in a Plan, common shareholders will receive
distributions of dividends and capital gains in cash. EquiServe Trust Company,
N.A., as plan agent (the "Plan Agent"), serves as agent for the holders of
common shares of each Fund in administering the Plans.
After the Reorganization, a holder of shares of a Fund who receives dividends
in cash will continue to receive dividends in cash; all holders who elect to
participate in the Plan of a Fund will have their dividends automatically
reinvested in shares of the combined fund. All correspondence concerning the
Plan should be directed to the Plan Agent at P.O. Box 43011, Providence, Rhode
Island 02940-3011. Telephone calls concerning the Plan may be directed to the
Plan Agent between the hours of 7:30 a.m. and 5:00 p.m. Central Standard Time at
(800) 341-2929.
ADDITIONAL INFORMATION ABOUT PREFERRED SHARES OF THE FUNDS
GENERAL. The Preferred Shares of each Fund have similar structures. Both
Target Fund RP and Acquiring Fund APS are preferred shares of beneficial
interest which entitle their holders to receive dividends when, as and if
declared by the Board of Trustees of such Fund out of funds legally available
therefor, at a rate per annum that may vary for successive dividend periods.
While the Target Fund RP and Acquiring Fund APS are similar in many respects,
there are several differences that shareholders should consider. The Acquiring
Fund APS have a liquidation preference of $25,000 per share. The Target Fund RP
have a liquidation preference of $100,000 per share. Neither Target Fund RP nor
Acquiring Fund APS are traded on a stock exchange or over-the-counter. Holders
of each Fund's Preferred Shares do not have preemptive rights to purchase any
shares of RP or APS, as applicable,
43
or any other preferred shares that might be issued. The net asset value per
share of a Fund's Preferred Shares equals its liquidation preference plus
accumulated but unpaid dividends per share.
PURCHASE AND SALE. Acquiring Fund APS and Target Fund RP are purchased or sold
using different procedures.
Acquiring Fund APS generally are purchased and sold through auctions generally
conducted every 7 days in the case of Series A APS and Series C APS and every 28
days in the case of Series B APS and Series D APS by Deutsche Bank Trust Company
Americas, as the auction agent for the Acquiring Fund's APS (the "Auction
Agent") unless the Acquiring Fund elects to declare a special dividend period.
Unless otherwise permitted by the Acquiring Fund, existing and potential holders
of Acquiring Fund APS only may participate in auctions through their
broker-dealers. Broker-dealers submit the orders of their respective customers
who are existing and potential holders of APS to the Auction Agent. On or prior
to each auction date for the APS (the business day next preceding the first day
of each dividend period), each holder may submit orders to buy, sell or hold APS
to its broker-dealer. Outside of these auctions, shares of APS may be purchased
or sold through broker-dealers for the APS in a secondary trading market
maintained by the broker-dealers. However, there can be no assurance that a
secondary market will develop or if it does develop, that it will provide
holders with a liquid trading market for the Acquiring Fund APS.
Target Fund RP generally are purchased and sold through remarketings conducted
every 28 days by Merrill Lynch (the "Remarketing Agent"), unless the Target Fund
elects to declare a special dividend period. On each tender date (the business
day preceding the related dividend reset date) for shares of Target Fund RP, the
Remarketing Agent will, after canvassing the market and considering prevailing
market conditions, provide to holders of shares of Target Fund RP non-binding
indications of the applicable dividend rate for the next succeeding 28-day
dividend period. The actual applicable dividend rate for such dividend period
may be greater than or less than the rate indicated in such non-binding
indications and will not be determined until after a holder is required to elect
to hold or tender its shares of Target Fund RP or a new purchaser is required to
agree to purchase shares of Target Fund RP. Each holder of shares of Target Fund
RP then must notify the Remarketing Agent of its desire (on a share-by-share
basis) either to tender such share at a price of $100,000 per share or to
continue to hold such share for a 28-day dividend period. Any holder or
prospective purchaser may informally indicate to the Remarketing Agent its
applicable dividend rate preferences. However, any such notice given to the
Remarketing Agent to tender or hold shares for a particular dividend period is
irrevocable (subject to limit exceptions) and may not be conditioned upon the
level at which applicable dividend rates are set. On the dividend reset date,
the Remarketing Agent will then determine the
44
applicable dividend rate for the next dividend period, which will be the lowest
rate available which enables the Remarketing Agent to remarket on behalf of the
holders thereof all shares of Target Fund RP tendered to it on such tender date
at a price of $100,000 per share. Such determination will be made in the sole
discretion of the Remarketing Agent and will be conclusive and binding on the
Target Fund and on the holders of shares of Target Fund RP. The Remarketing
Agent intends to make a secondary market in the shares of Target Fund RP outside
of remarketings. The Remarketing Agent, however, has no obligation to make a
secondary market in the shares of Target Fund RP outside of remarketings, and
there can be no assurance that a secondary market for shares of Target Fund RP
will develop or, if it does develop, that it will provide holders with liquidity
of investment.
With respect to the Acquiring Fund APS, each auction requires the
participation of one or more broker-dealers. The Auction Agent has entered into
agreements with certain broker-dealers, and may enter into similar agreements
with one or more additional broker-dealers (collectively, the "Broker-Dealers")
selected by the Acquiring Fund, which provide for the participation of
Broker-Dealers in auctions. The Auction Agent after each auction for Acquiring
Fund APS will pay to each Broker-Dealer, from funds provided by the Acquiring
Fund, a service charge at the annual rate of 0.25 of 1% in the case of any
auction immediately preceding a rate period of less than one year, or a
percentage agreed to by such Fund and the Broker-Dealers in the case of any
auction immediately preceding a rate period of one year or longer, of the
purchase price of Acquiring Fund APS placed by such Broker-Dealer at such
auction. With respect to the Target Fund, for their services in determining the
applicable dividend rate and remarketing shares of Target Fund RP, the
Remarketing Agent will receive from the Target Fund an annual fee of
approximately 0.25% of the average amount of RP outstanding. The Remarketing
Agent will pay to selected broker-dealers a pro rata portion of the 0.25% per
annum fee, reflecting shares sold through such broker-dealers to purchasers in
remarketings.
In connection with the Reorganization, a holder of Target Fund RP would
receive Series E Acquiring Fund APS whose auctions generally will be conducted
every 28 days by the Auction Agent unless the Acquiring Fund elects to declare a
special dividend period. Accordingly, Acquiring Fund APS received in connection
with the Reorganization would have a regular dividend period of 28 days like the
28 day dividend period of the Target Fund RP.
DIVIDENDS AND DISTRIBUTIONS. The holders of Acquiring Fund APS are entitled to
receive, when, as and if declared by the Board of Trustees of such Fund, out of
funds legally available therefor, cumulative cash dividends on their shares. The
holders of Target Fund RP are entitled to receive, when and if declared by the
Board of Trustees of such Fund, out of funds legally available therefor,
cumulative cash dividends on their shares, subject to available net tax-exempt
income. The RP do not have any dividend
45
accumulation right with respect to any amount by which such Fund's available net
tax-exempt income limited the amount of any dividend that would have otherwise
been paid for any dividend period. In the event of such a limitation on dividend
accumulations, the shares of RP would be subject to mandatory redemption.
Dividends on a Fund's Preferred Shares so declared and payable shall be paid (i)
in preference to and in priority over any dividends so declared and payable on
the Fund's common shares, and (ii) with respect to the Target Fund, to the
extent permitted under the Internal Revenue Code and to the extent of available
net tax-exempt income, out of net tax-exempt income earned by the Target Fund's
investments.
Prior to each dividend payment date, the relevant Fund is required to deposit
with the Auction Agent, in the case of the Acquiring Fund, or the paying agent
in the case of the RP, sufficient funds for the payment of such declared
dividends. No interest will be payable in respect of any dividend payment or
payment on a Fund's Preferred Shares which may be in arrears. As described
below, a Fund may be required to pay Additional Dividends in certain
circumstances. In no other instances will either Fund be required to make
payments to holders of its Preferred Shares to offset the tax effect of any
reallocation of net capital gains or other taxable income.
Holders of Target Fund RP generally receive dividends out of the Target Fund's
available net tax-exempt income, which qualify in their entirety as
distributions of tax-exempt interest income for federal income tax purposes
(subject to the possible application of the alternative minimum tax). The
Acquiring Fund, however, is required to allocate net capital gains and other
taxable income, if any, proportionately between its common shares and APS. The
amount of taxable income allocated to the APS depends upon the amount of such
income realized by the Acquiring Fund, but is generally not expected to be
significant.
If for any taxable year, with respect to the Target Fund's income and gains,
if any, allocable to the Target Fund RP, the Target Fund realizes net capital
gains or any portion of the Target Fund's net income does not qualify in its
entirety as a distribution of tax-exempt interest income for federal income tax
purposes, then an Additional Dividend will become payable to the holders of
Target Fund RP in an amount such that the net after-tax return to such holders
will be the same as the net after-tax return that would have been derived if
such dividend, including any Additional Dividends, had qualified in its entirety
as a distribution of tax-exempt interest income. However, the Target Fund may,
at least 15 days prior to any remarketing, give notice to the Remarketing Agent
of the estimated taxable percentage or a change in the estimated taxable
percentage to be applicable to dividends on such shares for the dividend period
next succeeding such notice. If such notice is given, and unless and until
otherwise duly notified, Additional Dividends will not be payable as described
above and instead, Additional Dividends will be payable to such holders only if,
and to the extent of, the portion of dividends
46
paid with respect to such shares for such dividend period that does not qualify
as a distribution of tax-exempt interest income for federal income tax purposes
exceeds the estimated taxable percentage.
In normal circumstances, whenever the Acquiring Fund intends to include any
net capital gains or other taxable income in any dividend on APS, the Fund will
notify the Auction Agent of the amount to be so included prior to the Auction
establishing the applicable rate for such dividend. The Auction Agent will in
turn notify each broker-dealer who will notify existing and potential holders of
Acquiring Fund APS. As a result, auction participants may, in response to such
information, place bids which take account of the inclusion of net capital gains
or other taxable income in the dividend. If the Acquiring Fund retroactively
allocates any net capital gains or other taxable income to the APS without
having given notice to the Auction Agent, solely by reason of the fact that such
allocation is made as a result of the redemption of all or a portion of the
outstanding Acquiring Fund APS or the liquidation of the Acquiring Fund, the
Acquiring Fund will pay an Additional Dividend to offset substantially the tax
effect thereof. As a result of the notice and Additional Dividend provisions,
the after-tax return to a holders of Target Fund RP and Acquiring Fund APS is
not expected to differ substantially.
While the Funds normally utilize the auction or remarketing procedures
described above, each Fund may utilize special dividend periods in certain
circumstances to set the dividend rate.
DIVIDEND RATES. The following table provides information about the dividend
rates for each Fund's APS or RP, as applicable, as of a recent auction or
remarketing date.
<Table>
<Caption>
AUCTION OR REMARKETING DIVIDEND DATE PREFERRED SHARES RATE
- ------------------------------------ ---------------- ----
April 12, 2005............................ Target Fund RP 2.45%
April 18, 2005............................ Acquiring Fund Series A APS 2.20%
April 19, 2005............................ Acquiring Fund Series B APS 2.85%
April 13, 2005............................ Acquiring Fund Series C APS 2.23%
April 14, 2005............................ Acquiring Fund Series D APS 2.40%
</Table>
The dividend rates in effect at the closing of the Reorganization will be the
rates determined in the remarketing or auction, as the case may be, most
recently preceding such closing.
RATINGS. The Target Fund RP and the Acquiring Fund APS have each been assigned
a rating of "AAA" from S&P and "Aaa" from Moody's. Each Fund intends that, so
long as its Preferred Shares are outstanding, the composition of its portfolio
will reflect guidelines established by S&P and Moody's in connection with each
Fund's receipt of a rating for such shares of at least "AAA" from S&P and "Aaa"
from Moody's. S&P and Moody's, which are nationally recognized statistical
47
rating organizations, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines for rating such
preferred shares have been developed by S&P and Moody's in connection with
issuances of asset-backed and similar securities, including debt obligations and
variable rate preferred stock, generally on a case-by-case basis through
discussions with the issuers of these securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be varied
sufficiently and will be of sufficient quality and amount to justify investment
grade ratings. The guidelines do not have the force of law but have been adopted
by each Fund in order to satisfy current requirements necessary for S&P and
Moody's to issue the above-described ratings for Preferred Shares, which ratings
generally are relied upon by institutional investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by S&P or Moody's. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for a Fund's Preferred Shares, at any time, may change or
withdraw any such rating. As set forth in the Certificate of Vote of each Fund,
the Board of Trustees of each Fund, without shareholder approval, may modify
certain definitions or restrictions that have been adopted by such Fund pursuant
to the rating agency guidelines, provided the Board of Trustees has obtained
written confirmation from S&P and Moody's that any such change would not impair
the ratings then assigned by S&P and Moody's to the Preferred Shares. For so
long as any shares of a Fund's Preferred Shares are rated by S&P or Moody's, as
the case may be, a Fund's use of options and financial futures contracts and
options thereon will be subject to certain limitations mandated by the rating
agencies.
REDEMPTIONS. The redemption provisions pertaining to the Preferred Shares of
each Fund are similar. Preferred Shares of each Fund are generally redeemable at
the option of the Fund at a price equal to their liquidation preference plus
accumulated but unpaid dividends (whether or not earned or declared) to the date
of redemption plus, in certain circumstances, a redemption premium. Each Fund's
Preferred Shares are also subject to mandatory redemption at a price equal to
their liquidation preference plus accumulated but unpaid dividends (whether or
not earned or declared) to the date of redemption upon the occurrence of certain
specified events, such as the failure of a Fund to maintain asset coverage
requirements for the Preferred Shares specified by Moody's and S&P in connection
with their issuance of ratings on the Preferred Shares. Additionally, with
respect to the RP, the Target Fund is required to redeem RP if on any dividend
payment date the Target Fund fails to generate sufficient available net
tax-exempt income to pay accrued and unpaid dividends on the RP out of solely
tax-exempt income at the
48
applicable dividend rate. The liquidation preference per share of the Target
Fund RP is $100,000 and the liquidation preference per share of the Acquiring
Fund APS is $25,000.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of a Fund,
whether voluntary or involuntary, the holders of such Fund's Preferred Shares
will be entitled to receive, out of the assets of such Fund available for
distribution to shareholders, before any distribution or payment is made upon
any of such Fund's common shares or any other capital shares of such Fund
ranking junior in right of payment upon liquidation to Preferred Shares, the
liquidation preference of such Preferred Shares, together with the amount of any
dividends accumulated but unpaid (whether or not earned or declared) thereon to
the date of distribution, and after such payment the holders of Preferred Shares
will be entitled to no other payments except for any Additional Dividends, in
the case of the Acquiring Fund. The liquidation preference per share of the
Target Fund RP is $100,000 and the liquidation preference per share of the
Acquiring Fund APS is $25,000. If such assets of a Fund are insufficient to make
the full liquidation payment on the Preferred Shares and liquidation payments on
any other outstanding class or series of preferred shares of such Fund ranking
on a parity with the Preferred Shares as to payment upon liquidation, then such
assets will be distributed among the holders of Preferred Shares and the holders
of shares of such other class or series ratably in proportion to the respective
preferential amounts to which they are entitled. After payment of the full
amount of liquidation distribution to which they are entitled, the holders of a
Fund's Preferred Shares will not be entitled to any further participation in any
distribution of assets by the Fund except for any Additional Dividends, in the
case of the Acquiring Fund. A consolidation, merger or share exchange of a Fund
with or into any other entity or entities or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of the
assets of a Fund shall not be deemed or construed to be a liquidation,
dissolution or winding up of such Fund for this purpose.
SERIES. Under the 1940 Act, each Fund is permitted to have outstanding more
than one series of preferred shares as long as no single series has priority
over another series as to the distribution of assets of such Fund or the payment
of dividends. The Target Fund currently has one series of RP outstanding. The
Acquiring Fund currently has four series of APS outstanding, Series A APS,
Series B APS, Series C APS and Series D APS. In connection with the
Reorganization, the Acquiring Fund will create a new series, designated Series E
APS, to replace the Target Fund's RP. Four shares of Series E APS, liquidation
preference $25,000 per share, will be issued for each share of Target Fund RP,
liquidation preference $100,000 per share. The number of days in the regular
dividend period for Series E APS will remain the same as for the Target Fund's
RP.
49
ADDITIONAL INFORMATION. For additional information regarding Acquiring Fund
APS, Target Fund shareholders should consult the Reorganization Statement of
Additional Information, which contains a more complete summary of the terms of
the Acquiring Fund APS, and the Certificate of Vote governing the Acquiring Fund
APS, included as Appendix B to the Reorganization Statement of Additional
Information. APS issued in connection with the Reorganization will be governed
by the Certificate of Vote of the Acquiring Fund, which, upon completion of the
Reorganization, will be amended to reflect the creation of Series E and the
issuance of additional APS.
GOVERNING LAW
Each Fund is organized as a business trust under the laws of The Commonwealth
of Massachusetts. The Target Fund was organized on April 14, 1989 and commenced
operations on November 30, 1989; the Acquiring Fund was organized on July, 19
1991 and commenced operations on November 30, 1991.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust of each Fund contains an express disclaimer of
shareholder liability for acts or obligations of such Fund and provides for
indemnification and reimbursement of expenses out of such Fund's property for
any shareholder held personally liable for the obligations of such Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations. Given the nature of each Fund's assets and operations, the
possibility of a Fund being unable to meet its obligations is remote and, in the
opinion of counsel to the Funds, the risk to the Funds' respective shareholders
is remote.
Each Fund is also subject to federal securities laws, including the 1940 Act
and the rules and regulations promulgated by SEC thereunder, and applicable
state securities laws. Each Fund is registered as a diversified, closed-end
management investment company under the 1940 Act.
CERTAIN PROVISIONS OF THE DECLARATIONS OF TRUST
Each Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of such Fund or to change the composition of its Board of Trustees, and could
have the effect of depriving common shareholders of an opportunity to sell their
common shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of such Fund. The Board of Trustees of each
Fund is divided into three classes, with the term of one class expiring at the
annual meeting of shareholders. At each annual meeting, each class whose term is
expiring will be elected to a three-year term. This provision could delay for up
to two years the
50
replacement of a majority of the Board of Trustees. A trustee may be removed
from office only for cause by a written instrument signed by at least two-thirds
of the remaining trustees or by a vote of the holders of at least two-thirds of
the class of shares of the Fund that elected such trustee and entitled to vote
on the matter.
In addition, each Fund's Declaration of Trust requires the favorable vote of
the holders of at least 75% of the outstanding shares of each class of the Fund
in question, voting as a class, then entitled to vote to approve, adopt or
authorize certain transactions with 5%-or-greater holders of a class of shares
and their associates, unless the Board of Trustees shall by resolution have
approved a memorandum of understanding with such holders, in which case normal
voting requirements would be in effect. For purposes of these provisions, a
5%-or-greater holder of a class of shares (a "Principal Shareholder") refers to
any person who, whether directly or indirectly and whether alone or together
with its affiliates and associates, beneficially owns 5% or more of the
outstanding shares of any class of beneficial interest of such Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of such Fund or any subsidiary of such Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of such Fund to any
Principal Shareholder for cash (except pursuant to the Dividend Reinvestment
Plan); (iii) the sale, lease or exchange of all or any substantial part of the
assets of such Fund to any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the purpose
of such computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period); or (iv) the sale, lease or
exchange to such Fund or any subsidiary thereof, in exchange for securities of
such Fund, of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for purposes of
such computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board of Trustees of each Fund has determined that the 75% voting
requirements described above, which are greater than the minimum requirements
under Massachusetts law or the 1940 Act, are in the best interest of
shareholders of each respective Fund generally. Reference should be made to the
Declaration of Trust of each Fund on file with the SEC for the full text of
these provisions.
The Declaration of Trust of each Fund further provides that no trustee,
officer, employee or agent of a Fund is liable to such Fund or to any
shareholder, nor is any trustee, officer, employee or agent liable to any third
persons in connection with the affairs of such Fund, except as such liability
may arise from his or her own bad faith, willful misfeasance, gross negligence,
or reckless disregard of their duties. It also provides that all third persons
shall look solely to such Fund's property for satisfaction of claims arising in
connection with the affairs of such Fund. With the exceptions stated, the
Declaration of Trust of each Fund provides that a trustee or
51
officer is entitled to be indemnified against all liability in connection with
the affairs of a Fund.
CONVERSION TO OPEN-END FUND
Each Fund may be converted to an open-end investment company at any time by an
amendment to its Declaration of Trust. Each Fund's Declaration of Trust provides
that such an amendment would require the approval of (a) a majority of the
trustees, including the approval by a majority of the disinterested trustees of
the applicable Fund, and (b) the lesser of (i) more than 50% of the Fund's
outstanding common and preferred shares, each voting as a class or (ii) 67% of
the common and preferred shares, each voting as a class, present at a meeting at
which holders of more than 50% of the outstanding shares of each such class are
present in person or by proxy. If approved in the foregoing manner, conversion
of the Fund could not occur until 90 days after the shareholders' meeting at
which such conversion was approved and would also require at least 30 days prior
notice to all shareholders. Conversion of a Fund to an open-end investment
company would require the redemption of all outstanding Preferred Shares, which
would eliminate the leveraged capital structure of such Fund. In the event of
conversion, the common shares would cease to be listed on the NYSE, AMEX, CHX,
NASDAQ National Market System or other national securities exchange or national
market system. Shareholders of an open-end investment company may require the
company to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption. If
a Fund were converted to an open-end fund, it is likely that new common shares
would be sold at net asset value plus a sales load. Following any such
conversion, it is also possible that certain of such Fund's investment policies
and strategies would have to be modified to assure sufficient portfolio
liquidity. In particular such Fund would be required to maintain its portfolio
such that not more than 15% of its assets would be invested in illiquid
securities. Such requirement could cause such Fund to dispose of portfolio
securities or other assets at a time when it is not advantageous to do so, and
could adversely affect the ability of such Fund to meet its investment
objective.
VOTING RIGHTS
Voting rights are identical for the holders of each Fund's common shares.
Holders of each Fund's common shares are entitled to one vote for each share
held. Except as set forth above under "Certain Provisions of the Declarations of
Trust" or "Conversion to Open-End Fund," or except as expressly required by
applicable law or expressly set forth in the designation of rights and
preferences with respect to a Fund's Preferred Shares, holders of Preferred
Shares have no voting rights. When holders of a Fund's Preferred Shares are
entitled to vote, they are also entitled to cast one vote per share held.
52
Holders of Preferred Shares of a Fund, voting as a class, are entitled to
elect two of each Fund's trustees. Under the 1940 Act, if at any time dividends
on a Fund's Preferred Shares are unpaid in an amount equal to two full years
dividends thereon, the holders of all outstanding Preferred Shares, voting as a
class, are entitled to elect a majority of such Fund's trustees until all
dividends have been paid or declared and set apart for payment.
The Certificate of Vote establishing the Preferred Shares of each Fund
provides that such Fund shall not take certain actions relating to the
preferences, rights or powers of holders of such Fund's Preferred Shares without
the affirmative vote of the holders of a majority of the outstanding Preferred
Shares. Additionally, if the Acquiring Fund has more than one series of
Preferred Shares outstanding, an affirmative vote of a majority of the
outstanding shares of each series of Preferred Shares, each voting separately as
a class, is required with respect to any matter that materially affects the
series in a manner different from that of other series of such Fund's Preferred
Shares. The specific provisions of each Fund's Certificate of Vote with respect
to the voting rights of holders of Preferred Shares may differ and Target Fund
shareholders should consult the Certificate of Vote governing the Acquiring Fund
APS, included as Appendix B to the Reorganization Statement of Additional
Information.
53
FINANCIAL HIGHLIGHTS
TARGET FUND. The following schedule presents financial highlights for one
Target Fund Common Share outstanding throughout the periods indicated.
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002(A) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 10.15 $ 9.97 $ 10.01 $ 9.43 $ 9.39 $ 10.66 $ 10.66
-------- -------- -------- -------- -------- -------- --------
Net Investment Income............. .61 .63 .65 .67 .76 .83 .86
Net Realized and Unrealized
Gain/Loss........................ .15 .10 (.13) .59 .09 (1.26) .01
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income............ (.06) (.06) (.07) (.18) (.21) (.17) (.19)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations... .70 .67 .45 1.08 .64 (.60) .68
Distributions Paid to Common
Shareholders:
Net Investment Income............. (.49) (.49) (.49) (.50) (.60) (.67) (.68)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 10.36 $ 10.15 $ 9.97 $ 10.01 $ 9.43 $ 9.39 $ 10.66
======== ======== ======== ======== ======== ======== ========
Common Share Market Price at End of
the Period........................ $ 9.07 $ 8.96 $ 8.69 $ 8.70 $ 8.08 $ 8.8125 $11.0625
Total Return(b).................... 6.85% 8.91% 5.64% 14.11% -1.60% -15.09% 7.63%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 50.1 $ 49.1 $ 48.2 $ 48.4 $ 45.6 $ 45.4 $ 51.6
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.53% 1.49% 1.42% 1.46% 1.52% 1.69% 1.47%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 5.99% 6.19% 6.62% 6.77% 8.25% 8.11% 8.14%
Portfolio Turnover................. 19% 36% 37% 45% 41% 46% 33%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.01% .99% .93% .96% .98% 1.12% .99%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.42% 5.64% 5.87% 4.98% 5.92% 6.41% 6.40%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 250 250 250 250 250 250 250
Asset Coverage Per Preferred
Share(e).......................... $300,616 $296,504 $292,949 $293,730 $282,465 $281,691 $306,365
Involuntary Liquidating Preference
Per Preferred Share............... $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Average Market Value Per Preferred
Share............................. $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
<Caption>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1996 1995
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 10.47 $ 10.75 $ 10.50
-------- -------- --------
Net Investment Income............. .96 .88 .88
Net Realized and Unrealized
Gain/Loss........................ .12 (.19) .40
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income............ (.18) (.19) (.20)
-------- -------- --------
Total from Investment Operations... .90 .50 1.08
Distributions Paid to Common
Shareholders:
Net Investment Income............. (.71) (.78) (.83)
-------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 10.66 $ 10.47 $ 10.75
======== ======== ========
Common Share Market Price at End of
the Period........................ $10.9375 $ 11.00 $ 10.625
Total Return(b).................... 6.13% 11.02% 2.88%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 51.6 $ 50.7 $ 52.0
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.47% 1.51% 1.52%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 9.14% 8.32% 8.22%
Portfolio Turnover................. 25% 39% 50%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... .99% 1.01% 1.02%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 7.38% 6.55% 6.31%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 250 250 250
Asset Coverage Per Preferred
Share(e).......................... $306,303 $302,730 $308,150
Involuntary Liquidating Preference
Per Preferred Share............... $100,000 $100,000 $100,000
Average Market Value Per Preferred
Share............................. $100,000 $100,000 $100,000
</Table>
(a) As required, effective November 1, 2001, the Trust has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began accreting market discount on fixed income securities. The effect
of this change for the year ended October 31, 2002 was to increase net
investment income per share by less than $.01, decrease net realized and
unrealized gains and losses per share by less than $.01 and increase the
ratio of net investment income to average net assets by .01%. Per share,
ratios, and supplemental data for periods prior to October 31, 2002 have not
been restated to reflect this change in presentation.
(b) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share price at the end of the period
indicated.
(c) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
54
ACQUIRING FUND. The following schedule presents financial highlights for one
Acquiring Fund Common Share outstanding throughout the periods indicated.
<Table>
<Caption>
TWO MONTHS
YEAR ENDED OCTOBER 31, ENDED
---------------------------------------------------------- OCTOBER 31,
2004 2003 2002(A) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- -----------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 16.25 $ 16.12 $16.07 $ 14.91 $ 14.60 $ 17.39 $ 17.32
------- ------- ------- ------- ------- -------- --------
Net Investment Income............. 1.03 1.02 1.06 1.13 1.17 1.20 .21
Net Realized and Unrealized
Gain/Loss........................ .37 .13 .01 1.12 .42 (2.30) .08
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income............ (.09) (.08) (.11) (.27) (.34) (.24) (.02)
Net Realized Gain................ -0-(f) -0- -0- -0- -0- (.06) (.04)
------- ------- ------- ------- ------- -------- --------
Total from Investment Operations... 1.31 1.07 .96 1.98 1.25 (1.40) .23
Distributions Paid to Common
Shareholders:
Net Investment Income............ (.94) (.94) (.91) (.82) (.94) (.96) (.16)
Net Realized Gain................ (.02) -0- -0- -0- -0- (.43) -0-
------- ------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 16.60 $ 16.25 $16.12 $ 16.07 $ 14.91 $ 14.60 $ 17.39
======= ======= ======= ======= ======= ======== ========
Common Share Market Price at End of
the Period........................ $ 14.90 $ 14.57 $14.30 $ 13.79 $12.625 $13.1875 $16.8125
Total Return (b)................... 9.15% 8.60% 10.49% 15.97% 2.80% -14.47% 4.84%*
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 603.6 $ 590.9 $586.2 $ 584.4 $ 542.1 $ 530.9 $ 630.6
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.19% 1.23% 1.35% 1.55% 1.67% 1.60% 1.57%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 6.24% 6.28% 6.70% 7.26% 8.07% 7.43% 7.20%
Portfolio Turnover................. 19% 24% 38% 28% 39% 80% 6%*
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... .79% .81% .89% 1.01% 1.07% 1.06% 1.07%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.70% 5.77% 5.98% 5.51% 5.71% 5.95% 6.48%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 12,000 12,000 12,000 12,000 12,000 12,000 6,000
Asset Coverage Per Preferred
Share(e).......................... $75,312 $74,245 $73,861 $73,700 $70,177 $ 69,241 $155,104
Involuntary Liquidating Preference
Per Preferred Share............... $25,000 $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 50,000
Average Market Value Per Preferred
Share............................. $25,000 $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 50,000
<Caption>
YEAR ENDED AUGUST 31,
-----------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 16.60 $ 15.84 $ 15.73 $ 15.56
-------- -------- -------- --------
Net Investment Income............. 1.26 1.28 1.30 1.31
Net Realized and Unrealized
Gain/Loss........................ .72 .73 .10 .26
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income............ (.30) (.29) (.30) (.32)
Net Realized Gain................ -0- -0- -0- -0-
-------- -------- -------- --------
Total from Investment Operations... 1.68 1.72 1.10 1.25
Distributions Paid to Common
Shareholders:
Net Investment Income............ (.96) (.96) (.99) (1.08)
Net Realized Gain................ -0- -0- -0- -0-
-------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 17.32 $ 16.60 $ 15.84 $ 15.73
======== ======== ======== ========
Common Share Market Price at End of
the Period........................ $16.1875 $ 15.75 $ 14.50 $ 14.25
Total Return (b)................... 9.06% 15.87% 8.98% 2.39%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 628.2 $ 601.9 $ 574.6 $ 570.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.57% 1.61% 1.61% 1.65%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 7.42% 7.86% 8.08% 8.58%
Portfolio Turnover................. 94% 54% 36% 49%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.06% 1.07% 1.06% 1.07%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.66% 6.04% 6.20% 6.48%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 6,000 6,000 6,000 6,000
Asset Coverage Per Preferred
Share(e).......................... $154,696 $150,322 $145,764 $145,113
Involuntary Liquidating Preference
Per Preferred Share............... $ 50,000 $ 50,000 $ 50,000 $ 50,000
Average Market Value Per Preferred
Share............................. $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
* Non-Annualized
(a) As required, effective November 1, 2001, the Trust has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began accreting market discount on fixed income securities. The effect
of this change for the year ended October 31, 2002 was to increase net
investment income per share by $.01, decrease net realized and unrealized
gains and losses per share by $.01 and increase the ratio of net investment
income to average net assets applicable to common shares from 6.69% to
6.70%. Per share, ratios and supplemental data for periods prior to October
31, 2002 have not been restated to reflect this change in presentation.
(b) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(c) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
(f) Amount is less than $0.01 per share.
55
INFORMATION ABOUT THE REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (a form of which is attached as
Appendix A to the Reorganization Statement of Additional Information), the
Acquiring Fund will acquire substantially all of the assets, and will assume
substantially all of the liabilities, of the Target Fund, in exchange for
Acquiring Fund Common Shares and Acquiring Fund Series E APS to be issued by the
Acquiring Fund. The Acquiring Fund will issue and cause to be listed on the NYSE
and CHX additional Acquiring Fund Common Shares. The Acquiring Fund Common
Shares issued to the Target Fund will have an aggregate net asset value equal to
the aggregate net asset value of the Target Fund Common Shares, less the costs
of the Reorganization (though cash may be paid in lieu of any fractional
shares). The shares of Series E Acquiring Fund APS issued to the Target Fund
will have an aggregate liquidation preference equal to the aggregate liquidation
preference of the Target Fund RP. Upon receipt by the Target Fund of such
shares, the Target Fund will (i) distribute the Acquiring Fund Common Shares to
the holders of Target Fund Common Shares and (ii) distribute the Series E
Acquiring Fund APS to the holders of Target Fund RP. As soon as practicable
after the Closing Date for the Reorganization, the Target Fund will deregister
as an investment company under the 1940 Act and dissolve under applicable state
law.
The Target Fund will distribute the Acquiring Fund Common Shares and the
Series E Acquiring Fund APS received by it pro rata to its holders of record of
Target Fund Common Shares and Target Fund RP, as applicable, in exchange for
such shareholders' shares in the Target Fund. Such distribution will be
accomplished by opening new accounts on the books of the Acquiring Fund in the
names of the common and preferred shareholders of the Target Fund and
transferring to those shareholder accounts the Acquiring Fund Common Shares and
the Acquiring Fund APS previously credited on those books to the accounts of the
Target Fund. Each newly-opened account on the books of the Acquiring Fund for
the former common shareholders of the Target Fund will represent the respective
pro rata number of Acquiring Fund Common Shares (rounded down, in the case of
fractional shares held other than in a Dividend Reinvestment Plan account, to
the next largest number of whole shares) due such shareholder. No fractional
Acquiring Fund Common Shares will be issued (except for shares held in a Plan
account). In the event of fractional shares in an account other than a Plan
account, the Acquiring Fund's transfer agent will aggregate all such fractional
Acquiring Fund Common Shares and sell the resulting whole shares on the NYSE for
the account of all holders of such fractional interests, and each such holder
will be entitled to the pro rata share of the proceeds from such sale upon
surrender of the Target Fund Common Share certificates. Similarly, each
newly-opened account on the books of the Acquiring Fund for the former preferred
shareholder of Target Fund RP would represent the respective pro rata number of
Acquiring Fund APS due such shareholder. See
56
"Terms of the Agreement and Plan of Reorganization -- Surrender and Exchange of
Share Certificates" below for a description of the procedures to be followed by
Target Fund shareholders to obtain their Acquiring Fund Common Shares or
Acquiring Fund APS (and cash in lieu of fractional shares, if any).
As a result of the Reorganization, every holder of Target Fund Common Shares
would own Acquiring Fund Common Shares that (except for cash payments received
in lieu of fractional shares) will have an aggregate net asset value immediately
after the Closing Date equal to the aggregate net asset value of that
shareholder's Target Fund Common Shares immediately prior to the Closing Date
less the costs of the Reorganization. Since the Acquiring Fund Common Shares
will be issued at net asset value in exchange for the net assets of the Target
Fund having a value equal to the aggregate net asset value of those Acquiring
Fund Common Shares, the net asset value per share of Acquiring Fund Common
Shares should remain virtually unchanged by the Reorganization except for its
share (if any) of the reorganizational costs. Similarly, the aggregate
liquidation preference of the Acquiring Fund APS to be issued to the Target Fund
will equal the aggregate liquidation preference of the Target Fund RP. Each
holder of Target Fund RP will receive Acquiring Fund APS that will have an
aggregate liquidation preference immediately after the Closing Date equal to the
aggregate liquidation preference of that shareholder's Target Fund RP
immediately prior to the Closing Date. The liquidation preference per share of
the Acquiring Fund APS will remain unchanged by the Reorganization. Thus, the
Reorganization will result in no dilution of net asset value of the Target Fund
Common Shares or Acquiring Fund Common Shares, other than to reflect the costs
of the Reorganization, and will result in no dilution of the value per share of
Acquiring Fund APS or Target Fund RP. However, as a result of the
Reorganization, a shareholder of either Fund will hold a reduced percentage of
ownership in the larger combined entity than he or she did in either of the
separate Funds.
No sales charge or fee of any kind will be charged to shareholders of the
Target Fund in connection with their receipt of Acquiring Fund Common Shares or
Acquiring Fund APS in the Reorganization. Holders of Target Fund RP will find
that the auction dates and dividend payment dates for the Acquiring Fund APS
received in the Reorganization are ordinarily (i.e., except in the case of a
special dividend period) on a 28 day schedule similar to the 28 day remarketing
schedule in the case of RP. The auction or remarketing procedures for the RP and
APS of the Funds are similar. As a result of the Reorganization, the last
dividend period for the Target Fund RP prior to the Closing Date and the initial
dividend period for the Acquiring Fund APS issued in connection with the
Reorganization after the Closing Date may be shorter than the ordinary dividend
period for such shares.
57
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and Plan
of Reorganization. This summary is qualified in its entirety by reference to the
Agreement and Plan of Reorganization, attached as Appendix A to the
Reorganization Statement of Additional Information.
VALUATION OF ASSETS AND LIABILITIES. The respective assets of each of the
Funds will be valued on the business day prior to the Closing Date (the
"Valuation Date"). The valuation procedures are the same for each Fund: the net
asset value per common share of each Fund will be determined after the close of
business on the NYSE (generally 4:00 p.m. Eastern time) on the Valuation Date.
For the purpose of determining the net asset value of a Common Share of each
Fund, the value of the securities held by the issuing Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value of
the outstanding APS of the issuing Fund is divided by the total number of common
shares of the issuing Fund outstanding at such time. Daily expenses, including
the fees payable to the Adviser, will accrue on the Valuation Date.
AMENDMENTS AND CONDITIONS. The Agreement and Plan of Reorganization may be
amended at any time prior to the Closing Date with respect to any of the terms
therein. The obligations of each Fund pursuant to the Agreement and Plan of
Reorganization are subject to various conditions, including a registration
statement on Form N-14 being declared effective by the SEC, approval by the
shareholders of the Target Fund, receipt of an opinion of counsel as to tax
matters, receipt of an opinion of counsel as to corporate and securities matters
and the continuing accuracy of various representations and warranties of the
Funds being confirmed by the respective parties.
POSTPONEMENT; TERMINATION. Under the Agreement and Plan of Reorganization, the
Board of Trustees of either Fund may cause the Reorganization to be postponed or
abandoned in certain circumstances should such Board determine that it is in the
best interests of the shareholders of its respective Fund to do so.
The Agreement and Plan of Reorganization may be terminated, and the
Reorganization abandoned at any time (whether before or after adoption thereof
by the shareholders of either of the Funds) prior to the Closing Date, or the
Closing Date may be postponed: (i) by mutual consent of the Boards of Trustees
of the Funds and (ii) by the Board of Trustees of either Fund if any condition
to that Fund's obligations set forth in the Agreement and Plan of Reorganization
has not been fulfilled or waived by such Board.
SURRENDER AND EXCHANGE OF SHARE CERTIFICATES. After the Closing Date, each
holder of an outstanding certificate or certificates formerly representing
Target Fund Common Shares will be entitled to receive, upon surrender of his or
her
58
certificate or certificates, a certificate or certificates representing the
number of Acquiring Fund Common Shares distributable with respect to such
holder's Target Fund Common Shares, together with cash in lieu of any fractional
Acquiring Fund Common Shares held other than in a Dividend Reinvestment Plan
account. Promptly after the Closing Date, the transfer agent for the Acquiring
Fund Common Shares will mail to each holder of certificates formerly
representing Target Fund Common Shares a letter of transmittal for use in
surrendering his or her certificates for certificates representing Acquiring
Fund Common Shares and cash in lieu of any fractional shares held other than in
a Plan account.
Please do not send in any share certificates at this time. Upon consummation
of the Reorganization, holders of Target Fund Common Shares will be furnished
with instructions for exchanging their share certificates for Acquiring Fund
share certificates and, if applicable, cash in lieu of fractional shares.
From and after the Closing Date, certificates formerly representing Target
Fund Common Shares will be deemed for all purposes to evidence ownership of the
number of full Acquiring Fund Common Shares distributable with respect to the
Target Fund Common Shares held before the Reorganization, as described above,
provided that, until such share certificates have been so surrendered, no
dividends payable to the holders of record of Target Fund Common Shares as of
any date subsequent to the Closing Date will be reinvested pursuant to the
Acquiring Fund's Dividend Reinvestment Plan, but will instead be paid in cash.
Once such Target Fund share certificates have been surrendered, participants in
the Target Fund's Dividend Reinvestment Plan will automatically be enrolled in
the Dividend Reinvestment Plan of the Acquiring Fund.
From and after the Closing Date, there will be no transfers on the share
transfer books of the Target Fund. If, after the Closing Date, certificates
representing Target Fund Common Shares are presented to the Acquiring Fund, they
will be cancelled and exchanged for certificates representing Acquiring Fund
Common Shares and cash in lieu of fractional shares, if applicable,
distributable with respect to such Target Fund Common Shares in the
Reorganization.
Preferred Shares are held in "street name" by the Depository Trust Company and
all transfers will be accomplished by book entry.
EXPENSES OF THE REORGANIZATION
In the event the Reorganization is approved and completed, the expenses of the
Reorganization will be shared by the Target Fund and the Acquiring Fund in
proportion to their projected declines in total operating expenses as a result
of the Reorganization. In the event the Reorganization is not completed, the
Adviser will bear the costs associated with the Reorganization.
59
Expenses incurred in connection with the Reorganization include, but are not
limited to: all costs related to the preparation and distribution of materials
distributed to each Fund's Board; all expenses incurred in connection with the
preparation of the Agreement and Plan of Reorganization and a registration
statement on Form N-14; SEC and state securities commission filing fees and
legal and audit fees in connection with the Reorganization; the costs of
printing and distributing this Proxy Statement/Prospectus; legal fees incurred
preparing materials for the Board of each Fund, attending each Fund's Board
meetings and preparing the minutes; auditing fees associated with each Fund's
financial statements; portfolio transfer taxes (if any); and any similar
expenses incurred in connection with the Reorganization. Neither the Funds nor
the Adviser will pay any expenses of shareholders arising out of or in
connection with the Reorganization.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The following is a general summary of the material anticipated U.S. federal
income tax consequences of the Reorganization. The discussion is based upon the
Internal Revenue Code, Treasury regulations, court decisions, published
positions of the Internal Revenue Service ("IRS") and other applicable
authorities, all as in effect on the date hereof and all of which are subject to
change or differing interpretations (possibly with retroactive effect). The
discussion is limited to U.S. persons who hold shares of the Target Fund as
capital assets for U.S. federal income tax purposes (generally, assets held for
investment). This summary does not address all of the U.S. federal income tax
consequences that may be relevant to a particular shareholder or to shareholders
who may be subject to special treatment under U.S. federal income tax laws. No
ruling has been or will be obtained from the IRS regarding any matter relating
to the Reorganization. No assurance can be given that the IRS would not assert,
or that a court would not sustain, a position contrary to any of the tax aspects
described below. Prospective investors must consult their own tax advisers as to
the U.S. federal income tax consequences of the Reorganization, as well as the
effects of state, local and non-U.S. tax laws.
It is a condition to closing the Reorganization that each of the Target Fund
and the Acquiring Fund receives an opinion from Skadden, Arps, Slate, Meagher &
Flom LLP ("Skadden Arps"), dated as of the Closing Date, regarding the
characterization of the Reorganization as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code. As such a reorganization, the
U.S. federal income tax consequences of the Reorganization can be summarized as
follows:
- No gain or loss will be recognized by the Target Fund or the Acquiring Fund
upon the transfer to the Acquiring Fund of substantially all of the assets
of the Target Fund in exchange for Acquiring Fund Common Shares and
Acquiring Fund APS and the assumption by the Acquiring Fund of substantially
all of the
60
liabilities of the Target Fund and the subsequent liquidation of the Target
Fund.
- No gain or loss will be recognized by a shareholder of the Target Fund who
exchanges, as the case may be, all of his, her or its Target Fund Common
Shares for Acquiring Fund Common Shares pursuant to the Reorganization or
all of his, her or its Target Fund RP solely for Acquiring Fund APS pursuant
to the Reorganization (except with respect to cash received in lieu of a
fractional share of the Acquiring Fund, as discussed below).
- The aggregate tax basis of the Acquiring Fund Common Shares or Acquiring
Fund APS, as the case may be, received by a shareholder of the Target Fund
pursuant to the Reorganization will be the same as the aggregate tax basis
of the shares of the Target Fund surrendered in exchange therefor (reduced
by any amount of tax basis allocable to a fractional share for which cash is
received).
- The holding period of the Acquiring Fund Common Shares or Acquiring Fund
APS, as the case may be, received by a shareholder of the Target Fund
pursuant to the Reorganization will include the holding period of the shares
of the Target Fund surrendered in exchange therefor.
- A shareholder of the Target Fund that receives cash in lieu of a fractional
share of the Acquiring Fund pursuant to the Reorganization will recognize
capital gain or loss with respect to the fractional share in an amount equal
to the difference between the amount of cash received for the fractional
share and the portion of such shareholder's tax basis in its Target Fund
shares that is allocable to the fractional share. The capital gain or loss
will be long-term if the holding period for such Target Fund Common Shares
is more than one year as of the date of the exchange.
- The Acquiring Fund's tax basis in the Target Fund's assets received by the
Acquiring Fund pursuant to the Reorganization will equal the tax basis of
such assets in the hands of the Target Fund immediately prior to the
Reorganization, and the Acquiring Fund's holding period of such assets will
include the period during which the assets were held by the Target Fund.
The Acquiring Fund intends to continue to be taxed under the rules applicable
to regulated investment companies as defined in Section 851 of the Internal
Revenue Code, which are the same rules currently applicable to the Target Fund
and its shareholders.
The opinion of Skadden Arps will be based on federal income tax law in effect
on the Closing Date. In rendering its opinion, Skadden Arps will also rely upon
certain representations of the management of the Acquiring Fund and the Target
Fund and assume, among other things, that the Reorganization will be consummated
in
61
accordance with the Agreement and Plan of Reorganization and as described
herein. An opinion of counsel is not binding on the IRS or any court.
Pursuant to the grandfather relief granted in Revenue Ruling 89-81, 1989-1
C.B. 226, Target Fund is permitted to designate that dividends paid on the
Target Fund RP consist of more than the Target Fund RP's pro rata share of
tax-exempt income earned by the Target Fund. The Acquiring Fund, however, is not
eligible to make such disproportionate designations. Accordingly, designations
made by the Acquiring Fund with respect to dividends paid on the Acquiring Fund
APS will be treated as consisting of a pro rata portion of each type of income
so designated.
The Acquiring Fund will succeed to the capital loss carryforwards of the
Target Fund, which will be subject to the limitations described below. The
Target Fund has capital loss carryforwards that, in the absence of the
Reorganization, would generally be available to offset its capital gains. As a
result of the Reorganization, however, the Target Fund will undergo an
"ownership change" for tax purposes (because the Target Fund is significantly
smaller than the Acquiring Fund), and accordingly, the use of capital loss
carryforwards of the Target Fund (and certain built-in losses) will be limited
by the operation of the tax loss limitations rules of the Code. The Code
generally limits the amount of pre-ownership change losses that may be used to
offset post-ownership change gains to an "annual loss limitation amount"
(generally the product of the net asset value of the Target Fund immediately
prior to the ownership change and a rate established by the IRS for the month in
which the Reorganization occurs (for example, such rate is 4.27% for March
2005). Subject to certain limitations, any unused portion of the "annual loss
limitation amount" may be available in subsequent years, subject to the overall
eight-year capital loss carryforward limit, as measured from the date of
recognition. In addition, for five years after the Closing Date, the combined
fund will not be allowed to offset certain pre-Reorganization built-in gains
attributable to one Fund with capital loss carryforwards (and certain built-in
losses) attributable to the other Fund.
SHAREHOLDER APPROVAL
Under the Declaration of Trust of the Target Fund (as amended to date and
including the Certificate of Vote of the Target Fund), relevant Massachusetts
law and the rules of the NYSE and CHX, shareholder approval of the Agreement and
Plan of Reorganization requires the affirmative vote of shareholders of the
Target Fund representing more than 50% of the outstanding Target Fund Common
Shares and Target Fund RP, each voting separately as a class.
62
------------------------------------------------------------------------------
OTHER INFORMATION
------------------------------------------------------------------------------
VOTING INFORMATION AND REQUIREMENTS
GENERAL. A list of shareholders of the Target Fund entitled to be present and
vote at the Special Meeting will be available at the offices of the Target Fund,
1 Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, for inspection by any
shareholder during regular business hours for ten days prior to the date of the
Special Meeting.
RECORD DATE. The Board of Trustees of the Target Fund has fixed the close of
business on April 25, 2005 as the record date (the "Record Date") for the
determination of shareholders entitled to notice of, and to vote at, the Special
Meeting or any adjournment thereof. Shareholders on the Record Date will be
entitled to one vote for each share held, with no shares having cumulative
voting rights. At the Record Date, the Target Fund had outstanding 4,839,000
Target Fund Common Shares and 250 Target Fund RP.
PROXIES. Target Fund shareholders may vote by appearing in person at the
Special Meeting, by returning the enclosed proxy card or by casting their vote
via telephone or the internet using the instructions provided on the enclosed
proxy card and more fully described below. Shareholders of the Target Fund have
the opportunity to submit their voting instructions via the internet by
utilizing a program provided by a third-party vendor hired by the Target Fund,
or by "touch-tone" telephone voting. The giving of such a proxy will not affect
your right to vote in person should you decide to attend the Special Meeting. To
use the internet, please access the internet address found on your proxy card.
To record your voting instructions by automated telephone, please call the
toll-free number listed on your proxy card. The internet and automated telephone
voting instructions are designed to authenticate shareholder identities, to
allow shareholders to give their voting instructions, and to confirm that
shareholders' instructions have been recorded properly. Shareholders submitting
their voting instructions via the internet should understand that there may be
costs associated with internet access, such as usage charges from internet
access providers and telephone companies, that must be borne by the
shareholders. Any person giving a proxy may revoke it at any time prior to its
exercise by giving written notice of the revocation to the Secretary of the
Target Fund at the address indicated above, by delivering a duly executed proxy
bearing a later date, by recording later-dated voting instructions via the
internet or automated telephone, or by attending the Special Meeting and voting
in person. The giving of a proxy will not affect your right to vote in person if
you attend the Special Meeting and wish to do so.
All properly executed proxies received prior to the Special Meeting will be
voted in accordance with the instructions marked thereon or otherwise as
provided
63
therein. Unless instructions to the contrary are marked, proxies will be voted
"FOR" the approval of the proposed Reorganization.
Abstentions and broker non-votes (i.e., where a nominee, such as a broker
holding shares for beneficial owners, votes on certain matters pursuant to
discretionary authority or instructions from beneficial owners, but with respect
to one or more proposals does not receive instructions from beneficial owners or
does not exercise discretionary authority) are not treated as votes "FOR" the
proposed Reorganization and have the same effect as votes "AGAINST" the proposed
Reorganization since approval of the proposed Reorganization is based on the
affirmative vote of a majority of the total shares outstanding. A majority of
the outstanding shares entitled to vote on a proposal must be present in person
or by proxy to have a quorum to conduct business at the Special Meeting.
Abstentions and broker non-votes will be deemed present for quorum purposes.
CERTAIN VOTING INFORMATION REGARDING TARGET FUND RP. RP held in "street name"
may be voted under certain conditions by broker-dealer firms and counted for
purposes of establishing a quorum of that Fund if no instructions are received
one business day before the Meeting or, if adjourned, one business day before
the day to which the Meetings are adjourned. These conditions include, among
others, that (i) at least 30% of the Target Fund's RP outstanding have voted on
the Reorganization and (ii) less than 10% of the Target Fund RP outstanding have
voted against the Reorganization. In such instance, the broker-dealer firm will
vote such uninstructed Target Fund RP on the Reorganization in the same
proportion as the votes cast by all holders of Target Fund RP who voted on the
Reorganization. The Target Fund will include shares held of record by
broker-dealers as to which such authority has been granted in its tabulation of
the total number of shares present for purposes of determining whether the
necessary quorum of shareholders of the Target Fund exists.
SHAREHOLDER INFORMATION
As of April 25, 2005, to the knowledge of the Acquiring Fund, no shareholder
owned beneficially more than 5% of the outstanding common shares of the
Acquiring Fund.
Except as set forth below, as of April 25, 2005, to the knowledge of the
Target Fund, no shareholder owned beneficially more than 5% of the outstanding
common shares of the Target Fund:
<Table>
<Caption>
APPROXIMATE PERCENTAGE
OWNERSHIP ON
SHAREHOLDER AND ADDRESS APRIL 25, 2005
- ----------------------- ----------------------
Karpus Management, Inc. d/b/a/ Karpus 9.86%
Investment Management
183 Sullys Trail
Pittsford, New York 14534
</Table>
64
The table below indicates the number of common shares of the Funds owned
beneficially by each trustee of the Funds, as of April 25, 2005, and the
percentage of such trustee's Common Shares to the total common shares
outstanding for such fund is shown in parenthesis when such ownership
individually exceeds 1% of the total common shares outstanding.
<Table>
<Caption>
TARGET FUND ACQUIRING FUND
----------- --------------
Independent Trustees
Arch....................................... 524 800
Dammeyer................................... 0 8,300
Heagy...................................... 100 100
Kennedy.................................... 100 100
Sonnenschein............................... 300 300
Interested Trustees
Whalen..................................... 339 371
</Table>
To the knowledge of the Funds, no executive officers owned, directly or
beneficially, common shares of the Funds as of April 25, 2005 and no trustees or
executive officers owned Preferred Shares of the Funds as of that date. As of
April 25, 2005, the trustees and executive officers of the Funds individually
and as a group owned less than 1% of the outstanding shares of each Fund.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(f) of the 1940 Act and Section 16(a) of the Securities Exchange Act
of 1934, as amended, require the Funds' trustees, officers, investment adviser,
affiliated persons of the investment adviser and persons who own more than 10%
of a registered class of the applicable Fund's equity securities to file forms
with the SEC and the NYSE, as applicable, reporting their affiliation with the
applicable Fund and reports of ownership and changes in ownership of Fund
shares. These persons and entities are required by SEC regulation to furnish the
applicable Fund with copies of all such forms they file. Based on a review of
these forms furnished to each Fund, each Fund believes that during its last
fiscal year, its trustees, officers, investment adviser and affiliated persons
of the investment adviser complied with the applicable filing requirements
except that, due to clerical errors, the Form 4 filings of Wayne W. Whalen, a
trustee of each Fund, regarding a sales transaction of common shares of the
Acquiring Fund and of the Target Fund, were not filed in a timely manner.
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this Notice
and Proxy Statement/Prospectus with its enclosures on or about May 10, 2005.
Target Fund shareholders whose shares are held by nominees such as brokers can
vote their proxies by contacting their respective nominee. In addition to the
solicitation
65
of proxies by mail, employees of the Adviser and its affiliates as well as
dealers or their representatives may, without additional compensation, solicit
proxies in person or by mail, telephone, telegraph, facsimile or oral
communication. The Target Fund has retained Computershare Fund Services ("CFS")
to make telephone calls to Target Fund shareholders to remind them to vote. CFS
will be paid a project management fee as well as fees charged on a per call
basis and certain other expenses. Management estimates that any such
solicitation would cost approximately $9,600. Proxy solicitation expenses are an
expense of the Reorganization which will be borne by the Target Fund and the
Acquiring Fund in proportion to their projected declines in total operating
expenses as a result of the Reorganization.
LEGAL MATTERS
Certain legal matters concerning the federal income tax consequences of the
Reorganization and the issuance of Acquiring Fund Common Shares and Acquiring
Fund APS will be passed upon by Skadden Arps, which serves as counsel to the
Target Fund and the Acquiring Fund. Wayne W. Whalen, a partner of Skadden Arps,
is a trustee of both the Target Fund and the Acquiring Fund.
OTHER MATTERS TO COME BEFORE THE MEETING
The Target Fund Board of Trustees knows of no business other than that
described in this Proxy Statement/Prospectus which will be presented for
consideration at the Special Meeting. If any other matters are properly
presented, it is the intention of the persons named on the enclosed proxy card
to vote proxies in accordance with their best judgment.
In the event that a quorum is present at the Special Meeting but sufficient
votes to approve the proposed Reorganization are not received, proxies
(including abstentions and broker non-votes) will be voted in favor of one or
more adjournments of the Special Meeting to permit further solicitation of
proxies on the proposed Reorganization, provided that the Target Fund Board of
Trustees determines that such an adjournment and additional solicitation is
reasonable and in the interest of shareholders based on a consideration of all
relevant factors, including the percentage of votes then cast, the percentage of
negative votes cast, the nature of the proposed solicitation activities and the
nature of the reasons for such further solicitation. Any such adjournment will
require the affirmative vote of the holders of a majority of the outstanding
shares voted at the session of the Special Meeting to be adjourned.
66
If you cannot be present in person at the Special Meeting, please fill in,
sign and return the enclosed proxy card promptly or please record your voting
instructions by telephone or via the internet. No postage is necessary if the
enclosed proxy card is mailed in the United States.
LOU ANNE MCINNIS
Assistant Secretary
Van Kampen Investment Grade Municipal
Trust
May 6, 2005
67
EXHIBIT I
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follows:
A S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The issue credit 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.
Issue credit ratings are based on current information furnished by the obligors
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances. Issue credit ratings can be either long-term or
short-term. Short-term ratings are generally assigned to those obligations
considered short term in the relevant market. In the U.S., for example, that
means obligations with an original maturity of no more than 365 days, including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating, in which the short-term ratings
address the put feature, in addition to the usual long-term rating. Medium-term
notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following
considerations:
- 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;
- Nature of and provisions of the obligation;
- 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.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower
I-1
than senior obligations, to reflect the lower priority in bankruptcy, as noted
above. (Such differentiation applies when an entity has both senior and
subordinated obligations, secured and unsecured obligations, or operating
company and holding company obligations.) Accordingly, in the case of junior
debt, the rating may not conform exactly with the category definition.
AAA: An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated "A" is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Obligations 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: An obligation 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: An obligation 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: An obligation 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
I-2
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated "CC" is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is CURRENTLY
HIGHLY VULNERABLE to nonpayment. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A "C" also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D: An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating.
N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.
SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term obligation rated "A-1" is rated in the highest category by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more
I-3
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short-term obligation rated "B" is 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: A short-term obligation rated "C" 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.
D: A short-term obligation 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.
MOODY'S INVESTORS SERVICE INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
Aaa: Obligations rated Aaa are judged to be of the highest quality with
minimal credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.
A: Obligations rated A are considered upper-medium grade and are subject to
low credit risk.
Baa: Obligations rated Baa are subject to moderate credit risk. They are
considered medium-grade and as such may possess certain speculative
characteristics.
Ba: Obligations rated Ba are judged to have speculative elements and are
subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high
credit risk.
Caa: Obligations rated Caa are judged to be of poor standing and are subject
to very high credit risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.
I-4
C: Obligations rated C are the lowest rated class of bonds, and are typically
in default, with little prospect for recovery of principal or interest.
Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Moody's assigns long-term ratings to individual debt securities issued from
medium-term note (MTN) programs, in addition to indicating ratings to MTN
programs themselves. Notes issued under MTN programs with such indicated ratings
are rated at issuance at the rating applicable to all pari passu notes issued
under the same program, at the program's relevant indicated rating, provided
such notes do not exhibit any of the characteristics listed below:
-- Notes containing features that link interest or principal to the
credit performance of any third party or parties.
-- Notes allowing for negative coupons, or negative principal.
-- Notes containing any provision that could obligate the investor to
make any additional payments.
-- Notes containing provisions that subordinate the claim.
For notes with any of these characteristics, the rating of the individual note
may differ from the indicated rating of the program.
Market participants must determine whether any particular note is rated, and
if so, at what rating level. Moody's encourages market participants to contact
Moody's Ratings Desks directly or visit www.moodys.com directly if they have
questions regarding ratings for specific notes issued under a medium-term note
program. Unrated notes issued under an MTN program may be assigned an NR symbol.
I-5
SHORT-TERM RATINGS
Moody's short-term ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted. Moody's employs the following designations to indicate the
relative repayment ability of rated issuers:
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability
to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
NOTE: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced
by the senior-most long-term rating of the issuer, its guarantor or
support-provider.
I-6
[VAN KAMPEN INVESTMENTS LOGO]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 5, 2005
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION OF THE ASSETS AND LIABILITIES OF
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN MUNICIPAL TRUST
DATED MAY 6, 2005
This Statement of Additional Information is available to the shareholders
of Van Kampen Investment Grade Municipal Trust (the "Target Fund") in connection
with a proposed transaction (the "Reorganization") whereby Van Kampen Municipal
Trust (the "Acquiring Fund") will acquire substantially all of the assets and
assume substantially all of the liabilities of the Target Fund in exchange for
an equal aggregate value of newly-issued common shares of beneficial interest,
par value $0.01 per share ("Acquiring Fund Common Shares"), and newly-issued
Series E auction preferred shares with a par value of $0.01 per share and a
liquidation preference of $25,000 per share ("Acquiring Fund APS"). The Target
Fund will distribute Acquiring Fund Common Shares to holders of common shares of
the Target Fund ("Target Fund Common Shares") and Series E Acquiring Fund APS to
holders of Remarketed Preferred Shares of the Target Fund ("Target Fund RP"),
and will then terminate its registration under the Investment Company Act of
1940, as amended (the "1940 Act"), and dissolve under applicable state law. A
copy of a form of the Agreement and Plan of Reorganization between the Target
Fund and the Acquiring Fund is attached hereto as Appendix A. Unless otherwise
defined herein, capitalized terms have the meanings given to them in the Proxy
Statement/Prospectus.
This Reorganization Statement of Additional Information is not a prospectus
and should be read in conjunction with the Proxy Statement/Prospectus dated May
6, 2005 relating to the proposed Reorganization of the Target Fund into the
Acquiring Fund. A copy of the Proxy Statement/Prospectus may be obtained,
without charge, by writing to the Van Kampen Client Relations Department at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555 or by
calling (800) 341-2929 (TDD users may call (800) 421-2833).
The Acquiring Fund will provide, without charge, upon the written or oral
request of any person to whom this Reorganization Statement of Additional
Information is delivered, a copy of any and all documents that have been
incorporated by reference in the registration statement of which this
Reorganization Statement of Additional Information is a part.
This Reorganization Statement of Additional Information is intended to
provide Target Fund shareholders with certain additional information about the
Acquiring Fund, which will hereinafter sometimes be referred to simply as the
"Fund."
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
Trustees and Officers....................................... S-2
Investment Advisory Agreement............................... S-13
Other Agreements............................................ S-14
Fund Management............................................. S-15
Code of Ethics.............................................. S-17
Portfolio Transactions and Brokerage Allocation............. S-17
Additional Information Relating to Auction Preferred Shares
of the Acquiring Fund..................................... S-19
Other Information........................................... S-29
Financial Statements........................................ S-29
Pro Forma Financial Statements.............................. S-30
Appendix A Form of Agreement and Plan of Reorganization..... A-1
Appendix B Certificate of Vote of Trustees.................. B-1
Appendix C Acquiring Fund Annual Report Dated October 31,
2004...................................................... C-1
Appendix D Target Fund Annual Report Dated October 31,
2004...................................................... D-1
Appendix E Proxy Voting Procedures.......................... E-1
</Table>
TRUSTEES AND OFFICERS
GENERAL
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 Acquiring Fund and the Target Fund share the same Board of
Trustees and executive officers. The tables below list the trustees and
executive officers of the Fund and their principal occupations during the last
five years, other directorships held by trustees and their affiliations, if any,
with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Asset
Management (the "Adviser"), Van Kampen Funds Inc. (the "Administrator"), Van
Kampen Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this
Reorganization Statement of Additional Information. Trustees serve until
reaching their retirement age or until their successors are duly elected and
qualified. Officers are annually elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief Executive 82 Trustee/Director/
Blistex Inc. since 1991 Officer of Blistex Inc., a Managing General
1800 Swift Drive consumer health care products Partner of funds in
Oak Brook, IL 60523 manufacturer. Director of the the Fund Complex.
Heartland Alliance, a
nonprofit organization serving
human needs based in Chicago.
Director of St. Vincent de
Paul Center, a Chicago based
day care facility serving the
children of low income
families. Board member of the
Illinois Manufacturers'
Association.
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 80 Trustee/Director/
33971 Selva Road since 2003 Chairman and Chief Executive Managing General
Suite 130 Officer of the Allstate Partner of funds in
Dana Point, CA 92629 Corporation ("Allstate") and the Fund Complex.
Allstate Insurance Company. Director of Amgen
Prior to January 1995, Inc., a
President and Chief Executive biotechnological
Officer of Allstate. Prior to company, and Director
August 1994, various of Valero Energy
management positions at Corporation, an
Allstate. independent refining
company.
</Table>
S-2
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer+ (64) Trustee Trustee President of CAC, L.L.C., a 82 Trustee/Director/
CAC, L.L.C. since 1991 private company offering Managing General
4350 LaJolla Village Drive capital investment and Partner of funds in
Suite 980 management advisory services. the Fund Complex.
San Diego, CA 92122-6223 Prior to February 2001, Vice Director of
Chairman and Director of Stericycle, Inc.,
Anixter International, Inc., a Ventana Medical
global distributor of wire, Systems, Inc., and
cable and communications GATX Corporation, and
connectivity products. Prior Trustee of The
to July 2000, Managing Partner Scripps Research
of Equity Group Corporate Institute. Prior to
Investment (EGI), a company January 2005, Trustee
that makes private investments of the University of
in other companies. Chicago Hospitals and
Health Systems. Prior
to April 2004,
Director of
TheraSense, Inc.
Prior to January
2004, Director of
TeleTech Holdings
Inc. and Arris Group,
Inc. Prior to May
2002, Director of
Peregrine Systems
Inc. Prior to
February 2001,
Director of IMC
Global Inc. Prior to
July 2000, Director
of Allied Riser
Communications Corp.,
Matria Healthcare
Inc., Transmedia
Networks, Inc., CNA
Surety, Corp. and
Grupo Azcarero Mexico
(GAM).
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of Heidrick & 80 Trustee/Director/
Heidrick & Struggles since 2003 Struggles, an executive search Managing General
233 South Wacker Drive firm. Trustee on the Partner of funds in
Suite 7000 University of Chicago the Fund Complex.
Chicago, IL 60606 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 1997, Partner of Ray
& Berndtson, Inc., an
executive recruiting firm.
Prior to 1996, Trustee of The
International House Board, a
fellowship and housing
organization for international
graduate students. Prior to
1995, Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice President
of La Salle National Bank.
</Table>
S-3
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (53) Trustee Trustee Director and President of the 80 Trustee/Director/
1744 R Street, NW since 2003 German Marshall Fund of the Managing General
Washington, DC 20009 United States, an independent Partner of funds in
U.S. foundation created to the Fund Complex.
deepen understanding, promote
collaboration and stimulate
exchanges of practical
experience between Americans
and Europeans. 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.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President and 82 Trustee/Director/
736 North Western Avenue since 1992 Chief Executive Officer of Managing General
P.O. Box 317 Pocklington Corporation, Inc., Partner of funds in
Lake Forest, IL 60045 an investment holding company. the Fund Complex.
Director of the Marrow Director of the Lake
Foundation. Forest Bank & Trust.
Jack E. Nelson (69) Trustee Trustee President of Nelson Investment 80 Trustee/Director/
423 Country Club Drive since 2003 Planning Services, Inc., a Managing General
Winter Park, FL 32789 financial planning company and Partner of funds in
registered investment adviser the Fund Complex.
in the State of Florida.
President of Nelson Ivest
Brokerage Services Inc., a
member of the NASD, Securities
Investors Protection Corp. and
the Municipal Securities
Rulemaking Board. President of
Nelson Sales and Services
Corporation, a marketing and
services company to support
affiliated companies.
Hugo F. Sonnenschein+ (64) Trustee Trustee President Emeritus and 82 Trustee/Director/
1126 E. 59th Street since 1994 Honorary Trustee of the Managing General
Chicago, IL 60637 University of Chicago and the Partner of funds in
Adam Smith Distinguished the Fund Complex.
Service Professor in the Director of Winston
Department of Economics at the Laboratories, Inc.
University of Chicago. Prior
to July 2000, President of the
University of Chicago. Trustee
of the University of Rochester
and a member of its investment
committee. Member of the
National Academy of Sciences,
the American Philosophical
Society and a fellow of the
American Academy of Arts and
Sciences.
</Table>
S-4
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (63) Trustee Trustee Chief Communications Officer 80 Trustee/Director/
815 Cumberstone Road since 2003 of the National Academy of Managing General
Harwood, MD 20776 Sciences/National Research Partner of funds in
Council, an independent, the Fund Complex.
federally chartered policy Director of Fluor
institution, from 2001 to Corp., an
November 2003 and Chief engineering,
Operating Officer from 1993 to procurement and
2001. Director of the construction
Institute for Defense organization, since
Analyses, a federally funded January 2004 and
research and development Director of Neurogen
center, Director of the German Corporation, a
Marshall Fund of the United pharmaceutical
States, Director of the Rocky company, since
Mountain Institute and Trustee January 1998.
of Colorado College. Prior to
1993, Executive Director of
the Commission on Behavioral
and Social Sciences and
Education at the National
Academy of Sciences/National
Research Council. From 1980
through 1989, Partner of
Coopers & Lybrand.
</Table>
S-5
INTERESTED TRUSTEES*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief Executive 80 Trustee/Director/
1221 Avenue of the Americas President since Officer of funds in the Fund Managing General
New York, NY 10020 and Chief 2003; Complex. Chairman, President, Partner of funds in
Executive President Chief Executive Officer and the Fund Complex.
Officer and Chief Director of the Adviser and Van
Executive Kampen Advisors Inc. since
Officer December 2002. Chairman,
since 2002 President and Chief Executive
Officer of Van Kampen Investments
since December 2002. Director of
Van Kampen Investments since
December 1999. Chairman and
Director of Van Kampen Funds Inc.
since December 2002. President,
Director and Chief Operating
Officer of Morgan Stanley
Investment Management since
December 1998. President and
Director since April 1997 and
Chief Executive Officer since
June 1998 of Morgan Stanley
Investment Advisors Inc. and
Morgan Stanley Services Company
Inc. Chairman, Chief Executive
Officer and Director of Morgan
Stanley Distributors Inc. since
June 1998. Chairman since June
1998, and Director since January
1998 of Morgan Stanley Trust.
Director of various Morgan
Stanley subsidiaries. President
of the Morgan Stanley Funds since
May 1999. Previously Chief
Executive Officer of Van Kampen
Funds Inc. from December 2002 to
July 2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc. and
Morgan Stanley Services Company
Inc. and Executive Vice President
of Morgan Stanley Distributors
Inc. from April 1997 to June
1998. Chief Executive Officer
from September 2002 to April 2003
and Vice President from May 1997
to April 1999 of the Morgan
Stanley Funds.
Richard F. Powers, III* (59) Trustee Trustee Advisory Director of Morgan 82 Trustee/Director/
1221 Avenue of the Americas since 1999 Stanley. Prior to December 2002, Managing General
New York, NY 10020 Chairman, Director, President, Partner of funds in
Chief Executive Officer and the Fund Complex.
Managing Director of Van Kampen
Investments and its investment
advisory, distribution and other
subsidiaries. Prior to December
2002, President and Chief
Executive Officer of funds in the
Fund Complex. Prior to May 1998,
Executive Vice President and
Director of Marketing at Morgan
Stanley and Director of Dean
Witter, Discover & Co. and Dean
Witter Realty. Prior to 1996,
Director of Dean Witter Reynolds
Inc.
</Table>
S-6
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm of 82 Trustee/Director/
333 West Wacker Drive since 1991 Skadden, Arps, Slate, Meagher & Managing General
Chicago, IL 60606 Flom LLP, legal counsel to funds Partner of funds in
in the Fund Complex. the Fund Complex.
Director of the
Abraham Lincoln
Presidential Library
Foundation.
</Table>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Merin and Powers are interested persons of funds in
the Fund Complex and the Adviser by reason of their current or former
positions with Morgan Stanley or its affiliates. Mr. Whalen is an interested
person of certain funds in the Fund Complex by reason of he and his firm
currently providing legal services as legal counsel to such funds in the Fund
Complex.
+ Designated as Preferred Shares Trustee.
S-7
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Stefanie V. Chang Yu (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President and Secretary of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (43) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc from January 1997 to July 2000.
James W. Garrett (36) Chief Financial Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas Officer and since 2005 Chief Financial Officer and Treasurer of Morgan Stanley
New York, NY 10020 Treasurer Institutional Funds since 2002 and of funds in the Fund
Complex since 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Chief Investment Management Inc. and Morgan Stanley Investments LP and
Officer Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Adviser and Van Kampen
Advisors Inc. since December 2002.
Ronald E. Robison (66) Executive Vice Officer Executive Vice President and Principal Executive Officer of
1221 Avenue of the Americas President and since 2003 Funds in the Fund Complex since May 2003. Chief Executive
New York, NY 10020 Principal Officer and Chairman of Investor Services. Managing Director
Executive of Morgan Stanley. Chief Administrative Officer, Managing
Officer Director and Director of Morgan Stanley Investment Advisors
Inc., Morgan Stanley Services Company Inc. and Managing
Director and Director of Morgan Stanley Distributors Inc.
Chief Executive Officer and Director of Morgan Stanley
Trust. Executive Vice President and Principal Executive
Officer of the Institutional and Retail Morgan Stanley
Funds; Director of Morgan Stanley SICAV; previously Chief
Global Operations Officer and Managing Director of Morgan
Stanley Investment Management Inc.
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
</Table>
- ---------------
COMPENSATION
Each trustee/director/managing general partner (hereinafter referred to in
this section as "trustee") who is not an affiliated person (as defined in the
1940 Act) of Van Kampen Investments, the Adviser or the Administrator (each a
"Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees
for services to funds in the Fund Complex. Each fund in the Fund Complex (except
Van Kampen Exchange Fund) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows trustees to defer receipt of their
compensation until retirement and earn a return on such deferred amounts.
Amounts deferred are retained by the Fund and earn a rate of return determined
S-8
by reference to the return on the common shares of the Fund or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee. 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. Deferring compensation has the same economic effect as if
the Non-Affiliated Trustee reinvested his or her compensation into the funds.
Each fund in the Fund Complex (except Van Kampen Exchange Fund) 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. Under the retirement plan, a Non-Affiliated Trustee who is
receiving compensation from the 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 per year for each of the 10
years following such retirement from the 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 the Fund.
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 Pension Aggregate Estimated
or Retirement Maximum Annual
Aggregate Benefits Accrued Benefits from the Total Compensation
Compensation as Part of Fund Complex before Deferral from
Name(1) from the Fund(2) Expenses(3) Upon Retirement(4) Fund Complex(5)
------- ---------------- ----------------- ------------------- --------------------
INDEPENDENT TRUSTEES
David C. Arch $6,729 $ 35,277 $147,500 $192,530
Jerry D. Choate 9,470 82,527 126,000 200,002
Rod Dammeyer 6,735 63,782 147,500 208,000
Linda Hutton Heagy 9,269 24,465 142,500 184,784
R. Craig Kennedy 9,470 16,911 142,500 200,002
Howard J Kerr 6,935 140,743 146,250 208,000
Jack E. Nelson 9,470 97,294 109,500 200,002
Hugo F. Sonnenschein 6,935 64,476 147,500 208,000
Suzanne H. Woolsey 9,470 58,450 142,500 200,002
INTERESTED TRUSTEE
Wayne W. Whalen(1) 6,935 72,001 147,500 208,000
</Table>
- ------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Whalen is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act) of the Fund and certain other funds in the Fund
Complex. J. Miles Branagan retired as a member of the Board of Trustees of
the Fund and other funds in the Fund Complex on December 31, 2004. Theodore
A. Myers retired from the Board of Trustees of the Fund and other funds in
the Fund Complex as of December 31, 2003.
S-9
(2) The amounts shown in this column represent the aggregate compensation before
deferral with respect to the Fund's fiscal year ended October 31, 2004. The
following Trustees deferred compensation from the Fund during the fiscal
year ended October 31, 2004: Mr. Choate, $9,470; Mr. Dammeyer, $6,735; Ms.
Heagy, $9,269; Mr. Nelson, $9,470; Mr. Sonnenschein, $6,935; and Mr. Whalen,
$6,935. The cumulative deferred compensation (including interest) accrued
with respect to each trustee, including former trustees, from the Fund as of
October 31, 2004 is as follows: Mr. Choate, $12,378; Mr. Dammeyer, $81,838;
Ms. Heagy, $12,335; Mr. Kerr, $31,468; Mr. Nelson, $12,268; Mr.
Sonnenschein, $71,005; and Mr. Whalen, $73,419. The deferred compensation
plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating funds in the Fund Complex for each of the
trustees for the funds' respective fiscal years ended in 2004. The
retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in the year of such person's anticipated retirement. The
retirement plan is described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 2004 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.
BOARD COMMITTEES
The Board of Trustees has three standing committees (an audit committee, a
brokerage and services committee and a governance committee). Each committee is
comprised solely of "Independent Trustees", which is defined for purposes herein
as trustees who: (1) are not "interested persons" of the Fund as defined by the
1940 Act and (2) are "independent" of the Fund as defined by the New York Stock
Exchange, American Stock Exchange and Chicago Stock Exchange listing standards.
The Board's audit committee consists of Jerry D. Choate, Rod Dammeyer and
R. Craig Kennedy. In addition to being Independent Trustees as defined above,
each of these trustees also meets the additional independence requirements for
audit committee members as defined by the New York Stock Exchange, American
Stock Exchange and Chicago Stock Exchange listing standards. The audit committee
makes recommendations to the Board of Trustees concerning the selection of the
Fund's independent registered public accounting firm, reviews with such
independent registered public accounting firm the scope and results of the
Fund's annual audit and considers any comments which the independent registered
public accounting firm may have regarding the Fund's financial statements, books
of account or internal controls. The Board of Trustees has adopted a formal
written charter for the audit committee which sets forth the audit committee's
responsibilities. The audit committee has reviewed and discussed the financial
statements of the Fund with management as well as with the independent
registered public accounting firm of the Fund, and discussed with the
independent registered public accounting firm the matters required to be
discussed under the Statement of Auditing Standards No. 61. The audit committee
has received the written disclosures and the
S-10
letter from the independent registered public accounting firm required under
Independence Standards Board Standard No. 1 and has discussed with the
independent registered public accounting firm its independence. Based on this
review, the audit committee recommended to the Board of Trustees of the Fund
that the Fund's audited financial statements be included in the Fund's annual
report to shareholders for the most recent fiscal year for filing with the SEC.
The Board's brokerage and services committee consists of Linda Hutton
Heagy, Hugo F. Sonnenschein and Suzanne H. Woolsey. The brokerage and services
committee reviews the Fund's allocation of brokerage transactions and
soft-dollar practices and reviews the transfer agency and shareholder servicing
arrangements with Investor Services.
The Board's governance committee consists of David C. Arch, Howard J Kerr
and Jack E. Nelson. In addition to being Independent Trustees as defined above,
each of these trustees also meets the additional independence requirements for
nominating committee members as defined by the New York Stock Exchange, American
Stock Exchange and Chicago Stock Exchange listing standards. The governance
committee identifies individuals qualified to serve as Independent Trustees on
the Board and on committees of the Board, advises the Board with respect to
Board composition, procedures and committees, develops and recommends to the
Board a set of corporate governance principles applicable to the Fund, monitors
corporate governance matters and makes recommendations to the Board, and acts as
the administrative committee with respect to Board policies and procedures,
committee policies and procedures and codes of ethics. The Independent Trustees
of the Fund select and nominate any other nominee Independent Trustees for the
Fund. While the Independent Trustees of the Fund expect to be able to continue
to identify from their own resources an ample number of qualified candidates for
the Board of Trustees as they deem appropriate, they will consider nominations
from shareholders to the Board. Nominations from shareholders should be in
writing and sent to the Independent Trustees of the Fund at the Fund's offices
1221 Avenue of the Americas, New York, New York 10020 or directly to the
Independent Trustees at the address specified above for each trustee.
During the Fund's last fiscal year, the Board of Trustees held 16 meetings.
During the Fund's last fiscal year, the audit committee of the Board held 5
meetings, the brokerage and services committee of the Board held 4 meetings and
the governance committee of the Board held 5 meetings.
SHARE OWNERSHIP
Excluding any to deferred compensation balances as described in the
Compensation Table, as of December 31, 2004, the most recently completed
calendar year prior to the date of this Reorganization Statement of Additional
Information, each trustee of the Fund beneficially owned equity securities of
the Fund and of all of the funds in the Fund Complex overseen by the trustee in
the dollar range amounts specified below.
S-11
2004 TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES
INDEPENDENT TRUSTEES
<Table>
<Caption>
TRUSTEE
-----------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- ------- -------- -------- -------- ------- ------- ------------ --------
Dollar range of equity securities
in the Fund....................... $10,001- none over $1- $1- none none $1- none
$50,000 $100,000 $10,000 $10,000 $10,000
Aggregate dollar range of equity
securities in all registered
investment companies overseen by
trustee in the Fund Complex....... $50,001- $1- over $10,001- over $1- $1- $10,001- $10,001-
$100,000 $10,000 $100,000 $50,000 $100,000 $10,000 $10,000 $50,000 $50,000
</Table>
INTERESTED TRUSTEES
<Table>
<Caption>
TRUSTEE
----------------------------
MERIN POWERS WHALEN
-------- -------- --------
Dollar range of equity securities in the Fund............... none none none
Aggregate dollar range of equity securities in all
registered investment companies overseen by trustee in the
Fund Complex............................................... over over over
$100,000 $100,000 $100,000
</Table>
Including deferred compensation balances (which are amounts deferred and
thus retained by the Fund as described in the Compensation Table), as of
December 31, 2004, the most recently completed calendar year prior to the date
of this Reorganization Statement of Additional Information, each trustee of the
Fund had in the aggregate, combining beneficially owned equity securities and
deferred compensation of the Fund and of all of the funds in the Fund Complex
overseen by the trustee, the dollar range of amounts specified below.
2004 TRUSTEE BENEFICIAL OWNERSHIP AND DEFERRED COMPENSATION
INDEPENDENT TRUSTEES
<Table>
<Caption>
TRUSTEE
--------------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- -------- -------- -------- -------- -------- -------- ------------ --------
Dollar range of equity
securities and deferred
compensation in the Fund....... $10,001- none over $1- $1- none none $1- none
$50,000 $100,000 $10,000 $10,000 $10,000
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by trustee in Fund Complex..... $50,001- over over over over over over over $10,000-
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $50,001
</Table>
INTERESTED TRUSTEES
<Table>
<Caption>
TRUSTEE
------------------------------
MERIN POWERS WHALEN
-------- -------- --------
Dollar range of equity
securities and deferred
compensation in the Fund....... none none none
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by trustee in the Fund
Complex........................ over over over
$100,000 $100,000 $100,000
</Table>
S-12
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate
strategy and implement the Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund, renders periodic reports to the Fund's Board of Trustees
and permits its officers and employees to serve without compensation as trustees
or officers of the Fund if elected to such positions. The Fund, however, bears
the costs of its day-to-day operations, including custodian fees, auction agent
fees, fees for broker-dealers participating in auctions of the Fund's APS, legal
and independent registered public accounting firm fees, the costs of reports and
proxies to shareholders, compensation of trustees of the Fund (other than those
who are affiliated persons of the Adviser, Administrator or Van Kampen
Investments) and all other ordinary business expenses not specifically assumed
by the Adviser. The Advisory Agreement also provides that the Adviser shall not
be liable to the Fund for any actions or omissions in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its obligations and
duties under the Advisory Agreement.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Board of Trustees or (ii) by a
vote of a majority of the Fund's outstanding voting securities and (b) by a vote
of a majority of the trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
In approving the Advisory Agreement, the Board of Trustees, including the
non-interested trustees, considered the nature, quality and scope of the
services provided by the Adviser, the performance, fees and expenses of the Fund
compared to other similar investment companies, the Adviser's expenses in
providing the services and the profitability of the Adviser and its affiliated
companies. The Board of Trustees also reviewed the benefit to the Adviser of
receiving research paid for by Fund assets and the propriety of such an
arrangement and evaluated other benefits the Adviser derives from its
relationship with the Fund. The Board of Trustees considered the extent to which
any economies of scale experienced by the Adviser are shared with the Fund's
shareholders, and the propriety of alternative breakpoints in the Fund's
advisory fee schedule. The Board of Trustees considered comparative advisory
fees of the Fund and other investment companies at different asset levels. The
Board of Trustees reviewed reports from third parties about the foregoing
factors and considered changes, if any, in such items since its previous
approval. The Board of Trustees discussed the financial strength of the Adviser
and its affiliated companies and the capability of the personnel of the Adviser.
The Board of Trustees reviewed the statutory and regulatory requirements for
approval of advisory agreements. The Board of Trustees, including the
non-interested trustees, evaluated all of the foregoing and determined, in the
exercise of its business judgment, that approval of the Advisory Agreement was
in the best interests of the Fund and its shareholders.
S-13
ADVISORY FEES
<Table>
<Caption>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------
2004 2003 2002
---------- ---------- ----------
The Adviser received the approximate advisory fees
of.............................................. $5,364,400 $5,355,900 $5,256,800
</Table>
OTHER AGREEMENTS
THE ADMINISTRATION AGREEMENT
The administrative services provided by the Administrator include record
keeping and reporting responsibilities with respect to the Fund's portfolio and
Preferred Shares and providing certain services to shareholders. Prior to June
1, 2004, the Fund paid the Administrator a monthly administrative fee at the
annual rate of 0.05% of the average net assets of the Fund. Effective June 1,
2004, the administrative fee was reduced from 0.05% to 0.00%.
ADMINISTRATIVE FEES
<Table>
<Caption>
FISCAL YEAR ENDED OCTOBER 31,
--------------------------------
2004 2003 2002
-------- -------- ----------
Van Kampen Funds Inc. received the approximate
administrative fees of............................ $261,200 $466,300 $1,133,600
</Table>
ACCOUNTING SERVICES AGREEMENT
The Fund has entered into an accounting services agreement pursuant to
which the Adviser provides accounting services to the Fund supplementary to
those provided by the custodian. Such services are expected to enable the Fund
to more closely monitor and maintain its accounts and records. The Fund pays all
costs and expenses related to such services, including all salary and related
benefits of accounting personnel, as well as the overhead and expenses of office
space and the equipment necessary to render such services. The Fund shares
together with the other Van Kampen funds in the cost of providing such services
with 25% of such costs shared proportionately based on the respective number of
classes of securities issued per fund and the remaining 75% of such costs based
proportionately on the respective net assets per fund.
ACCOUNTING SERVICES FEES
<Table>
<Caption>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------
2004 2003 2002
-------- -------- --------
The Adviser received the approximate accounting services
fees of................................................ $41,400 $48,500 $47,200
</Table>
LEGAL SERVICES AGREEMENT
The Fund and certain other Van Kampen funds have entered into legal
services agreements pursuant to which Van Kampen Investments provides legal
services, including without limitation: accurate maintenance of each fund's
minute books and records,
S-14
preparation and oversight of each fund's regulatory reports and other
information provided to shareholders, as well as responding to day-to-day legal
issues on behalf of the funds. Payment by the funds for such services is made on
a cost basis for the salary and salary-related benefits, including but not
limited to bonuses, group insurance and other regular wages for the employment
of personnel. Other funds distributed by the Administrator also receive legal
services from Van Kampen Investments. Of the total costs for legal services
provided to the funds distributed by the Administrator, 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.
LEGAL SERVICES FEES
<Table>
<Caption>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------
2004 2003 2002
-------- -------- --------
Van Kampen Investments received the approximate legal
services fees of....................................... $24,000 $25,800 $22,600
</Table>
FUND MANAGEMENT
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of October 31, 2004, Thomas Byron managed 6 registered investment
companies with a total of $2.5 billion in assets; 0 pooled investment vehicles
other than registered investment companies; and 0 other accounts.
As of October 31, 2004, Robert Wimmel managed 39 registered investment
companies with a total of $11.4 billion in assets; 0 pooled investment vehicles
other than registered investment companies; and 0 other accounts.
As of October 31, 2004, John Reynoldson managed 36 registered investment
companies with a total of $8.3 billion in assets; 0 pooled investment vehicles
other than registered investment companies; and 295 other accounts with a total
of $239 million in assets.
Because the portfolio managers manage assets for other investment
companies, pooled investment vehicles and/or other accounts (including
institutional clients, pension plans and certain high net worth individuals)
there may be an incentive to favor one client over another resulting in
conflicts of interest. For instance, the Adviser may receive fees from certain
accounts that are higher than the fee it receives from the Fund, or it may
receive a performance-based fee on certain accounts. In those instances, the
portfolio managers may have an incentive to favor the higher and/or
performance-based fee accounts over the Fund. The portfolio managers of the Fund
do not currently manage assets for other investment companies, pooled investment
vehicles or other accounts that charge a performance fee. The Adviser has
adopted trade allocation and other policies and procedures that it believes are
reasonably designed to address these and other conflicts of interest.
S-15
PORTFOLIO MANAGER COMPENSATION
STRUCTURE. Portfolio managers receive a combination of base compensation
and discretionary compensation, comprised of a cash bonus and several deferred
compensation programs described below. The methodology used to determine
portfolio manager compensation is applied across all accounts managed by the
portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base
salary compensation based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio
managers may receive discretionary compensation. Discretionary compensation can
include:
- Cash Bonus;
- Morgan Stanley's Equity Incentive Compensation Program (EICP) awards--a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards based on Morgan
Stanley common stock that are subject to vesting and other conditions;
- Investment Management Deferred Compensation Plan (IMDCP) awards--a
mandatory program that defers a portion of discretionary year-end
compensation and notionally invests it in designated funds advised by the
Adviser or its affiliates. The award is subject to vesting and other
conditions. Portfolio managers must notionally invest a minimum of 25% to
a maximum of 50% of the IMDCP deferral into a combination of the
designated funds they manage that are included in the IMDCP fund menu.
- Select Employees' Capital Accumulation Program (SECAP) awards--a
voluntary program that permits employees to elect to defer a portion of
their discretionary compensation and notionally invest the deferred
amount across a range of designated investment funds, including funds
advised by the Adviser or its affiliates, and
- Voluntary Equity Incentive Compensation Program (VEICP) awards--a
voluntary program that permits employees to elect to defer a portion of
their discretionary compensation to invest in Morgan Stanley stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include
- Investment performance. A portfolio manager's compensation is linked to
the pre-tax investment performance of the accounts managed by the
portfolio manager. Investment performance is calculated for one-, three
and five-year periods measured against a fund's primary benchmark (as set
forth in the fund's prospectus), indices and/or peer groups. Generally,
the greatest weight is placed on the three- and five-year periods.
- Revenues generated by the investment companies, pooled investment
vehicles and other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
S-16
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management,
and the overall performance of the Global Investor Group, a department
within Morgan Stanley Investment Management that includes all investment
professionals.
Occasionally, to attract new hires or to retain key employees, the total
amount of compensation will be guaranteed in advance of the fiscal year end
based on current market levels. In limited circumstances, the guarantee may
continue for more than one year. The guaranteed compensation is based on the
same factors as those comprising overall compensation described above.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As the Fund's fiscal year end, none of the portfolio managers owned equity
securities in the Fund.
CODE OF ETHICS
The Fund and the Adviser have adopted a Code of Ethics (the "Code of
Ethics") that sets forth general and specific standards relating to the
securities trading activities of their employees. The Code of Ethics does not
prohibit employees from acquiring securities that may be purchased or held by
the Fund, but is intended to ensure that all employees conduct their personal
transactions in a manner that does not interfere with the portfolio transactions
of the Fund or other Van Kampen funds, or that such employees take unfair
advantage of their relationship with the Fund. Among other things, the Code of
Ethics prohibits certain types of transactions absent prior approval, imposes
various trading restrictions (such as time periods during which personal
transactions may or may not be made) and requires quarterly reporting of
securities transactions and other reporting matters. All reportable securities
transactions and other required reports are to be reviewed by appropriate
personnel for compliance with the Code of Ethics. Additional restrictions apply
to portfolio managers, traders, research analysts and others who may have access
to nonpublic information about the trading activities of the Fund or other Van
Kampen funds or who otherwise are involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
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 are subject to
review by the Fund's Board of Trustees.
S-17
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 securities on an exchange, which are effected through brokers who
charge a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker-dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net price. There are many instances when, in the
judgment of the Adviser, more than one firm can offer comparable execution
services. In selecting among such firms, consideration may be given to those
firms which supply research and other services in addition to execution
services. The Adviser is authorized to pay higher commissions to brokerage firms
that provide it with investment and research information than to firms which do
not provide such services if the Adviser determines that such commissions are
reasonable in relation to the overall services provided. No specific value can
be assigned to such research services which are furnished without cost to the
Adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser to the Fund and still must be analyzed
and reviewed by its staff, the receipt of research information is not expected
to reduce its expenses materially. The investment advisory fee is not reduced as
a result of the Adviser's receipt of such research services. Services provided
may include (a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). Research
services furnished by firms through which the Fund effects its securities
transactions may be used by the Adviser in servicing all of its advisory
accounts; not all of such services may be used by the Adviser in connection with
the Fund.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Fund and the Adviser if it
reasonably believes that the quality of execution and the commission are
comparable to that available from other qualified firms.
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
S-18
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.
Certain broker-dealers, through which the Fund may effect securities
transactions, are affiliated persons (as defined in the 1940 Act) of the Fund or
affiliated persons of such affiliates, including Morgan Stanley or its
subsidiaries. The Fund's Board of Trustees has adopted certain policies
incorporating the standards of Rule 17e-1 issued by the SEC under the 1940 Act
which require that the commissions paid to affiliates of the Fund must be
reasonable and fair compared to the commissions, fees or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time.
The rule and procedures also contain review requirements and require the Adviser
to furnish reports to the trustees and to maintain records in connection with
such reviews. After consideration of all factors deemed relevant, the trustees
will consider from time to time whether the advisory fee for the Fund will be
reduced by all or a portion of the brokerage commission paid to affiliated
brokers.
Unless otherwise disclosed below, the Fund paid no commissions to
affiliated brokers during the last three fiscal years. The Fund paid the
following commissions to brokers during the fiscal years shown:
<Table>
<Caption>
AFFILIATED BROKERS
ALL BROKERS MORGAN STANLEY DW INC.
----------- ----------------------
COMMISSIONS PAID:
Fiscal year ended October 31, 2004..... 1,195 0
Fiscal year ended October 31, 2003..... 15,671 0
Fiscal year ended October 31, 2002..... 4,411 0
FISCAL YEAR 2004 PERCENTAGES:
Commissions with affiliate to total commissions..... 0%
Value of brokerage transactions with affiliate to
total transactions............................... 0%
</Table>
During the fiscal year ended October 31, 2004, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.
ADDITIONAL INFORMATION
RELATING TO AUCTION PREFERRED SHARES OF THE ACQUIRING FUND
The following is a brief description of the terms of the shares of each
series of APS of the Fund. This description does not purport to be complete and
is subject to and qualified in its entirety by reference to Fund's Declaration
of Trust, including the Certificate of Vote establishing and fixing the rights
and preferences of the shares of such series of APS attached hereto as Appendix
B (the "Certificate of Vote" and, together with the Fund's
S-19
Declaration of Trust, the "APS Provisions"). For purposes of this section,
capitalized terms not otherwise defined below are defined in the Certificate of
Vote.
The Declaration of Trust currently authorizes the issuance of an unlimited
number of shares of Common Shares and 100,000,000 Preferred Shares of beneficial
interest, par value $.01 per share (which may be issued from time to time in
such series and with such designations, preferences and other rights,
qualifications, limitations and restrictions as are determined in a resolution
of the Board of Trustees of the Fund). Under the APS Provisions, the Fund
currently has outstanding 12,000 APS. All shares of each series of APS have a
liquidation preference of $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared). The shares of each
series of APS will rank on a parity with shares of any other series of Preferred
Shares (including any other series of APS) as to the payment of dividends and
the distribution of assets upon liquidation. So long as either Moody's or S&P is
rating the shares of any series of APS, the Fund may, without the vote of the
holders of APS, issue additional series of Preferred Shares, including APS,
subject to applicable provisions of the 1940 Act and to continuing compliance
with the 1940 Act APS Asset Coverage and the APS Basic Maintenance Amount,
provided that (1) any such additional series ranks on a parity with the then
Outstanding APS as to the payment of dividends and the distribution of assets
upon liquidation and (2) the Fund obtains written confirmation from Moody's or
S&P, or both, as the case may be, that the issuance of any such additional
series would not impair the rating then assigned by such rating agency to the
APS.
DIVIDENDS AND DIVIDEND PERIODS
Dividends on shares of each series of APS will accumulate at the Applicable
Rate per annum and will be payable, when, as and if declared by the Board of
Trustees of the Fund out of funds legally available therefor, on shares of APS
Series A on each Tuesday, on shares of APS Series B on each fourth Wednesday, on
shares of APS Series C on each Thursday and on shares of APS Series D on each
fourth Friday, in each case subject to certain exceptions. The Fund, subject to
certain conditions, may designate any Dividend Period as a Special Dividend
Period, which shall be such number of consecutive days or whole years as the
Board of Trustees shall specify, subject to certain exceptions.
Dividends will be paid through the Securities Depository (The Depository
Trust Company or any successor) on each Dividend Payment Date in accordance with
its normal procedures, which now provide for it to distribute dividends in
next-day funds to Agent Members, who in turn are expected to distribute such
dividend payments to the persons for whom they are acting as agents. Each of the
initial Broker Dealers, however, has indicated to the Fund that such
Broker-Dealer or one of its affiliates will make such dividend payments
available in same-day funds on each Dividend Payment Date to customers that use
such Broker Dealer or such affiliate as Agent Member.
For each Dividend Period, the dividend rate for shares of each series of
APS will be the Applicable Rate per annum that the Auction Agent advises the
Fund results from an Auction, except as provided below. The dividend rate that
results from an Auction for a series of APS will not be greater than the Maximum
Rate, which is:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Dividend
Period, the product of (1) the
S-20
"AA" Composite Commercial Paper Rate on such Auction Date for the next
Rate Period of such series and (2) the Applicable Percentage on such
Auction Date, unless such series of APS has or had a Special Dividend
Period (other than a Special Dividend Period of 28 days or less) and an
Auction at which Sufficient Clearing Bids existed has not yet occurred
for a Minimum Dividend Period for such series (7 days with respect to
APS Series A and APS Series C and 28 days with respect to APS Series B
and APS Series D) after such Special Dividend Period, in which case the
higher of:
(A) the dividend rate on shares of such series of APS for the
then-ending Rate Period, and
(B) the product of (x) the higher of (I) the "AA" Composite Commercial
Paper Rate on such Auction Date for the then-ending Rate Period of
such series, if such Rate Period is less than one year, or the
Treasury Rate on such Auction Date for such Rate Period, if such
Rate Period is one year or longer, and (II) the "AA" Composite
Commercial Paper Rate on such Auction Date for such Special
Dividend Period of such series, if such Special Dividend Period is
less than one year, or the Treasury Rate on such Auction Date for
such Special Dividend Period, if such Special Dividend Period is
one year or longer and (y) the Applicable Percentage on such
Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date immediately
prior to the first day of any proposed Special Dividend Period, the
product of (1) the highest of (x) the "AA" Composite Commercial Paper
Rate on such Auction Date for the then-ending Rate Period of such
series, if such Rate Period is less than one year, or the Treasury
Rate on such Auction Date for such Rate Period, if such Rate Period is
one year or longer, (y) the "AA" Composite Commercial Paper Rate on
such Auction Date for the Special Dividend Period of such series for
which the Auction is being held if such Special Dividend Period is
less than one year or the Treasury Rate on such Auction Date for the
Special Dividend Period for which the Auction is being held if such
Special Dividend Period is one year or longer, and (z) the "AA"
Composite Commercial Paper Rate on such Auction Date for a Minimum
Dividend Period and (2) the Applicable Percentage on such Auction
Date.
The applicable "AA" Composite Commercial Paper Rates and Treasury Rates
will be the rates announced on such Auction Date for the Business Day
immediately prior to such Auction Date.
S-21
The "Applicable Percentage" will be a percentage, determined as set forth
below, based on the prevailing rating of the APS in effect at the close of
business on the Business Day next preceding such Auction Date:
<Table>
<Caption>
APPLICABLE
PREVAILING RATING PERCENTAGE
- ----------------- ----------
"Aa3"/AA- or higher........................................ 110%
"A3"/A-.................................................... 125%
"Baa3"/BBB................................................. 150%
"Ba3"/BB-.................................................. 200%
Below "Ba3"/BB-............................................ 250%
</Table>
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income that is taxable for federal income tax purposes to
the APS prior to any Auction, for purposes of determining the Maximum Rate with
respect to such Auction the Applicable Percentage in the foregoing table shall
be divided by the quantity 1 minus the maximum marginal regular federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular federal corporate income tax rate, whichever is greater, provided,
however, that the Applicable Percentage shall be divided in the foregoing manner
only to the extent that the portion of the dividend on the APS for such Rate
Period that represents the allocation of taxable income to the APS. If the APS
are rated by only one rating agency, such rating will be the prevailing rating.
If the ratings for the APS are split between two of the foregoing categories,
the lower rating will determine the prevailing rating.
If an Auction for any Dividend Period of any series of APS is not held for
any reason or if the Fund fails to pay in a timely manner to the Auction Agent
the full amount of any dividend on, or Redemption Price of, shares of any series
of APS and such failure has not been cured as set forth below prior to any
succeeding Dividend Period thereof, then, subject to the next paragraph, the
dividend rate on the shares of such series for any such Dividend Period will be
the Maximum Rate for such series on the Auction Date for such Dividend Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the Redemption Price of, any shares of any series
of APS during any Rate Period thereof (other than any Special Dividend Period
consisting of four or more Dividend Periods or any Rate Period succeeding any
Special Dividend Period consisting of four or more Dividend Periods during which
such a failure occurred that has not been cured), and, prior to 12:00 Noon on
the third Business Day next succeeding the date on which such failure occurred,
such failure shall not have been cured or the Fund shall not have paid a late
charge, then Auctions for such series will be suspended until such failure is so
cured and the dividend rate for such shares of APS for each Dividend Period
thereof commencing after such failure to and including the Dividend Period, if
any, during which such failure is so cured shall be a rate per annum equal to
the Maximum Rate on the Auction Date for each such Dividend Period (but with the
prevailing rating for such shares, for purposes of determining such Maximum
Rate, being deemed to be "Below "Ba3"/BB-"). If the Fund fails to pay in a
timely manner to the Auction Agent the full amount of any dividend on, or the
Redemption Price of, any shares of any series of APS during a Special Dividend
Period thereof consisting of four or more Dividend Periods, or
S-22
during any Dividend Period thereof succeeding any Special Dividend Period
consisting of four or more Dividend Periods during which such a failure occurred
that has not been cured, and such failure shall not have been cured as described
herein, then Auctions for such series will be suspended until such failure is so
cured and the dividend rate for such shares of APS for each Dividend Period
thereof commencing after such failure to and including the Dividend Period, if
any, during which such failure is so cured shall be a rate per annum equal to
the Maximum Rate on the Auction Date for each such Dividend Period (but with the
prevailing rating for such shares, for purposes of determining such Maximum
Rate, being deemed to be "Below "Ba3"/BB-").
DESIGNATION OF SPECIAL DIVIDEND PERIODS
The Fund, at its option, may designate any succeeding Dividend Period of
any series of APS as a Special Dividend Period which shall consist of such
number of days or whole years as the Board of Trustees shall specify; provided,
however, that such designation shall be effective only if (i) notice thereof
shall have been given as provided in the APS Provisions, (ii) any failure to pay
in a timely manner to the Auction Agent the full amount of any dividend on, or
the Redemption Price of, shares of such series of APS shall have been cured as
set forth above, (iii) Sufficient Clearing Bids for such series shall have
existed in an Auction held on the Auction Date immediately preceding the first
day of such proposed Special Dividend Period, (iv) if the Fund shall have mailed
a notice of redemption with respect to any shares of such series, the Redemption
Price with respect to such shares shall have been deposited with the Auction
Agent, and (v) in the event the Fund wishes to designate any succeeding Dividend
Period for such series as a Special Dividend Period consisting of more than 28
days, the Fund has received written confirmation from S&P (if S&P is then rating
the APS) and Moody's (if Moody's is then rating the APS) that such designation
would not affect the rating then assigned by S&P to such series.
ADDITIONAL DIVIDENDS
Whenever the Fund intends to include any net capital gains or other income
that is taxable for federal income tax purposes in any dividend on shares of any
series of APS, the Fund will notify the Auction Agent of the amount to be so
included 15 days prior to the Auction Date on which the Applicable Rate for such
dividend is to be established. Whenever the Auction Agent receives such notice
from the Fund, it will in turn notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will notify
its Existing Holders and Potential Holders believed by it to be interested in
submitting an Order in the Auction to be held on such Auction Date.
If the Fund retroactively allocates any net capital gains or other income
taxable for federal income tax purposes to the APS without having given advance
notice thereof to the Auction Agent solely by reason of the fact that such
allocation is made as a result of the redemption of all or a portion of the
outstanding APS or the liquidation of the Fund (such allocation is referred to
herein as a "Retroactive Taxable Allocation"), the Fund will, within 270 days
after the end of the Fund's taxable year in which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and to each
holder of APS during such taxable year at such holder's address as the same
appears or last appeared on the share books of the Fund. The Fund will, within
30 days after such notice
S-23
is given to the Auction Agent, pay to the Auction Agent (who will then
distribute to such holders of shares of APS), out of funds legally available
therefor, an amount equal to the aggregate Additional Dividends (as defined
below) with respect to all Retroactive Taxable Allocations made to such holders
during the taxable year in question.
"Additional Dividends" means payment to a Holder of APS of an amount which,
when taken together with the aggregate amount of Retroactive Taxable Allocations
made to such Holder with respect to the taxable year in question, would cause
such Holder's dividends in dollars (after federal income tax consequences as
described below) from the aggregate of both the Retroactive Taxable Allocations
and the Additional Dividends to be equal to the dollar amount of the dividends
which would have been received by such Holder if the amount of the aggregate
Retroactive Taxable Allocations would have been excludable from the gross income
of such Holder. State taxes imposed on the Additional Dividends, however, may
reduce the amount of after tax cash a holder would have had if there were no
Retroactive Taxable Allocation. Such Additional Dividends shall be calculated
(i) without consideration being given to the time value of money; (ii) assuming
that no holder of APS is subject to the federal alternative minimum tax with
respect to dividends received from the Fund; and (iii) assuming that each
Retroactive Taxable Allocation would be taxable in the hands of each holder of
APS at the maximum marginal regular federal individual income tax rate
applicable to ordinary income or net capital gains, as applicable, or the
maximum marginal regular federal corporate income tax rate, whichever is
greater, in effect during the taxable year in question.
AUCTION PROCEDURES
On each Auction Date for each series of APS (the Business Day prior to the
beginning of each Rate Period), each Existing Holder may submit Orders through a
Broker-Dealer to the Auction Agent as follows:
- Hold Order-indicating its desire to hold without regard to the Applicable
Rate for the next Rate Period.
- Bid-indicating its desire to sell if the Applicable Rate for the next
Rate Period is less than the rate specified in such Bid.
- Sell Order-indicating its desire to sell without regard to the Applicable
Rate for the next Rate Period.
An Existing Holder may submit different types of Orders in an Auction with
respect to shares of APS then held by such Existing Holder. An Existing Holder
that offers to purchase additional shares of APS is, for purposes of such offer,
treated as a Potential Holder as described below. Bids of Existing Holders with
rates higher than the Maximum Rate on the Auction Date will be treated as Sell
Orders. A Hold Order will be deemed to have been submitted on behalf of an
Existing Holder if an Order is not submitted on behalf of such Existing Holder
for any reason, including the failure of a Broker-Dealer to submit such Existing
Holder's Order to the Auction Agent.
Potential Holders of shares of any series of APS may submit Bids in which
they will offer to purchase shares of such series of APS if the Applicable Rate
for the next Rate Period is not less than the rate specified in such Bid. A Bid
by a Potential Holder specifying a rate higher than the Maximum Rate will not be
accepted.
S-24
If Sufficient Clearing Bids exist (that is, the number of shares of a
particular series of APS subject to Bids by Potential Holders with rates equal
to or lower than the Maximum Rate is at least equal to the number of shares of
such series of APS subject to Sell Orders by Existing Holders), the Applicable
Rate for such series will be the lowest rate specified in the Submitted Bids
which, taking into account such rate and all lower rates bid by Existing Holders
and Potential Holders, would result in Existing Holders and Potential Holders
owning all the shares of such series of APS available for purchase in the
Auction. If Sufficient Clearing Bids do not exist, the Applicable Rate will be
the Maximum Rate on the Auction Date, and, in such event, Existing Holders that
have submitted Sell Orders may not be able to sell in such Auction all shares of
such series of APS subject to such Sell Orders. If all Existing Holders of
shares of such series of APS submit or are deemed to have submitted Hold Orders,
the Applicable Rate will be the product of (i) (1) the "AA" Composite Commercial
Paper Rate on such Auction Date for the Rate Period for which the Auction is
held, if such Rate Period is less than one year or (2) the Treasury Rate on such
Auction Date for such Rate Period, if such Rate Period is one year or longer and
(ii) 1 minus the maximum marginal regular federal individual income tax rate
applicable to ordinary income or the maximum marginal regular federal corporate
income tax rate, whichever is greater; provided, however, that if the Fund has
notified the Auction Agent of its intent to allocate to the APS in such Rate
Period any net capital gains or other income that is taxable for federal income
tax purposes, the Applicable Rate in respect of that portion of the dividend on
the APS for such Rate Period that represents the allocation of net capital gains
or other income taxable for Federal income tax purposes will be the rate
described in the preceding clause (i) (1) or (2), as applicable, without being
multiplied by the factor set forth in the preceding clause (ii).
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of APS that is fewer than
the number of shares of APS specified in its Order.
A Bid placed by an Existing Holder specifying a rate greater than the
Applicable Rate determined in the Auction or a Sell Order shall constitute an
irrevocable offer to sell the shares of such series of APS subject thereto, in
each case at a price per share equal to $25,000. A Bid placed by a Potential
Holder shall constitute an irrevocable offer to purchase the shares of such
series of APS subject thereto at a price per share equal to $25,000 if the rate
specified in such Bid is less than or equal to the Applicable Rate determined in
the Auction. Settlement of purchases and sales will be made on the next Business
Day (also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in same-day
funds to the Securities Depository against delivery to their respective Agent
Members. The Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.
ASSET MAINTENANCE
Under the APS Provisions, the Fund must maintain (i) assets having in the
aggregate a Discounted Value at least equal to the APS Basic Maintenance Amount,
and (ii) 1940 Act APS Asset Coverage of at least 200%.
S-25
The Discount Factors and guidelines for calculating the Discounted Value of
the Fund's portfolio for purposes of determining whether the APS Basic
Maintenance Amount has been satisfied have been established by Moody's and S&P
in connection with the Fund's receipt of ratings on the shares of each series of
APS of "Aaa" from Moody's and AAA from S&P.
MINIMUM LIQUIDITY LEVEL
So long as any of the APS are Outstanding and S&P is rating the APS, the
Fund will be required under the APS Provisions to maintain as of each Valuation
Date certain Dividend Coverage Assets with a value not less than the Dividend
Coverage Amount (the "Minimum Liquidity Level").
MANDATORY REDEMPTION
If the APS Basic Maintenance Amount or the 1940 Act APS Asset Coverage is
not maintained or restored as specified in the APS Provisions, the APS will be
subject to mandatory redemption on a date specified by the Board of Trustees,
out of funds legally available therefor, at the redemption price of $25,000 per
share plus an amount equal to accumulated but unpaid dividends thereon (whether
or not earned or declared) to the date fixed for redemption. Any such redemption
will be limited to the number of APS necessary to restore the APS Basic
Maintenance Amount or the 1940 Act APS Asset Coverage, as the case may be.
OPTIONAL REDEMPTION
Except as described in the APS Provisions shares of each series of APS are
redeemable, in whole or in part, at the option of the Fund, on the next
succeeding scheduled Dividend Payment Date applicable to the shares of such
series of APS called for redemption, out of funds legally available therefor, at
the Optional Redemption Price of $25,000 per share plus (in the case of a
Special Dividend Period only) a premium, if any, resulting from the designation
of a Premium Call Period, plus an amount equal to dividends thereon (whether or
not earned or declared) accumulated but unpaid to the date fixed for redemption;
provided that during a Special Dividend Period of 365 days or more, no share of
such series of APS will be subject to optional redemption during any Non-Call
Period to which such series of APS may be subject.
LIQUIDATION PREFERENCE
The liquidation preference of the shares of each series of APS is $25,000
per share plus accumulated but unpaid dividends, if any, thereon (whether or not
earned or declared).
VOTING RIGHTS
The 1940 Act requires that the holders of APS, voting as a separate class,
have the right to elect at least two Trustees at all times and to elect a
majority of the Trustees at any time that two years' dividends on the APS are
unpaid. The holders of APS will vote as a separate class or classes on certain
other matters as required under the APS
S-26
Provisions, the 1940 Act and Massachusetts law. In addition, each series of APS
may vote as a separate series under certain circumstances.
MASTER PURCHASER'S LETTER
Each prospective purchaser of shares of any series of APS or its
Broker-Dealer will be required to sign and deliver a Master Purchaser's Letter
to the Auction Agent in which such prospective purchaser or its Broker-Dealer
will agree, among other things, that (i) dispositions of shares of such series
of APS may be made only pursuant to a Bid or a Sell Order placed in an Auction,
or to or through a Broker-Dealer or to a person that has delivered a signed
Master Purchaser's Letter to the Auction Agent, provided that in the case of all
transfers other than those pursuant to Auctions, the Existing Holder of the
shares so transferred, its Agent Member or its Broker-Dealer advises the Auction
Agent of such transfer, and (ii) ownership of shares of such series of APS will
be maintained in book entry form by the Securities Depository for the account of
such prospective purchaser's Agent Member, which in turn will maintain records
of such prospective purchaser's beneficial ownership.
Each prospective purchaser should ask its Broker-Dealer whether such
prospective purchaser should sign a Master Purchaser's Letter. If the
Broker-Dealer submits Orders for such prospective purchaser listing the
Broker-Dealer as the Existing Holder or the Potential Holder, a Master
Purchaser's Letter signed by such prospective purchaser may not be required.
Execution by a prospective purchaser or its Broker-Dealer of a Master
Purchaser's Letter is not a commitment to purchase shares of APS in the offering
being made by this Prospectus or in any Auction, but is a condition precedent to
such purchaser's purchasing shares of APS. In addition, acceptance of a Master
Purchaser's Letter is not a guarantee that shares of APS will be available for
purchase.
The Broker-Dealers may maintain a secondary trading market in the APS
outside of Auctions. They have no obligation to do so, however, and there can be
no assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with liquidity of investment. The APS will
not be registered on any stock exchange or on the National Association of
Securities Dealers Automated Quotations system.
RATING AGENCY GUIDELINES
The Fund intends that, so long as shares of any series of APS are
Outstanding, the composition of its portfolio will reflect guidelines
established by Moody's and S&P in connection with the Fund's receipt on the Date
of Original Issue of the shares of each series of APS of ratings of "Aaa" from
Moody's and AAA from S&P. Moody's and S&P, nationally recognized independent
rating agencies, issue ratings for various securities reflecting their perceived
creditworthiness of such securities. The Fund will pay certain fees to Moody's
and S&P for rating shares of the APS. The guidelines have been developed by
Moody's and S&P in connection with other issuances of asset-backed and similar
securities, including debt obligations and adjustable rate preferred stock,
generally on a case-by-case basis through discussions with the issuers of these
securities. The guidelines are designed to ensure that assets underlying
outstanding debt or preferred stock will be sufficiently varied and will be of
sufficient quality and amount to justify investment grade
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ratings. The guidelines do not have the force of law, but have been adopted by
the Fund in order to satisfy current requirements necessary for Moody's and S&P
to issue the above-described ratings for shares of each series of APS, which
ratings are generally relied upon by institutional investors in purchasing such
securities. In the context of a closed-end investment company such as the Fund,
therefore, the guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. A rating agency's guidelines will
apply to shares of any series of APS only so long as such rating agency is
rating such shares.
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the APS Basic Maintenance Amount and, in addition, so long as S&P is
rating the shares of any series of APS, the Fund intends to maintain a Minimum
Liquidity Level. Moody's and S&P have each established separate guidelines for
determining Discounted Value. To the extent any particular portfolio holding
does not satisfy the applicable rating agency's guidelines, all or a portion of
such holding's value will not be included in the calculation of Discounted Value
(as defined by such rating agency). The Moody's and S&P guidelines do not impose
any limitations on the percentage of Fund assets that may be invested in
holdings not eligible for inclusion in the calculation of the Discounted Value
of the Fund's portfolio. The amount of such assets included in the portfolio at
any time may vary depending upon the rating, diversification and other
characteristics of the Eligible Assets included in the portfolio, although it is
not anticipated that in the normal course of business the value of such assets
would exceed 20% of the Fund's total assets.
In managing the Fund's portfolio, the Adviser will not alter the
composition of the Fund's portfolio if, in the reasonable belief of the Adviser,
the effect of any such alteration would be to cause the Fund to have Eligible
Assets with an aggregate Discounted Value, as of the immediately preceding
Valuation Date, less than the APS Basic Maintenance Amount as of such Valuation
Date; provided, however, that in the event that, as of the immediately preceding
Valuation Date, the aggregate Discounted Value of the Fund's Eligible Assets
exceeded the APS Basic Maintenance Amount by five percent or less, the Adviser
will not alter the composition of the Fund's portfolio in a manner reasonably
expected to reduce the aggregate Discounted Value of the Fund's Eligible Assets
unless the Fund shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of the Fund's Eligible Assets would
exceed the APS Basic Maintenance Amount.
Upon any failure to maintain the required Discounted Value, the Fund will
seek to alter the composition of its portfolio to reattain the APS Basic
Maintenance Amount on or prior to the APS Basic Maintenance Cure Date, thereby
incurring additional transaction costs and possible losses and/or gains on
dispositions of portfolio securities. To the extent any such failure is not
cured in a timely manner, shares of each series of APS will be subject to
redemption if either Moody's or S&P is rating such shares.
The Fund may, but is not required to, adopt any modifications to these
guidelines that may hereafter be established by Moody's and S&P. Failure to
adopt any such modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In addition, any rating
agency providing a rating for the shares of any series of APS may, at any time,
change or withdraw any such rating. As set forth in the APS Provisions, the
Board of Trustees may, without Shareholder approval,
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modify certain definitions or policies which have been adopted by the Fund
pursuant to the rating agency guidelines, provided the Board of Trustees has
obtained written confirmation from Moody's and S&P, as appropriate, that any
such change would not impair the ratings then assigned by Moody's and S&P to any
series of APS. A rating agency's guidelines will apply to shares of any series
of APS only so long as such rating agency is rating such shares.
The ratings on any series of the APS are not recommendations to purchase,
hold or sell shares of any series of APS, inasmuch as the ratings do not comment
as to market price or suitability for a particular investor nor do the rating
agency guidelines described above address the likelihood that a holder of shares
of any series of APS will be able to sell such shares in an Auction. The ratings
are based on current information furnished to Moody's and S&P by the Fund and
the Adviser, and information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Fund and all cash, including proceeds from the
sale 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.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
The Fund's Proxy Voting Policy and Procedures are included as Appendix E to
this Reorganization Statement of Additional Information. Information on how the
Fund voted proxies relating to portfolio securities during the most recent
twelve-month period ended June 30 is available without charge, upon request, by
calling (800) 341-2929 or by visiting our web site at www.vankampen.com. This
information is also available on the SEC's web site at http://www.sec.gov.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
An independent registered public accounting firm for the Fund performs an
annual audit of the Fund's financial statements. The Fund's Board of Trustees
has engaged Deloitte & Touche LLP, located at Two Prudential Plaza, 180 North
Stetson, Chicago, Illinois 60601-6710, to be the Fund's independent registered
public accounting firm.
FINANCIAL STATEMENTS
Incorporated herein by reference and included in their respective
entireties are (i) the audited financial statements of the Acquiring Fund for
the fiscal year ended October 31, 2004, as included in Appendix C hereto and
(ii) the audited financial statements of the Target Fund for fiscal year ended
October 31, 2004, as included in Appendix D hereto.
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PRO FORMA FINANCIAL STATEMENTS
Pro forma financial statements have not been prepared because, as of
February 28, 2005, the net asset value of the Target Fund did not exceed ten
percent of the Acquiring Fund's net asset value, which is the threshold under
applicable rules for which pro forma financial statements is required.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Van Kampen XXXXXX, a registered closed-end investment
company, File No. 811-XXXX (the "Target Fund") and Van Kampen XXXXXX (the
"Acquiring Fund"), a registered closed-end investment company, File No.
811-XXXX, each hereby agree as follows:
1. Representations and Warranties of the Acquiring Fund.
The Acquiring Fund represents and warrants to, and agrees with, the
Target Fund that:
(a) The Acquiring Fund is a trust, with transferable shares, duly
organized, validly existing and in good standing in conformity
with the laws of its jurisdiction of organization, and has the
power to own all of its assets and to carry out this
Agreement. The Acquiring Fund has all necessary federal, state
and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
(b) The Acquiring Fund is duly registered under the Investment
Company Act of 1940, as amended (the "1940 Act") as a
[non-]diversified, closed-end management investment company
and such registration has not been revoked or rescinded and is
in full force and effect. The Acquiring Fund has elected and
qualified for the special tax treatment afforded regulated
investment companies ("RICs") under Section 851 of the
Internal Revenue Code (the "Code") at all times since its
inception and intends to continue to so qualify until
consummation of the reorganization contemplated hereby (the
"Reorganization") and thereafter.
(c) The Target Fund has been furnished with the Acquiring Fund's
Annual Report to Shareholders for the fiscal year ended XXXX,
2004, and the audited financial statements appearing therein,
having been audited by Deloitte & Touche LLP, independent
registered public accounting firm, fairly present the
financial position of the Acquiring Fund as of the respective
dates indicated, in conformity with accounting principles
generally accepted in the United States applied on a
consistent basis.
(d) An unaudited statement of assets, liabilities and capital of
the Acquiring Fund and an unaudited schedule of investments of
the Acquiring Fund, each as of the Valuation Time (as defined
in Section 5(d) of this Agreement), will be furnished to the
Target Fund, at or prior to the Closing Date (as defined in
Section 7(a) herein), for the purpose of determining the
number of Acquiring Fund Common Shares and Acquiring Fund APS
to be issued pursuant to Section 6 of this Agreement; each
will fairly present the financial position of the Acquiring
Fund as of the Valuation Time in conformity with generally
accepted accounting principles applied on a consistent basis.
(e) The Acquiring Fund has full power and authority to enter into
and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement has been
duly authorized by all necessary action of its Board of
Trustees, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar
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laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(f) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Acquiring
Fund, threatened against it which assert liability on the part
of the Acquiring Fund or which materially affect its financial
condition or its ability to consummate the Reorganization. The
Acquiring Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any federal, state
or local law or regulation or administrative ruling relating
to any aspect of its business.
(g) The Acquiring Fund is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended,
and is not a party to any contract or other commitment or
obligation, and is not subject to any order or decree which
would be violated by its execution of or performance under
this Agreement, except insofar as the Funds have mutually
agreed to amend such contract or other commitment or
obligation to cure any potential violation as a condition
precedent to the Reorganization.
(h) There are no material contracts outstanding to which the
Acquiring Fund is a party that have not been disclosed in the
N-14 Registration Statement (as defined in subsection (k)
below) or that will not otherwise be disclosed to the Target
Fund prior to the Valuation Time.
(i) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its
statements of assets, liabilities and capital referred to in
subsection (c) above, those incurred in the ordinary course of
its business as an investment company, and those incurred in
connection with the Reorganization. As of the Valuation Time,
the Acquiring Fund will advise the Target Fund in writing of
all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or
accrued as of such time, except to the extent disclosed in the
financial statements referred to in subsection (c) above.
(j) No consent, approval, authorization or order of any court or
government authority is required for the consummation by the
Acquiring Fund of the Reorganization, except such as may be
required under the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act") and the 1940 Act or state securities laws
(which term as used herein shall include the laws of the
District of Columbia and Puerto Rico).
(k) The registration statement filed by the Acquiring Fund on Form
N-14, which includes the proxy statement of the Target Fund
and the Acquiring Fund with respect to the transactions
contemplated herein (the "Joint Proxy Statement/Prospectus"),
and any supplement or amendment thereto or to the documents
therein (as amended or supplemented, the "N-14 Registration
Statement"), on its effective date, at the time of the
shareholders' meetings referred to in Section 8(a) of this
Agreement and at the Closing Date, insofar as it relates to
the Acquiring Fund, (i) complied or will comply in all
material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any
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untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading; and the Joint
Proxy Statement/Prospectus included therein did not or will
not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the
representations and warranties in this subsection only shall
apply to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with
information furnished by the Acquiring Fund for use in the
N-14 Registration Statement.
(l) The Acquiring Fund is authorized to issue an unlimited number
of common shares of beneficial interest, par value $.01 per
share (the "Acquiring Fund Common Shares"), and XXXX preferred
shares of beneficial interest, par value $.01 per share. The
Board of Trustees of the Acquiring Fund has designated XXXX
preferred shares as Auction Preferred Shares ("Acquiring Fund
APS"). Each outstanding Acquiring Fund Common Share and each
Acquiring Fund APS of the Acquiring Fund is fully paid and,
except as provided in Section 5.1 of the Acquiring Fund's
Declaration of Trust, nonassessable, and has full voting
rights.
(m) The Acquiring Fund Common Shares and the Acquiring Fund APS to
be issued to the Target Fund pursuant to this Agreement will
have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued
and will be fully paid and, except as provided in Section 5.1
of the Acquiring Fund's Declaration of Trust, nonassessable
and will have full voting rights, and no shareholder of the
Acquiring Fund will have any preemptive right of subscription
or purchase in respect thereof.
(n) At or prior to the Closing Date, the Acquiring Fund Common
Shares to be transferred to the Target Fund for distribution
to the shareholders of the Target Fund on the Closing Date
will be duly qualified for offering to the public in all
states of the United States in which the sale of shares of the
Funds presently are qualified, and there will be a sufficient
number of such shares registered under the 1933 Act and, as
may be necessary, with each pertinent state securities
commission to permit the transfers contemplated by this
Agreement to be consummated.
(o) At or prior to the Closing Date, the Acquiring Fund APS to be
transferred to the Target Fund on the Closing Date will be
duly qualified for offering to the public in all states of the
United States in which the sale of APS of the Target Fund
presently are qualified, and there are a sufficient number of
Acquiring Fund APS registered under the 1933 Act and with each
pertinent state securities commission to permit the transfers
contemplated by this Agreement to be consummated.
(p) At or prior to the Closing Date, the Acquiring Fund will have
obtained any and all regulatory, trustee and shareholder
approvals necessary to issue the Acquiring Fund Common Shares
and the Acquiring Fund APS to the Target Fund.
(q) The Acquiring Fund has filed, or intends to file, or has
obtained extensions to file, all federal, state and local tax
returns which are required to be filed by it, and has paid or
has obtained extensions to pay, all federal, state and local
taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable
year in which the Closing Date occurs. All tax liabilities of
the Acquiring Fund have been adequately provided for on its
books, and no tax deficiency or liability of the Acquiring
Fund has been asserted and no question with respect thereto
has been raised by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those
already paid, up to and including the taxable year in which
the Closing Date occurs.
(r) The Acquiring Fund has elected to qualify and has qualified as
a RIC as of and since its inception; has been a RIC under the
Code at all times since the end of its first taxable year when
it so qualified; qualifies and will continue to qualify as a
RIC under the Code; and has satisfied the distribution
requirements imposed by the Code for each of its taxable
years.
2. Representations and Warranties of the Target Fund.
The Target Fund represents and warrants to, and agrees with, the
Acquiring Fund that:
(a) The Target Fund is a trust, with transferable shares, duly
organized, validly existing and in good standing in conformity
with the laws of the jurisdiction of its organization, and has
the power to own all of its assets and to carry out this
Agreement. The Target Fund has all necessary federal, state
and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
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(b) The Target Fund is duly registered under the 1940 Act as a
[non-]diversified, closed-end management investment company,
and such registration has not been revoked or rescinded and is
in full force and effect. The Target Fund has elected and
qualified for the special tax treatment afforded RICs under
Section 851 of the Code at all times since its inception, and
intends to continue to so qualify through its taxable year
ending upon liquidation.
(c) As used in this Agreement, the term "Target Fund Investments"
shall mean (i) the investments of the Target Fund shown on the
schedule of its investments as of the Valuation Time furnished
to the Acquiring Fund; and (ii) all other assets owned by the
Target Fund or liabilities incurred as of the Valuation Time.
(d) The Target Fund has full power and authority to enter into and
perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement has been duly
authorized by all necessary action of its Board of Trustees
and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect
thereto.
(e) The Acquiring Fund has been furnished with the Target Fund's
Annual Report to Shareholders for the fiscal year ended XXXX,
2004, and the audited financial statements appearing therein,
having been audited by Deloitte & Touche LLP, independent
registered public accounting firm, fairly present the
financial position of the Target Fund as of the respective
dates indicated, in conformity with accounting principles
generally accepted in the United States applied on a
consistent basis.
(f) An unaudited statement of assets, liabilities and capital of
the Target Fund and an unaudited schedule of investments of
the Target Fund, each as of the Valuation Time, will be
furnished to the Acquiring Fund at or prior to the Closing
Date for the purpose of determining the number of shares of
Acquiring Fund Common Shares and Acquiring Fund APS to be
issued to the Target Fund pursuant to Section 3 of this
Agreement; each will fairly present the financial position of
the Target Fund as of the Valuation Time in conformity with
generally accepted accounting principles applied on a
consistent basis.
(g) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Target Fund,
threatened against it which assert liability on the part of
the Target Fund or which materially affect its financial
condition or its ability to consummate the Reorganization. The
Target Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any federal, state
or local law or regulation or administrative ruling relating
to any aspect of its business.
(h) There are no material contracts outstanding to which the
Target Fund is a party that have not been disclosed in the
N-14 Registration Statement or will not otherwise be disclosed
to the Acquiring Fund prior to the Valuation Time.
(i) The Target Fund is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended,
or a party to any contract or other commitment or obligation,
and is not subject to any order or decree which would be
violated by its execution of or performance under this
Agreement, except insofar as the Funds have
A-4
mutually agreed to amend such contract or other commitment or
obligation to cure any potential violation as a condition
precedent to the Reorganization.
(j) The Target Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its
statements of assets, liabilities and capital referred to
above, those incurred in the ordinary course of its business
as an investment company and those incurred in connection with
the Reorganization. As of the Valuation Time, the Target Fund
will advise the Acquiring Fund in writing of all known
liabilities, contingent or otherwise, whether or not incurred
in the ordinary course of business, existing or accrued as of
such time.
(k) The Target Fund has filed, or intends to file, or has obtained
extensions to file, all federal, state and local tax returns
which are required to be filed by it, and has paid or has
obtained extensions to pay, all federal, state and local taxes
shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which
the Closing Date occurs. All tax liabilities of the Target
Fund have been adequately provided for on its books, and no
tax deficiency or liability of the Target Fund has been
asserted and no question with respect thereto has been raised
by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and
including the taxable year in which the Closing Date occurs.
(l) At both the Valuation Time and the Closing Date, the Target
Fund will have full right, power and authority to sell,
assign, transfer and deliver the Target Fund Investments. At
the Closing Date, subject only to the obligation to deliver
the Target Fund Investments as contemplated by this Agreement,
the Target Fund will have good and marketable title to all of
the Target Fund Investments, and the Acquiring Fund will
acquire all of the Target Fund Investments free and clear of
any encumbrances, liens or security interests and without any
restrictions upon the transfer thereof (except those imposed
by the federal or state securities laws and those
imperfections of title or encumbrances as do not materially
detract from the value or use of the Target Fund Investments
or materially affect title thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Target Fund of the Reorganization, except such as may be
required under the 1933 Act, the 1934 Act, the 1940 Act or
state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the
time of the shareholders' meetings called to vote on this
Agreement and on the Closing Date, insofar as it relates to
the Target Fund (i) complied or will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder, and
(ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading; and the Joint Proxy Statement/Prospectus
included therein did not or will not contain any untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and
in conformity with information furnished by the Target Fund
for use in the N-14 Registration Statement.
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(o) The Target Fund is authorized to issue an unlimited number of
common shares of beneficial interest, par value $.01 per share
(the "Target Fund Common Shares"), and XXXX preferred shares
of beneficial interest, par value $.01 per share. The Board of
Trustees of the Acquiring Fund has designated XXXX preferred
shares as Target Fund Preferred Shares (the "Target Fund
Preferred Shares"). Each outstanding Target Fund Common Share
and each of the outstanding Target Fund Preferred Shares is
fully paid and, except as provided in Section 5.1 of the
Target Fund's Declaration of Trust, nonassessable, and has
full voting rights.
(p) All of the issued and outstanding Target Fund Common Shares
and Target Fund Preferred Shares were offered for sale and
sold in conformity with all applicable federal and state
securities laws.
(q) The books and records of the Target Fund made available to the
Acquiring Fund and/or its counsel are substantially true and
correct and contain no material misstatements or omissions
with respect to the operations of the Target Fund.
(r) The Target Fund will not sell or otherwise dispose of any of
the Acquiring Fund Common Shares or Acquiring Fund APS to be
received in the Reorganization, except in distribution to the
shareholders of the Target Fund, as provided in Section 3 of
this Agreement.
(s) The Target Fund has elected to qualify and has qualified as a
"RIC" under the Code as of and since its inception; has been a
RIC under the Code at all times since the end of its first
taxable year when it so qualified; qualifies and will continue
to qualify as a RIC under the Code for its taxable year ending
upon its liquidation; and has satisfied the distribution
requirements imposed by the Code for each of its taxable
years.
3. The Reorganization.
(a) Subject to receiving the requisite approvals of the
shareholders of the Target Fund, and to the other terms and
conditions contained herein, (i) the Target Fund agrees to
convey, transfer and deliver to the Acquiring Fund and the
Acquiring Fund agrees to acquire from the Target Fund, on the
Closing Date, all of the Target Fund Investments (including
interest accrued as of the Valuation Time on debt
instruments), and assume substantially all of the liabilities
of the Target Fund, in exchange for that number of Target Fund
Common Shares and Target Fund Preferred Shares provided in
Section 4 of this Agreement. Pursuant to this Agreement, as
soon as practicable after the Closing Date, the Target Fund
will distribute all Acquiring Fund Common Shares and Acquiring
Fund APS received by it to its shareholders in exchange for
their Target Fund Common Shares and Target Fund Preferred
Shares. Such distributions shall be accomplished by the
opening of shareholder accounts on the share ledger records of
the Acquiring Fund in the amounts due the shareholders of the
Target Fund based on their respective holdings in the Target
Fund as of the Valuation Time.
(b) If it is determined that the portfolios of the Target Fund and
the Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Target
Fund, if requested by the Acquiring Fund, will dispose of a
sufficient amount of such investments as may be necessary to
avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, (a) nothing herein will require
the Target Fund to dispose of any portfolios, securities or
other investments, if, in the reasonable judgment of the
Target Fund's trustees or investment adviser, such disposition
would adversely affect the tax-free nature of the
Reorganization for federal income tax purposes or would
otherwise not be in the best interests of the Target Fund, and
(b) nothing will permit the Target Fund to dispose of any
portfolio securities or other investments if, in the
reasonable judgment of the Acquiring Fund's trustees or
investment adviser, such disposition would adversely affect
the tax-free nature of the Reorganization for federal income
tax purposes or would otherwise not be in the best interests
of the Acquiring Fund.
(c) Prior to the Closing Date, the Target Fund shall declare a
dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to their
respective shareholders all of their respective net investment
company taxable income to and including the Closing Date, if
any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to
and including the Closing Date. In this regard and in
connection with the Reorganization, the last dividend period
for the Target Fund Preferred Shares prior to the Closing Date
may be shorter than the dividend period for such Target Fund
Preferred Shares determined as set forth in the applicable
Certificate of Vote pertaining to such Target Fund Preferred
Shares.
(d) The Target Fund will pay or cause to be paid to the Acquiring
Fund any interest the Target Fund receives on or after the
Closing Date with respect to any of the Target Fund
Investments transferred to the Acquiring Fund hereunder.
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(e) The Valuation Time shall be 4:00 p.m., Eastern time, on XXXX,
2005, or such earlier or later day and time as may be mutually
agreed upon in writing (the "Valuation Time").
(f) Recourse for liabilities assumed from the Target Fund by the
Acquiring Fund in the Reorganization will be limited to the
net assets acquired by the Acquiring Fund. The known
liabilities of the Target Fund, as of the Valuation Time,
shall be confirmed to the Acquiring Fund pursuant to Section
2(j) of this Agreement.
(g) The Target Fund will be terminated following the Closing Date
by terminating its registration under the 1940 Act and its
organization under Massachusetts law and will withdraw its
authority to do business in any state where it is required to
do so.
(h) The Acquiring Fund will file with the Secretary of State of
The Commonwealth of Massachusetts, as required, any amendment
to its Certificate of Vote establishing the powers, rights and
preferences of the Acquiring Fund APS prior to the closing of
the Reorganization.
4. Issuance and Valuation of Acquiring Fund Common Shares and Acquiring
Fund APS in the Reorganization.
Acquiring Fund Common Shares and Acquiring Fund APS of an aggregate net asset
value or aggregate liquidation preference, as the case may be, equal to the
value of the assets of the Target Fund acquired in the Reorganization determined
as hereinafter provided, reduced by the amount of liabilities of the Target Fund
assumed by the Acquiring Fund in the Reorganization, shall be issued by the
Acquiring Fund to the Target Fund in exchange for such assets of the Target
Fund. The Acquiring Fund will issue to the Target Fund (i) a number of Acquiring
Fund Common Shares, the aggregate net asset value of which will equal the
aggregate net asset value of the Target Fund Common Shares, determined as set
forth below, and (ii) a number of Acquiring Fund APS, the aggregate liquidation
preference and value of which will equal the aggregate liquidation preference
and value of the Target Fund Preferred Shares, determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of each of the Target Fund Preferred Shares and the Acquiring Fund APS
shall be determined as of the Valuation Time in accordance with the regular
procedures of the investment adviser, and no formula will be used to adjust the
net asset value so determined of any Fund to take into account differences in
realized and unrealized gains and losses. Values in all cases shall be
determined as of the Valuation Time. The value of the Target Fund Investments to
be transferred to the Acquiring Fund shall be determined pursuant to the regular
procedures of the investment adviser.
Such valuation and determination shall be made by the Acquiring Fund in
cooperation with the Target Fund and shall be confirmed in writing by the
Acquiring Fund to the Target Fund. The net asset value per share of the
Acquiring Fund Common Shares and the liquidation preference and value per share
of the Acquiring Fund APS shall be determined in accordance with such procedures
and the Acquiring Fund shall certify the computations involved. For purposes of
determining the net asset value of each of a Target Fund Common Share and an
Acquiring Fund Common Share, the value of the securities held by the applicable
Fund plus any cash or other assets (including interest accrued but not yet
received) minus all liabilities (including accrued expenses) and the aggregate
liquidation value of the outstanding shares of Target Fund Preferred Shares or
Acquiring Fund APS, as the case may be, is divided by the total number of Target
Fund Common Shares or Acquiring Fund Common Shares, as the case may be,
outstanding at such time.
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The Acquiring Fund shall issue to the Target Fund separate certificates or
share deposit receipts for the Acquiring Fund Common Shares and the Acquiring
Fund APS, each registered in the name of the Target Fund. The Target Fund shall
then distribute the Acquiring Fund Common Shares and the Acquiring Fund APS to
the holders of Target Fund Common Shares and Target Fund Preferred Shares by
redelivering the certificates or share deposit receipts evidencing ownership of
(i) the Acquiring Fund Common Shares to EquiServe Trust Company, N.A., as the
transfer agent and registrar for the Acquiring Fund Common Shares, for
distribution to the holders of Target Fund Common Shares on the basis of such
holder's proportionate interest in the aggregate net asset value of the Target
Fund Common Shares and (ii) the Acquiring Fund APS to Deutsche Bank Trust
Company Americas, as the transfer agent and registrar for the Acquiring Fund
APS, for distribution to the holders of Target Fund Preferred Shares on the
basis of such holder's proportionate interest in the aggregate liquidation
preference and value of the Target Fund Preferred Shares. With respect to any
Target Fund shareholder holding certificates evidencing ownership of Target Fund
Common Shares as of the Closing Date, and subject to the Acquiring Fund being
informed thereof in writing by the Target Fund, the Acquiring Fund will not
permit such shareholder to receive new certificates evidencing ownership of the
Acquiring Fund Common Shares or Acquiring Fund APS, exchange Acquiring Fund
Common Shares or Acquiring Fund APS credited to such shareholder's account for
shares of other investment companies managed by the Adviser or any of its
affiliates, or pledge or redeem such Acquiring Fund Common Shares or Acquiring
Fund APS, in any case, until notified by the Target Fund or its agent that such
shareholder has surrendered his or her outstanding certificates evidencing
ownership of Target Fund Common Shares or Target Fund Preferred Shares or, in
the event of lost certificates, posted adequate bond. The Target Fund, at its
own expense, will request its shareholders to surrender their outstanding
certificates evidencing ownership of Target Fund Common Shares or Target Fund
Preferred Shares, as the case may be, or post adequate bond therefor.
No fractional shares of Acquiring Fund Common Shares will be issued to
holders of Target Fund Common Shares unless such shares are held in a Dividend
Reinvestment Plan account. In lieu thereof, the Acquiring Fund's transfer agent,
EquiServe Trust Company, N.A., will aggregate all fractional Acquiring Fund
Common Shares to be issued in connection with the Reorganization (other than
those issued to a Dividend Reinvestment Plan account) and sell the resulting
full shares on the New York Stock Exchange at the current market price for
Acquiring Fund Common Shares for the account of all holders of such fractional
interests, and each such holder will receive such holder's pro rata share of the
proceeds of such sale upon surrender of such holder's certificates representing
Acquiring Fund Common Shares.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, the Target Fund and the Acquiring Fund will
share, in proportion to their respective projected declines in
total operating expenses, all expenses incurred in connection
with the Reorganization, including, but not limited to, all
costs related to the preparation and distribution of materials
distributed to each Fund's Board of Trustees; expenses
incurred in connection with the preparation of the Agreement
and Plan of Reorganization and a registration statement on
Form N-14; SEC and state securities commission filing fees and
legal and audit fees in connection with the Reorganization;
costs of printing and distributing the Joint Proxy Statement/
Prospectus; legal fees incurred preparing each Fund's board
materials, attending each Fund's board meetings and preparing
the minutes; auditing fees associated with each Fund's
financial statements; stock exchange fees, rating agency fees,
portfolio transfer taxes (if any) and any similar expenses
incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no
party shall be liable to any other party for any damages
resulting therefrom, including, without limitation,
consequential damages, and the investment adviser shall pay
all expenses incurred by each Fund in connection with the
Reorganization.
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6. Covenants of the Funds.
(a) Each Fund covenants to operate its business as presently
conducted between the date hereof and the Closing Date.
(b) The Target Fund agrees that following the consummation of the
Reorganization, it will terminate in accordance with the laws
of The Commonwealth of Massachusetts and any other applicable
law, it will not make any distributions of any Acquiring Fund
Common Shares or Acquiring Fund APS other than to its
respective shareholders and without first paying or adequately
providing for the payment of all of its respective liabilities
not assumed by the Acquiring Fund, if any, and on and after
the Closing Date it shall not conduct any business except in
connection with its termination.
(c) The Target Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section
8(f) of the 1940 Act for an order declaring that the Target
Fund has ceased to be a registered investment company.
(d) The Acquiring Fund will file the N-14 Registration Statement
with the Securities and Exchange Commission (the "Commission")
and will use its best efforts to provide that the N-14
Registration Statement becomes effective as promptly as
practicable. Each Fund agrees to cooperate fully with the
other, and each will furnish to the other the information
relating to itself to be set forth in the N-14 Registration
Statement as required by the 1933 Act, the 1934 Act the 1940
Act, and the rules and regulations thereunder and the state
securities laws.
(e) The Acquiring Fund has no plan or intention to sell or
otherwise dispose of the Target Fund Investments, except for
dispositions made in the ordinary course of business.
(f) Each of the Funds agrees that by the Closing Date all of its
federal and other tax returns and reports required to be filed
on or before such date shall have been filed and all taxes
shown as due on said returns either have been paid or adequate
liability reserves have been provided for the payment of such
taxes.
The intention of the parties is that the transaction
contemplated by this Agreement will qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. Neither the Acquiring Fund nor the
Target Fund shall take any action or cause any action to be
taken (including, without limitation, the filing of any tax
return) that is inconsistent with such treatment or results in
the failure of the transaction to qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue
Code. At or prior to the Closing Date, the Acquiring Fund and
the Target Fund will take such action, or cause such action to
be taken, as is reasonably necessary to enable Skadden, Arps,
Slate, Meagher & Flom LLP ("Skadden"), special counsel to the
Funds, to render the tax opinion required herein (including,
without limitation, each party's execution of representations
reasonably requested by and addressed to Skadden.
In connection with this covenant, the Funds agree to
cooperate with each other in filing any tax return, amended
return or claim for refund, determining a liability for taxes
or a right to a refund of taxes or participating in or
conducting any audit or other proceeding in respect of taxes.
The Acquiring Fund agrees to retain for a period of ten (10)
years following the Closing Date all returns, schedules and
work papers and all material records or other documents
relating to tax matters of the Target Fund for each of such
Fund's taxable period first ending after the Closing Date and
for all prior taxable periods.
After the Closing Date, the Target Fund shall
prepare, or cause its agents to prepare, any federal, state or
local tax returns required to be filed by such fund with
respect to its final taxable year ending with its complete
liquidation and for any prior periods or taxable years and
further shall cause such tax returns to be duly filed with the
appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses
incurred by the Target Fund (other than for payment of taxes)
in connection with the preparation and filing of said tax
returns after the Closing Date shall be borne by such Fund to
the extent such expenses have been accrued by such Fund in the
ordinary course without regard to the Reorganization; any
excess expenses shall be borne by the investment adviser or an
affiliate thereof.
A-9
(g) The Target Fund agrees to mail to its shareholders of record
entitled to vote at the special meeting of shareholders at
which action is to be considered regarding this Agreement, in
sufficient time to comply with requirements as to notice
thereof, a combined proxy statement and prospectus which
complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a)
of the 1940 Act, and the rules and regulations, respectively,
thereunder.
(h) Following the consummation of the Reorganization, the
Acquiring Fund will continue its business as a diversified,
closed-end management investment company registered under the
1940 Act.
7. Closing Date.
(a) Delivery of the assets of the Target Fund to be transferred,
together with any other Target Fund Investments, and the
Acquiring Fund Common Shares and Acquiring Fund APS to be
issued as provided in this Agreement, shall be made at such
place and time as the Funds shall mutually agree on the next
full business day following the Valuation Time, or at such
other time and date agreed to by the Funds, the date and time
upon which such delivery is to take place being referred to
herein as the "Closing Date." To the extent that any Target
Fund Investments, for any reason, are not transferable on the
Closing Date, the Target Fund shall cause such Target Fund
Investments to be transferred to the Acquiring Fund's account
with its custodian at the earliest practicable date
thereafter.
(b) The Target Fund will deliver to the Acquiring Fund on the
Closing Date confirmation or other adequate evidence as to the
tax basis of the Target Fund Investments delivered to the
Acquiring Fund hereunder.
(c) As soon as practicable after the close of business on the
Closing Date, the Target Fund shall deliver to the Acquiring
Fund a list of the names and addresses of all of the
shareholders of record of the Target Fund on the Closing Date
and the number of Target Fund Common Shares and Target Fund
Preferred Shares owned by each such shareholder, certified to
the best of its knowledge and belief by the transfer agent for
the Target Fund or by its President.
8. Conditions of the Target Fund.
The obligations of the Target Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of
Trustees of the Target Fund and by the affirmative vote of the
holders of a majority of each of the outstanding Target Fund
Common Shares and Target Fund Preferred Shares, each voting
separately as a class; and that the Acquiring Fund shall have
delivered to the Target Fund a copy of the resolution
approving this Agreement adopted by the Board of Trustees of
the Acquiring Fund, and a certificate setting forth the vote
of holders of Acquiring Fund Common Shares approving the
issuance of additional Acquiring Fund Common Shares, each
certified by its Secretary.
(b) That the Target Fund shall have received from the Acquiring
Fund a statement of assets, liabilities and capital, with
values determined as provided in Section 4 of this Agreement,
together with a schedule of such Fund's investments, all as of
the Valuation Time, certified on the Target Fund's behalf by
its President (or any Vice President) or its Treasurer, and a
certificate signed by the Fund's President (or any Vice
President) and its Treasurer, dated as of the Closing Date,
certifying that as of the Valuation Time and as of the Closing
Date there has been no material adverse change in the
financial position of the Target Fund since the date of such
Fund's most recent Annual or Semi-Annual Report,
A-10
as applicable, other than changes in its portfolio securities
since that date or changes in the market value of its
portfolio securities.
(c) That the Acquiring Fund shall have furnished to the Target
Fund a certificate signed by the Acquiring Fund's President
(or any Vice President) or its Treasurer, dated as of the
Closing Date, certifying that, as of the Valuation Time and as
of the Closing Date, all representations and warranties of the
Acquiring Fund made in this Agreement are true and correct in
all material respects with the same effect as if made at and
as of such dates, and that the Acquiring Fund has complied
with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each
of such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) The Target Fund shall have received the opinion(s) of Skadden,
counsel for the Acquiring Fund, dated as of the Closing Date,
addressed to the Target Fund substantially in the form and to
the effect that:
(i) the Acquiring Fund is duly formed and validly
existing under the laws of its state of organization;
(ii) the Acquiring Fund is registered as a closed-end,
management investment company under the 1940 Act;
(iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been
duly authorized and approved by all requisite action
of the Acquiring Fund, and this Agreement has been
duly executed and delivered by the Acquiring Fund and
(assuming this Agreement is a valid and binding
obligation of the other party hereto) is a valid and
binding obligation of the Acquiring Fund;
(iv) neither the execution or delivery by the Acquiring
Fund of this Agreement nor the consummation by the
Acquiring Fund of the transactions contemplated
hereby violate any provision of any statute or any
published regulation or any judgment or order
disclosed to counsel by the Acquiring Fund as being
applicable to the Acquiring Fund;
(v) the Acquiring Fund Common Shares and Acquiring Fund
APS have each been duly authorized and, upon issuance
thereof in accordance with this Agreement, each will
be validly issued, fully paid and, except as provided
in Section 5.1 of the Acquiring Fund's Declaration of
Trust, nonassessable; and
(vi) to their knowledge and subject to the qualifications
set forth below, the execution and delivery by the
Acquiring Fund of this Agreement and the consummation
of the transactions herein contemplated do not
require, under the laws of its state of organization
or any state in which the Acquiring Fund is qualified
to do business or the federal laws of the United
States, the consent, approval, authorization,
registration, qualification or order of, or filing
with, any court or governmental agency or body
(except such as have been obtained). Counsel need
express no opinion, however, as to any such consent,
approval, authorization, registration, qualification,
order or filing which may be required as a result of
the involvement of other parties to this Agreement in
the transactions herein contemplated because of their
legal or regulatory status or because of any other
facts specifically pertaining to them;
A-11
(f) The Target Fund shall have obtained an opinion from Skadden,
Arps, dated as of the Closing Date, addressed to the Target
Fund, that the consummation of the transactions set forth in
this Agreement comply with the requirements of a
reorganization as described in Section 368(a) of the Internal
Revenue Code.
(g) That all proceedings taken by each of the Funds and its
counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and
substance to the others.
(h) That the N-14 Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending
such effectiveness shall have been instituted or, to the
knowledge of the Acquiring Fund, be contemplated by the SEC.
9. Acquiring Fund Conditions.
The obligations of the Acquiring Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of
Trustees of the Acquiring Fund and that the issuance of
additional Acquiring Fund Common Shares shall have been
approved by the affirmative vote of a majority of votes cast,
where total votes cast represented over 50% of all securities
entitled to vote; and the Target Fund shall have delivered to
the Acquiring Fund a copy of the resolution approving this
Agreement adopted by the Target Fund's Board of Trustees, and
a certificate setting forth the vote of the holders of Target
Fund Common Shares and Target Fund Preferred Shares obtained,
each certified by its Secretary.
(b) That the Target Fund shall have furnished to the Acquiring
Fund a statement of its assets, liabilities and capital, with
values determined as provided in Section 4 of this Agreement,
together with a schedule of investments with their respective
dates of acquisition and tax costs, all as of the Valuation
Time, certified on such Fund's behalf by its President (or any
Vice President) or its Treasurer, and a certificate signed by
such Fund's President
A-12
(or any Vice President) or its Treasurer, dated as of the
Closing Date, certifying that as of the Valuation Time and as
of the Closing Date there has been no material adverse change
in the financial position of the Target Fund since the date of
such Fund's most recent Annual Report or Semi-Annual Report,
as applicable, other than changes in the Target Fund
Investments since that date or changes in the market value of
the Target Fund Investments.
(c) That the Target Fund shall have furnished to the Acquiring
Fund a certificate signed by such Fund's President (or any
Vice President) or its Treasurer, dated the Closing Date,
certifying that as of the Valuation Time and as of the Closing
Date all representations and warranties of the Target Fund
made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such
dates and the Target Fund has complied with all of the
agreements and satisfied all of the conditions on its part to
be performed or satisfied at or prior to such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) That the Acquiring Fund shall have received the opinion of
Skadden, counsel for the Target Fund, dated as of the Closing
Date, addressed to the Acquiring Fund, substantially in the
form and to the effect that:
(i) the Target Fund is duly formed and validly existing
under the laws of its state of organization;
(ii) the Target Fund is registered as a closed-end,
management investment company under the 1940 Act;
(iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been
duly authorized by all requisite action of the
Target Fund, and this Agreement has been duly
executed and delivered by the Target Fund and
(assuming this Agreement is a valid and binding
obligation of the other party hereto) is a valid and
binding obligation of the Target Fund;
(iv) neither the execution or delivery by the Target Fund
of this Agreement nor the consummation by the Target
Fund of the transactions contemplated hereby violate
any provision of any statute, or any published
regulation or any judgment or order disclosed to
them by the Target Fund as being applicable to the
Target Fund; and
(v) to their knowledge and subject to the qualifications
set forth below, the execution and delivery by the
Target Fund of the Agreement and the consummation of
the transactions herein contemplated do not require,
under the laws of its state of organization or any
state in which the Target Fund is qualified to do
business, or the federal laws of the United States,
the consent, approval, authorization, registration,
qualification or order of, or filing with, any court
or governmental agency or body (except such as have
been obtained under the 1933 Act, 1934 Act, the 1940
Act or the rules and regulations thereunder).
Counsel need express no opinion, however, as to any
such consent, approval, authorization, registration,
qualification, order or filing
A-13
which may be required as a result of the involvement
of other parties to this Agreement in the
transactions herein contemplated because of their
legal or regulatory status or because of any other
facts specifically pertaining to them;
(f) That the Acquiring Fund shall have obtained an opinion from
Skadden, counsel for the Target Fund, dated as of the Closing
Date, addressed to the Acquiring Fund, that the consummation
of the transactions set forth in this Agreement comply with
the requirements of a reorganization as described in Section
368(a) of the Code.
(g) That the N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge
of the Target Fund, be contemplated by the SEC.
(h) That all proceedings taken by the Target Fund and its counsel
in connection with the Reorganization and all documents
incidental thereto shall be satisfactory in form and substance
to the Acquiring Fund.
(i) That prior to the Closing Date the Target Fund shall have
declared a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to
its shareholders all of its net investment company taxable
income for the period to and including the Closing Date, if
any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to
and including the Closing Date. In this regard, the last
dividend period for the Target Fund Preferred Shares may be
shorter than the dividend period for such APS determined as
set forth in the applicable Certificate of Vote.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the
Reorganization abandoned at any time (whether before or after
adoption thereof by the shareholders of the Funds) prior to
the Closing Date, or the Closing Date may be postponed, (i) by
mutual consent of the Boards of Trustees of the
A-14
Funds, (ii) by the Board of Trustees of the Target Fund if any
condition of the Target Fund's obligations set forth in
Section 8 of this Agreement has not been fulfilled or waived
by such Board; or (iii) by the Board of Trustees of the
Acquiring Fund if any condition of the Acquiring Fund's
obligations set forth in Section 9 of this Agreement have not
been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not
been consummated by December 31, 2005, this Agreement
automatically shall terminate on that date, unless a later
date is mutually agreed to by the Boards of Trustees of the
Funds.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no
further effect, and there shall not be any liability on the
part of any Fund or persons who are their directors, trustees,
officers, agents or shareholders in respect of this Agreement.
(d) At any time prior to the Closing Date, any of the terms or
conditions of this Agreement may be waived by the Board of
Trustees of any Fund (whichever is entitled to the benefit
thereof), if, in the judgment of such Board after consultation
with its counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this
Agreement to the shareholders of their respective fund, on
behalf of which such action is taken.
(e) The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be
terminated by, the consummation of the Reorganization, and
neither Fund nor any of its officers, trustees, agents or
shareholders shall have any liability with respect to such
representations or warranties after the Closing Date. This
provision shall not protect any officer, trustee, agent or
shareholder of either Fund against any liability to the entity
for which that officer, trustee, agent or shareholder so acts
or to its shareholders, to which that officer, trustee, agent
or shareholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Closing Date and shall
impose any terms or conditions which are determined by action
of the Boards of Trustees of the Funds to be acceptable, such
terms and conditions shall be binding as if a part of this
Agreement without further vote or approval of the shareholders
of the Funds unless such terms and conditions shall result in
a change in the method of computing the number of Acquiring
Fund Common Shares or Acquiring Fund APS to be issued to the
Acquired Funds, as applicable, in which event, unless such
terms and conditions shall have been included in the proxy
solicitation materials furnished to the shareholders of the
Funds prior to the meetings at which the Reorganization shall
have been approved, this Agreement shall not be consummated
and shall terminate unless the Funds promptly shall call a
special meeting of shareholders at which such conditions so
imposed shall be submitted for approval.
11. Indemnification.
(a) Each party (an "Indemnitor") shall indemnify and hold the
other and its officers, trustees, agents and persons
controlled by or controlling any of them (each an "Indemnified
A-15
Party") harmless from and against any and all losses, damages,
liabilities, claims, demands, judgments, settlements,
deficiencies, taxes, assessments, charges, costs and expenses
of any nature whatsoever (including reasonable attorneys'
fees) including amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
reasonably incurred by such Indemnified Party in connection
with the defense or disposition of any claim, action, suit or
other proceeding, whether civil or criminal, before any court
or administrative or investigative body in which such
Indemnified Party may be or may have been involved as a party
or otherwise or with which such Indemnified Party may be or
may have been threatened (collectively, the "Losses") arising
out of or related to any claim of a breach of any
representation, warranty or covenant made herein by the
Indemnitor, provided, however, that no Indemnified Party shall
be indemnified hereunder against any Losses arising directly
from such Indemnified Party's (i) willful misfeasance, (ii)
bad faith, (iii) gross negligence or (iv) reckless disregard
of the duties involved in the conduct of such Indemnified
Party's position.
(b) The Indemnified Party shall use its best efforts to minimize
any liabilities, damages, deficiencies, claims, judgments,
assessments, costs and expenses in respect of which indemnity
may be sought hereunder. The Indemnified Party shall give
written notice to Indemnitor within the earlier of ten (10)
days of receipt of written notice to Indemnified Party or
thirty (30) days from discovery by Indemnified Party of any
matters which may give rise to a claim for indemnification or
reimbursement under this Agreement. The failure to give such
notice shall not affect the right of Indemnified Party to
indemnity hereunder unless such failure has materially and
adversely affected the rights of the Indemnitor; provided that
in any event such notice shall have been given prior to the
expiration of the Survival Period. At any time after ten (10)
days from the giving of such notice, Indemnified Party may, at
its option, resist, settle or otherwise compromise, or pay
such claim unless it shall have received notice from
Indemnitor that Indemnitor intends, at Indemnitor's sole cost
and expense, to assume the defense of any such matter, in
which case Indemnified Party shall have the right, at no cost
or expense to Indemnitor, to participate in such defense. If
Indemnitor does not assume the defense of such matter, and in
any event until Indemnitor states in writing that it will
assume the defense, Indemnitor shall pay all costs of
Indemnified Party arising out of the defense until the defense
is assumed; provided, however, that Indemnified Party shall
consult with Indemnitor and obtain indemnitor's prior written
consent to any payment or settlement of any such claim.
Indemnitor shall keep Indemnified Party fully apprised at all
times as to the status of the defense. If Indemnitor does not
assume the defense, Indemnified Party shall keep Indemnitor
apprised at all times as to the status of the defense.
Following indemnification as provided for hereunder,
Indemnitor shall be subrogated to all rights of Indemnified
Party with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been
made.
12. Other Matters.
A-16
(a) All covenants, agreements, representations and warranties made
under this Agreement and any certificates delivered pursuant
to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any
investigation made by them or on their behalf.
(b) All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered personally or
sent by registered mail or certified mail, postage prepaid.
Notice to the Target Fund shall be addressed to the Target
Fund c/o Van Kampen Asset Management, 1221 Avenue of the
Americas, New York, New York 10020, Attention: General
Counsel, or at such other address as the Target Fund may
designate by written notice to the Acquiring Fund. Notice to
the Acquiring Fund shall be addressed to the Acquiring Fund
c/o Van Kampen Asset Management, 1221 Avenue of the Americas,
New York, New York 10020, Attention: General Counsel, or at
such other address and to the attention of such other person
as the Acquiring Fund may designate by written notice to the
Target Fund. Any notice shall be deemed to have been served or
given as of the date such notice is delivered personally or
mailed.
(c) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the
Reorganization, constitutes the only understanding with
respect to the Reorganization, may not be changed except by a
letter of agreement signed by each party and shall be governed
by and construed in accordance with the laws of the State of
Illinois applicable to agreements made and to be performed in
said state.
(d) It is expressly agreed that the obligations of the Funds
hereunder shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents, or
employees personally, but shall bind only the trust property
of the respective Fund as provided in such Fund's Declaration
of Trust. The execution and delivery of this Agreement has
been authorized by the trustees of each Fund and signed by
authorized officers of each Fund, acting as such, and neither
such authorization by such trustees, nor such execution and
delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of
each Fund as provided in such Funds' Declaration of Trust.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed and delivered by their duly authorized officers as of the day and
year first written above.
A-17
VAN KAMPEN XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXX
-----------------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
VAN KAMPEN XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX
-----------------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
A-18
APPENDIX B
FEDERAL IDENTIFICATION NO. 36-3779776
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
CERTIFICATE OF VOTE OF TRUSTEES ESTABLISHING
FOUR SERIES OF PREFERRED SHARES
I, Ronald A. Nyberg, Secretary, of Van Kampen Merritt Municipal Trust
(the "Fund") located at One Parkview Plaza, Oakbrook Terrace, IL 60181, do
hereby certify that at a meeting of the trustees of the Fund held on November
13, 1991, the following vote establishing and designating four series of
preferred shares of beneficial interest and determining the relative rights and
preferences thereof was duly adopted:
First: Pursuant to authority expressly vested in the Board of Trustees
of the Fund by Article I of its Declaration of Trust (which, as amended or
restated from time to time is, together with this Certificate of Vote, herein
called the "Declaration of Trust"), the Board of Trustees hereby authorizes the
issuance of four series of 6,000 shares of its authorized preferred shares of
beneficial interest, par value $.01 per share ("Preferred Shares"), liquidation
preference of $50,000 per share, designated, respectively, Auction Preferred
Shares, Series A ("APS Series A"), Auction Preferred Shares, Series B ("APS
Series B"), Auction Preferred Shares, Series C ("APS Series C") and Auction
Preferred Shares, Series D ("APS Series D") (collectively the APS Series A, APS
Series B, APS Series C and APS Series D are referred to herein as "APS").
Second: The preferences, voting powers, qualifications, and special or
relative rights or privileges of each such series of preferred shares of
beneficial interest are as follows:
DESIGNATION
APS SERIES A: A series of 1,500 preferred shares of beneficial
interest, $.01 par value, liquidation preference $50,000 per share, is hereby
designated "Auction Preferred Shares, Series A" (hereinafter, "APS Series A").
Each share of APS Series A shall be issued on December 10, 1991; have an
Applicable Rate for its Initial Dividend Period equal to 4.50% per annum; have
an Initial Dividend Payment Date of January 7, 1992; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series A shall constitute a
separate series of Preferred Shares of beneficial interest of the Fund, and each
share of APS Series A shall be identical except as provided in Section 3 of Part
I of this Certificate of Vote.
B-1
APS SERIES B: A series of 1,500 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $50,000 per share, is
hereby designated "Auction Preferred Shares, Series B" (hereinafter, "APS Series
B"). Each share of APS Series B shall be issued on December 10, 1991; have an
Applicable Rate for its Initial Dividend Period equal to 4.50% per annum; have
an Initial Dividend Payment Date of January 15, 1992; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series B shall constitute a
separate series of Preferred Shares of the Fund, and each share of APS Series B
shall be identical except as provided in Section 3 of Part I of this Certificate
of Vote.
APS SERIES C: A series of 1,500 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $50,000 per share, is
hereby designated "Auction Preferred Shares, Series C" (hereinafter, "APS Series
C"). Each share of APS Series C shall be issued on December 10, 1991; have an
Applicable Rate for its Initial Dividend Period equal to 4.50% per annum; have
an Initial Dividend Payment Date of January 9, 1992; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series C shall constitute a
separate series of Preferred Shares of the Fund, and each share of APS Series C
shall be identical except as provided in Section 3 of Part I of this Certificate
of Vote.
APS SERIES D: A series of 1,500 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $50,000 per share, is
hereby designated "Auction Preferred Shares, Series D." Each share of APS Series
D shall be issued on December 10, 1991; have an Applicable Rate for its Initial
Dividend Period equal to 4.50% per annum; have an Initial Dividend Payment Date
of January 10, 1992; and have such other preferences, limitations and relative
voting rights, in addition to those required by applicable law or set forth in
the Declaration of Trust applicable to preferred shares of beneficial interest
of the Fund, as are set forth in Part I and Part II of this Certificate of Vote.
The APS Series D shall constitute a separate series of Preferred Shares of the
Fund, and each share of APS Series D shall be identical except as provided in
Section 3 of Part I of this Certificate of Vote.
No holder of any series of APS shall have, solely by reason of being
such a holder of any series of APS, any right to acquire, purchase or subscribe
for any APS, common shares of beneficial interest, par value $.01 per share, of
the Fund or other securities of the Fund which it may hereafter issue or sell
(whether out of the number of shares authorized by the Declaration of Trust, or
out of any shares acquired by the Fund after the issuance thereof, or
otherwise).
ARTICLE I.
Number of Shares; Ranking. (a) No fractional APS shall be
issued.
2. Any APS which at any time have been redeemed or purchased
by the Fund shall, after such redemption or purchase, have the status of
authorized but unissued Preferred Shares, without designation as to series.
The shares of each series of APS shall rank on a parity with shares of
any other series of Preferred Shares (including any other series of APS) as to
the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund.
Dividends. (a) The Holder of shares of any series of APS shall
be entitled to receive, when, as and if declared by the Board of Trustees, out
of funds legally available therefor, cumulative cash dividends at the Applicable
Rate per annum thereof, determined as set forth in paragraph (c) of this
B-2
Section 2, and no more (except to the extent set forth in Section 12 of this
Part I), payable on the respective dates (each a "Dividend Payment Date")
determined as set forth in paragraph (b) of this Section 2. Dividends on shares
of any series of APS shall accumulate at the Applicable Rate per annum from the
Date of Original Issue thereof.
(i) Dividends shall be payable subject to subparagraph (b) (ii) of this
Section 2, on shares of:
(i) APS Series A, on Tuesday, January 7, 1992, and on each
Tuesday thereafter,
(ii) APS Series B, on Wednesday, January 15, 1992, and on each
fourth Wednesday thereafter,
(iii) APS Series C, on Thursday, January 9, 1992, and on each
Thursday thereafter, and
(iv) APS Series D, on Friday, January 10, 1992, and on each
fourth Friday thereafter,
provided that if the Fund, subject to the conditions set forth in Section 4 of
this Part I, designates any Subsequent Dividend Period as a Special Dividend
Period, dividends will be payable: (1) with respect to a Special Dividend Period
of less than 91 days, the day after the last day thereof, (2) with respect to a
Special Dividend Period of 91 days or more and fewer than 365 days, the 92nd day
thereof, the 183rd day thereof, if any, the 247th day thereof, if any, and the
day after the last day, thereof and (3) with respect to a Special Dividend
Period of 365 or more days, on such date in each quarterly period after the
commencement thereof as is determined by the Board of Trustees.
After any Special Dividend Period, dividends on shares of such series of APS
shall be payable, subject to subparagraph (b)(ii) of this Section 2, on each
succeeding Tuesday if such series is APS Series A, each fourth succeeding
Wednesday if such series is APS Series B, each succeeding Thursday if such
series is APS Series C, and each fourth succeeding Friday if such series is APS
Series D, subject in each case to the options of the Fund to further designate
from time to time any Subsequent Dividend Period thereof as a Special Dividend
Period.
In the case of dividends that would be payable on a Monday, Tuesday,
Wednesday, Thursday or Friday as determined by subparagraph (b) (i) of this
Section 2, including clause (1), (2) or (3) of the proviso thereto, if (i) the
Monday or Tuesday that would otherwise be the Dividend Payment Date is not a
Business Day, then dividends shall be payable on the first Business Day that
falls after such Monday or Tuesday, or (ii) the Wednesday, Thursday or Friday
that would otherwise be the Dividend Payment Date is not a Business Day, then
dividends shall be payable on the first Business Day that falls prior to such
Wednesday, Thursday or Friday.
The Fund shall pay to the Auction Agent not later than 12:00 Noon, New
York City time, on the Business Day next preceding each Dividend Payment Date
for shares of such series, an aggregate amount of funds available on the next
Business Day in The City of New York, New York, equal to the dividends to be
paid to all Holders of shares of such series on such Dividend Payment Date.
All moneys paid to the Auction Agent for the payment of dividends (or
for the payment of any late charges pursuant to subparagraph (c)(i) of this
Section 2) shall be held in trust for the payment of such dividends (and any
such late charge) by the Auction Agent for the benefit of the
B-3
Holders specified in subparagraph (b)(v) of this Section 2. Any moneys paid to
the Auction Agent in accordance with the foregoing but not applied by the
Auction Agent to the payment of dividends (and any late charge) will, to the
extent permitted by law, be repaid to the Fund at the end of 90 days from the
date on which such moneys were so to have been applied.
Each dividend on the APS shall be paid on the Dividend Payment Date
therefor to the Holders as their names appear on the share books of the Fund on
the Business Day next preceding such Dividend Payment Date. Dividends in arrears
for any past Dividend Period may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to the Holders as their names
appear on the share books of the Fund on such date, not exceeding 15 days
preceding the payment date thereof, as may be fixed by the Board of Trustees.
1. (i) The dividend rate on shares of any series of APS during
the period from and after the Date of Original Issue thereof to and including
the last day of the Initial Dividend Period therefor shall be equal to the rate
per annum set forth with respect to such series under "Designation," above. For
each Subsequent Dividend Period of any series of APS outstanding thereafter, the
dividend rate on shares of such series shall be equal to the rate per annum that
results from an Auction for such series on the Auction Date next preceding such
Subsequent Dividend Period; provided, however, that if an Auction for any
Subsequent Dividend Period of any series of APS is not held for any reason or if
a Failure to Deposit occurs and such failure has not been cured as set forth
below prior to any succeeding Subsequent Dividend Period thereof, then, subject
to the next succeeding provision, the dividend rate on the shares of such series
for any such Subsequent Dividend Period shall be the Maximum Rate (as defined
herein) for such series on the Auction Date for such Subsequent Dividend Period;
provided, further, however, that if (A) any Failure to Deposit shall have
occurred with respect to shares of any series of APS during any Rate Period
thereof (other than any Special Dividend Period consisting of four or more
Dividend Periods or any Rate Period succeeding any Special Dividend Period
consisting of four or more Dividend Periods during which a Failure to Deposit
occurred that has not been cured), and prior to 12:00 noon, New York City time,
on the third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with the next succeeding sentence or the Fund shall not have paid to
the Auction Agent a late charge equal to the sum of (1) if such Failure to
Deposit consisted of the failure timely to pay to the Auction Agent the full
amount of dividends with respect to any Dividend Period on the shares of such
series, an amount computed by multiplying (x) 200% of the "AA" Composite
Commercial Paper Rate for the Rate Period during which such Failure to Deposit
occurs on the Dividend Payment Date for such Dividend Period by (y) a fraction,
the numerator of which shall be the number of days for which such Failure to
Deposit has not been cured in accordance with the next succeeding sentence
(including the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 365, and
applying the rate obtained against the aggregate liquidation preference of the
outstanding shares of such series of APS and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the Redemption Price
of the shares of such series of APS, if any, for which Notice of Redemption has
been given by the Fund pursuant to paragraph (b) of Section 3 of this Part I, an
amount computed by multiplying (x) 200% of the "AA" Composite Commercial Paper
Rate for the Rate Period during which such Failure to Deposit occurs on the
redemption date by (y) a fraction, the numerator of which shall be the number of
days for which such Failure to Deposit is not cured in accordance with the next
succeeding sentence (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the denominator of which
shall be 365, and applying the rate obtained against the aggregate liquidation
preference of the outstanding shares of APS to be redeemed, or (B) any Failure
to Deposit shall have occurred with respect to shares of any series of APS
during a Special Dividend Period thereof consisting of four or more Dividend
Periods, or during any Rate Period thereof succeeding any Special Dividend
Period consisting of four or more Dividend Periods during which a Failure to
Deposit occurred that has not been cured, and such Failure to Deposit shall not
have been cured in accordance with the next
B-4
succeeding sentence during such Special Dividend Period or such other Rate
Period, then the dividend rate for shares of such series of APS for each
Subsequent Dividend Period thereof commencing after such failure to and
including the Subsequent Dividend Period, if any, during which such Failure to
Deposit is so cured shall be a rate per annum equal to the Maximum Rate on the
Auction Date for such Subsequent Dividend Period (but with the prevailing rating
for such shares, for purposes of determining such Maximum Rate, being deemed to
be "Below "ba3"/BB-") (the rate per annum at which dividends are payable on the
APS for any Rate Period for such shares being herein referred to as the
"Applicable Rate" for such shares). A Failure to Deposit with respect to shares
of any series of APS shall have been cured (if such Failure to Deposit is not
solely due to the willful failure of the Fund to make the required payment to
the Auction Agent) with respect to any Rate Period if, not later than 12:00
Noon, New York City time, on the fourth Business Day preceding the Auction Date
for the Rate Period subsequent to such Rate Period the Fund shall have paid to
the Auction Agent (A) all accumulated and unpaid dividends on the shares of such
series of APS and (B) without duplication, the Redemption Price for the APS, if
any, for which Notice of Redemption has been given by the Fund pursuant to
paragraph (b) of Section 3 of this Part 1.
(b) The amount of dividends per share payable on shares of any
series of APS on any date on which dividends shall be payable on shares
of such series shall be computed by multiplying the respective
Applicable Rate for such series in effect for such Dividend Period or
Dividend Periods or part thereof for which dividends have not been paid
by a fraction, the numerator of which shall be the number of days in
such Dividend Period or Dividend Periods or part thereof and the
denominator of which shall be 365 if such Dividend Period is a Rate
Period, or is contained in a Rate Period, of less than one year and 360
for all other Dividend Periods, and applying the rate obtained against
$50,000.
3. Any dividend payment made on the APS shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such APS.
Except as set forth in the next sentence, no dividends shall be
declared or paid or set apart for payment on the shares of any class or series
of shares ranking, as to the payment of dividends, on a parity with the APS for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid on the shares of each series of APS through the most recent
Dividend Payment Date for each such series. When dividends are not paid in full
upon the APS through their most recent respective Dividend Payment Dates or upon
the shares of any other class or series of shares ranking on a parity as to the
payment of dividends with the APS through their most recent respective dividend
payment dates, all dividends declared upon the APS and any other such class or
series of shares ranking on a parity as to the payment of dividends with the APS
shall be declared pro rata so that the amount of dividends declared per share on
the APS and such other class or series of shares shall in all cases bear to each
other the same ratio that accumulated dividends per share on the APS and such
other class or series of shares bear to each other (for purposes of this
sentence, the amount of dividends declared per share shall be based on the
Applicable Rate for such shares for the Dividend Periods during which dividends
were not paid in full). Holders of the APS shall not be entitled to any
dividend, whether payable in cash, property or shares, in excess of full
cumulative dividends, as herein provided, on the APS. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the APS which may be in arrears, and, except to the extent set
forth in subsection (c)(i) of this Section 2, no additional sum of money shall
be payable in respect of any such arrearage.
Dividends on the APS shall be designated as exempt-interest dividends
up to the amount of tax-exempt income of the Fund, to the extent permitted by,
and for purposes of, Section 852 of the Internal Revenue Code of 1986, as
amended from time to time.
B-5
The Board of Trustees shall not declare any dividend (except a dividend
payable in Common Shares), or declare any other distribution, upon the Common
Shares, or purchase Common Shares, unless in every such case the APS have, at
the time of any such declaration or purchase, an asset coverage (as defined in
and determined pursuant to the 1940 Act) of at least 200% (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of declaring dividends on its common stock)
after deducting the amount of such dividend, distribution or purchase price, as
the case may be.
A. Redemption. (a)(i) Upon giving a Notice of Redemption, as
provided below, the Fund at its option may redeem shares of
any series of APS, in whole or in part, on the Second Business
Day next preceding any Dividend Payment Date applicable to
those shares of APS called for redemption, out of funds
legally available therefor, at the Optional Redemption Price;
provided that during a Special Dividend Period of 365 days or
more no share of APS will be subject to optional redemption
during any Non-Call Period; provided, that shares of any
series of APS may not be redeemed in part if after such
partial redemption fewer than 250 shares of such series remain
outstanding.
If fewer than all of the outstanding shares of any series of APS are to
be redeemed pursuant to subparagraph (a)(i) of this Section 3, the number of
shares of such series to be redeemed shall be determined by the Board of
Trustees, and such shares shall be redeemed pro rata from the Holders of such
series in proportion to the number of such shares held by such Holders.
No APS shall be redeemed pursuant to subparagraphs (a)(i) or (a)(ii) of
this Section 3 unless, on the date on which the Fund intends to give notice of
such redemption pursuant to paragraph (b) of this Section 3, (a) the Fund has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount (including the applicable premium, if any) due to Holders of the APS
by reason of the redemption of such shares on such redemption date and (b)
Moody's Eligible Assets (if Moody's is then rating the APS) and S&P Eligible
Assets (if S&P is then rating the APS) each at least equal the APS Basic
Maintenance Amount, and would at least equal the APS Basic Maintenance Amount
immediately subsequent to such redemption if such redemption were to occur on
such date.
The Fund shall redeem, at the Mandatory Redemption Price, certain of
the APS to the extent permitted under the 1940 Act and Massachusetts law, if the
Fund fails to maintain the APS Basic Maintenance Amount or 1940 Act APS Asset
Coverage in accordance with the requirements of the rating agency or agencies
then rating the APS and such failure is not cured on or before the APS Basic
Maintenance Cure Date or the 1940 Act Cure Date, as the case may be. The number
of APS to be redeemed shall be equal to the lesser of (i) the minimum number of
APS the redemption of which, if deemed to have occurred immediately prior to the
opening of business on the Cure Date, together with all other Preferred Shares
subject to redemption or retirement, would result in the satisfaction of the APS
Basic Maintenance Amount or the 1940 Act APS Asset Coverage, as the case may be,
on such Cure Date (provided that, if there is no such minimum number of APS and
other Preferred Shares the redemption of which would have such result, all the
APS and Preferred Shares then outstanding shall be redeemed), and (ii) the
maximum number of APS, together with all other Preferred Shares subject to
redemption or retirement, that can be redeemed out of funds expected to be
legally available therefor. In determining the APS required to be redeemed in
accordance with the foregoing, the Fund shall allocate the number required to be
redeemed to satisfy the APS Basic Maintenance Amount or the 1940 Act APS Asset
Coverage, as the case may be, pro rata among each series of APS and other
Preferred Shares subject to redemption provisions similar to those contained in
this subparagraph (a)(iv) of this
B-6
Section 3. The Fund shall effect such redemption not earlier than 20 days and
not later than 40 days after such Cure Date, except that if the Fund does not
have funds legally available for the redemption of all of the required number of
APS and other Preferred Shares which are subject to redemption provisions
similar to those contained in this subparagraph (a)(iv) of this Section 3 or the
Fund otherwise is unable to effect such redemption on or prior to 40 days after
such Cure Date, the Fund shall redeem those APS and other Preferred Shares which
it was unable to redeem on the earliest practicable date on which it is able to
effect such redemption. If fewer than all of the outstanding shares of any
series of APS are to be redeemed pursuant to this Section 3(a)(iv), the number
of shares of such series to be redeemed shall be redeemed pro rata from the
Holders of such shares in proportion to the number of shares held by such
Holders.
2. The Fund is required to give 30 days Notice of Redemption.
In the event the Fund obtains appropriate exemptive or no-action relief from the
Securities and Exchange Commission, the number of days' notice required for a
mandatory redemption may be reduced by the Board of Trustees of the Fund to as
few as two Business Days if Moody's and S&P each has agreed in writing that the
revised notice provision would not adversely affect its then-current ratings of
the APS. The Auction Agent will use its reasonable efforts to provide telephonic
notice to each holder of APS called for redemption not later than the close of
business on the Business Day on which the Auction Agent determines the shares to
be redeemed (as described above) (or, during the occurrence of a Failure to
Deposit with respect to such shares, not later than the close of business on the
Business Day immediately following the day on which the Auction Agent receives
Notice of Redemption from the Fund). Such telephonic notice will be confirmed
promptly in writing not later than the close of business on the third Business
Day preceding the redemption date by notice sent by the Auction Agent to each
holder of record of APS called for redemption, the Broker-Dealers and the
Securities Depository. Every Notice of Redemption and other redemption notice
with respect to APS will state: (1) the redemption date, (2) the number of APS
to be redeemed, (3) the redemption price, (4) that dividends on the APS to be
redeemed will cease to accumulate as of such redemption date and (5) the
provision of the APS Provisions pursuant to which such shares are being
redeemed. No defect in the Notice of Redemption or other redemption notice or in
the transmittal or the mailing thereof will affect the validity of the
redemption proceedings, except as required by applicable law. If fewer than all
shares of any series held by any Holder are to be redeemed, the Notice of
Redemption mailed to such Holder shall also specify the number of shares of such
series to be redeemed from such Holder.
3. Notwithstanding the provisions of paragraph (a) of this
Section 3, if any dividends on shares of any series of APS are in arrears, no
shares of such series of APS shall be redeemed unless all outstanding shares of
such series of APS are simultaneously redeemed, and the Fund shall not purchase
or otherwise acquire any shares of such series of APS; provided, however, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series of APS pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series of APS.
4. Upon the deposit of funds sufficient to redeem the APS with
the Auction Agent and the giving of Notice of Redemption under Paragraph (b) of
this Section 3, dividends on such shares shall cease to accumulate and such
shares shall no longer be deemed to be outstanding for any purpose, and all
rights of the Holders of the shares so called for redemption shall cease and
terminate, except the right of such Holders to receive the Optional Redemption
Price or Mandatory Redemption Price, as the case may be, but without any
interest or other additional amount, except as provided in Section 2(c)(i) and
in Section 12. Upon surrender in accordance with the Notice of Redemption of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Trustees shall so require and the Notice of Redemption
shall so state), the Optional Redemption Price or Mandatory Redemption Price, as
the case may be, shall be paid by the Auction Agent to the Holders of the APS
subject to redemption. In
B-7
the case that fewer than all of the shares represented by any such certificate
are redeemed, a new certificate shall be issued, representing the unredeemed
shares, without cost to the Holder thereof. The Fund shall be entitled to
receive from the Auction Agent, promptly after the date fixed for redemption,
any cash deposited with the Auction Agent in excess of (i) the aggregate
Optional Redemption Price of the APS called for redemption on such date and (ii)
all other amounts to which Holders of the APS called for redemption may be
entitled. Any funds so deposited that are unclaimed at the end of 90 days from
such redemption date shall, to the extent permitted by law, be repaid to the
Fund, after which time the Holders of the APS so called for redemption may look
only to the Fund for payment of the Optional Redemption Price or Mandatory
Redemption Price, as the case may be, and all other amounts to which they may be
entitled. The Fund shall be entitled to receive, from time to time after the
date fixed for redemption, any interest on the funds so deposited.
5. To the extent that any redemption for which Notice of
Redemption has been given is not made by reason of the absence of legally
available funds therefor, such redemption shall be made as soon as practicable
to the extent such funds become available. Failure to redeem the APS shall be
deemed to exist at any time after the date specified for redemption in a Notice
of Redemption when the Fund shall have failed, for any reason whatsoever, to
deposit in trust with the Auction Agent the Redemption Price with respect to any
shares for which such Notice of Redemption has been given. Notwithstanding the
fact that the Fund may not have redeemed the APS for which a Notice of
Redemption has been given, dividends may be declared and paid on the APS and
shall include those APS for which a Notice of Redemption has been given.
6. All moneys paid to the Auction Agent for payment of the
Optional Redemption Price or Mandatory Redemption Price, as the case may be, of
the APS called for redemption shall be held in trust by the Auction Agent for
the benefit of Holders of shares so to be redeemed.
7. In effecting any redemption pursuant to this Section 3, the
Fund shall use its best efforts to comply with all applicable procedural
conditions precedent to effecting such redemption under the 1940 Act and
Massachusetts law, but shall effect no redemption except in accordance with the
1940 Act and Massachusetts law.
8. In the case of any redemption pursuant to this Section 3,
only whole APS shall be redeemed, and in the event that any provision of the
Declaration of Trust would require redemption of a fractional share, the Auction
Agent shall be authorized to round up so that only whole shares are redeemed.
B. Designation of Special Dividend Periods. (a) The Fund, at its
option, may designate any succeeding Subsequent Dividend
Period of any series of APS as a Special Dividend Period;
provided, however, that such designation shall be effective
only if (A) notice thereof shall have been given in accordance
with paragraph (b) and clause (i) of paragraph (c) of this
Section 4, (B) any Failure to Deposit that shall have occurred
with respect to shares of such series during any Dividend
Period shall have been cured in accordance with the provisions
of the third sentence of paragraph (c)(i) of Section 2 of this
Part I, (C) Sufficient Clearing Bids (as defined in Section 1
of Part II hereof) for such series shall have existed in an
Auction held on the Auction Date immediately preceding the
first day of such proposed Special Dividend Period, (D) if any
Notice of Redemption shall have been mailed by the Fund
pursuant to paragraph (b) of Section 3 of this Part I with
respect to any shares of such series of APS, the Redemption
Price with respect to such shares shall have been deposited
with the Auction Agent and (E) in the event the Fund wishes to
designate any succeeding Subsequent Dividend Period for such
series as a Special Dividend Period consisting of more than 28
Rate Period Days, the Fund has
B-8
received written confirmation from S&P (if S&P is then rating
the APS) and Moody's (if Moody's is then rating the APS) that
such designation would not affect the rating then assigned by
S&P and Moody's to such series.
2. If the Fund proposes to designate any succeeding Subsequent
Dividend Period of any series of APS as a Special Dividend Period pursuant to
paragraph (a) of this Section 4, not less than 20 nor more than 30 days prior to
the date the Fund proposes to designate as the first day of such Special
Dividend Period (which shall be such day that would otherwise be the first day
of a Minimum Dividend Period), notice shall be (i) published or caused to be
published by the Fund in a newspaper of general circulation to the financial
community in The City of New York, New York, which carries financial news, and
(ii) communicated by the Fund by telephonic or other means to the Auction Agent
and confirmed in writing promptly thereafter. Each such notice shall state (A)
that the Fund may exercise its option to designate a succeeding Subsequent
Dividend Period of such series of APS as a Special Dividend Period, specifying
the first day thereof and (B) that the Fund will by 11:00 A.M., New York City
time, on the second Business Day next preceding such date notify the Auction
Agent of either (x) its determination, subject to certain conditions, to
exercise such option, in which case the Fund shall specify the Special Dividend
Period designated and the terms of the Specific Redemption Provisions, if any,
or (y) its determination not to exercise such option.
3. No later than 11:00 A.M., New York City time, on the second
Business Day next preceding the first day of any proposed Special Dividend
Period as to which notice has been given as set forth in paragraph (b) of this
Section 4, the Fund shall deliver to the Auction Agent either:
(a) a notice stating (A) that the Fund has determined
to designate the next succeeding Dividend Period of such series as a
Special Dividend Period, specifying the same and the first day thereof,
(B) the Auction Date immediately prior to the first day of such Special
Dividend Period, (C) the terms of the Specific Redemption Provisions,
if any, for such series, (D) that such Special Dividend Period shall
not commence if (1) on such Auction Date Sufficient Clearing Bids for
such series shall not exist or (2) a Failure to Deposit shall have
occurred prior to the first day of such Special Dividend Period with
respect to shares of such series and (E) the scheduled Dividend Payment
Dates for such series of APS during such Special Dividend Period; such
notice to be accompanied by an APS Basic Maintenance Report showing
that, as of the third Business Day next preceding such proposed Special
Dividend Period, (1) Moody's Eligible Assets, assuming for the purposes
calculating Moody's Eligible Assets, in connection with an APS Basic
Maintenance Report required to be prepared pursuant to this Section
4(c)(i), a Moody's Exposure Period of "eight weeks or less but greater
than seven weeks" (if Moody's is then rating such series) and (2) S&P
Eligible Assets (if S&P is then rating such series) each at least equal
the APS Basic Maintenance Amount as of such Business Day (assuming for
purposes of the foregoing calculation that the Maximum Rate is the
Maximum Rate on such Business Day as if such Business Day were the
Auction Date for the proposed Special Dividend Period); or
(b) a notice stating that the Fund has determined not
to exercise its option to designate a Special Dividend Period for such
series of APS and that the next succeeding Dividend Period of such
series shall be a Minimum Dividend Period.
If the Fund fails to deliver either such notice (and, in the case of the notice
described in clause (i) of the preceding sentence, an APS Basic Maintenance
Report to the effect set forth in clause (i) (if either Moody's or S&P is then
rating shares of the series in question)) with respect to any designation of any
proposed Special Dividend Period to the Auction Agent by 11:00 A.M., New York
City time, on the
B-9
second Business Day next preceding the first day of such proposed Special
Dividend Period, the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Dividend Period to the effect set
forth in clause (ii) of the preceding sentence.
Voting Rights. (a) Except as otherwise provided in the Declaration of
Trust or as otherwise required by law, (i) each Holder of APS shall be entitled
to one vote for each of the APS held on each matter submitted to a vote of
shareholders of the Fund, and (ii) the holders of outstanding Preferred Shares,
including APS, and of Common Shares shall vote together as a single class;
provided that, at a meeting of the shareholders of the Fund held for the
election of the trustees, the holders of outstanding Preferred Shares, including
APS, represented in person or by proxy at said meeting, shall elect two trustees
of the Fund, each Preferred Share, including each of the APS, entitling the
holder thereof to one vote. Subject to paragraph (b) of this Section 5, the
holders of outstanding Common Shares shall elect the balance of the trustees.
2. During any period in which any one or more of the conditions
described below shall exist (such period being referred to herein as a "Voting
Period"), the number of trustees constituting the Board of Trustees shall be
automatically increased by the smallest number that, when added to the two
trustees elected exclusively by the holders of Preferred Shares, including APS,
would constitute a majority of the Board of Trustees as so increased by such
smallest number, and the holders of Preferred Shares, including APS, shall be
entitled, voting as a class on a one-vote-per-share basis (to the exclusion of
the holders of all other securities and class of capital shares of the Fund), to
elect such smallest number of additional trustees, together with the two
trustees that such holders are in any event entitled to elect. A Voting Period
shall commence:
(a) if at the close of business on any Dividend
Payment Date accumulated dividends (whether or not earned or declared)
on any outstanding APS equal to at least two full years' dividends
shall be due and unpaid and sufficient cash or specified securities
shall not have been deposited with the Auction Agent for the payment of
such accumulated dividends; or
if at any time holders of any other Preferred Shares are entitled under the
1940 Act to elect a majority of the trustees of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 5 shall cease, subject always, however, to the
revesting of such voting rights in the Holders upon the further occurrence of
any of the events described in this paragraph (b) of Section 5.
(i) As soon as practicable after the accrual of any right of the holders of
Preferred Shares to elect additional trustees as described in paragraph (b) of
this Section 5, the Fund shall notify the Auction Agent and the Auction Agent
shall call a special meeting of such holders, by mailing a notice of such
special meeting to such holders, such meeting to be held not less than 10 nor
more than 20 days after the date of mailing of such notice. If the Fund fails to
send such notice to the Auction Agent or if the Auction Agent does not call such
a special meeting, it may be called by any such holder on like notice. The
record date for determining the holders entitled to notice of and to vote at
such special meeting shall be the close of business on the fifth Business Day
preceding the day on which such notice is mailed. At any such special meeting
and at each meeting of holders of Preferred Shares held during a Voting Period
at which trustees are to be elected, such holders, voting together as a class
(to the exclusion of the holders of all other securities and classes of capital
shares of the Fund), shall be entitled to elect the number of trustees
prescribed in paragraph (b) of this Section 5 on a one-vote-per-share basis.
B-10
For purposes of determining any rights of the Holders to vote on any
matter, whether such right is created by this Certificate of Vote, by the other
provisions of the Declaration of Trust, by statute or otherwise, no Holder shall
be entitled to vote and no APS shall be deemed to be "outstanding" for the
purpose of voting or determining the number of shares required to constitute a
quorum if, prior to or concurrently with the time of determination of shares
entitled to vote or shares deemed outstanding for quorum purposes, as the case
may be, the Redemption Price for the redemption of such shares has been
deposited in trust with the Auction Agent for that purpose and the requisite
Notice of Redemption with respect to such shares shall have been given as
provided in Section 3 of this Part I. None of the APS held by the Fund or any
affiliate of the Fund shall have any voting rights or be deemed to be
outstanding for voting or other purposes.
The terms of office of all persons who are Trustees of the Fund at the time
of a special meeting of Holders and holders of other Preferred Shares to elect
trustees shall continue, notwithstanding the election at such meeting by the
Holders and such other holders of the number of trustees that they are entitled
to elect, and the persons so elected by the Holders and such other holders,
together with the two incumbent trustees elected by the Holders and such other
holders of Preferred Shares and the remaining incumbent trustees elected by the
holders of the Common Shares, shall constitute the duly elected trustees of the
Fund.
Simultaneously with the termination of a Voting Period, the terms of office
of the additional trustees elected by the Holders and holders of other Preferred
Shares pursuant to paragraph (b) of this Section 5 shall terminate, the
remaining trustees shall constitute the trustees of the Fund and the voting
rights of the Holders and such other holders to elect additional trustees
pursuant to paragraph (b) of this Section 5 shall cease, subject to the
provisions of the last sentence of paragraph (b) of this Section 5.
(i) So long as any of the APS are outstanding, the Fund shall not, without
the affirmative vote of the Holders of the Outstanding APS determined with
reference to a "majority of outstanding voting securities" as that term is
defined in Section 2(a)(49) of the 1940 Act (voting separately as one class):
(a) authorize, create or issue any class or series of shares of beneficial
interest ranking prior to or on a parity with the APS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Fund, or increase the authorized amount of
any series of APS (except that, notwithstanding the foregoing, but subject to
the provisions of Section 13, the Board of Trustees, without the vote or consent
of the Holders of APS, may from time to time authorize and create, and the Fund
may from time to time issue, classes or series of Preferred Shares, including
APS, ranking on a parity with the APS with respect to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Fund, subject to continuing compliance by the Fund with 1940
Act APS Asset Coverage and APS Basic Maintenance Amount requirements, provided
that the Fund obtains written confirmation from Moody's (if Moody's is then
rating APS) and S&P (if S&P is then rating APS) that the issuance of such class
or series would not impair the rating then assigned by such rating agency to the
APS, (b) amend, alter or repeal the provisions of the Declaration of Trust,
including this Certificate of Vote, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such APS or the
Holders thereof; provided that (i) none of the actions permitted by the
exception to (a) above will be deemed to affect such preferences, rights or
powers and (ii) the authorization, creation and issuance of classes or series of
shares ranking junior to the APS with respect to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund, will be deemed to affect such preferences, rights or powers
only if Moody's or S&P is then rating the APS and such issuance would, at the
time thereof, cause the Fund not to satisfy the 1940 Act APS Asset Coverage or
the APS Basic Maintenance Amount, or (c) file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent.
B-11
(a) The Board of Trustees, without the vote or consent of the Holders of
APS, may from time to time amend, alter or repeal any or all of the definitions
of the terms listed below, and any such amendment, alteration or repeal will not
be deemed to affect the preferences, rights or powers of the APS or the Holders
thereof, provided the Board of Trustees receives written confirmation from
Moody's (such confirmation being required to be obtained only in the event
Moody's is rating the APS and in no event being required to be obtained in the
case of the definitions of Deposit Securities, Discounted Value and Receivables
for Municipal Securities Sold as such terms apply to S&P Eligible Assets,
Dividend Coverage Amount, Dividend Coverage Assets, Minimum Liquidity Level, S&P
Discount Factor, S&P Eligible Assets, S&P Exposure Period and Valuation Date as
such term applies to the definitions of Dividend Coverage Amount, Dividend
Coverage Assets and Minimum Liquidity Level) and S&P (such confirmation being
required to be obtained only in the event S&P is rating the APS and in no event
being required to be obtained in the case of the definitions of Discounted Value
and Receivables for Municipal Securities Sold as such terms apply to Moody's
Eligible Assets, Moody's Discount Factor, Moody's Eligible Asset and Moody's
Exposure Period) that any such amendment, alteration or repeal would not impair
the ratings then assigned by Moody's or S&P, as the case may be, to the APS:
APS Basic
Maintenance Amount
APS Basic
Maintenance Cure Date
APS Basic
Maintenance Report
Deposit Securities
Discounted Value
Dividend Coverage Amount
Dividend Coverage Assets
Market Value
Maximum Potential
Gross-up
Payment Liability
Minimum Liquidity Level
Moody's Discount Factor
Moody's Eligible
Asset Moody's Exposure Period
1940 Act Cure Date
1940 Act APS
Asset Coverage
Quarterly Valuation Date
Receivables for Municipal
Securities Sold
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
Valuation Date
Unless otherwise required by law, the Holders of the APS shall not have any
relative rights or preferences or other special rights other than those
specifically set forth herein. The Holders of the APS shall have no preemptive
rights or rights to cumulative voting. In the event that the Fund fails to pay
any
B-12
dividends on the APS, the exclusive remedy of the Holders shall be the right to
vote for trustees pursuant to the provisions of this Section 5.
Unless a higher percentage is provided for in the Declaration of Trust, the
affirmative vote of the Holders of a majority of the outstanding APS, voting as
a separate class, shall be required to approve any plan of reorganization (as
such term is used in the 1940 Act) adversely affecting such shares or any action
requiring a vote of security holders of the Fund under Section 13(a) of the 1940
Act. In the event a vote of Holders of APS is required pursuant to the
provisions of Section 13(a) of the 1940 Act, the Fund shall, not later than ten
Business Days prior to the date on which such vote is to be taken, notify
Moody's (if Moody's is then rating the APS) and S&P (if S&P is then rating the
APS) that such vote is to be taken and the nature of the action with respect to
which such vote is to be taken. In addition, the Fund shall notify Moody's (if
Moody's is then rating the APS) and S&P (if S&P is then rating the APS) of the
results of any vote described in the proceeding sentence.
Right to Vote with Respect to Certain Other Matters. The affirmative vote
of the holders of a majority (unless a higher percentage vote is required under
the Declaration of Trust or under this Certificate of Vote) of the outstanding
shares of each series of APS, each voting as a separate class, is required with
respect to any matter that materially affects the series in a manner different
from that of other series of classes of the Fund's shares, including without
limitation any proposal to do the following: (1) increase or decrease the
aggregate number of authorized shares of the series; (2) effect an exchange,
reclassification, or cancellation of all or part of the shares of the series;
(3) effect an exchange, or create a right of exchange, of all or any part of the
shares of the series; (4) change the rights or preferences of the shares of the
series; (5) change the shares of the series, whether with or without par value,
into the same or a different number of shares, either with or without par value,
of the same or another class or series; (6) create a new class or series of
shares having rights and preferences prior and superior to the shares of the
series, or increase the rights and preferences or the number of authorized
shares of a series having rights and preferences prior or superior to the shares
of the series; or (7) cancel or otherwise affect distributions on the shares of
the series that have accrued but have not been declared. To the extent that the
interests of a series of APS affected by a matter are substantially identical to
the interests of another series of APS affected by such matter (e.g., a vote of
shareholders required under Section 13(a) of the 1940 Act), each such series
shall vote together collectively as one class. The vote of holders of APS
described above will in each case be in addition to a separate vote of the
requisite percentage of Common Shares and APS necessary to authorize the action
in question.
Liquidation Rights. (a) Upon the dissolution, liquidation or winding up
of the affairs of the Fund, whether voluntary or involuntary, the Holders of the
APS then outstanding shall be entitled to receive and to be paid out of the
assets of the Fund available for distribution to its shareholders, before any
payment or distribution shall be made on the Common Shares or on any other class
of shares of the Fund ranking junior to the APS upon dissolution, liquidation or
winding up, an amount equal to the liquidation preference with respect to such
shares. The liquidation preference for the APS shall be $50,000 per share, plus
an amount equal to all dividends thereon (whether or not earned or declared)
accumulated but unpaid to the date of final distribution in same-day funds,
together with any payments required to be made pursuant to Section 12 in
connection with the liquidation of the Fund.
3. Neither the sale of all or substantially all the property or
business of the Fund, nor the merger or consolidation of the Fund into or with
any other corporation nor the merger or consolidation of any other corporation
into or with the Fund shall be a dissolution, liquidation or winding up, whether
voluntary or involuntary, for the purposes of this Section 6.
B-13
After the payment to the Holders of the APS of the full preferential
amounts provided for in this Section 6, the Holders of the APS as such shall
have no right or claim to any of the remaining assets of the Fund.
In the event the assets of the Fund available for distribution to the
Holders of the APS upon any dissolution, liquidation or winding up of the
affairs of the Fund, whether voluntary or involuntary, shall be insufficient to
pay in full all amounts to which such Holders are entitled pursuant to paragraph
(a) of this Section 6, no such distribution shall be made on account of any
shares of any other class or series of Preferred Shares ranking on a parity with
the APS with respect to the distribution of assets upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the APS, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
Subject to the rights of the holders of shares of any series or class or
classes of shares ranking on a parity with the APS with respect to the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund, after payment shall have been made in full to the Holders
of the APS as provided in paragraph (a) of this Section 6, but not prior
thereto, any other series or class or classes of shares ranking junior to the
APS with respect to the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the APS shall not be
entitled to share therein.
Auction Agent. For so long as any of the APS is outstanding, the
Auction Agent, duly appointed by the Fund to so act, shall be in each case a
commercial bank, trust company or other financial institution independent of the
Fund and its affiliates (which, however, may engage or have engaged in business
transactions with the Fund or its affiliates) and at no time shall the Fund or
any of its affiliates act as the Auction Agent in connection with the Auction
Procedures. If the Auction Agent resigns or for any reason its appointment is
terminated during any period that any of the APS is outstanding, the Board of
Trustees shall use its best efforts promptly thereafter to appoint another
qualified commercial bank, trust company or financial institution to act as the
Auction Agent.
1940 Act APS Asset Coverage. The Fund shall maintain, as of the last
Business Day of each month in which any of the APS is outstanding, the 1940 Act
APS Asset Coverage.
APS Basic Maintenance Amount. (a) So long as APS are Outstanding, the
Fund shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date, (i) S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the APS
Basic Maintenance Amount (if S&P is then rating the APS) and (ii) Moody's
Eligible Assets having an aggregate Discounted Value equal to or greater than
the APS Basic Maintenance Amount (if Moody's is then rating the APS).
On or before 5:00 P.M., New York City time, on the third Business Day after
a Valuation Date on which the Fund fails to satisfy the APS Basic Maintenance
Amount, and on the third Business Day after the APS Basic Maintenance Cure Date
with respect to such Valuation Date, the Fund shall complete and deliver to S&P
(if S&P is then rating the APS), Moody's (if Moody's is then rating the APS) and
the Auction Agent (if either S&P or Moody's is then rating the APS) an APS Basic
Maintenance Report as of the date of such failure or such APS Basic Maintenance
Cure Date, as the case may be, which will be deemed to have been delivered to
the Auction Agent if the Auction Agent receives a copy or telecopy, telex or
other electronic transcription thereof and on the same day the Fund mails to the
Auction Agent for delivery on the next Business Day the full APS Basic
Maintenance Report. The Fund shall also deliver an APS Basic Maintenance Report
to S&P (if S&P is then rating the APS), and the Auction Agent
B-14
(if S&P is then rating the APS) as of (i) the fifteenth day of each month (or,
if such day is not a Business Day, the next succeeding Business Day) and (ii)
the last Business Day of each month, in each case on or before the third
Business Day after such day. The Fund will also deliver an APS Basic Maintenance
Report to Moody's on any Valuation Date that (i) the Discounted Value of Moody's
Eligible Assets is greater than the APS Basic Maintenance Amount by 5% or less
or (ii) on any date which the Fund redeems Common Shares. A failure by the Fund
to deliver an APS Basic Maintenance Report under subparagraph (b) of this
Section 9 shall be deemed to be delivery of an APS Basic Maintenance Report
indicating the Discounted Value for all assets of the Fund is less than the APS
Basic Maintenance Amount, as of the relevant Valuation Date.
Within ten Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph (b) of this Section 9 relating
to a Quarterly Valuation Date, the Fund shall cause the Independent Accountant
to confirm in writing to S&P (if S&P is then rating the APS), Moody's (if
Moody's is then rating the APS) and the Auction Agent (if either S&P or Moody's
is then rating the APS) (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other APS Basic Maintenance Report,
randomly selected by the Independent Accountant, that was delivered by the Fund
during the quarter ending on such Quarterly Valuation Date) and (ii) that, in
such Report (and in such randomly selected Report), the Fund determined in
accordance with this Certificate of Vote whether the Fund had, at such Quarterly
Valuation Date (and at the Valuation Date addressed in such randomly-selected
Report), S&P Eligible Assets (if S&P is then raring the APS) of an aggregate
Discounted Value at least equal to the APS Basic Maintenance Amount and Moody's
Eligible Assets (if Moody's is then rating the APS) of an aggregate Discounted
Value at least equal to the APS Basic Maintenance Amount (such confirmation
being herein called the "Accountant's Confirmation").
Within ten Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph (b) of this Section 9 relating
to any Valuation Date on which the Fund failed to satisfy the APS Basic
Maintenance Amount, and relating to the APS Basic Maintenance Cure Date with
respect to such failure to satisfy the APS Basic Maintenance Amount, the Fund
shall cause the Independent Accountant to provide to S&P (if S&P is then rating
the APS), Moody's (if Moody's is then rating the APS) and the Auction Agent (if
either S&P or Moody's is then rating the APS) an Accountant's Confirmation as to
such APS Basic Maintenance Report.
If any Accountant's Confirmation delivered pursuant to subparagraph (c) or
(d) of this Section 9 shows that an error was made in the APS Basic Maintenance
Report for a particular Valuation Date for which such Accountant's Confirmation
was required to be delivered, or shows that a lower aggregate Discounted Value
for the aggregate of all S&P Eligible Assets (if S&P is then rating the APS) or
Moody's Eligible Assets (if Moody's is then rating the APS), as the case may be,
of the Fund was determined by the Independent Accountant, the calculation or
determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Fund, and the Fund shall accordingly amend and
deliver the APS Basic Maintenance Report to S&P (if S&P is then rating the APS),
Moody's (if Moody's is then rating the APS) and the Auction Agent (if either S&P
or Moody's is then rating the APS) promptly following receipt by the Fund of
such Accountant's Confirmation.
On or before 5:00 p.m., New York City time, on the first Business Day after
the Date of Original Issue of the APS, the Fund shall complete and deliver to
S&P (if S&P is then rating the APS) and to Moody's (if Moody's is then rating
the APS), an APS Basic Maintenance Report as of the close of business on such
Date of Original Issue. Within five Business Days of such Date of Original
Issue, the Fund shall cause the Independent Accountant to confirm in writing to
S&P (if S&P is then rating the APS) and to Moody's (if Moody's is then rating
the APS) (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the amount of S&P Eligible Assets reflected thereon equals
or exceeds the APS Basic Maintenance Amount reflected thereon.
B-15
Minimum Liquidity Level. So long as S&P is rating the APS, the Fund
shall have, as of each Valuation Date, Dividend Coverage Assets, with respect to
each then Outstanding share of each series of APS, having a value not less than
the Dividend Coverage Amount with respect to such share (the "Minimum Liquidity
Level"). If, as of each Valuation Date, the Fund does not have the required
Dividend Coverage Assets, the Fund shall, as soon as practicable, adjust its
portfolio in order to meet the Minimum Liquidity Level, but only so long as S&P
is rating the APS. So long as S&P is rating the APS, the Fund shall notify S&P
on any Valuation Date which the Fund does not have the required Dividend
Coverage Assets and does not adjust its portfolio as described in the
immediately preceding sentence.
Restrictions on Certain Distributions. For so long as any of the APS
is Outstanding, and except as set forth in Sections 2(e) and 6(d) of this Part
I, (A) the Fund shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the APS as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up) in respect
of the Common Shares or any other shares of the Fund ranking junior to or on a
parity with the APS as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the Fund
ranking junior to the APS as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), or any such parity shares
(except by conversion into or exchange for shares of the Fund ranking junior to
or on a parity with APS as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), unless (i) full cumulative
dividends on shares of each series of APS through its most recently ended
Dividend Period shall have been paid or shall have been declared and sufficient
funds for the payment thereof deposited with the Auction Agent and (ii) the Fund
has redeemed the full number of shares of each series of APS required to be
redeemed by any provision for mandatory redemption pertaining thereto, and (B)
if either Moody's or S&P is rating the APS, the Fund shall not declare, pay or
set apart for payment any dividend or other distribution (other than a dividend
or distribution paid in shares of, or options, warrants or rights to subscribe
for or purchase, Common Shares or other shares, if any, ranking junior to the
APS as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up) in respect of Common Shares or any other
shares of the Fund ranking junior to the APS as to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
shares of Common Shares or any other such junior shares (except by conversion
into or exchange for shares of the Fund ranking junior to the APS as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless immediately after such transaction the
Discounted Value of Moody's Eligible Assets and S&P Eligible Assets would each
at least equal the APS Basic Maintenance Amount.
Additional Dividends. If the Fund retroactively allocates any net
capital gains or other income taxable for federal income tax purposes to the APS
without having given advance notice thereof to the Auction Agent as provided in
Section 6 of Part II solely by reason of the fact that such allocation is made
as a result of the redemption of all or a portion of the outstanding APS or the
liquidation of the Fund (such allocation being referred to herein as a
"Retroactive Taxable Allocation"), the Fund shall, within 270 days after the end
of the Fund's taxable year in which a Retroactive Taxable Allocation is made,
provide notice thereof to the Auction Agent and to each Holder of such shares
during such taxable year at such Holder's address as the same appears or last
appeared on the share books of the Fund. Such Holders of such shares shall be
entitled to receive, when, as and if declared by the Board of Trustees, out of
funds legally available therefor, dividends in an amount equal to the aggregate
Additional Dividends with respect to all Retroactive Taxable Allocations made to
such shares during the taxable year in question, such dividends to be payable by
the Fund to the Auction Agent, for distribution to such Holders, within 30 days
after the notice described above is given to the Auction Agent.
B-16
Certain Other Restrictions. (a) For so long as any of the APS is
outstanding and Moody's is then rating such shares, the Fund will not, unless it
has received written confirmation from Moody's that any such action would not
impair the ratings then assigned by Moody's to the APS, engage in any one or
more of the following transactions:
(a) transactions in options on securities, futures contracts or
options on futures contracts except that in connection with Moody's Hedging
Transactions: (A) the Fund may buy call or put option contracts on
securities; (B) the Fund may write covered call options on securities; (C)
the Fund may write put options on securities; (D) the Fund may enter into
positions in futures contracts based on the Municipal Index provided that
the Fund shall not engage in any such transaction which would cause the
Fund at the time of such transaction to own or have sold (1) outstanding
futures contracts based on the Municipal Index exceeding in number 10% of
the rolling average number of daily traded futures contracts based on the
Municipal Index in the 30 calendar days prior to the time of effecting such
transaction as reported by The Wall Street Journal or (2) outstanding
futures contracts based on the Municipal Index and options on such futures
contracts having an aggregate fair market value (taking into account the
fair market value of futures contracts based on Treasury Bonds) exceeding
the fair market value of Moody's Eligible Assets owned by the Fund; (E) the
Fund may enter into futures contracts on Treasury Bonds provided that the
Fund shall not engage in any such transaction which would cause the Fund at
the time of such transaction to own or have sold (1) outstanding futures
contracts based on Treasury Bonds and options on such futures contracts
having an aggregate fair market value (taking into account the fair market
value of futures contracts based on the Municipal Index) exceeding 40% of
the aggregate fair market value of Moody's Eligible Assets owned by the
Fund and rated Aa by Moody's (or, if not rated by Moody's but rated by S&P,
rated AAA by S&P) or (2) outstanding futures contracts based on Treasury
Bonds and options on such futures contracts having an aggregate fair market
value (taking into account the fair market value of futures contracts based
on the Municipal Index) exceeding 80% of the aggregate fair market value of
Moody's Eligible Assets owned by the Fund and rated Baa or A by Moody's
(or, if not rated by Moody's but rated by S&P, rated A or AA by S&P); for
purposes of the foregoing clauses (D) and (E), the Fund shall be deemed to
own the number of futures contracts that underlie any outstanding option
written by the Fund; and (F) the Fund may buy call or put options on
futures contracts on the Municipal Index or Treasury Bonds, may write put
options on such futures contracts (provided, that if the contract would
require delivery of a security, that security must be held by the Fund) and
may write call options on such futures if it owns the futures contract
subject to the option. For so long as the APS are rated by Moody's, the
Fund will engage in Closing Transactions to close out any outstanding
futures contract based on the Municipal Index if the open interest with
respect to such futures contracts based on the Municipal Index as reported
by The Wall Street Journal is less than 5,000. For so long as the APS are
rated by Moody's, the Fund will engage in a Closing Transaction to close
out any outstanding futures contract by no later than the fifth Business
Day of the month in which such contract expires and will engage in a
Closing Transaction to close out any outstanding option on a futures
contract by no later than the first Business Day of the month in which such
option expires. For so long as the APS are rated by Moody's, the Fund will
engage in transactions with respect to futures contracts or options thereon
having only the next settlement date or the settlement date immediately
thereafter. For purposes of valuation of Moody's Eligible Assets: (A) if
the Fund writes a call option, the underlying asset will be valued as
follows: (1) if the option is exchange-traded and may be offset readily or
if the option expires before the earliest possible redemption of the APS,
at the Discounted Value of the
B-17
underlying security of the option or (2) otherwise, it has no value; (B) if
the Fund writes a put option, the underlying asset will be valued as
follows: the lessor of (1) exercise price and (2) the Discounted Value of
the underlying security; (C) if the Fund is a seller under a futures
contract, the underlying security will be valued at the lower of (1)
settlement price and (2) the Discounted Value of the underlying security;
if a contract matures within the Moody's Exposure Period, the security may
be valued at the settlement price; (D) if the Fund is the buyer under a
futures contract, the underlying security will be valued at the lower of
(1) the settlement price and (2) the Discounted Value of the underlying
security; if the contract matures within the Moody's Exposure Period, the
security may be valued at its Discounted Value and (E) call or put option
contracts which the Fund buys have no value. For so long as APS are rated
by Moody's: (A) the Fund will not engage in options and futures
transactions for leveraging or speculative purposes; (B) the Fund will not
write any anticipatory call options pursuant to which the Fund hedges the
anticipated purchase of an asset prior to completion of such purchase; (C)
the Fund will not enter into an option transaction unless, after giving
effect thereto, the Fund would continue to have Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount; (D) the Fund will not enter into an option transaction
unless after giving effect to such transaction the Fund would continue to
be in compliance with the provisions relating to the APS Basic Maintenance
Amount; (E) for purposes of the APS Basic Maintenance Amount (1) assets in
margin accounts are not Moody's Eligible Assets, (2) 10% of the settlement
price of assets sold under a futures contract, the settlement price of
assets purchased under a futures contract, the settlement price of an
underlying futures contract if the Fund writes put options on futures
contracts will constitute liabilities of the Fund and (3) if the Fund
writes call options on futures contracts and does not own the underlying
futures contract, 105% of the Market Value of the Market Value of the
underlying futures contract will constitute a liability of the Fund; (F)
the Fund shall enter into only exchange-traded futures and shall write only
exchange-traded options on exchanges approved by Moody's; (G) where
delivery may be made to the Fund with any of a class of securities, the
Fund shall assume for purposes of the APS Basic Maintenance Amount that it
takes delivery of that security which yields it the least value; (H) the
Fund will not engage in forward contracts; (1) the Fund will enter into
futures contracts as seller only if it owns the underlying security; and
(J) there shall be a quarterly audit made of the Fund's futures and options
transactions by the Fund's independent accountants to confirm that the Fund
is in compliance with these standards; or
incur any indebtedness in a principal amount in excess of the lesser of
$10,000,000 or 10% of the aggregate liquidation preference of APS Outstanding,
without prior written approval of Moody's that such indebtedness would not
adversely affect the then current rating by Moody's of the APS except that the
Fund may, without obtaining the written confirmation described above, incur
indebtedness for the purpose of clearing securities transactions if the APS
Basic Maintenance Amount would continue to be satisfied after giving effect to
such indebtedness; or
issue any class or series of shares ranking prior to or on a parity with
the APS with respect to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up of the Fund, or reissue any APS
previously purchased or redeemed by the Fund; or
4. For so long as any of the APS is Outstanding and S&P is rating such
shares, the Fund will not, unless the Fund has received written confirmation
from S&P that any such action would not impair the rating then assigned by such
rating agency to the APS, engage in any one or more of the following
transactions:
B-18
transactions in any reverse repurchase agreements; or
lend portfolio securities; or
borrow money, except that the Fund may, without obtaining the written
confirmation described above, borrow money for the purposes of clearing
securities transactions if the APS Basic Maintenance Amount would continue to be
satisfied after giving effect to such borrowing; or
issue any class or series of shares ranking prior to or on a parity with
the APS with respect to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up of the Fund, or reissue any APS
previously purchased or redeemed by the Fund, or merge or consolidate with any
corporation; or
engage in repurchase agreement transactions in which the term of such
repurchase obligation is longer than 90 days, in which the underlying security
is a security other than United States treasury securities (not inclusive of
zero-coupon securities), demand deposits, certificates of deposits or bankers
acceptance in which the counter-party or its affiliates have securities rated
A1+ by S&P with respect to such underlying security; or
engage in short sale transactions; or
purchase or sell futures contracts or options thereon or write uncovered
put or uncovered call options on portfolio securities except that (A) the Fund
may engage in any S&P Hedging Transactions based on the Municipal Index,
provided that the Fund shall not engage in any S&P Hedging Transaction based on
the Municipal Index (other than Closing Transactions) which would cause the Fund
at the time of such transaction to own or have sold the least of (1) more than
1,000 outstanding futures contracts based on the Municipal Index, (2)
outstanding futures contracts based on the Municipal Index and on the Treasury
Bonds exceeding in number 25% of the quotient of the fair market value of the
Fund's total assets divided by 100,000 or (3) outstanding futures contract based
on the Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the month prior to the
time of effecting such transaction as reported by The Wall Street Journal and
(B) the Fund may engage in S&P Hedging Transactions based on Treasury Bonds,
provided that the Fund shall not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the Fund at
the time of such transaction to own or have sold the lesser of (1) outstanding
futures contracts based on Treasury Bonds and on the Municipal Index exceeding
in number 25% of the quotient of the fair market value of the Fund's total
assets divided by 100,000 or (2) outstanding futures contracts based on Treasury
Bonds exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in the month prior to the time of effecting
such transaction as reported by The Wall Street Journal. For so long as the APS
are rated by S&P, the Fund will engage in Closing Transactions to close out any
outstanding futures contracts which the Fund owns or has sold or any outstanding
option thereon owned by the Fund in the event (A) the Fund does not have S&P
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount on two consecutive Valuation Dates and (B) the Fund
is required to pay Variation Margin on the second such Valuation Date. For so
long as the APS are rated by S&P, the Fund will engage in a Closing Transaction
to close out any outstanding futures contract or option thereon in the month
prior to the delivery month under the terms of such futures contract or option
thereon unless the Fund holds securities deliverable under such terms. For
purposes of determining S&P Eligible Assets to determine compliance with the APS
Basic Maintenance Amount, no amounts on deposit with the
B-19
Fund's custodian or broker representing Initial Margin or Variation Margin shall
constitute S&P Eligible Assets. For so long as the APS are rated by S&P, when
the Fund writes a futures contract or option thereon, it will maintain an amount
of cash, cash equivalents or short-term, money market securities in a segregated
account with the Fund's custodian, so that the amount so segregated plus the
amount of Initial Margin and Variation Margin held in the account of the Fund's
broker equals the fair market value of the futures contract, except that in the
event the Fund writes a futures contract or option thereon which requires
delivery of an underlying security, the Fund shall hold such underlying
security.
Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Fund or this Certificate of Vote, shall be sufficiently given
if in writing and delivered in person or mailed by first-class mail, postage
prepaid. Notice shall be deemed given on the earlier of the date received or the
date seven days after which such notice is mailed.
Definitions. As used in Parts I and II hereof, the following terms
shall have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
1. "'AA' Composite Commercial Paper Rate," on any date for any Rate
Period, shall mean (i) (A) in the case of any Minimum Dividend Period or any
Rate Period between 7 and 28 Rate Period Days, the interest equivalent of the
30-day rate; provided, however, in the case of any Minimum Dividend Period of 7
days or any Rate Period with 7 Rate Period Days and the "AA" Composite
Commercial Paper Rate is being used to determine the Applicable Rate when all of
the Outstanding APS are subject to Submitted Hold Orders, then the interest
equivalent of the 7-day rate, and (B) in the case of any Rate Period with more
than 28 Rate Period Days, the interest equivalent of the 180-day rate, on
commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating agency, as
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day immediately preceding such date; or (ii) in the
event that the Federal Reserve Bank of New York does not make available any such
rate, then the arithmetic average of such rates, as quoted on a discount basis
or otherwise, by the Commercial Paper Dealers to the Auction Agent for the close
of business on the Business Day next preceding such date. If any Commercial
Paper Dealer does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be
determined on the basis of the quotation or quotations furnished by the
remaining Commercial Paper Dealer or Commercial Paper Dealers and any Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the
Fund to provide such rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or, if the Fund does not
select any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, by the remaining Commercial Paper Dealer or Commercial Paper
Dealers. For purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis (a "discount rate") for commercial paper of a given
days' maturity shall be equal to the quotient (rounded upwards to the next
higher one-thousandth (.001) of 1%) of (A) the discount rate divided by (B) the
difference between (x) 1.00 and (y) a fraction the numerator of which shall be
the product of the discount rate times the number of days in which such
commercial paper matures and the denominator of which shall be 360.
"Accountant's Confirmation" shall have the meaning set forth in paragraph
(c) of Section 9 of this Part I.
"Additional Dividends" means payment to a Holder of APS of an amount which,
when taken together with the aggregate amount of Retroactive Taxable Allocations
made to such Holder with respect to the taxable year in question, would cause
such Holder's dividends in dollars (after federal income tax
B-20
consequences) from the aggregate of both the Retroactive Taxable Allocations and
the Additional Dividends to be equal to the dollar amount of the dividends which
would have been received by such Holder if the amount of the aggregate
Retroactive Taxable Allocations would have been excludable from the gross income
of such Holder. Such Additional Dividends shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming that no
Holder of APS is subject to the federal alternative minimum tax with respect to
dividends received from the Fund; and (iii) assuming that each Retroactive
Taxable Allocation would be taxable in the hands of each Holder of APS at the
maximum marginal regular federal individual income tax rate applicable to
ordinary income or net capital gains, as applicable, or the maximum marginal
regular federal corporate income tax rate, whichever is greater, in effect
during the taxable year in question.
"Anticipation Notes" means the following municipal securities: tax
anticipation notes, revenue anticipation notes and tax and revenue anticipation
notes.
"Applicable Rate" shall have the meaning specified in subparagraph (c)(i)
of Section 2 of this Part 1.
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean the
dollar amount equal to the sum of (i)(A) the product of the number of APS
Outstanding on such date multiplied by $50,000; (B) the aggregate amount of
dividends that will have accumulated at the Applicable Rate (whether or not
earned or declared) to (but not including) the first respective Dividend Payment
Dates for each of the APS Outstanding that follow such Valuation Date; (C) the
amount equal to the Projected Dividend Amount (based on the number of APS
Outstanding on such date); (D) the amount of anticipated expenses of the Fund
for the 90 days subsequent to such Valuation Date; (E) the amount of the Fund's
Maximum Potential Additional Dividend Liability as of such Valuation Date; (F)
the amount of any premium payable pursuant to a Premium Call Period; and (G) any
current liabilities as of such Valuation Date to the extent not reflected in any
of (i)(A) through (i)(F) (including, without limitation, any amounts described
in Section 13 of Part I as required to be treated as liabilities in connection
with the Fund's transactions in futures and options and including any payables
for municipal securities purchased as of such Valuation Date) less (ii) either
(A) the face value of any of the Fund's assets irrevocably deposited by the Fund
for the payment of any of (i)(A) through (i)(G) if such assets mature within the
Moody's Exposure Period and are either securities issued or guaranteed by the
United States Government or have a rating assigned by Moody's of P-1, VMIG-1 or
MIG-1 (or, with respect to S&P, SP-1+ or A-1+) or (B) the Discounted Value of
such assets. For purposes of the APS Basic Maintenance Amount in connection with
S&P's ratings of the APS, with respect to any transactions by the Fund in
futures contracts, the Fund shall include as liabilities (i) 30% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Fund plus (ii) 25%
of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the Fund.
For purposes of the APS Basic Maintenance Amount in connection with Moody's
rating of the APS, with respect to any transactions by the Fund in securities
options, the Fund shall include as liabilities (i) 10% of the exercise price of
a call option written by the Fund and (ii) the exercise price of any written put
option.
"APS Basic Maintenance Cure Date," with respect to the failure by the Fund
to satisfy the APS Basic Maintenance Amount (as required by paragraph (a) of
Section 9 of this Part I) as of a given Valuation Date, shall mean the third
Business Day following such Valuation Date.
"APS Basic Maintenance Report" shall mean a report signed by the President,
Treasurer or any Senior Vice President or Vice President of the Fund which sets
forth, as of the related Valuation Date, the assets of the Fund, the Market
Value and the Discounted Value thereof (seriatim and in aggregate), and the APS
Basic Maintenance Amount.
B-21
"Auction" shall mean each periodic implementation of the Auction
Procedures.
"Auction Agency Agreement" shall mean the agreement between the Fund and
the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for each series of APS so long as the Applicable Rate for such series is to
be based on the results of an Auction.
"Auction Agent" shall mean the entity appointed as such by a resolution of
the Board of Trustees in accordance with Section 7 of this Part I.
"Auction Date," with respect to any Rate Period, shall mean the Business
Day next preceding the first day of such Rate Period.
"Auction Procedures" shall mean the procedures for conducting Auctions set
forth in Part II hereof.
"Board of Trustees" shall mean the Board of Trustees of the Fund or any
duly authorized committee thereof.
"Business Day" shall mean a day on which the New York Stock Exchange is
open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.
"Closing Transactions" means the termination of a futures contract or
option position by taking an equal position opposite thereto in the same
delivery month as such initial position being terminated.
"Commercial Paper Dealers" shall mean Goldman, Sachs& Co., Lehman
Commercial Paper Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Smith Barney, Harris Upham & Co. or, in lieu of any thereof,
their respective affiliates or successors, if such entity is a commercial paper
dealer.
"Common Shares" shall mean the common shares of beneficial interest, par
value $.01 per share, of the Fund.
"Cure Date" shall mean the APS Basic Maintenance Cure Date or the 1940 Act
Cure Date, as the case may be.
"Date of Original Issue," with respect to any series of APS, shall mean the
date on which the Fund initially issued shares of such series of APS.
"Deposit Securities" shall mean cash and municipal securities rated at
least A-1+ or SP-1+ by S&P, except that, for purposes of Section 3(a)(iii) of
this Part I, such municipal securities shall be considered "Deposit Securities"
only if they are also rated P-1, MIG-1 or VMIG-1 by Moody's.
"Discounted Value" shall mean (i) with respect to an S&P Eligible Asset,
the quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the quotient of the
Market Value thereof divided by the applicable Moody's Discount Factor, provided
that with respect to a Moody's Eligible Asset, Discounted Value shall not exceed
the par value of such Asset at any time.
"Dividend Coverage Amount," as of any Valuation Date, shall mean, with
respect to each of the APS, (i) the aggregate amount of dividends that will
accumulate on such APS to (but not including) the first
B-22
Dividend Payment Date for such share that follows such Valuation Date plus any
liabilities that will become payable prior to or on such payment date, less (ii)
the combined value of Deposit Securities irrevocably deposited for the payment
of dividends on such APS.
"Dividend Coverage Assets," as of any Valuation Date, shall mean, with
respect to each of the APS, Deposit Securities with maturity or tender dates not
later than the day preceding the first Dividend Payment Date for such share that
follows such Valuation Date and having a value not less than the Dividend
Coverage Amount with respect to such share.
"Dividend Payment Date," with respect to any series of APS, shall mean any
date on which dividends on shares of such series of APS are payable pursuant to
the provisions of paragraph (b) of Section 2 of this Part I.
"Dividend Period," with respect to any series of APS, shall mean the period
from and including the Date of Original Issue of such series to but excluding
the initial Dividend Payment Date for such series and any period thereafter from
and including one Dividend Payment Date for such series to but excluding the
next succeeding Dividend Payment Date for such series.
"Fund" shall mean Van Kampen Merritt Municipal Trust, a Massachusetts
business trust, which is the issuer of the APS.
"Failure to Deposit," with respect to any series of APS, shall mean a
failure by the Fund to pay to the Auction Agent, not later than 12:00 noon, New
York City time, (A) on the Business Day next preceding any Dividend Payment Date
for such series, in funds available on such Dividend Payment Date in The City of
New York, New York, the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any share of such series
or (B) on the Business Day next preceding any redemption date in funds available
on such redemption date for such series in The City of New York, New York, the
Redemption Price to be paid on such redemption date for any share of such series
after notice of redemption is given pursuant to paragraph (b) of Section 3 of
this Part 1.
"Holder," with respect to any series of APS, shall mean the registered
holder of shares of such series of APS as the same appears on the share books of
the Fund.
"Independent Accountant" shall mean a nationally recognized accountant, or
firm of accountants, that is with respect to the Fund an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended from time to time.
"Initial Dividend Period," with respect to any series of APS, shall mean
the period from and including the Date of Original Issue thereof to but
excluding the initial Dividend Payment Date therefor.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"Initial Margin" means the amount of cash or securities deposited with a
custodian for the benefit of a futures commission merchant as a good-faith
deposit at the time of the initiation of a purchase or sale position with
respect to a futures contract or a sale position with respect to an option
position thereon.
"Market Value" of any asset of the Fund shall mean the market value thereof
determined by the Pricing Service designated from time to time by the Board of
Trustees. Market Value of any asset shall include any interest accrued thereon.
The Pricing Service values portfolio securities at the mean between the quoted
bid and asked price or the yield equivalent when quotations are readily
available. Securities for
B-23
which quotations are not readily available are valued at fair value as
determined by the pricing service using methods which include consideration of
yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. The pricing service may employ electronic data processing
techniques and/or a matrix system to determine valuations.
"Mandatory Redemption Price" means $50,000 per share of APS plus an amount
equal to accumulated but unpaid dividends thereon to the date fixed for
redemption (whether or not earned or declared).
"Master Purchaser's Letter" has the meaning specified in Section 1 of Part
II hereof.
"Maximum Potential Additional Dividends Liability," as of any Valuation
Date, shall mean the aggregate amount of Additional Dividends that would be due
if the Fund were to make Retroactive Taxable Allocations, with respect to any
fiscal year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Fund, as of
the end of the calendar month immediately preceding such Valuation Date, and
assuming such Additional Dividends are fully taxable.
"Minimum Liquidity Level" shall have meaning set forth in Section 10 of
this Part I.
"Minimum Dividend Period" shall mean (i) with respect to APS Series A and
APS Series C, any Rate Period consisting of 7 Rate Period Days and (ii) with
respect to APS Series B and APS Series D, any Rate Period with 28 Rate Period
Days, in each case subject to certain exceptions.
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
"Moody's Discount Factor" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
Rating Category
----------------------------------------------------------------------------------
Exposure Period(4) Aaa Aa(1) A(1) Baa(1) Other(2) (V)MIG-1(3)(4) SP-1+(3)
- ------------------ --- --- -- ---- ------ ----------- ------
7 weeks........................ 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than 154 164 173 205 235 137 149
seven weeks....................
9 weeks or less but greater than 158 169 179 209 242 138 150
eight weeks....................
(1) Moody's rating.
(2) Municipal securities not rated by Moody's but rated BBB by S&P.
(3) Municipal securities rated MIG-1 or VMIG-1 or, if not rated by Moody's,
rate SP-1+ by S&P which do not mature or have a demand feature at par
exercisable within the Moody's Exposure Period and which do not have a
long-term rating.
(4) For the purposes of the definition of Moody's Eligible Assets, these
securities will have an assumed rating of "A" by Moody's.
B-24
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term municipal securities will be 115%, so long as such municipal
securities are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have
a demand feature at par exercisable within the Moody's Exposure Period or 125%
as long as such municipal securities are rated at least A-1-/AA or SP-1+/AA by
S&P and mature or have a demand feature at par exercisable within the Moody's
Exposure Period and (ii) no Moody's Discount Factor will be applied to cash or
to Receivables for Municipal Securities Sold.
"Moody's Eligible Asset" shall mean cash, Receivables for Municipal
Securities Sold or a municipal security that (i) pays interest in cash, (ii) is
publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated by
S&P, is rated at least BBB by S&P (provided that, for purposes of determining
the Moody's Discount Factor applicable to any such S&P-rated municipal security,
such municipal security (excluding any short-term municipal security) shall be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating), (iii) does not have its Moody's rating suspended by Moody's; and
(iv) is part of an issue of municipal securities of at least $10,000,000.
Municipal securities issued by any one issuer and rated BBB by S&P may comprise
no more than 4% of total Moody's Eligible Assets; such BBB-rated municipal
securities, if any, together with any municipal securities issued by the same
issuer and rated Baa by Moody's or A by S&P, may comprise no more than 6% of
total Moody's Eligible Assets; such BBB, Baa and A-rated municipal securities,
if any, together with any municipal securities issued by the same issuer and
rated A by Moody's or AA by S&P, may comprise no more than 10% of total Moody's
Eligible Assets; and such BBB, Baa, A and AA rated municipal securities, if any,
together with any municipal securities issued by the same issuer and rated Aa by
Moody's or AAA by S&P, may comprise no more than 20% of total Moody's Eligible
Assets. For purposes of the foregoing sentence, any municipal security backed by
the guaranty, letter of credit or insurance issued by a third party shall be
deemed to be issued by such third party if the issuance of such third party
credit is the sole determinant of the rating on such municipal security.
Municipal securities issued by issuers located within a single state or
territory and rated BBB by S&P may comprise no more than 12% of total Moody's
Eligible Assets; such BBB-rated municipal securities, if any, together with any
municipal securities issued by issuers located within the same state or
territory and rated Baa by Moody's or A by S&P may comprise no more than 20% of
total Moody's Eligible Assets; such BBB, Baa and A rated municipal securities,
if any, together with any municipal securities issued by issuers located within
the same state or territory and rated A by Moody's or AA by S&P, may comprise no
more than 40% of total Moody's Eligible Assets; and such BBB, Baa, A and
AA-rated municipal securities, if any, together with any municipal securities
issued by issuers located within the same state or territory and rated Aa by
Moody's or AAA by S&P, may comprise no more than 60% of total Moody's Eligible
Assets. For purposes of applying the foregoing requirements, a municipal
security shall be deemed to be rated BBB by S&P if rated BBB or BBB+ by S&P.
Moody's Eligible Assets shall be calculated without including cash and municipal
securities rated MIG-1 or VMIG-1 or, if not rated by Moody's, rated SP-1+ by
S&P, which either mature or have a demand feature at par exercisable within the
Moody's Exposure Period. Municipal securities which constitute Moody's Eligible
Assets subject to a repurchase agreement will constitute Moody's Eligible
Assets. Cash receivable by the Fund pursuant to a repurchase agreement that
obligates the other party thereto to repurchase municipal securities will only
constitute a Moody's Eligible Asset if the long-term debt of such other party is
rated at least A2 by Moody's and such agreement has a term of 30 days or less.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent that is has been deposited for the payment
of (i)(A) through (i)(G) under the definition of APS Basic Maintenance Amount or
it is subject to any material lien, mortgage, pledge, security interest or
security agreement of any kind (collectively, "Liens"), except for (a) Liens
which are being contested in good faith by appropriate proceedings and which
Moody's has indicated to the Fund will not affect the status of such asset as a
Moody's Eligible Asset, (b) Liens for taxes that are not then due and payable or
that can be paid thereafter without penalty, (c) Liens to secure payment for
services rendered or cash
B-25
advanced to the Fund by Van Kampen Merritt Investment Advisory Corp., the
Administrator, State Street Bank and Trust Company or the Auction Agent and (d)
Liens by virtue of any repurchase agreement.
"Moody's Exposure Period" shall mean the period commencing on a given
Valuation Date and ending 46 days thereafter.
"Moody's Hedging Transactions" shall mean transactions in options on
securities, futures contracts based on the Municipal Index or Treasury Bonds and
options on such futures contracts.
"Municipal Index" shall mean The Bond Buyer Municipal Bond Index.
"1940 Act" shall mean the Investment Company Act of 1940, as amended
from time to time.
"1940 Act APS Asset Coverage" shall mean asset coverage, as defined in
Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Fund which are stock, including all outstanding APS (or
such other asset coverage as may in the future be specified in or under the 1940
Act as the minimum asset coverage for senior securities which are stock of a
closed-end investment company as a condition of declaring dividends on its
common stock).
"1940 Act Cure Date," with respect to the failure by the Fund to
maintain the 1940 Act APS Asset Coverage (as required by Section 8 of this Part
I) as of the last Business Day of each month, shall mean the last Business Day
of the following month.
"Non-call Period" shall have the meaning set forth below under
"Specific Redemption Provisions."
"Notice of Redemption" shall mean any notice with respect to the
redemption of the APS pursuant to Section 3 of this Part I.
"Optional Redemption Price" shall mean (i) $50,000 per share of APS in
the case of a 7-day or 28-day Dividend Period or a Special Dividend Period of
less than 365 days or (ii) with respect to a Special Dividend Period of 365 days
or more the Optional Redemption Price set forth in the Specific Redemption
Provisions in connection therewith; in each case plus an amount equal to
accumulated but unpaid dividends thereon to the date of redemption (whether or
not earned or declared).
"Preferred Shares" shall mean the authorized preferred shares of
beneficial interest, par value $.01 per share, of the Fund, and includes the
APS.
"Premium Call Period" shall have the meaning set forth below under
"Specific Redemption Provisions."
"Pricing Service" means Van Kampen Merritt Investment Advisory Corp.,
acting pursuant to a Fund Pricing Agreement between the Fund and Van Kampen
Merritt Investment Advisory Corp. and any successor pricing service approved in
writing by Moody's (if Moody's is then rating the APS) and S&P (if S&P is then
rating the APS).
"Projected Dividend Amount" means, with respect to the shares of any
series of APS, on any Valuation Date in the event the then current Dividend
Period will end within 47 calendar days of such date, from and after the last
day of such Dividend Period until 47 calendar days less the number of days
remaining in the current Dividend Period at an Applicable Rate equal to the
Maximum Rate for such Dividend Period multiplied by the larger of the factors
(currently 304%) that the Fund has been informed
B-26
by Moody's and S&P is applicable to the Projected Dividend Amount and designed
to take into account increases in dividend rates over such period.
"Quarterly Valuation Date" shall mean the last Business Day of each
fiscal quarter of the Fund in each fiscal year of the Fund, commencing February
29, 1992.
"Rate Period," with respect to any series of APS, shall mean the
Initial Dividend Period thereof and any Subsequent Dividend Period, including
any Special Dividend Period, for such series.
"Rate Period Days," for any Rate Period consisting of less than four
Dividend Periods, shall mean the number of days (without giving effect to
subparagraph (b)(ii) of Section 2 of this Part 1) in such Rate Period.
"Receivables for Municipal Securities Sold" shall mean (A) for purposes
of calculation of Moody's Eligible Assets as of any Valuation Date, no more than
the aggregate of the following: (i) the book value of receivables for municipal
securities sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date, and if the trades which
generated such receivables are (x) settled through clearing house firms with
respect to which the Fund has received prior written authorization from Moody's
or (y) with counterparties having a Moody's long-term debt rating of at least
Baa3; and (ii) the Moody's Discounted Value of municipal securities sold as of
or prior to such Valuation Date which generated receivables, if such receivables
are due within the Moody's Exposure Period but do not comply with either of the
conditions specified in (i) above, and (B) for purposes of calculation of S&P
Eligible Assets as of any Valuation Date, the book value of receivables for
municipal securities sold as of or prior to such Valuation Date if such
receivables are due within five business days of such Valuation Date.
"Redemption Price" shall mean the Optional Redemption Price or the
Mandatory Redemption Price, as applicable.
"Retroactive Taxable Allocation" shall have the meaning set forth in
Section 12 hereof.
"S&P" shall mean Standard & Poor's Fund, a New York corporation, and
its successors.
"S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
Rating Category
--------------------------------------
Exposure Period AAA* AA* A* BBB*
- --------------- --- --- -- ----
40 Business Days.......................... 190% 195% 210% 250%
22 Business Days.......................... 170 175 190 230
10 Business Days.......................... 155 160 175 215
7 Business Days........................... 150 155 170 210
3 Business Days........................... 130 135 150 190
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term municipal securities will be 115%, so long as such municipal
securities are rated A-1+ or SP-1+ by S&P and mature or have a
B-27
demand feature exercisable within 30 days or less, or 125% if such municipal
securities are not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's;
provided, however, that any such Moody's rated short-term municipal securities
which have demand features exercisable within 30 days or less must be backed by
a letter of credit, liquidity facility or guarantee from a bank or other
financial institution with a short-term rating of at least A-1+ from S&P; and
further provided that such Moody's rated short-term municipal securities may
comprise no more than 50% of short-term municipal securities that qualify as S&P
Eligible Assets and (ii) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Securities Sold. For purposes of the foregoing,
Anticipation Notes rated SP1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by
Moody's, which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating, shall be considered to be
short-term municipal securities.
"S&P Eligible Asset" shall mean cash (excluding any cash
irrevocably deposited by the Fund for the payment of any liabilities within the
mean of APS Basic Maintenance Amount), Receivables for Municipal Securities Sold
or a municipal security owned by the Fund that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in U.S. Dollars; (iii) is publicly rated BBB or higher by S&P or, if
not rated by S&P but rated by Moody's, is rated at least A by Moody's (provided
that such Moody's-rated municipal securities will be included in S&P Eligible
Assets only to the extent the Market Value of such municipal securities does not
exceed 50% of the aggregate Market Value of S&P Eligible Assets; and further
provided that, for purposes of determining the S&P Discount Factor applicable to
any such Moody's-rated municipal security, such municipal security will be
deemed to have an S&P rating which is one full rating category lower than its
Moody's rating); (iv) is not part of a private placement of municipal
securities; and (v) is part of an issue of municipal securities with an original
issue size of at least $20 million or, if an issue with an original issue size
below $20 million (but in no event below $10 million), is issued by an issuer
with a total of at least $50 million of securities outstanding. Solely for
purposes of this definition, the term "municipal securities" means any
obligation the interest on which is exempt from regular Federal income taxation
and which issued by any of the fifty United States, the District of Columbia or
any of the territories of the United States, their subdivisions, counties,
cities, towns, villages, school districts and agencies (including authorities
and special districts created by the states), and federally sponsored agencies
such as local housing authorities. Notwithstanding the foregoing limitations:
(1) Municipal securities of any one issuer or guarantor
(excluding bond insurers) shall be considered S&P Eligible Assets only to the
extent the Market Value of such municipal securities does not exceed 10% of the
aggregate Market Value of S&P Eligible Assets provided that 2% is added to the
applicable S&P Discount Factor for every 1% by which the Market Value of such
municipal securities exceeds 5% of the aggregate Market Value of S&P Eligible
Assets;
(2) Municipal securities guaranteed or insured by any one bond
insurer shall be considered S&P Eligible Assets only to the extent the Market
Value of such municipal securities does not exceed 25% of the aggregate Market
Value of S&P Eligible Assets; and
(3) Long-term municipal securities issued by issuers in any
one state or territory shall be considered S&P Eligible Assets only to the
extent the Market Value of such municipal securities does not exceed 20% of the
aggregate Market Value of S&P Eligible Assets.
"S&P Exposure Period" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Certificate of Vote to
cure any failure to maintain, as of such Valuation Date, the Discounted Value
for its portfolio at least equal to the APS Basic Maintenance Amount (as
described in paragraph (a) of Section 9 of this Part I).
B-28
"S&P Hedging Transactions" means futures contracts based on the Municipal
Index or Treasury Bonds, put and call options on such contracts purchased by the
Fund and covered call options and secured put options on portfolio securities
written by the Fund.
"Special Dividend Period," with respect to any series of APS, shall mean
any Subsequent Dividend Period commencing on the date designated by the Fund in
accordance with Section 4 of this Part I and ending on the last day of the last
Dividend Period thereof, with such number of consecutive days or whole years as
the Board of Trustees shall specify, including the terms of any Specific
Redemption Provisions, if any.
"Specific Redemption Provisions" means, with respect to any Special
Dividend Period of 365 or more days, either, or any combination of, (i) period
(a "Non-Call Period") determined by the Board of Trustees, after consultation
with the Broker-Dealers, during which the shares subject to such Special
Dividend Period are not subject to redemption at the option of the Fund and (ii)
a period (a "Premium Call Period"), consisting of a number of whole years and
determined by the Board of Trustees, after consultation with the Broker-Dealers,
during each year of which the shares subject to such Special Dividend Period
shall be redeemable at the Fund's option at a price per share equal to $50,000
plus accumulated but unpaid dividends plus a premium expressed as a percentage
of $50,000 as determined by the Board of Trustees after consultation with the
Broker-Dealers; provided, that during any Special Dividend Period of 365 or more
days if on the date of determination of the Applicable Rate for such series,
such Applicable Rate equaled or exceeded the Treasury Rate, the Fund may redeem
APS without regard to any Non-Call Period or Premium Call Period at the
Mandatory Redemption Price.
"Subsequent Dividend Period," with respect to any series of APS, shall mean
the period from and including the first day following the Initial Rate Period
thereof to but excluding the next Dividend Payment Date for such series and any
period thereafter from and including one Dividend Payment Date for such series
to but excluding the next succeeding Dividend Payment Date for such series;
provided, however, that if any Subsequent Dividend Period is also a Special
Dividend Period, such term shall mean the period commencing on the first day of
such Special Dividend Period and ending on the last day of the last Dividend
Period thereof.
"Substitute Commercial Paper Dealer" shall mean The First Boston Company or
Morgan Stanley & Co. Incorporated or their respective affiliates or successors,
if such entity is a Commercial Paper Dealer; provided that none of such entities
shall be a Commercial Paper Dealer.
"Substitute U.S. Government Securities Dealer" shall mean The First Boston
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provide that none of such entities shall be a U.S. Government
Securities Dealer.
"Treasury Bonds" shall mean United States Treasury Bonds backed by the full
faith and credit of the United States government with remaining maturities of 10
years or more.
"Treasury Rate," on any date for any Rate Period, shall mean (i) the yield
on the most recently auctioned non-callable direct obligations of the U.S.
Government (excluding "flower" bonds) with a remaining maturity within three
months of the duration of such Rate Period, as quoted in The Wall Street Journal
on such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published by The Wall Street Journal, then the
arithmetic average of the yields (expressed as an interest equivalent in the
case of a Rate Period consisting of four Dividend Periods and express as a bond
equivalent in the case of any longer Rate Period) on the most recently auctioned
non-callable direct obligations of the U.S. Government (excluding "flower"
bonds) with a remaining maturity within three
B-29
months of the duration of such Rate Period as quoted on a discount basis or
otherwise by the U.S. Government Securities Dealers to the Auction Agent for the
close of business on the Business Day immediately preceding such date. If any
U.S. Government Securities Dealer does not quote a rate required to determine
the Treasury Rate, the Treasury Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining U.S. Government Securities
Dealer or U.S. Government Securities Dealers and any Substitute U.S. Government
Securities Dealers selected by the Fund to provide such rate or rates not being
supplied by any U.S. Government Securities Dealer or U.S. Government Securities
Dealers, as the case may be, or, if the Fund does not select any such Substitute
U.S. Government Securities Dealer or Substitute U.S. Government Securities
Dealers, by the remaining U.S. Government Securities Dealer or U.S. Government
Securities Dealers.
"U.S. Government Securities Dealer" shall mean Goldman, Sachs & Co.,
Lehman Government Securities Incorporated, Smith Barney, Harris Upham & Co. and
Morgan Guaranty Trust Company of New York or their respective affiliates or
successors, if such entity is a U.S. Government securities dealer.
"Valuation Date" shall mean, for purposes of determining whether the
Fund is maintaining the APS Basic Maintenance Amount and the Minimum Liquidity
Level, each Business Day.
"Variation Margin" shall mean, in connection with outstanding purchase
or sale positions in futures contracts and outstanding sales positions with
respect to options thereon, the amount of cash and securities paid to and
received from a futures commission merchant (subsequent to the Initial Margin
payment) from time to time as the value of such position fluctuates.
"Voting Period" shall have the meaning set forth in paragraph (b) of
Section 5 of this Part I.
ARTICLE
B. Certain Definitions. Capitalized terms not defined in Section 1 of
this Part II shall have the respective meaning specified in Part I
hereof. As used in this Part II, the following terms shall have the
following meanings, unless the context otherwise requires:
1. "Affiliate" shall mean any Person known to the Auction Agent to
be controlled by, in control of or under common control with the Fund; provided
that no Broker-Dealer controlled by, in control of or under common control with
the Fund shall be deemed to be an Affiliate nor shall any fund or any Person
controlled by, in control of or under common control with such fund one of the
trustees or executive officers of which is also a trustee of the Fund be deemed
to be an Affiliate solely because such trustee or executive officer is also a
trustee of the Fund.
2. "Agent Member" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder and is identified as
such in such Bidder's Master Purchaser's Letter.
"Applicable Percentage" for any series of APS on any Auction Date shall
mean the percentage, determined as set forth below, based on the prevailing
rating of such series in effect at the close of business on the Business Day
next preceding such Auction Date.
<Table>
<Caption>
PREVAILING RATING PERCENTAGE
----------------- ----------
"aa3"/AA- or higher............................... 110%
"a3"/A-........................................... 125%
"baa3"/BBB........................................ 150%
"ba3"/BB-......................................... 200%
Below "ba3"/BB-................................... 250%
</Table>
B-30
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for federal income tax purposes to the APS
prior to the Auction establishing the Applicable Rate for such shares the
applicable percentage in the foregoing table shall be divided by the quantity 1
minus the maximum marginal regular federal individual income tax rate applicable
to ordinary income or the maximum marginal regular federal corporate income tax
rate, whichever is greater, provided further, however, that the Applicable
Percentage shall be divided in the foregoing manner only to the extent of the
portion of the dividend on the APS for such Rate Period that represents the
allocation of taxable income to the APS.
For purposes of this definition, the "prevailing rating" of shares of a
series of APS shall be (i) "aa3"/AA- or higher if shares of such series of APS
have a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA- or
higher, then "a3"/A- if the shares of such series of APS have a rating of "a3"
or better by Moody's and A- or better by S&P or the equivalent of such ratings
by such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, (iii) if not "aa3 "/AA- or higher or "a3"/A-, then
"baa3"BBB- if the shares of such series of APS have a rating of "baa3" or better
by Moody's and BBB- or better by S&P or the equivalent of such ratings by such
agencies or a substitute rating agency or substitute rating agencies selected as
provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or "baa3"BBB-, then
"ba3"BB- if the shares of such series of APS have a rating of "ba3" or better by
Moody's and BB- or better by S&P or the equivalent of such ratings by such
agencies or substitute rating agency or substitute rating agencies selected as
provided below, and (v) if not "aa3"/AA- or higher, "a3"/A-, "baa3"BBB- or
"ba3"BB-, then Below "ba3"BB-, provided, however, that if the APS are rated by
only one rating agency, the prevailing rating will be determined without
reference to the rating of any other rating agency. The Fund shall take all
reasonable action necessary to enable either S&P or Moody's to provide a rating
for each series of APS. If neither S&P nor Moody's shall make such a rating
available, Goldman, Sachs & Co. or Smith Barney, Harris Upham & Co. Incorporated
or their successors as Broker-Dealers shall select a nationally recognized
statistical rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended from time to time) to act as a substitute
rating agency in respect of the APS and the Fund shall take all reasonable
action to enable such rating agency or agencies to provide a rating for shares
of such series.
"Available APS" shall have the meaning specified in paragraph (a) of
Section 4 of this Part II.
"Bid" and "Bids" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II.
"Bidder" and "Bidders" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II.
"Broker-Dealer" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer in
this Part II, that is a member of, or a participant in, the Securities
Depository or is an affiliate of such member or participant, has been selected
by the Fund and has entered into a Broker-Dealer Agreement that remains
effective.
"Broker-Dealer Agreement" shall mean an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the procedures specified in this Part II.
B-31
"Existing Holder," when used with respect to shares of any series of
APS, shall mean a Person who has signed a Master Purchaser's Letter and is
listed as the beneficial owner of such APS in the records of the Auction Agent.
"Hold Order" and "Hold Orders" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
"Master Purchaser's Letter" shall mean a letter, addressed to the Fund,
the Auction Agent, a Broker-Dealer and an Agent Member in which a Person agrees,
among other things, to offer to purchase, to purchase, to offer to sell and/or
to sell APS as set forth in this Part II.
"Maximum Rate," for any series of APS on any Auction Date, shall mean:
(a) in the case of any Auction Date which is not the
Auction Date immediately prior to the first day of any proposed
Special Dividend Period designated by the Fund pursuant to Section 4
of Part I of the Certificate of Vote, the product of (A) the "AA"
Composite Commercial Paper Rate on such Auction Date for the next
Rate Period of such series and (B) the Applicable Percentage on such
Auction Date, unless such series has or had a Special Dividend
Period (other than a Special Dividend Period of 28 Rate Period Days
or less) and an Auction at which Sufficient Clearing Bids existed
has not yet occurred for a Minimum Dividend Period of such series
after such Special Dividend Period, in which case the higher of:
the dividend rate on shares of such series for the then-ending Rate
Period, and
the product of (1) the higher of (x) the "AA" Composite Commercial Paper
Rate on such Auction Date for the then-ending Rate Period of such series, if
such Rate Period consists of less than four Dividend Periods, or the Treasury
Rate on such Auction Date for such Rate Period, if such Rate Period consists of
four or more Dividend Periods, and (y) the "AA" Composite Commercial Paper Rate
on such Auction Date for such Special Dividend Period of such series, if such
Special Dividend Period consists of less than four Dividend Periods, or the
Treasury Rate on such Auction Date for such Special Dividend Period, if such
Special Dividend Period consists of four or more Dividend Periods and (2) the
Applicable Percentage on such Auction Date; or
in the case of any Auction Date which is the Auction Date immediately prior
to the first day of any proposed Special Dividend Period designated by the Fund
pursuant to Section 4 of Part I of the Certificate of Vote, the product of (A)
the highest of (1) the "AA" Composite Commercial Paper Rate on such Auction Date
for the then-ending Rate Period of such series, if such Rate Period consists of
less than four Dividend Periods, or the Treasury Rate on such Auction Date for
such Rate Period, if such Rate Period consists of four or more Dividend Periods,
(2) the "AA" Composite Commercial Paper Rate on such Auction Date for the
Special Dividend Period for which the Auction is being held if such Special
Dividend Period consists of less than four Dividend Periods or the Treasury Rate
on such Auction Date for the Special Dividend Period for which the Auction is
being held if such Special Dividend Period consists of four or more Dividend
Periods, and (3) the "AA" Composite Commercial Paper Rate on such Auction Date
for Minimum Dividend Periods and (B) the Applicable Percentage on such Auction
Date.
"Order" and "Orders" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II.
B-32
"Outstanding" shall mean, as of any Auction Date with respect to shares
of any series of APS, the number of shares of such series theretofore issued by
the Fund except, without duplication, (i) any shares of such series of APS
theretofore cancelled or delivered to the Auction Agent for cancellation or
redeemed by the Fund or as to which a notice of redemption shall have been given
by the Fund, (ii) any shares of such series of APS as to which the Fund or any
Affiliate thereof shall be an Existing Holder and (iii) any shares of such
series of APS represented by any certificate in lieu of which a new certificate
has been executed and delivered by the Fund.
"Person" shall mean and include an individual, a partnership, a fund, a
trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Potential Holder," when used with respect to shares of any series of
APS, shall mean any Person, including any Existing Holder of shares of such
series of APS, (i) who shall have executed a Master Purchaser's Letter and (ii)
who may be interested in acquiring shares of such series of APS (or, in the case
of an Existing Holder of shares of such series of APS, additional shares of such
series of APS).
"Securities Depository" shall mean The Depository Trust Company and its
successors and assigns or any other securities depository selected by the Fund
which agrees to follow the procedures required to be followed by such securities
depository in connection with the APS.
"Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
"Submission Deadline" shall mean 1:30 p.m., New York City time, on any
Auction Date or such other time on any Auction Date by which Brokers-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.
"Submitted Bid" and "Submitted Bids" shall have the respective meanings
specified in paragraph (a) of Section 4 of this Part II.
"Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragraph (a) of Section 4 of this Part IL
"Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph (a) of Section 4 of this Part II.
"Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph (a) of Section 4 of this Part II.
"Sufficient Clearing Bids" shall have the meaning specified in
paragraph (a) of Section 4 of this Part 11.
"Winning Bid Rate" shall have the meaning specified in paragraph (a) of
Section 4 of this Part 11.
Orders by Existing Holders and Potential Holders. (a) Prior to
the Submission Deadline on each Auction Date:
(a) each Existing Holder of shares of any series of APS
subject to an Auction on such Auction Date may submit to a
Broker-Dealer by telephone or otherwise information as to:
B-33
the number of Outstanding shares, if any, of such series of APS held by
such Existing Holder which such Existing Holder desires to continue to hold
without regard to the Applicable Rate for such series for the next succeeding
Rate Period of such series;
the number of Outstanding shares, if any, of such series of APS which
such Existing Holder offers to sell if the Applicable Rate for such series for
the next succeeding Rate Period of such series shall be less than the rate per
annum specified by such Existing Holder; and/or
the number of Outstanding shares, if any, of such series of APS held by
such Existing Holder which such Existing Holder offers to sell without regard to
the Applicable Rate for such series for the next succeeding Rate Period of such
series;
and
one or more Broker-Dealers, using lists of Potential Holders, shall in
good faith for the purpose of conducting a competitive Auction in a commercially
reasonable manner, contact Potential Holders (by telephone or otherwise),
including Persons that are not Existing Holders, on such lists to determine the
number of shares, if any, of such series of APS which each such Potential Holder
offers to purchase if the Applicable Rate for such series for the next
succeeding Rate Period of such series shall not be less than the rate per annum
specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this paragraph (a) is
hereinafter referred to as an "Order" and collectively as "Orders" and each
Existing Holder and each Potential Holder placing an Order is hereinafter
referred to as a "Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this paragraph (a) is hereinafter
referred to as a "Hold Order" and collectively as "Hold Orders"; an Order
containing the information referred to in clause (i)(B) or (ii) of this
paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids";
and an Order containing the information referred to in clause (i)(C) of this
paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as
"Sell Orders."
2. (i) A bid by an Existing Holder of shares of any series of
APS subject to an Auction on any Auction Date shall constitute an irrevocable
offer to sell:
the number of Outstanding shares of such series of APS specified in
such Bid if the Applicable Rate for such series determined on such Auction Date
shall be less than the rate specified therein:
such number or a lesser number of Outstanding shares of such series of
APS to be determined as set forth in clause (iv) of paragraph (a) of Section 5
of this Part II if the Applicable Rate for such series determined on such
Auction Date shall be equal to the rate specified therein; or
the number of Outstanding shares of such series of APS specified in
such Bid if the rate specified therein shall be higher than the Maximum Rate for
such series, or such number or a lesser number of Outstanding shares of such
series of APS to be determined as set forth in clause (iii) of paragraph (b) of
Section 5 of this Part 11 if the rate specified therein shall be higher than the
Maximum Rate for such series and Sufficient Clearing Bids for such series do not
exist.
(b) A Sell Order by an Existing Holder of shares of
any series of APS subject to an Auction on any Auction Date shall constitute an
irrevocable offer to sell:
B-34
(i) the number of Outstanding shares of such series of APS
specified in such Sell Order; or
such number or a lesser number of Outstanding shares of such series of APS
as set forth in clause (iii) of paragraph (b) of Section 5 of this Part II if
Sufficient Clearing Bids for such series do not exist.
A Bid by a Potential Holder of shares of any series of APS subject to an
Auction on any Auction Date shall constitute an irrevocable offer to purchase:
the number of Outstanding shares of such series of APS specified in such
Bid if the Applicable Rate for such series determined on such Auction Date shall
be higher than the rate specified therein; or
such number or a lesser number of Outstanding shares of such series of APS
as set forth in clause (v) of paragraph (a) of Section 5 of this Part II if the
Applicable Rate for such series determined on such Auction Date shall be equal
to the rate specified therein.
No Order for any number of shares of any series of APS other than whole
shares shall be valid.
Submission of Orders by Broker-Dealers to Auction Agent. (a) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of any series of
APS subject to an Auction on such Auction Date obtained by such Broker-Dealer
and shall specify with respect to each Order for such shares:
(b) the name of the Bidder placing such Order;
the aggregate number of shares of such series of APS that are the subject
of such Order;
to the extent that such Bidder is an Existing Holder of shares of such
series of APS:
the number of shares, if any, of such series of APS subject to any Hold
Order placed by such Existing Holder;
the number of shares, if any, of such series of APS subject to any Bid
placed by such Existing Holder and the rate specified in such Bid; and
the number of shares, if any, of such series of APS subject to any Sell
Order placed by such Existing Holder; and
to the extent such Bidder is a Potential Holder of shares of such series of
APS, the rate and number of shares of such series of APS specified in such
Potential Holder's Bid.
2. If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
If an Order or Orders covering all of the Outstanding shares of any series
of APS held by any Existing Holder is not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent shall deem a Hold Order to have
been submitted on behalf of such Existing Holder covering the number of
B-35
Outstanding shares of such series of APS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
If any Existing Holder submits through a Broker-Dealer to the Auction Agent
one or more Orders covering in the aggregate more than the number of Outstanding
shares of any series of APS subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(a) all Hold Orders for shares of such series of APS shall be
considered valid, but only up to and including in the aggregate the
number of Outstanding shares of such series of APS held by such
Existing Holder, and if the number of shares of such series of APS
subject to such Hold Orders exceeds the number of Outstanding shares of
such series of APS held by such Existing Holder, the number of shares
subject to each such Hold Order shall be reduced pro rata to cover the
number of Outstanding shares of such series of APS held by such
Existing Holder;
(A) any Bid for shares of such series of APS shall be considered valid up
to and including the excess of the number of Outstanding shares of such series
of APS held by such Existing Holder over the number of shares of such series of
APS subject to any Hold Orders referred to in clause (i) above;
(ii) subject to subclause (A), if more than one Bid for
shares of such series of APS with the same rate is submitted on behalf
of such Existing Holder and the number of Outstanding shares of such
series of APS subject to such Bids is greater than such excess, such
Bids shall be considered valid up to and including the amount of such
excess, and the number of shares of such series of APS subject to each
Bid with the same rate shall be reduced pro rata to cover the number of
shares of such series of APS equal to such excess;
subject to subclauses (A) and (B), if more than one Bid for shares of such
series of APS with different rates is submitted on behalf of such Existing
Holder, such Bids shall be considered valid in the ascending order of their
respective rates up to and including the amount of such excess; and
in any such event, the number, if any, of such Outstanding shares of such
series of APS subject to any portion of Bids considered not valid in whole or in
part under the clause (ii) shall be treated as the subject of a Bid for shares
of such series of APS by a Potential Holder at the rate therein specified; and
all Sell Orders for shares of such series of APS shall be considered valid
up to and including the excess of the number of Outstanding shares of such
series of APS held by such Existing Holder over the sum of the APS subject to
valid Hold Orders referred to in clause (i) above and valid Bids by such
Existing Holder referred to in clause (ii) above.
If more than one Bid for one or more shares of any series of APS is
submitted on behalf of any Potential Holder, each such Bid submitted shall be a
separate Bid with the rate and number of shares therein specified.
An Order submitted by a Broker-Dealer to the Auction Agent prior to the
Submission Deadline on any Auction Date shall be irrevocable.
B-36
Determination of Sufficient Clearing Bids Winning Bid Rate and
Applicable Rate. (a) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all valid Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order;" as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders" and shall for each series of APS for which an Auction is
being held determine:
(a) the excess of the number of Outstanding shares of such
series of APS over the number of Outstanding shares of such series of
APS subject to Submitted Hold Orders (such excess being hereinafter
referred to as the "Available APS" of such series);
from the Submitted Orders for such series whether:
(i) the number of Outstanding shares of such series of APS
subject to Submitted Bids by Potential Holders specifying one or more
rates equal to or lower than the Maximum Rate for such series exceeds
or is equal to the sum of
the number of Outstanding shares of such series of APS subject to Submitted
Bids by Existing Holders specifying one or more rates higher than the Maximum
Rate for such series; and
the number of Outstanding shares of such series of APS subject to Submitted
Sell Orders
(in the event such excess or such equality exists (other than because the number
of shares of such series of APS in subclauses (B) and (C) above is zero because
all of the Outstanding shares of such series of APS are subject to Submitted
Hold Orders), such Submitted Bids in subclause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids" for such series); and
if Sufficient Clearing Bids for such series exist, the lowest rate
specified in such Submitted Bids (the "Winning Bid Rate" for such series) which
if:
(I) each such Submitted Bid from Existing Holders specifying such lowest
rate and (II) all other such Submitted Bids from Existing Holders specifying
lower rates were rejected, thus entitling such Existing Holders to continue to
hold the shares of such series of APS that are subject to such Submitted Bids;
and
(J) each such Submitted Bid from Potential Holders specifying such lowest
rate and (II) all other such Submitted Bids from Potential Holders specifying
lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series of
APS which, when added to the number of Outstanding shares of such series of APS
to be purchased by such Potential Holders described in subclause (B) above,
would equal not less than the Available APS of such series.
2. Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 4, the Auction Agent shall advise the
Fund of the Maximum Rate for each series of APS for which an Auction is being
held on the Auction Date and, based on such determination, the Applicable Rate
for each such series for the next succeeding Rate Period thereof as follows:
B-37
(b) if Sufficient Clearing Bids for such series exist, that
the Applicable Rate for such series for the next succeeding Rate Period
thereof shall be equal to the Winning Bid Rate for such series to
determined;
if Sufficient Clearing Bids for such series do not exist (other than
because all of the Outstanding shares of such series of APS are subject to
Submitted Hold Orders), that the Applicable Rate for such series for the next
succeeding Rate Period thereof shall be equal to the Maximum Rate for such
series; or
if all of the Outstanding shares of such series of APS are subject to
Submitted Hold Orders, that the Applicable Rate for such series for the next
succeeding Rate Period thereof shall be equal to the product of (A) (1) the "AA"
Composite Commercial Paper Rate on such Auction Date for such Rate Period, if
such Rate Period consists of less than four Dividend Periods or (II) the
Treasury Rate on such Auction Date for such Rate Period, if such Rate Period
consists of four or more Dividend Periods and (B) 1 minus the maximum marginal
regular federal individual income tax rate applicable to ordinary income or the
maximum marginal regular federal corporate income tax rate, whichever is
greater; provided, however, that if the Fund has notified the Auction Agent of
its intent to allocate to the APS in such Rate Period any net capital gains or
other income taxable for Federal income tax purposes, the Applicable Rate in
respect of that portion of the dividend on the APS for such Rate Period that
represents the allocation of net capital gains or other income taxable for
Federal income tax purposes shall be the rate described in the preceding clause
(A)(I) or (II), as applicable, without being multiplied by the factor set forth
in the preceding clause (B).
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares. Existing Holders shall continue to hold the APS that
are subject to Submitted Hold Orders, and, based on the determinations made
pursuant to, paragraph (a) of Section 4 of this Part II, the Submitted Bids and
Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall
take such other action as set forth below:
1. If Sufficient Clearing Bids for any series of APS have been made,
all Submitted Sell Orders shall be accepted and, subject to the provisions of
paragraphs (d) and (e) of this Section 5, Submitted Bids shall be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids for such series shall be rejected:
(a) Existing Holders' Submitted Bids for shares of such series
of APS specifying any rate that is higher than the Winning Bid Rate for
such series shall be accepted, thus requiring each such Existing Holder
to sell the APS subject to such Submitted Bids;
Existing Holders' Submitted Bids for shares of such series of APS
specifying any rate that is lower than the Winning Bid Rate for such series
shall be rejected, thus entitling each such Existing Holder to continue to hold
the APS subject to such Submitted Bids;
Potential Holders' Submitted Bids for shares of such series of APS
specifying any rate that is lower than the Winning Bid Rate shall be accepted;
each Existing Holder's Submitted Bid for shares of such series of APS
specifying a rate that is equal to the Winning Bid Rate for such series shall be
rejected, thus entitling such Existing Holder to continue to hold the APS
subject to such Submitted Bid, unless the number of Outstanding shares of such
series of APS subject to all such Submitted Bids shall be greater than
B-38
the number of shares of such series of APS ("remaining shares") in the excess of
the Available APS of such series over the number of the APS subject to Submitted
Bids described in clauses (ii) and (iii) of this paragraph (a), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and such
Existing Holder shall be entitled to continue to hold the APS subject to such
Submitted Bid, but only in an amount equal to the number of shares of such
series of APS obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding shares of
such series of APS held by such Existing Holder subject to such Submitted Bid
and the denominator of which shall be the aggregate number of Outstanding shares
of such series of APS subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the Winning Bid Rate for such series; and
each Potential Holder's Submitted Bid for shares of such series of APS
specifying a rate that is equal to the Winning Bid Rate for such series shall be
accepted but only in an amount equal to the number of shares of such series of
APS obtained by multiplying the number of shares in the excess of the Available
APS of such series over the number of the APS subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the
numerator of which shall be the number of Outstanding shares of such series of
APS subject to such Submitted Bid and the denominator of which shall be the
aggregate number of Outstanding shares of such series of APS subject to such
Submitted Bids made by all such Potential Holders that specified a rate equal to
the Winning Bid Rate for such series; and
If Sufficient Clearing Bids for any series of APS have not been made (other
than because all of the Outstanding shares of such series of APS are subject to
Submitted Hold Orders), subject to the provisions of paragraph (d) of this
Section 5, Submitted Orders for such series shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids for such
series shall be rejected:
(a) Existing Holders' Submitted Bids for shares of such series
of APS specifying any rate that is equal to or lower than the Maximum Rate
for such series shall be rejected, thus entitling such Existing Holders to
continue to hold the APS subject to such Submitted Bids;
Potential Holders' Submitted Bids for shares of such series of APS
specifying any rate that is equal to or lower than the Maximum Rate for such
series shall be accepted; and
Each Existing Holder's Submitted Bid for shares of such series of APS
specifying any rate that is higher than the Maximum Rate of such series and the
Submitted Sell Orders for shares of such series of APS of each Existing Holder
shall be accepted, thus entitling each Existing Holder that submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such series of APS
subject to such Submitted Bid or Submitted Sell Order, but in both cases only in
an amount equal to the number of shares of such series of APS obtained by
multiplying the number of shares of such series of APS subject to Submitted Bids
described in clause (ii) of this paragraph (b) by a fraction, the numerator of
which shall be the number of Outstanding shares of such series of APS held by
such Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate number of Outstanding shares of
such series of APS subject to all such Submitted Bids and Submitted Sell Orders.
If all of the Outstanding shares of any series of APS are subject to
Submitted Hold Orders, all Submitted Bids for such series shall be rejected.
If, as a result of the procedures described in clause (iv) or (v) of
paragraph (a) or clause (iii) of paragraph (b) of this Section 5, any Existing
Holder would be entitled or required to sell, or any Potential
B-39
Holder would be entitled or required to purchase, a fraction of a share of APS
of any series on any Auction Date, the Auction Agent shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
such series of APS to be purchased or sold by any Existing Holder or Potential
Holder on such Auction Date as a result of such procedures so that the number of
shares of such series so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of APS.
If, as a result of the procedures described in clause (v) of paragraph (a)
of this Section 5, any Potential Holder would be entitled or required to
purchase less than a whole share of any series of APS on any Auction Date, the
Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate shares of such series of APS for purchase among Potential
Holders so that only whole shares of such series of APS are purchased on such
Auction Date as a result of such procedures by any Potential Holder, even if
such allocation results in one or more Potential Holders not purchasing the APS
on such Auction Date.
Based on the results of each Auction for a series of APS, the Auction Agent
shall determine the aggregate number of shares of such series of APS to be
purchased and the aggregate number of shares of such series of APS to be sold by
Potential Holders and Existing Holders on whose behalf each Broker-Dealer
submitted Bids or Sell Orders and, with respect to each Broker-Dealer, to the
extent that such aggregate number of shares to be purchased and such aggregate
number of shares to be sold differ, determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers of shares of such series of APS
such Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers of shares of such series of APS
such Broker-Dealer shall receive, as the case may be, shares of such series of
APS.
Notification of Allocations. Whenever the Fund intends to
include any net capital gains or other income taxable for Federal income tax
purposes in any dividend on the APS, the Fund will notify the Auction Agent of
the amount to be so included 15 days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, it will in turn notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its Existing Holders and Potential Holders
believed by it to be interested in submitting an Order in the Auction to be held
on such Auction Date.
Miscellaneous. (a) To the extent permitted by applicable law,
the Board of Trustees may interpret or adjust the provisions of this Certificate
of Vote to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Certificate of Vote with respect to any series of APS
prior to the issuance of such series.
2. An Existing Holder may sell, transfer or otherwise dispose
of the APS only in whole shares and only pursuant to a Bid or Sell Order in
accordance with the procedures described in this Part Il or to or through a
Broker-Dealer or to a Person that has delivered a signed copy of a Master
Purchaser's Letter to the Auction Agent; provided, that in the case of all
transfers other than pursuant to Auctions, such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such transfer.
All of the shares of each series of APS outstanding from time to time shall
be represented by one global certificate registered in the name of the
Securities Depository or its nominee.
Neither the Fund nor any affiliate thereof may submit an Order in any
Auction, except that any Broker-Dealer that is an affiliate of the Fund may
submit Orders in an Auction, but only if such Orders are not for its own
account.
B-40
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Vote
to be executed as of December 5, 1991.
---------------------
Ronald A. Nyberg
Secretary
State of )
) ss
County of )
Then personally appeared before me Ronald A. Nyberg, who acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
in his capacity as Secretary of Van Kampen Merritt Municipal Trust.
Before me,
Notary public
My commission Expires:
---------------------
B-41
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING FOUR SERIES OF PREFERRED SHARES OF
VAN KAMPEN MUNICIPAL TRUST
Van Kampen Municipal Trust, a Massachusetts business trust (the "Fund")
certifies to the Secretary of State of the Commonwealth of Massachusetts as
follows:
FIRST: On October 8, 1998, the Board of Trustees, pursuant to the
provisions of Article VI of the Amended and Restated Declaration of Trust (the
"Declaration of Trust") of the Fund and Section 5 of Part I and Section 7 of
Part 11 of the Certificate of Vote of Trustees Establishing Four Series of
Preferred Shares (the "Certificate of Vote") of the Fund, authorized and
declared a 2-for-1 split of the preferred shares of beneficial Interest of the
Fund, par value $.01 per share, liquidation preference $50,000 per share,
designated, respectively, Auction Preferred Shares, Series A ("APS Series A"),
Auction Preferred Shares, Series B ("APS Series B"), Auction Preferred Shares,
Series C ("APS Series C") and Auction Preferred Shares, Series D ("APB Series
D") (collectively, the APS Series A, APB Series B, APS Series C and APB Series D
are referred to as "APS"). The stock split is to be effected by means of a
division of each outstanding share of APS into two preferred shares of
beneficial interest, par value $.01 per share, liquidation preference $25,000
per share.
SECOND: Pursuant to the provisions of Article VI of the Declaration of
Trust and Section 5 of Part I and Section 7 of Part II of the Certificate of
Vote, the following amendments to the Certificate of Vote have been duly adopted
and approved by a majority of the Trustees of the Fund.
(a) The first paragraph of the vote establishing four series of
preferred shares of beneficial interest is hereby amended by
replacing such paragraph with the following:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Fund by Article VI of Its Declaration of Trust
(which, as amended or restated from time to time is, together
with this Certificate of Vote, herein called the "Declaration
of Trust"), the Board of Trustees hereby authorizes the
issuance of four series of 12,000 shares of Its authorized
preferred shares of beneficial interest, par value $.01 per
share ("Preferred Shares"), liquidation preference of $25,000
per share, designated, respectively, Auction Preferred Shares,
Series A ("APS Series A"), Auction Preferred Shares, Series B
("APB Series B"), Auction Preferred Shares, Series C ("APS
Series C") and Auction Preferred Shares, Series D ("APB Series
D") (collectively, the APS Series A, APS Series B, APS Series
C and APS Series D are referred to as "APB").
(b) The first four paragraphs under the heading "DESIGNATION"
of the Certificate of Vote are hereby amended by replacing such paragraphs with
the following:
APS SERIES A: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
A" (hereinafter, "APB Series A"). Each share of APS Series A
shall be issued on December 10, 1991; have an Applicable Rate
for its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 7, 1992; and have
such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
A shall constitute a separate series of Preferred Shares of
B-42
beneficial interest of the Fund, and each share of APS Series
A shall be Identical except as provided in Section 3 of Part I
of this Certificate of Vote.
APS SERIES B: A series of 3,000 preferred shares of beneficial
Interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
B" (hereinafter, "APS Series B"). Each share of APS Series B
shall be issued on December 10, 1991; have an Applicable Rate
for its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 15, 1992; and have
such other preferences, limitations and relative voting
rights, In addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
B shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
B shall be Identical except as provided in Section 3 of Part I
of this Certificate of Vote.
APS SERIES C: A series of 3,000 preferred shares of beneficial
Interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
C" (hereinafter, "APS Series C"). Each share of APS Series C
shall be Issued on December 10, 1991; have an Applicable Rate
for its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 9, 1992; and have
such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth In the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
C shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
C shall be Identical except as provided in Section 3 of Part I
of this Certificate of Vote.
APS SERIES D: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
D" (hereinafter, "APS Series D"). Each share of APS Series D
shall be Issued on December 10, 1991; have an Applicable Rate
for Its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 10, 1992; and have
such other preferences, limitations and relative voting
rights, In addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth In
Part I and Part II of this Certificate of Vote. The APS Series
D shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
D shall be identical except as provided in Section 3 of Part I
of this Certificate of Vote.
(c) Section 2(c)(ii) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
The amount of dividends per share payable on shares of any
series of APS on any date on which dividends shall be payable
on shares of such series shall be computed by multiplying the
respective Applicable Rate in effect for such series in effect
for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the
numerator of which shall be the number of days in such
Dividend Period or Dividend Periods or part thereof and the
denominator of which shall be 365 if such Dividend Period is a
Rate Period, or is contained in a Rate Period, of less that
one year and 360 for all other Dividend Periods, and applying
the rate obtained against $25,000.
B-43
(d) Section 3(a)(i) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
After the Initial Dividend Period with respect to any series
of APB and upon giving a Notice of Redemption, as provided
below, the Fund at its option may redeem shares of any series
of APS, in whole or in part, on the second Business Day next
preceding any Dividend Payment Date applicable to those shares
of APS called for redemption, out of funds legally available
therefor, at the Optional Redemption Price; provided that
during a Special Dividend Period of 365 days or more no share
of APS will be subject to optional redemption during any
Non-Call Period; provided, that shares of any series of APS
may not be redeemed in part of any such partial redemption
fewer than 500 shares of such series remain outstanding.
(e) Section 5(g) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
Right to Vote with Respect to Certain Other Matters. If the
Fund has more than one series of APB outstanding, the
affirmative vote of the holders of a majority (unless a higher
percentage vote is required under the Declaration of Trust or
under this Certificate of Vote) of the outstanding shares of
each series of APB, each voting as a separate class, is
required with respect to any matter that materially affects
the series In a manner different from that of other. series of
classes of the Fund's shares, including without limitation any
proposal to do the following: (1) increase or decrease the
aggregate number of authorized shares of the series; (2)
effect any exchange, reclassification, or cancellation of all
or part of the shares of the series; (3) effect an exchange,
or create a right of exchange, of all or any part of the
shares of the series; (4) change the rights or preferences of
the shares of the series; (5) change the shares of the series,
whether with or without par value, of the same or another
class or series; (6) create a new class or series of shares
having rights and preferences prior and superior to the shares
of the series, or Increase the rights and preferences or the
number of authorized shares of a series having rights and
preferences prior or superior to the shares of the series; or
(7) cancel or otherwise affect distributions on the shares of
the series that have accrued but have not been declared. To
the extent that the interest of a series of APB affected by a
matter are substantially identical to the Interests of another
series of APS affected by such matter (e.g., a vote of
shareholders required under Section 13(a) of the 1940 Act),
each such series shall vote together collectively as one
class. The vote of holders of each series of APS described
above will in each case be in addition to a separate vote of
the requisite percentage of Common Shares and APS necessary to
authorize the action in question.
(f) Section 6(a) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
Upon the dissolution, liquidation or winding up of the affairs
of the Fund, whether voluntary or Involuntary, the Holders of
the APS then outstanding shall be entitled to receive and to
be paid out of the assets of the Fund available for
distribution to its shareholders, before any payment or
distribution shall be made on the Common Shares or on any
other class of shares of the Fund ranking junior to the APS
upon dissolution, liquidation or winding up, an amount equal
to the liquidation preference with respect to such shares. The
liquidation preference for the APS shall be $25,000 per share,
plus an amount equal to all dividends thereon (whether or not
earned or declared) accumulated but unpaid to the date of
final distribution In same-day funds, together with any
payments
B-44
required to be made pursuant to Section 12 in connection with
the liquidation of the Fund.
(g) Section 15(f) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
"APB Basic Maintenance Amount," as of any Valuation Date,
shall mean the dollar amount equal to the sum of (i)(A) the
product of the number of APS Outstanding on such date
multiplied by $25,000; (B) the aggregate amount of dividends
that will have accumulated at the Applicable Rate (whether or
not earned or declared) to (but not Including) the first
respective Dividend Payment Dates for each of the APS
Outstanding that follow such Valuation Date; (C) the amount
equal to the Projected Dividend Amount (based on the number of
APS Outstanding on such date); (D) the amount of anticipated
expenses of the Fund for the 90 days subsequent to such
Valuation Date; (E) the amount of the Fund's Maximum Potential
Additional Dividend Liability as of such Valuation Dale; (F)
the amount of any premium payable pursuant to a Premium Call
Period; and (G) any current liabilities as of such Valuation
Date to the extent not reflected in any of (i)(A) through
(i)(F) (including, without limitation, any amounts described
in Section 13 of Part I as required to be treated as
liabilities in connection with the Fund's transactions in
futures and options and including any payables for municipal
securities purchased as of such Valuation Date) less (ii)
either (A) the face value of any of the Fund's assets
Irrevocably deposited by the Fund for the payment of any of
(i)(A) thorough (i)(G) if such assets mature within the
Moody's Exposure Period and are either securities issued or
guaranteed by the United States Government or have a rating
assigned by Moody's of P1, VMIG-1 or MIG-1 (or, with respect
to S&P, SP-1+ or A-1+) or (B) the Discounted Value of such
assets. For purposes of the APS Basic Maintenance Amount In
connection with S&P's ratings of the APS, with respect to any
transactions by the Fund in futures contracts, the Fund shall
include as liabilities (i) 30% of the aggregate settlement
value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the
Fund plus (ii) 25% of the aggregate settlement value, as
marked to market, of any outstanding futures contracts based
on Treasury Bonds which contracts are owned by the Fund. For
purposes of the APB Basic Maintenance Amount In connections
with Moody's rating of the APS, with respect to any
transactions by the Fund in securities options, the Fund shall
include as liabilities (i) 10% of the exercise price of a call
option written by the Fund and (ii) the exercise price of any
written put option.
(h) Section 15(ii) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
"Mandatory Redemption Price" means $25,000 per share of APB
plus an amount equal to accumulated but unpaid dividends
thereon to the date fixed for redemption (whether or not
earned or declared).
(i) Section 15(yy) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
"Optional Redemption Price" shall mean (i) $25,000 per share
of APB in the case of a 7 day or 26-day Dividend Period or a
Special Dividend Period of less than 365 days or (ii) with
respect to a Special Dividend Period of 365 days or more the
Optional Redemption Price set forth in the Specific Redemption
Provisions in connection therewith; in each
B-45
case plus an amount equal to accumulated but unpaid dividends
thereon to the date of redemption (whether or not earned or
declared).
(j) Section 15(ppp) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
"Specific Redemption Provisions" means, with respect to any
Special Dividend Period of 365 or more days, either, or any
combination of, (i) a period (a "Non-Call Period") determined
by the Board of Trustees, after consultation with the
Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the
option of the Fund, and (ii) a period (a "Premium Cell
Period"), consisting of a number of whole years and determined
by the Board of Trustees, after consultation within the
Broker-Dealers, during each year of which the shares subject
to such Special Dividend Period shall be redeemable at the
Fund's option at a price per share equal to $25,000 plus
accumulated by unpaid dividends plus a premium expressed as a
percentage of $25,000 as determined but the Board of Trustees
after consultation with the Broker-Dealers; provided, that
during any Special Dividend Period of 365 or more days if, on
the date of determination of the Applicable Rate for such
series, such Applicable Rate equaled or exceeded the Treasury
Rate, the Fund may redeem APB without regard to any Non-Call
Period or Premium Call Period at the Mandatory Redemption
Price.
B-46
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING FOUR SERIES OF
PREFERRED SHARES OF
VAN KAMPEN MUNICIPAL TRUST
Van Kampen Municipal Trust, a Massachusetts business trust
(the "Fund"), certifies to the Secretary of State of the Commonwealth of
Massachusetts as follows:
FIRST: On October 8, 1998, the Board of Trustees, pursuant to
the provisions of Article VI of the Amended and Restated Declaration of Trust
(the "Declaration of Trust") of the Fund and Section 5 of Part I and Section 7
of Part II of the Certificate of Vote of Trustees Establishing Four Series of
Preferred Shares (the "Certificate of Vote") of the Fund, authorized and
declared a 2-for-1 split of the preferred shares of beneficial interest of the
Fund, par value $.01 per share, liquidation preference $50,000 per share,
designated, respectively, Auction Preferred Shares, Series A ("APS Series A"),
Auction Preferred Shares, Series B ("APS Series B"), Auction Preferred Shares,
Series C ("APS Series C") and Auction Preferred Shares, Series D ("APS Series
D") (collectively, the APS Series A, APS Series B, APS Series C and APS Series D
are referred to as "APS"). The stock split is to be effected by means of a
division of each outstanding share of APS into two preferred shares of
beneficial interest, par value $.01 per share, liquidation preference $25,000
per share.
SECOND: Pursuant to the provisions of Article VI of the
Declaration of Trust and Section 5 of Part I and Section 7 of Part II of the
Certificate of Vote, the following amendments to the Certificate of Vote have
been duly adopted and approved by a majority of the Trustees of the Fund.
(a) The first paragraph of the vote establishing four series of
preferred shares of beneficial interest is hereby amended by
replacing such paragraph with the following:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Fund by Article VI of its Declaration of Trust
(which, as amended or restated from time to time is, together
with this Certificate of Vote, herein called the "Declaration
of Trust"), the Board of Trustees hereby authorizes the
issuance of four series of 12,000 shares of its authorized
preferred shares of beneficial interest, par value $.01 per
share ("Preferred Shares"), liquidation preference of $25,000
per share, designated, respectively, Auction Preferred Shares,
Series A ("APS Series A"), Auction Preferred Shares, Series B
("APS Series B"), Auction Preferred Shares, Series C ("APS
Series C") and Auction Preferred Shares, Series D
B-47
("APS Series D") (collectively, the APS Series A, APS Series
B, APS Series C and APS Series D are referred to as "APS").
(b) The first four paragraphs under the heading "DESIGNATION" of
the Certificate of Vote are hereby amended by replacing such
paragraphs with the following:.
APS SERIES A: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated Auction Preferred Shares, Series
A" (hereinafter, "APS Series A"). Each share of APS Series A
shall be issued on December 10, 1991; have an Applicable Rate
for its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 7, 1992; and have
such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part 11 of this Certificate of Vote. The APS Series
A shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
A shall be identical except as provided in Section 3 of Part 1
of this Certificate of Vote.
APS SERIES B: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
B" (hereinafter, "APS Series B"). Each share of APS Series B
shall be issued on December 10, 1991; have an Applicable Rate
for its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 15, 1992; and have
such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
B shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
B shall be identical except as provided in Section 3 of Part I
of this Certificate of Vote.
APS SERIES C: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
C" (hereinafter, "APS Series C"). Each share of APS Series C
shall be issued on December 10, 1991; have an Applicable Rate
for its initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 9, 1992; and have
such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
C shall constitute a separate series of Preferred Shares of
beneficial
B-48
interest of the Fund, and each share of APS Series C shall be
identical except as provided in Section 3 of Part I of this
Certificate of Vote.
APS SERIES D: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
D" (hereinafter, "APS Series D"). Each share of APS Series D
shall be issued on December 10, 1991; have an Applicable Rate
for Its Initial Dividend Period equal to 4.50% per annum, have
an Initial Dividend Payment Date of January 10, 1992; and have
such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part 1 and Part 11 of this Certificate of Vote. The APS Series
D shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
D shall be identical except as provided in Section 3 of Part I
of This Certificate of Vote.
(c) Section 2 (c)(ii) of Part 1 of the Certificate of Vote is
hereby amended to replace such section with the following:
The amount of dividends per share payable on shares of any
series of APS on any date on which dividends shall be payable
on shares of such series shall be computed by multiplying the
respective Applicable Rate in effect for such series in effect
for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the
numerator of which shall be the number of days in such
Dividend Period or Dividend Periods or part thereof and the
denominator of which shall be 365 if such Dividend Period is a
Rate Period, or is contained in a Rate Period, of less that
one year and 360 for all other Dividend Periods, and applying
the rate obtained against $25,000.
(d) Section 3 (a)(i) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
After the Initial Dividend Period with respect to any series
of APS and upon giving a Notice of Redemption, as provided
below, the Fund at its option may redeem shares of any series
of APS, in whole or in part, on the second Business Day next
preceding any Dividend Payment Date applicable to those shares
of APS called for redemption, out of funds legally available
therefor, at the Optional Redemption Price; provided that
during a Special Dividend Period of 365 days or more no share
of APS will be subject to optional redemption during any
Non-Call Period; provided, that shares of any series of APS
may not be redeemed in part of any such partial redemption
fewer than 500 shares of such series remain outstanding.
B-49
(e) Section 5 (g) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
Right to Vote with Respect to Certain Other Matters.
If the Fund has more than one series of APS outstanding, the
affirmative vote of the holders of a majority (unless a higher
percentage vote is required under the Declaration of Trust or
under this Certificate of Vote) of the outstanding shares of
each series of APS, each voting as a separate class, is
required with respect to any matter that materially affects
the series in a manner different from that of other series of
classes of the Fund's shares, including without limitation any
proposal to do the following: (1) increase or decrease the
aggregate number of authorized shares of the series; (2)
effect any exchange, reclassification, or cancellation of all
or part of the shares of the series; (3) effect an exchange,
or create a right of exchange, of all or any part of the
shares of the series; (4) change the rights or preferences of
the shares of the series; (5) change the shares of the series,
whether with or without par value, of the same or another
class or series; (6) create a new class or series of shares
having rights and preferences prior and superior to the shares
of the series, or increase the rights and preferences or the
number of authorized shares of a series having rights and
preferences prior or superior to the shares of the series; or
(7) cancel or otherwise affect distributions on the shares of
the series that have accrued but have not been declared. To
the extent that the interest of a series of APS affected by a
matter are substantially identical to the interests of another
series of APS affected by such matter (e.g., a vote of
shareholders required under Section 13(a) of the 1940 Act),
each such series shall vote together collectively as one
class. The vote of holders of each series of APS described
above will in each case be in addition to a separate vote of
the requisite percentage of Common Shares and APS necessary to
authorize the action in question.
(f) Section 6 (a) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
Upon the dissolution, liquidation or winding up of the affairs
of the Fund, whether voluntary or involuntary, the Holders of
the APB then outstanding shall be entitled to receive and to
be paid out of the assets of the Fund available for
distribution to its shareholders, before any payment or
distribution shall be made on the Common Shares or on any
other class of shares of the Fund ranking junior to the APB
upon dissolution, liquidation or winding up, an amount equal
to the liquidation preference with respect to such shares. The
liquidation preference for the APB shall be $25,000 per share,
plus an amount equal to all dividends thereon (whether or not
earned or declared) accumulated but unpaid to the date of
final distribution in same-day funds, together with any
payments required to be made pursuant to Section 12 in
connection with the liquidation of the Fund.
B-50
(g) Section 15 (t) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
"APB Basic Maintenance Amount," as of any Valuation Date,
shall mean the dollar amount equal to the sum of (i)(A) the
product of the number of APB Outstanding on such date
multiplied by $25,000; (B) the aggregate amount of dividends
that will have accumulated at the Applicable Rate (whether or
not earned or declared) to (but not including) the first
respective Dividend Payment Dates for each of the APB
Outstanding that follow such Valuation Date; (C) the amount,
equal to the Projected Dividend Amount (based on the number of
APB Outstanding on such date); (D) the amount of anticipated
expenses of the Fund for the 90 days subsequent to such
Valuation Date; (E) the amount of the Fund's Maximum Potential
Additional Dividend Liability as of such Valuation Date; (F)
the amount of any premium payable pursuant to a Premium Call
Period; and (G) any current liabilities as of such Valuation
Date to the extent not reflected in any of (i)(A) through
(i)(F) (including, without limitation, any amounts described
in Section 13 of Part I as required to be treated as
liabilities in connection with the Fund's transactions in
futures and options and including any payables for municipal
securities purchased as of such Valuation Date) less (ii)
either (A) the face value of any of the Fund's assets
irrevocably deposited by the Fund for the payment of any of
(i)(A) thorough (i)(G) if such assets mature within the
Moody's Exposure Period and are either securities issued or
guaranteed by the United States Government or have a rating
assigned by Moody's of P-1, VMIG-1 or MIG-1 (or, with respect
to S&P, SP-1+ or A-1+) or (B) the Discounted Value of such
assets. For purposes of the APB Basic Maintenance Amount In
connection with S&P's ratings of the APB, with respect to any
transactions by the Fund in futures contracts, the Fund shall
include as liabilities (i) 30% of the aggregate settlement
value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the
Fund plus (ii) 25% of the aggregate settlement value, as
marked to market, of any outstanding futures contracts based
on Treasury Bonds which contracts are owned by the Fund. For
purposes of the APB Basic Maintenance Amount in connections
with Moody's rating of the APB, with respect to any
transactions by the Fund in securities options, the Fund shall
include as liabilities (i) 10% of the exercise price of a call
option written by the Fund and (ii) the exercise price of any
written put option.
(h) Section 15 (ii) of Part l of the Certificate of Vote is hereby
amended to replace such section with the following:
"Mandatory Redemption Price" means $25,000 per share of APS
plus an amount equal to accumulated but unpaid dividends
thereon to the date fixed for redemption (whether or not
earned or declared).
B-51
(i) Section 15 (yy) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
"Optional Redemption Price" shall mean (i) $25,000 per share
of APS in the case of a 7-day or 28-day Dividend Period or a
Special Dividend Period of less than 365 days or (ii) with
respect to a Special Dividend Period of 365 days or more the
Optional Redemption Price set forth in the Specific Redemption
Provisions in connection therewith; in each case plus an
amount equal to accumulated but unpaid dividends thereon to
the date of redemption (whether or not earned or declared).
(j) Section 15 (ppp) of Part I of the Car Certificate of Vote is
hereby amended to replace such section with the following:
"Specific Redemption Provisions" means, with respect to any
Special Dividend Period of 365 or more days, either, or any
combination of, (i) a period (a "Non-Call Period") determined
by the Board of Trustees, after consultation with the
Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the
option of the Fund, and (H) a period. (a "Premium Call
Period"), consisting of a number of whole years and determined
by the Board of Trustees, after consultation within the
Broker-Dealers, during each year of which the shares subject
to such Special Dividend Period shall be redeemable at the
Fund's option at a price per share equal to $25,000 plus
accumulated by unpaid dividends plus a premium expressed as a
percentage of $25,000 as determined but the Board of Trustees
after consultation with the Broker-Dealers; provided, that
during any Special Dividend Period of 365 or more days if, on
the date of determination of the Applicable Rate for such
series, such Applicable Rate equaled or exceeded the Treasury
Rate, the Fund may redeem APS without regard to any Non-Call
Period or Premium Call Period at the Mandatory Redemption
Price.
B-52
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
CHANGING THE TIME WHEN THE FUND MUST DELIVER A LETTER
FROM AN INDEPENDENT ACCOUNTANT TO RATING AGENCIES
Van Kampen Municipal Trust, a Massachusetts business trust (the
"Fund"), certifies to the Secretary of State of the Commonwealth of
Massachusetts as follows:
FIRST: On September 25, 2003, the Board of Trustees of the Fund,
pursuant to the provisions of Article VI of the Amended and Restated Declaration
of Trust (the "Declaration of Trust") of the Fund and Section 5 of Part I of the
Certificate of Vote of Trustees Establishing a Class of Preferred Shares (the
"Certificate of Vote") of the Fund, authorized an amendment to the Certificate
of Vote to change the timing of filing certain reports with rating agencies from
quarterly to annually and to make conforming changes to the Certificate of Vote.
SECOND: Pursuant to the provisions of Article VI of the Declaration of
Trust and Section 5 of Part I of the Certificate of Vote of the Fund, the
following amendments to the Certificate of Vote have been duly adopted and
approved by a majority of the Trustees of the Fund.
1. Section 5 (d) (ii) of Part I of the Certificate of Vote is
hereby amended to replace the term "Quarterly Valuation Date"
with the term "Annual Valuation Date."
2. The second and third sentences of Section 9(b) of Part I of
the Certificate of Vote are hereby amended to replace such
sentences with the following:
The Fund shall also deliver to S&P (if S&P is then rating the
APS), Moody's (if Moody's is then rating the APS) and the
Auction Agent (if either S&P or Moody's is then rating the
APS) an APS Basic Maintenance Report as of the last Valuation
Date of each month on or before the third Business Day after
such day. The Fund shall also deliver to S&P (if S&P is then
rating the APS) and Moody's (if Moody's is then rating the
APS) an APS Basic Maintenance Report whenever (i) the Fund
shall have redeemed APS or Common Shares, (ii) the Fund shall
fail to have S&P Eligible Assets or Moody's Eligible Assets
with an aggregate Discounted Value at least equal to 105% of
the APS Basic Maintenance Amount, or (iii) whenever requested
by Moody's or S&P, in each case on or before the third
Business Day after such day.
3. Section 9 (c) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
Within ten Business Days after the date of delivery of an APS
Basic Maintenance Report in accordance with paragraph (b) of
this Section 9 relating to an Annual Valuation Date, the Fund
shall cause the Independent Accountant to confirm in writing
to S&P (if S&P is then rating the APS), Moody's (if Moody's is
then rating the APS) and the Auction Agent (if either S&P or
Moody's is then rating the APS) (i) the mathematical accuracy
of the calculations reflected in such Report and (ii) that, in
such Report, the Fund determined in accordance with this
Certificate of Vote whether the Fund had, at such Annual
Valuation Date, S&P Eligible Assets (if S&P is then rating the
APS) of an aggregate Discounted Value at least equal to the
APS Basic Maintenance Amount and Moody's Eligible Assets (if
Moody's is then rating the APS) of an aggregate Discounted
Value at least equal to the APS Basic Maintenance Amount (such
confirmation being herein called the "Accountant's
Confirmation").
B-53
4. The final clause of Section 13 (a) (i) of Part I of the
Certificate of Vote, which read "there shall be a quarterly
audit made of the Fund's futures and options transactions by
the Fund's independent accountants to confirm that the Fund is
in compliance with these standards; or" is hereby amended to
replace such clause with the following:
there shall be an annual audit made of the Fund's futures and
options transactions by the Fund's independent accountants to
confirm that the Fund is in compliance with these standards;
or
5. Section 15 (h) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
"APS Basic Maintenance Report" shall mean a report signed by
any of the President, Treasurer, any Senior Vice President or
any Vice President of the Fund which sets forth, as of the
related Valuation Date, the assets of the Fund, the Market
Value and the Discounted Value thereof (seriatim and in
aggregate), the APS Basic Maintenance Amount, the net asset
value and market trading price per Common Share, and the total
return percentage for the relevant valuation period.
6. Section 15 (ddd) of Part I of the Certificate of Vote is
hereby amended to replace such section with the following:
"Annual Valuation Date" shall mean the last Business Day of
each fiscal year of the Fund.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Vote
to be executed as of March 8, 2004.
/s/ A. Thomas Smith III
----------------------------
A. Thomas Smith III
Vice President and Secretary
State of New York )
) ss
County of New York )
Then personally appeared before me A. Thomas Smith III, who
acknowledged the foregoing instrument to be his free act and deed and the free
act and deed in his capacity as Vice President and Secretary of Van Kampen
Municipal Trust.
Before me,
/s/ Rosemarie Costagliola
----------------------------
Notary Public
My Commission expires 11/9/06
B-54
APPENDIX C
ACQUIRING FUND ANNUAL REPORT DATED OCTOBER 31, 2004
C-1
Item 1. Reports to Shareholders.
The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Municipal Trust performed during the annual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the trust's
financial statements and a list of trust investments as of October 31,
2004.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND
THAT THE VALUE OF TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID
FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM
TAX (AMT).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
C-2
Performance Summary as of 10/31/04
<Table>
<Caption>
MUNICIPAL TRUST
SYMBOL: VKQ
- ---------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (9/27/91) 7.81% 6.93%
10-year 8.36 8.03
5-year 9.46 9.32
1-year 9.03 9.15
- ---------------------------------------------------------
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
NAV per share is determined by dividing the value of the trust's portfolio
securities, cash and other assets, less all liabilities, by the total number of
common shares outstanding. The common share market price is the price the market
is willing to pay for shares of the trust at a given time. Common share market
price is influenced by a range of factors, including supply and demand and
market conditions. Total return assumes an investment at the beginning of the
period, reinvestment of all distributions for the period in accordance with the
trust's dividend reinvestment plan, and sale of all shares at the end of the
period.
The Lehman Brothers Municipal Bond Index is a broad-based statistical composite
of municipal bonds. The index does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
C-3
Trust Report
FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
Van Kampen Municipal Trust is managed by the Adviser's Municipal Fixed Income
team.(1) Current members include Thomas Byron, Vice President; Robert Wimmel,
Vice President; and John Reynoldson, Executive Director.
MARKET CONDITIONS
The interest-rate environment of the 12 months ended October 31, 2004 was marked
by two periods of steadily declining yields, with a significant sell-off in the
middle. Yields fell steadily through the first half of the period, approaching
the historical lows of 2003. This trend persisted until March, at which point
yields reversed direction and began an upward march as prices fell. These losses
were steepest in April, as a surprisingly strong employment report and signals
from members of the Federal Open Market Committee (the Fed) caused investors to
expect a near-term rate increase. Rates went on to decline from May through the
end of the period as the market digested the Fed's newly hawkish rate stance.
Investors were further comforted when, after the Fed raised rates at its June
30, 2004 meeting, its members indicated that the path of future rate increases
would be measured.
Unusually, longer-maturity securities largely outperformed in this period of Fed
tightening. Historically, the typical pattern in periods of tightening policy
has seen yields rise across all maturities. During the review period, however,
yields of shorter maturity bonds rose while those of bonds with longer
maturities declined slightly.
Lower-quality municipal bonds also performed strongly in this environment, as
the difference in yields (known as the "yield spread") between AAA and BBB rated
bonds decreased by roughly 20 basis points for 20-year bonds. As a result,
sectors with heavy exposure to lower-rated debt, such as hospitals and
industrial-revenue bonds, posted higher total returns than sectors dominated by
higher-rated debt.
Issuance for the first 10 months of 2004 (the final 10 months of the review
period) was roughly six percent lower than in the same period in 2003. That
said, 2003 was a record year, and at the current pace of issuance, 2004 could
well be one of the largest years in recent memory. The strong supply met with
faltering demand from mutual funds, as fund investors withdrew over $15 billion
in net cash during the period. The faltering demand was largely offset by
increased participation in the market by insurance companies and individual
investors.
(1)Team members may change without notice at any time.
C-4
PERFORMANCE ANALYSIS
The trust's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding, while market
price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On both an NAV basis and a market price basis,
the trust outperformed its benchmark index, the Lehman Brothers Municipal Bond
Index. (See table below.)
The trust uses leverage to enhance its dividend to common shareholders. The
trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates in the final months of the period made the trust's
borrowing activity more expensive. These expenses, however, were more than
offset by the strong performance of the bonds the trust invested in, leading to
the portfolio's outperformance versus its benchmark, which is unleveraged.
The historically low level of interest rates led us to maintain the trust's
overall interest-rate sensitivity at a level below that of its benchmark. This
strategy helped shield the trust from negative returns during those times when
yields rose. That said, yields overall declined over the period, and the
strategy exerted a drag on performance.
The fund experienced significant call activity during the period, as issuers
sought to lower their interest costs by refinancing their bonds at lower market
rates. This activity involved 23 percent of the total sales activity in the
trust. We reinvested the proceeds into bonds that we believed had more favorable
prospects for total return. Many of these securities were in the 15- to 20-year
segment of the market, which our analysis indicated offered the most appealing
combination of value and total-return potential.
In keeping with our long-term approach, we bought and sold bonds at the long end
of the market as they came into and out of fair value. This strategy entails
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
<Table>
<Caption>
- --------------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
9.03% 9.15% 6.03%
- --------------------------------------------------------------
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL
FLUCTUATE AND TRUST SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE PERFORMANCE SUMMARY FOR ADDITIONAL PERFORMANCE INFORMATION
AND INDEX DEFINITION.
C-5
purchasing bonds with attractive total-return prospects and selling them once
they have reached our performance targets. Many of our purchases in this
strategy involved health-care bonds, which offered attractive valuations for
much of the period.
We remained focused on controlling the trust's risk profile through attention to
credit quality and diversification. By the end of the 12-month period, 83
percent of the trust's total investments were invested in bonds rated AAA and
AA; these represent the two highest tiers of credit ratings. The portfolio was
also well diversified across the major sectors of the municipal bond market. Its
three largest sector exposures were general purpose, public education, and
transportation.
While it is impossible to predict the exact turning point when interest rates
will move decisively higher, we believe the trust remains well positioned for
the near future. We will continue to search the municipal bond markets for
interesting opportunities.
There is no guarantee that any securities mentioned will continue to perform
well or be held by the trust in the future.
C-6
<Table>
<Caption>
RATINGS ALLOCATION AS OF 10/31/04
AAA/Aaa 72.2%
AA/Aa 10.8
A/A 4.5
BBB/Baa 3.4
BB/Ba 1.7
B/B 0.2
Non-Rated 7.2
<Caption>
TOP 5 SECTORS AS OF 10/31/04
General Purpose 20.5%
Public Education 10.4
Transportation 9.9
Public Building 9.0
Health Care 8.6
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
Illinois 10.1%
California 9.6
New York 8.6
New Jersey 7.0
Texas 6.7
Florida 6.7
Ohio 4.2
Pennsylvania 4.0
Washington 3.7
Connecticut 3.7
North Carolina 3.1
Louisiana 2.7
Massachusetts 2.7
Georgia 2.5
Michigan 2.4
Alabama 2.2
Missouri 1.8
Kentucky 1.5
Virginia 1.5
Oregon 1.4
Colorado 1.3
Nevada 1.1
Tennessee 1.1
Indiana 1.0
Maryland 0.9
New Hampshire 0.9
West Virginia 0.7
Kansas 0.7
District of Columbia 0.7
Puerto Rico 0.7
Oklahoma 0.6
Wisconsin 0.6
Guam 0.6
Arizona 0.5
South Carolina 0.5
(continued on next page)
</Table>
C-7
<Table>
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
(continued from previous page)
Arkansas 0.5%
Mississippi 0.3
Rhode Island 0.3
South Dakota 0.2
Hawaii 0.2
New Mexico 0.2
Alaska 0.1
Maine 0.1
Nebraska 0.1
-----
Total Investments 100.0%
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. Van Kampen is a wholly owned
subsidiary of a global securities firm which is engaged in a wide range of
financial services including, for example, securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
C-8
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings
information available by periodically providing the information on its
public web site, www.vankampen.com. Each Van Kampen trust provides a
complete schedule of portfolio holdings on the public web site on a
calendar-quarter basis approximately 30 days after the close of the
calendar quarter. Van Kampen closed-end funds do not presently provide
partial lists of their portfolio holdings on a monthly basis, but may do
so in the future.
You may obtain copies of a trust's fiscal quarter filings, or its monthly
or calendar-quarter web site postings, by contacting Van Kampen Client
Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by calling 1-800-847-2424 or by visiting our web site at
www.vankampen.com. This information is also available on the Securities
and Exchange Commission's web site at http://www.sec.gov.
C-9
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MUNICIPAL BONDS 148.1%
ALABAMA 3.3%
$1,000 Birmingham Baptist Med Ctr AL Baptist Hlth Sys
Ser A.......................................... 5.875% 11/15/24 $ 1,042,280
2,695 Gadsden, AL Wts Ser B (AMBAC Insd)............. 5.250 08/01/21 2,955,418
4,000 Jefferson Cnty, AL Swr Rev Cap Impt Wts
(Prerefunded @ 08/01/12) (FGIC Insd)........... 5.125 02/01/42 4,506,800
6,215 Jefferson Cnty, AL Swr Rev Cap Impt Wts Ser A
(Prerefunded @ 02/01/11) (FGIC Insd)........... 5.000 02/01/41 6,932,025
1,735 Jefferson Cnty, AL Swr Rev Cap Impt Wts Ser A
(Prerefunded @ 02/01/11) (FGIC Insd)........... 5.000 02/01/41 1,943,582
2,405 Marshall Cnty, AL Hlthcare Ser C............... 6.000 01/01/32 2,543,865
-------------
19,923,970
-------------
ALASKA 0.2%
1,000 Alaska St Intl Arpt Rev Ser B (AMBAC Insd)..... 5.750 10/01/17 1,152,230
-------------
ARIZONA 0.7%
1,425 Arizona Cap Fac Fin Corp Student Hsg Rev AZ St
Univ Proj...................................... 6.250 09/01/32 1,516,912
1,000 Arizona Hlth Fac Auth Hosp John C Lincoln Hlth
Network........................................ 6.375 12/01/37 1,061,500
1,750 Arizona Sch Fac Brd Ctf Part Ser A (MBIA
Insd).......................................... 5.250 09/01/17 1,933,102
-------------
4,511,514
-------------
ARKANSAS 0.7%
2,310 Arkansas St Dev Fin Auth Rev St Agy Fac
Donaghey Plaza Proj (FSA Insd)................. 5.000 06/01/34 2,376,389
1,565 Fort Smith, AR Wtr & Swr Rev Ser C (FSA Insd)
(f)............................................ 5.000 10/01/21 1,676,459
-------------
4,052,848
-------------
CALIFORNIA 14.3%
4,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec
Sub Pub Impts Proj C (FSA Insd)................ * 09/01/20 1,897,280
350 California Hlth Fac Fin Auth Rev Casa De Las
Ser A (MBIA Insd).............................. 5.250 08/01/17 379,634
2,500 California St (AMBAC Insd)..................... 5.000 04/01/21 2,645,100
5,500 California St (AMBAC Insd)..................... 5.125 10/01/27 5,734,135
1,250 California St Dept Wtr Res Pwr Ser A........... 6.000 05/01/15 1,463,350
4,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd) (a)...................................... 5.375 05/01/18 4,436,800
3,705 California St Dept Wtr Res Pwr Ser A (MBIA
Insd).......................................... 5.375 05/01/21 4,061,273
2,000 California St Dept Wtr Res Pwr Ser A (MBIA
Insd).......................................... 5.375 05/01/22 2,185,520
5,295 California St Econ Rec Ser A................... 5.000 07/01/17 5,680,635
2,500 California St Pub Wks Brd Lease Rev Dept
Corrections Ser E Rfdg (XLCA Insd)............. 5.000 06/01/18 2,723,375
</Table>
See Notes to Financial Statements
C-10
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$1,000 California St Pub Wks Brd UCLA Replacement Hosp
Ser A (FSA Insd)............................... 5.375% 10/01/20 $ 1,097,880
5,000 California St Univ Rev Systemwide Ser A (AMBAC
Insd).......................................... 5.000 11/01/23 5,263,650
2,650 California Statewide Cmnty Dev Auth Ctf Part
(Acquired 04/12/02, Cost $2,650,000) (b)....... 7.250 11/01/29 2,772,536
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(Escrowed to Maturity) (MBIA Insd)............. * 09/01/17 2,735,750
1,000 Davis, CA Pub Fac Fin Auth Mace Ranch Area Ser
A.............................................. 6.600 09/01/25 1,052,920
850 Del Mar, CA Race Track Auth Rev Rfdg........... 6.000 08/15/06 875,134
18,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Rfdg (MBIA Insd).................... * 01/15/25 5,675,220
27,810 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Rfdg................................ * 01/15/33 5,185,174
6,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Sr Lien Ser A (Escrowed to
Maturity)...................................... * 01/01/18 3,428,100
2,240 Huntington Park, CA Redev Agy Rev Tax Alloc
Santa Fe Redev Rfdg............................ 6.200 10/01/27 2,336,947
2,635 Imperial Irr Dist CA Ctf Part Elec Sys Proj
(FSA Insd)..................................... 5.250 11/01/23 2,847,855
2,000 Los Angeles, CA Uni Sch Dist Ser A (MBIA
Insd).......................................... 5.375 07/01/18 2,237,820
4,400 Los Angeles, CA Uni Sch Dist Ser A (MBIA
Insd).......................................... 5.250 07/01/19 4,855,400
5,585 Sacramento, CA City Fin Auth Rev Comb Proj B
(MBIA Insd).................................... * 11/01/14 3,712,685
1,375 San Bernadino, CA Jt Pwrs Fin Auth Alloc Rev
Cent City Merged Proj A Rfdg (AMBAC Insd)
(f)............................................ 5.750 07/01/20 1,650,412
3,545 San Diego, CA Uni Sch Dist Election 1998 Ser
E-1 Rfdg (MBIA Insd)........................... 5.000 07/01/23 3,804,352
5,000 University CA Rev Gen Ser B (AMBAC Insd)....... 5.000 05/15/20 5,364,400
-------------
86,103,337
-------------
COLORADO 2.0%
1,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A (Escrowed to Maturity)....... 5.500 03/01/32 1,050,690
1,125 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth................................. 6.500 11/15/31 1,236,645
2,200 La Plata Cnty, CO Sch Dist 9-R Durango (MBIA
Insd) (f)...................................... 5.250 11/01/21 2,382,886
6,365 Platte Riv Pwr Auth CO Pwr Rev Ser EE.......... 5.375 06/01/16 7,167,690
-------------
11,837,911
-------------
CONNECTICUT 5.5%
1,935 Bridgeport, CT Ser A (MBIA Insd) (f)........... 5.250 08/15/20 2,130,125
2,265 Bridgeport, CT Ser A (MBIA Insd) (f)........... 5.250 08/15/23 2,455,169
7,140 Connecticut St Hlth & Ed Fac Auth Rev Nursing
Home Proj AHF/Hartford (Prerefunded @
11/01/04)...................................... 7.125 11/01/24 7,284,871
</Table>
See Notes to Financial Statements
C-11
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
CONNECTICUT (CONTINUED)
$2,840 Connecticut St Spl Oblig Pkg Rev Bradley Intl
Arpt Ser A (AMT) (ACA Insd).................... 6.600% 07/01/24 $ 3,077,964
3,540 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144-A Private Placement (c)............. 6.400 09/01/11 3,786,526
3,460 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144-A Private Placement (Prerefunded @
09/01/07) (c).................................. 6.400 09/01/11 3,851,568
6,500 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144-A Private Placement (c)............. 5.750 09/01/18 6,845,345
3,500 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144-A Private Placement (c)............. 5.750 09/01/27 3,609,060
-------------
33,040,628
-------------
DISTRICT OF COLUMBIA 1.0%
1,000 District of Columbia Hosp Rev Medlantic
Hlthcare Group A Rfdg (Escrowed to Maturity)
(MBIA Insd).................................... 5.875 08/15/19 1,080,250
5,000 Metropolitan Washington DC Arpt Auth Sys Ser A
(AMT) (FGIC Insd).............................. 5.125 10/01/26 5,143,350
-------------
6,223,600
-------------
FLORIDA 10.0%
3,380 Brevard Cnty, FL Hlth Fac Hlth First Inc Proj
(MBIA Insd).................................... 5.125 04/01/31 3,480,758
2,550 Broward Cnty, FL Wtr & Swr Util Rfdg (MBIA
Insd).......................................... 5.000 10/01/20 2,746,630
3,040 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd).......................................... 5.950 07/01/20 3,122,870
1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd).......................................... 5.750 07/01/11 1,151,140
3,000 Florida St Dept Environmental Protection
Preservation Rev Ser A (FGIC Insd)............. 5.750 07/01/10 3,444,930
3,880 Florida St Dept Trans Right of Way Ser A....... 5.250 07/01/21 4,306,916
1,895 Gulf Breeze, FL Rev Loc Govt (Variable Rate
Coupon) (FGIC Insd) (f)........................ 5.625 12/01/20 2,078,550
2,310 Hillsborough Cnty, FL Indl Dev Auth Andl Dev
Rev Hlth Fac Proj Univ Cmnty Hosp Ser A........ 5.500 08/15/14 2,412,148
1,000 Hillsborough Cnty, FL Util Jr Lien Rfdg (AMBAC
Insd).......................................... 5.000 08/01/06 1,052,750
1,000 Jea, FL Elec Sys Rev Ser 3 Ser A............... 5.500 10/01/41 1,067,250
265 Lakeland, FL Hosp Sys Rev Lakeland Regl Hlth
Sys............................................ 5.500 11/15/32 276,419
1,515 Miami Beach, FL Stormwtr Rev (FGIC Insd)....... 5.250 09/01/25 1,622,307
2,000 Miami-Dade Cnty, FL Aviation Rev Miami Intl
Arpt (AMT) (FGIC Insd)......................... 5.375 10/01/25 2,107,840
2,700 Miami-Dade Cnty, FL Aviation Rev Miami Intl
Arpt (AMT) (FGIC Insd)......................... 5.375 10/01/32 2,808,054
5,000 Miami-Dade Cnty, FL Aviation Ser A (AMT) (FSA
Insd).......................................... 5.125 10/01/35 5,093,300
</Table>
See Notes to Financial Statements
C-12
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$1,855 Miami-Dade Cnty, FL Hlth Fac Miami Childrens
Hosp Ser A Rfdg (AMBAC Insd)................... 5.000% 08/15/20 $ 1,958,342
3,750 Orange Cnty, FL Sch Brd Ctf Part Ser A (AMBAC
Insd).......................................... 5.250 08/01/14 4,220,550
4,320 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd).......................................... 5.625 10/01/14 4,857,322
4,300 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd).......................................... 5.500 10/01/31 4,674,100
1,000 Osceola Cnty, FL Trans Rev Osceola Pkwy Proj
Impt & Rfdg (MBIA Insd)........................ 5.000 04/01/21 1,075,800
2,140 Reedy Creek, FL Impt Dist FL Ser A Rfdg (AMBAC
Insd).......................................... 5.500 06/01/12 2,434,057
1,060 Tallahassee, FL Lease Rev FL St Univ Proj Ser A
(MBIA Insd) (f)................................ 5.500 08/01/18 1,188,631
2,780 Volusia Cnty, FL Gas Tax Rev (FSA Insd) (d).... 5.000 10/01/22 2,978,687
-------------
60,159,351
-------------
GEORGIA 3.7%
2,000 Atlanta, GA Arpt Passenger Fac Gen Sub Lien Ser
C (FSA Insd)................................... 5.000 01/01/33 2,064,140
2,645 Georgia St Ser D............................... 6.000 10/01/05 2,745,986
3,500 Georgia St Ser D............................... 6.000 10/01/06 3,765,755
1,400 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd).............................. 5.250 11/01/14 1,578,934
8,030 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd).............................. 5.250 11/01/18 8,945,581
1,000 Oconee Cnty, GA Indl Dev Auth Oiit Proj (XLCA
Insd).......................................... 5.250 07/01/23 1,067,730
2,000 Royston, GA Hosp Auth Hosp Ctf Rev Ty Cobb
Hlthcare Sys Inc Rfdg.......................... 6.500 07/01/27 1,994,600
-------------
22,162,726
-------------
HAWAII 0.3%
1,465 Honolulu, HI City & Cnty Ser D (AMT) (FGIC
Insd).......................................... 4.700 02/01/08 1,562,657
645 Honolulu, HI City & Cnty Wastewtr Sys Rev Cap
Apprec (FGIC Insd)............................. * 07/01/12 482,112
-------------
2,044,769
-------------
ILLINOIS 15.1%
3,400 Carol Stream, IL First Mtg Rev Windsor Pk Mnr
Proj (Prerefunded @ 12/01/07).................. 7.000 12/01/13 3,910,680
1,500 Champaign Cnty, IL Cmnty Unit Sch Dist No 116
Urbana Ser C (Prerefunded @ 01/01/10) (FGIC
Insd).......................................... * 01/01/16 897,720
1,300 Champaign Cnty, IL Cmnty Unit Sch Dist No 116
Urbana Ser C (Prerefunded @ 01/01/10) (FGIC
Insd).......................................... * 01/01/18 688,584
</Table>
See Notes to Financial Statements
C-13
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$1,285 Chicago, IL Brd Ed (Prerefunded @ 12/01/10)
(FGIC Insd).................................... 6.000% 12/01/12 $ 1,503,578
1,400 Chicago, IL Brd Ed Ser A (MBIA Insd)........... 5.500 12/01/28 1,521,800
4,000 Chicago, IL Neighborhoods Alive 21 Pgm Ser A
(FGIC Insd).................................... 5.750 01/01/40 4,420,040
5,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser A Rfdg (AMT) (MBIA Insd).............. 5.375 01/01/32 5,173,900
2,500 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser C 2 Rfdg (AMT) (FSA Insd)............. 5.250 01/01/30 2,585,325
1,015 Chicago, IL O'Hare Intl Arpt Rev Second Lien
Passenger Fac Ser B (AMBAC Insd)............... 5.500 01/01/16 1,133,156
1,980 Chicago, IL Pk Dist Ser C (FGIC Insd).......... 5.500 01/01/19 2,219,976
2,565 Chicago, IL Proj Ser C Rfdg (FGIC Insd) (f).... 5.750 01/01/12 2,936,771
1,000 Cook Cnty, IL Cmnty Cons Sch Dist No 64 Park
Ridge (FSA Insd)............................... 5.500 12/01/14 1,162,820
1,000 Cook Cnty, IL Ser A (FGIC Insd)................ 5.500 11/15/31 1,082,670
7,765 Du Page Cnty, IL Forest Preserve Dist.......... * 11/01/17 4,403,143
5,000 Du Page Cnty, IL Trans Rev (FSA Insd).......... 5.750 01/01/15 5,708,700
4,000 Hodgkins, IL Tax Increment Ser A Rfdg.......... 7.625 12/01/13 4,288,080
2,860 Illinois Dev Fin Auth Rev Adventist Hlth Ser A
(MBIA Insd) (e) (f)............................ 5.500 11/15/05 2,960,043
2,725 Illinois Dev Fin Auth Rev Cmnty Rehab Providers
Fac Ser A...................................... 7.375 07/01/25 2,946,597
2,705 Illinois Dev Fin Auth Rev Loc Govt Pgm Aurora
East Sch (MBIA Insd)........................... * 12/01/15 1,694,980
1,565 Illinois Ed Fac Auth Rev DePaul Univ
(Prerefunded @ 10/01/10) (AMBAC Insd).......... 5.625 10/01/15 1,809,156
1,740 Illinois Ed Fac Auth Rev Lewis Univ............ 5.900 10/01/14 1,744,437
2,500 Illinois Fin Auth Rev Northwestern Mem Hosp Ser
A.............................................. 5.500 08/15/43 2,600,200
1,645 Illinois Hlth Fac Auth Rev Evangelical Hosp Ser
C Rfdg (FSA Insd).............................. 6.750 04/15/12 1,956,958
2,500 Illinois St First Ser (MBIA Insd).............. 5.500 12/01/09 2,827,000
1,500 Illinois St First Ser (FGIC Insd).............. 5.375 11/01/14 1,696,260
3,000 Illinois St First Ser (FSA Insd)............... 5.250 12/01/21 3,249,330
3,440 Kendall Kane & Will Cntys, IL Cmnty Sch Dist No
308 Ser B (FGIC Insd) (f)...................... 5.250 10/01/19 3,802,163
870 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev Cap Apprec (Escrowed to Maturity) (FGIC
Insd).......................................... * 06/15/14 591,939
3,460 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev Cap Apprec (Unrefunded Balance) (FGIC
Insd).......................................... * 06/15/14 2,338,649
2,675 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev McCormick Pl Expn Ser A (MBIA Insd).... 5.250 06/15/42 2,794,626
</Table>
See Notes to Financial Statements
C-14
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$1,510 Roselle, IL Multi-Family Hsg Rev Waterbury Apts
Ser A Rfdg (GNMA Collateralized)............... 7.000% 01/01/25 $ 1,544,775
2,500 Schaumburg, IL Ser B (FGIC Insd)............... 5.000 12/01/41 2,534,525
3,505 Will Cnty, IL Cmnty Sch Dist No 161 Summit Hill
Cap Apprec (FGIC Insd)......................... * 01/01/14 2,404,745
2,010 Will Cnty, IL Cmnty Sch Dist No 161 Summit Hill
Cap Apprec (FGIC Insd)......................... * 01/01/16 1,238,703
1,415 Will Cnty, IL Cmnty Sch Dist No 161 Summit Hill
Cap Apprec (FGIC Insd)......................... * 01/01/19 737,611
9,660 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd).......................................... * 12/01/16 5,734,949
-------------
90,844,589
-------------
INDIANA 1.3%
1,000 Allen Cnty, IN Juvenile Justice Ctr First Mtg
(AMBAC Insd)................................... 5.500 01/01/18 1,122,060
1,000 Clark Pleasant, IN Cmnty Sch First Mtg (AMBAC
Insd).......................................... 5.500 07/15/13 1,136,810
1,580 Indiana Trans Fin Auth Toll Rd Lease Rev Rfdg
(AMBAC Insd)................................... 5.375 07/01/09 1,691,927
1,500 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt
(AMT) (e)...................................... 5.950 12/01/29 1,515,630
2,500 Vigo Cnty, IN Sch Bldg Corp First Mtg Impt &
Rfdg (FSA Insd)................................ 5.250 07/10/24 2,663,350
-------------
8,129,777
-------------
KANSAS 1.1%
3,000 Sedgwick Cnty, KS Uni Sch Dist No 259 Wichita
(MBIA Insd).................................... 6.000 09/01/09 3,446,280
1,395 Wichita, KS Pub Bldg Comm Rev Wichita St Univ
Proj Ser L Rfdg (AMBAC Insd) (f)............... 5.000 02/01/15 1,520,048
1,465 Wichita, KS Pub Bldg Comm Rev Wichita St Univ
Proj Ser L Rfdg (AMBAC Insd) (f)............... 5.000 02/01/16 1,587,562
-------------
6,553,890
-------------
KENTUCKY 2.2%
4,000 Elsmere, KY Indl Dev Rev Courtaulds Pkg Inc
Proj Rfdg (Prerefunded @ 04/01/05)............. 6.750 04/01/10 4,159,840
1,500 Kentucky St Ppty & Bldg Commn Proj No 69 Ser A
Rfdg (FSA Insd)................................ 5.500 08/01/11 1,718,520
3,500 Kentucky St Tpk Auth Econ Dev Revitalization
Proj Rfdg (FSA Insd)........................... 5.500 07/01/07 3,808,980
1,000 Kentucky St Tpk Auth Econ Dev Revitalization
Proj Rfdg (Prerefunded @ 01/01/11) (FSA
Insd).......................................... 5.625 07/01/14 1,145,950
2,350 Louisville & Jefferson, KY Swr Ser A (MBIA
Insd) (f)...................................... 5.500 05/15/15 2,675,334
-------------
13,508,624
-------------
</Table>
See Notes to Financial Statements
C-15
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
LOUISIANA 3.7%
$5,000 Ernest N Morial New Orleans LA Sr Sub Ser A
(AMBAC Insd)................................... 5.250% 07/15/21 $ 5,442,150
1,500 Louisiana Hsg Fin Agy Rev Azalea Estates Ser A
Rfdg (AMT) (GNMA Collateralized)............... 5.375 10/20/39 1,523,820
1,675 Louisiana Loc Govt Environmental Fac Pkg Fac
Corp Garage Proj Ser A (AMBAC Insd) (f)........ 5.200 10/01/19 1,841,847
2,580 Louisiana Loc Govt Environmental Rev Southeastn
LA Student Hsg A (MBIA Insd)................... 5.250 08/01/21 2,824,042
3,000 Louisiana St Ser A (FGIC Insd)................. 5.500 11/15/07 3,291,360
8,033 Louisiana St Univ & Agric & Mechanical College
Univ Rev Master Agreement (Acquired 11/30/98,
Cost $8,032,929) (b)........................... 5.750 10/30/18 7,629,435
-------------
22,552,654
-------------
MAINE 0.2%
1,000 Maine Vets Homes, ME Rev (Prerefunded @
10/01/05)...................................... 7.750 10/01/20 1,070,110
-------------
MARYLAND 1.3%
2,300 Baltimore, MD Cap Apprec Cons Pub Ser A Impt &
Rfdg (FGIC Insd)............................... * 10/15/06 2,129,869
1,845 Baltimore, MD Cap Apprec Ser A (Unrefunded
Balance) (FGIC Insd)........................... * 10/15/07 1,603,342
1,700 Maryland St Trans Auth Arpt Baltimore/WA Intl
Arpt B (AMT) (AMBAC Insd)...................... 5.125 03/01/24 1,779,577
2,365 Northeast, MD Waste Disp Auth Rfdg (AMT) (AMBAC
Insd).......................................... 5.500 04/01/16 2,603,132
-------------
8,115,920
-------------
MASSACHUSETTS 4.0%
1,775 Massachusetts Muni Whsl Elec Co Nuclear Proj 5
(MBIA Insd).................................... 5.250 07/01/13 1,990,396
1,745 Massachusetts St Cons Ln Ser B (Prerefunded @
05/01/09)...................................... 5.250 05/01/13 1,946,076
1,000 Massachusetts St Cons Ln Ser B (Prerefunded @
08/01/14) (AMBAC Insd)......................... 5.000 08/01/22 1,067,970
5,000 Massachusetts St Cons Ln Ser E (Prerefunded @
01/01/13) (FSA Insd)........................... 5.250 01/01/20 5,637,800
2,165 Massachusetts St Dev Fin Agy Proj Ser R-2 (MBIA
Insd).......................................... 5.125 02/01/34 2,232,548
785 Massachusetts St Dev Fin Agy Rev Boston
Architectural Ctr (ACA Insd)................... 6.100 09/01/18 841,481
1,000 Massachusetts St Dev Fin Agy Rev Boston
Architectural Ctr (ACA Insd)................... 6.250 09/01/28 1,050,950
1,500 Massachusetts St Fed Hwy Gnt Antic Nt Ser A.... 5.750 06/15/15 1,699,830
3,700 Massachusetts St Hlth & Ed Fac Auth Rev
(Variable Rate Coupon) (MBIA Insd)............. 5.000 07/01/13 3,782,621
</Table>
See Notes to Financial Statements
C-16
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
$1,000 Massachusetts St Hlth & Ed Fac Auth Rev Part
Hlthcare Sys Ser C............................. 5.750% 07/01/32 $ 1,093,230
2,500 Massachusetts St Spl Oblig Dedicated Tax Rev
(FGIC Insd).................................... 5.000 01/01/34 2,574,925
-------------
23,917,827
-------------
MICHIGAN 3.6%
3,440 Detroit, MI Loc Dev Fin Auth Tax Increment Sr
Ser B (Acquired 09/08/97, Cost $3,440,000)
(b)............................................ 6.700 05/01/21 3,441,961
850 Detroit, MI Loc Dev Fin Auth Tax Increment Sub
Ser C (Acquired 09/08/97, Cost $850,000) (b)... 6.850 05/01/21 834,785
3,860 Detroit, MI Ser A (XLCA Insd) (f).............. 5.250 04/01/21 4,137,804
2,930 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser C
Rfdg (MBIA Insd) (f)........................... 5.250 07/01/18 3,221,916
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale
Cmnty Hlth Ctr................................. 5.750 05/15/18 1,221,005
2,000 Michigan Muni Bd Auth Rev Clean Wtr Rev Fd..... 5.250 10/01/18 2,231,480
500 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Ser A Rfdg (Escrowed to Maturity).......... 5.375 10/01/13 557,195
1,550 Michigan St Hsg Dev Rental Hsg Rev Ser A (AMT)
(MBIA Insd).................................... 5.300 10/01/37 1,582,798
1,500 Michigan St Strategic Fd Detroit Edison Co Proj
C Rfdg (AMT) (XLCA Insd)....................... 5.450 12/15/32 1,570,650
2,500 Michigan St Trunk Line Ser A (Prerefunded @
11/01/11)...................................... 5.500 11/01/15 2,866,925
-------------
21,666,519
-------------
MISSISSIPPI 0.5%
2,500 Mississippi Bus Fin Corp MS Pollutn Ctl Rev Sys
Energy Res Inc Proj............................ 5.875 04/01/22 2,508,750
480 Mississippi Home Corp Single Family Rev Mtg Ser
F (AMT) (GNMA Collateralized).................. 7.550 12/01/27 483,893
-------------
2,992,643
-------------
MISSOURI 2.7%
1,400 Ellisville, MO Indl Dev Auth Rev Gambrill
Gardens Proj Rfdg & Impt....................... 6.100 06/01/20 1,375,626
1,000 Ellisville, MO Indl Dev Auth Rev Gambrill
Gardens Proj Rfdg & Impt....................... 6.200 06/01/29 948,690
1,740 Good Shepherd Nursing Home Dist MO Nursing Home
Fac Rev (Prerefunded @ 08/15/05)............... 7.625 08/15/15 1,847,897
1,000 Kearney, MO (AMBAC Insd)....................... 5.500 03/01/16 1,116,980
1,415 Missouri St Hlth & Ed Fac Rev Univ MO Columbia
Arena Proj..................................... 5.000 11/01/18 1,537,341
3,085 Missouri St Hwys & Trans Commn Rd Rev Ser A.... 5.250 02/01/07 3,305,732
1,000 Missouri St Hwys & Trans Commn Rd Rev Ser A.... 5.125 02/01/17 1,088,300
</Table>
See Notes to Financial Statements
C-17
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MISSOURI (CONTINUED)
$2,810 Perry Cnty, MO Nursing Home Rev Rfdg........... 5.900% 03/01/28 $ 2,509,892
2,505 Saint Louis, MO Arpt Rev Cap Impt Prog Ser A
(MBIA Insd) (f)................................ 5.375 07/01/20 2,761,788
-------------
16,492,246
-------------
NEVADA 1.7%
3,000 Clark Cnty, NV Arpt Rev Sub Lien Ser A-2 (FGIC
Insd).......................................... 5.000 07/01/36 3,056,490
3,000 Clark Cnty, NV Indl Dev Rev Southwest Gas Corp
Proj Ser A (AMT) (AMBAC Insd).................. 5.250 07/01/34 3,096,000
2,500 Reno, NV Cap Impt Rev (FGIC Insd).............. 5.125 06/01/26 2,603,975
1,500 Reno, NV Sr Lien Retrac Reno Trans Proj (AMBAC
Insd).......................................... 5.125 06/01/37 1,542,930
-------------
10,299,395
-------------
NEW HAMPSHIRE 1.3%
4,800 New Hampshire Higher Ed & Hlth Fac Auth Rev
Daniel Webster College Issue................... 6.300 07/01/29 4,685,136
2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev
Riverwoods at Exeter Ser A..................... 6.500 03/01/23 1,989,180
1,000 New Hampshire Hlth & Ed Fac Auth Rev Derryfield
Sch............................................ 6.750 07/01/20 987,990
-------------
7,662,306
-------------
NEW JERSEY 10.5%
1,460 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd) (f)................................ * 03/01/05 1,451,211
1,465 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd) (f)................................ * 03/01/06 1,425,518
1,615 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd) (f)................................ * 03/01/07 1,526,724
1,555 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd) (f)................................ * 03/01/08 1,423,634
2,895 Essex Cnty, NJ Impt Auth Rev Cnty Gtd Proj
Consldtn Rfdg (MBIA Insd)...................... 5.125 10/01/20 3,160,732
1,500 New Jersey Econ Dev Auth Cigarette Tax......... 5.750 06/15/29 1,539,930
3,880 New Jersey Econ Dev Auth Mtr Veh Sur Rev Ser A
(MBIA Insd).................................... 5.000 07/01/22 4,141,939
25,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (MBIA Insd) (e)....................... 5.900 03/15/21 30,338,250
2,825 New Jersey St Ed Fac Auth Higher Ed Cap Impt
Ser A (AMBAC Insd)............................. 5.250 09/01/19 3,127,529
3,500 New Jersey St Tpk Auth Tpk Rev Ser C (FSA
Insd).......................................... 6.500 01/01/16 4,318,265
1,000 New Jersey St Trans Corp Capital Grt Antic Nt
Ser B (AMBAC Insd)............................. 5.500 02/01/08 1,099,060
3,000 New Jersey St Trans Corp Ctf Fed Trans Admin
Grts Ser A (AMBAC Insd)........................ 5.500 09/15/13 3,441,510
</Table>
See Notes to Financial Statements
C-18
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
NEW JERSEY (CONTINUED)
$1,000 New Jersey St Trans Tr Fd Auth Trans Sys Ser
A.............................................. 5.750% 06/15/18 $ 1,184,160
1,840 New Jersey St Trans Tr Fd Auth Trans Sys Ser A
(FGIC Insd).................................... 5.250 06/15/19 2,040,045
3,000 Newark, NJ Hsg Auth Port Auth Newark Marine
Terminal (MBIA Insd)........................... 5.000 01/01/37 3,082,440
-------------
63,300,947
-------------
NEW MEXICO 0.3%
1,500 Jicarilla, NM Apache Nation Adj Ser A (Acquired
10/23/03, Cost $1,514,910) (b)................. 5.000 09/01/18 1,574,220
-------------
NEW YORK 12.8%
1,670 Long Island Pwr Auth, NY Elec Cap Apprec (FSA
Insd).......................................... * 06/01/18 951,232
3,000 Metropolitan Trans Auth NY Ser A Rfdg (FGIC
Insd).......................................... 5.250 11/15/31 3,188,460
2,500 Nassau Cnty, NY Interim Fin Auth Sales Tax
Secured Ser A (Prerefunded @ 11/15/10)......... 5.750 11/15/13 2,899,900
1,000 Nassau Cnty, NY Ser A Rfdg (FGIC Insd)......... 6.000 07/01/10 1,156,770
85 New York City Adj Sub Ser A-1 (e).............. 6.545 08/01/12 85,884
2,625 New York City Hlth & Hosp Corp Rev Hlth Sys Ser
A (AMBAC Insd)................................. 5.000 02/15/11 2,904,142
7,000 New York City Ser A............................ 6.250 08/01/08 7,557,410
2,000 New York City Ser H (FGIC Insd)................ 6.000 08/01/12 2,360,280
1,000 New York City Ser H............................ 5.750 03/15/13 1,132,340
2,500 New York City Ser I (MBIA Insd)................ 5.000 08/01/17 2,752,150
1,000 New York City Transitional Future Tax Secd Ser
C (AMBAC Insd)................................. 5.250 08/01/22 1,080,160
1,545 New York St Dorm Auth Lease Teachers College
(FSA Insd)..................................... 5.250 08/15/15 1,713,065
6,800 New York St Dorm Auth Rev City Univ Sys Cons
Ser A.......................................... 5.625 07/01/16 7,936,280
1,250 New York St Dorm Auth Rev Cons City Univ Sys A
(FSA Insd)..................................... 5.750 07/01/13 1,468,450
3,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser
D (MBIA Insd).................................. 5.500 10/01/17 3,423,060
4,200 New York St Dorm Auth Rev Secd Hosp N General
Hosp Rfdg...................................... 5.750 02/15/19 4,709,502
2,190 New York St Hsg Fin Agy Econ Dev & Hsg Ser A
(f)............................................ 5.250 09/15/20 2,365,747
1,330 New York St Hsg Fin Agy Econ Dev & Hsg Ser A... 5.000 09/15/22 1,391,233
4,000 New York St Twy Auth Svc Cntrct Loc Hwy Brdg
(Prerefunded @ 04/01/11)....................... 5.250 04/01/16 4,525,840
3,000 New York, NY City Mun Wtr Fin Ser B............ 5.000 06/15/19 3,258,870
4,630 Plainedge, NY Un Free Sch Dist No. 2063
(Acquired 12/01/00, Cost $4,630,041) (b)....... 6.000 06/01/12 4,906,037
</Table>
See Notes to Financial Statements
C-19
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$5,000 Sales Tax Asset Receivable Corp Ser A (MBIA
Insd) (d)...................................... 5.000% 10/15/23 $ 5,333,250
3,000 Triborough Brdg & Tunl Auth Gen Purp Ser A..... 5.000 01/01/27 3,078,870
5,000 Triborough Brdg & Tunl Auth NY Gen Ser B
Rfdg........................................... 5.000 11/15/21 5,314,400
2,000 Triborough Brdg & Tunl Auth NY Ser E Rfdg (MBIA
Insd).......................................... 5.000 11/15/32 2,056,620
-------------
77,549,952
-------------
NORTH CAROLINA 4.6%
2,000 Johnston Cnty, NC (FGIC Insd).................. 5.900 03/01/19 2,310,120
7,015 North Carolina Eastern Muni Pwr Agy Pwr Sys Rev
Ser A Rfdg (MBIA Insd)......................... 5.500 01/01/05 7,059,475
8,300 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev Rfdg (MBIA Insd) (e)....................... 6.000 01/01/12 9,746,441
6,605 North Carolina Muni Pwr Agy Ser A (MBIA
Insd).......................................... 5.250 01/01/20 7,177,720
1,315 University NC Wilmington Rev (AMBAC Insd)
(f)............................................ 5.250 01/01/19 1,443,449
-------------
27,737,205
-------------
OHIO 5.9%
3,950 Cincinnati, OH City Sch Dist Sch Impt (FSA
Insd).......................................... 5.250 06/01/18 4,390,544
2,700 Cleveland-Cuyahoga Cnty, OH Dev Port Auth Rev
Cleveland Bond Fd Ser B (f).................... 5.375 05/15/18 2,738,394
1,000 Columbus, OH City Sch Dist Sch Fac Constr &
Impt (FSA Insd)................................ 5.250 12/01/21 1,105,080
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj........................................... 7.500 01/01/30 1,108,460
2,350 Franklin Cnty, OH Convention Fac Auth Tax &
Lease Rev Antic Bds Rfdg (AMBAC Insd).......... 5.250 12/01/17 2,622,553
1,200 Franklin Cnty, OH Convention Fac Auth Tax &
Lease Rev Antic Bds Rfdg (AMBAC Insd).......... 5.250 12/01/18 1,334,724
4,800 Franklin Cnty, OH Hosp Rev Holy Cross Hlth Sys
Ser B Rfdg (MBIA Insd)......................... 5.250 06/01/10 4,908,336
2,000 Lebanon, OH City Sch Dist (FSA Insd)........... 5.500 12/01/16 2,258,500
1,000 Lorain Cnty, OH Hosp Rev Catholic Hlthcare..... 5.375 10/01/30 1,032,490
2,000 Lorain, OH City Sch Dist Classroom Fac Impt
(MBIA Insd).................................... 5.250 12/01/20 2,198,140
1,000 Mahoning Cnty, OH Hosp Fac Forum Hlth Oblig
Group Ser A.................................... 6.000 11/15/32 1,059,030
1,520 Miami Univ OH Gen Rcpts Rfdg (AMBAC Insd)...... 5.000 12/01/21 1,630,626
1,580 Montgomery Cnty, OH Hosp Rev Grandview Hosp &
Med Ctr Rfdg (Escrowed to Maturity)............ 5.375 12/01/05 1,639,645
2,270 Montgomery Cnty, OH Hosp Rev Kettering Med Ctr
Impt & Rfdg (MBIA Insd)........................ 6.250 04/01/20 2,813,347
1,000 Ohio St Air Quality Dev Auth Rev JMG Fdg Ltd
Part Proj Rfdg (AMT) (AMBAC Insd).............. 6.375 04/01/29 1,023,300
</Table>
See Notes to Financial Statements
C-20
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
OHIO (CONTINUED)
$2,500 Ohio St Bldg Auth St Fac Adult Correction Ser A
Rfdg (FSA Insd)................................ 5.500% 10/01/12 $ 2,844,450
1,000 Ohio St Higher Ed Cap Fac Ser II A............. 5.250 12/01/05 1,036,740
-------------
35,744,359
-------------
OKLAHOMA 0.9%
1,240 Kay Cnty, OK Home Fin Auth Rev Single Family
Mtg Ser A Rfdg (Escrowed to Maturity) (AMBAC
Insd).......................................... 7.000 11/01/11 1,519,744
1,520 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (AMT) (GNMA Collateralized)............ 7.997 08/01/18 1,563,472
2,305 Oklahoma St Cap Impt Auth St (MBIA Insd)....... 5.000 06/01/06 2,416,839
-------------
5,500,055
-------------
OREGON 2.1%
4,000 Oregon Hlth Sciences Univ Insd Ser A (MBIA
Insd).......................................... 5.250 07/01/22 4,323,680
1,500 Oregon St Dept Admin Ser C Rfdg (MBIA Insd).... 5.250 11/01/17 1,669,860
1,250 Portland, OR Cmnty College Dist Ser B.......... 5.250 06/01/12 1,403,313
1,500 Washington Multnomah & Yamhill Cntys, OR Sch
Dist No 11 (MBIA Insd)......................... 5.000 06/01/13 1,654,335
3,195 Yamhill Cnty, OR Sch Dist No 029J Newberg (MBIA
Insd) (f)...................................... 5.250 06/15/18 3,551,882
-------------
12,603,070
-------------
PENNSYLVANIA 5.9%
2,500 Allegheny Cnty, PA San Auth Swr (MBIA Insd).... 5.500 12/01/30 2,726,100
3,850 Greater Latrobe, PA Sch Auth (FGIC Insd) (f)... 5.250 04/01/16 4,294,945
3,000 Harrisburg, PA Auth Res Gtd Sub Ser D-2
(Variable Rate Coupon) (FSA Insd).............. 5.000 12/01/33 3,291,330
210 Lehigh Cnty, PA Gen Purp Auth Rev First Mtg
Bible Fellowship Proj A Rfdg................... 5.000 12/15/05 210,130
275 Lehigh Cnty, PA Gen Purp Auth Rev First Mtg
Bible Fellowship Proj A Rfdg (f)............... 5.100 12/15/06 276,790
295 Lehigh Cnty, PA Gen Purp Auth Rev First Mtg
Bible Fellowship Proj A Rfdg (f)............... 5.250 12/15/07 298,744
210 Lehigh Cnty, PA Gen Purp Auth Rev First Mtg
Bible Fellowship Proj A Rfdg................... 5.300 12/15/08 212,818
320 Lehigh Cnty, PA Gen Purp Auth Rev First Mtg
Bible Fellowship Proj A Rfdg (f)............... 5.300 12/15/09 320,150
240 Lehigh Cnty, PA Gen Purp Auth Rev First Mtg
Bible Fellowship Proj A Rfdg................... 5.400 12/15/10 238,824
2,700 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D (AMT)........................ 7.150 12/01/18 2,764,854
</Table>
See Notes to Financial Statements
C-21
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
$1,000 Pennsylvania St Tpk Commn Rev Ser T Rfdg (FGIC
Insd).......................................... 5.500% 12/01/11 $ 1,151,860
1,000 Philadelphia, PA Auth Indl Dev Philadelphia
Arpt Sys Proj Ser A (AMT) (FGIC Insd).......... 5.125 07/01/19 1,059,740
2,600 Philadelphia, PA Auth Indl Ser B (FSA Insd).... 5.500 10/01/16 2,939,300
3,200 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance
4th Ser (FSA Insd)............................. 5.250 08/01/19 3,494,048
4,305 Philadelphia, PA Redev Auth Rev Neighborhood
Transformation Ser A (FGIC Insd)............... 5.250 04/15/11 4,850,917
1,500 Philadelphia, PA Sch Dist Ser A (Prerefunded @
02/01/11) (FSA Insd)........................... 5.750 02/01/12 1,732,500
5,205 Pittsburgh, PA Ser A (AMBAC Insd).............. 5.500 09/01/17 5,721,336
-------------
35,584,386
-------------
RHODE ISLAND 0.5%
2,495 Rhode Island St Hlth & Ed Higher Ed Johnson &
Wales Rfdg (XLCA Insd)......................... 5.375 04/01/18 2,756,002
-------------
SOUTH CAROLINA 0.7%
2,000 Rock Hill, SC Util Sys Rev Comb Ser A Impt &
Rfdg (FSA Insd)................................ 5.375 01/01/18 2,218,660
475 Rock Hill, SC Util Sys Rev Comb Ser C Rfdg (FSA
Insd).......................................... 5.125 01/01/13 524,742
1,500 South Carolina Jobs Econ Dev Auth Indl Rev Elec
& Gas Co Proj Ser A (AMBAC Insd)............... 5.200 11/01/27 1,578,675
-------------
4,322,077
-------------
SOUTH DAKOTA 0.3%
1,905 Minnehaha Cnty, SD Ctf Ltd Tax (FSA Insd) (d)
(f)............................................ 5.000 12/01/19 2,058,695
-------------
TENNESSEE 1.6%
4,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Mtn St Hlth Ser A Rfdg (MBIA Insd)... 7.500 07/01/25 5,046,560
2,500 Memphis, TN (Prerefunded @ 10/01/06)........... 5.250 10/01/14 2,680,175
</Table>
See Notes to Financial Statements
C-22
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
TENNESSEE (CONTINUED)
$1,000 Metropolitan Nashville Arpt Auth TN Impt Ser A
Rfdg (FGIC Insd)............................... 6.600% 07/01/14 $ 1,195,160
990 Tennessee Hsg Dev Agy Home Ownership Pgm 2-A
(AMT).......................................... 5.700 07/01/31 1,027,689
-------------
9,949,584
-------------
TEXAS 10.0%
1,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp......... 5.375 01/01/32 1,015,840
1,350 Cameron Cnty, TX Ctf Oblig (AMBAC Insd) (f).... 5.750 02/15/14 1,521,828
2,500 Coastal Bend Hlth Fac Dev, TX Ser C (Inverse
Fltg) (Escrowed to Maturity) (AMBAC Insd)...... 8.138 11/15/13 3,411,275
2,420 Dallas Cnty, TX Cmnty College Dist Rev Fin Sys
(AMBAC Insd) (f)............................... 5.375 02/15/16 2,663,839
2,000 Fort Worth, TX Wtr & Swr Rev Impt Rfdg......... 5.500 02/15/05 2,021,940
1,745 Harris Cnty, TX Perm Impt & Rfdg............... 5.000 10/01/11 1,870,483
3,345 Houston, TX Hotel Occupancy Tax Convtn &
Entertnmnt Ser B (AMBAC Insd).................. 5.750 09/01/14 3,848,423
6,790 Houston, TX Indpt Sch Dist Pub Fac Corp Lease
Rev Cap Apprec West Side Ser B (AMBAC Insd)
(f)............................................ * 09/15/14 4,529,813
130 Houston, TX Pub Impt Rfdg (FSA Insd)........... 5.750 03/01/15 148,227
1,370 Houston, TX Pub Impt Rfdg (Prerefunded
09/01/10) (FSA Insd)........................... 5.750 03/01/15 1,566,253
10,000 Houston, TX Util Sys Rev First Lien Ser A Rfdg
(FSA Insd)..................................... 5.250 05/15/21 10,937,800
4,000 Houston, TX Util Sys Rev First Lien Ser A Rfdg
(FGIC Insd).................................... 5.250 05/15/23 4,325,760
2,500 Houston, TX Wtr & Swr Sys Rev Jr Lien Ser B
Rfdg (Escrowed to Maturity) (FGIC Insd)........ 6.250 12/01/05 2,618,950
1,250 Matagorda Cnty, TX Navig Dist No 1 Rev Coll
Centerpoint Energy Proj Rfdg (Variable Rate
Coupon)........................................ 5.600 03/01/27 1,289,200
1,000 Mesquite, TX Hlth Fac Dev Christian Care
Retirement Fac Ser A........................... 7.625 02/15/28 1,052,370
1,400 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj............................ 7.250 01/01/31 1,353,394
50 North Central, TX Hlth Fac Dev Hosp Baylor Hlth
Care Sys Proj A................................ 5.125 05/15/29 50,818
4,000 North Central, TX Hlth Fac Dev Hosp Childrens
Med Ctr Dallas (AMBAC Insd).................... 5.250 08/15/32 4,177,200
3,994 Region One Ed Svc Ctr Sub Tech Fac Proj
(Acquired 12/30/97, Cost $3,993,700) (b)....... 6.590 12/15/17 4,061,793
4,000 San Antonio, TX Elec & Gas Rev Sys Rfdg........ 5.375 02/01/18 4,466,080
1,123 Texas Gen Svc Comm Part Int (Acquired 03/16/95,
Cost $1,222,054) (b)........................... 7.250 08/01/11 1,140,726
</Table>
See Notes to Financial Statements
C-23
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$ 75 Texas Muni Pwr Agy Rev (Escrowed to Maturity)
(MBIA Insd).................................... * 09/01/15 $ 48,154
3,925 Texas Muni Pwr Agy Rev (Unrefunded Balance)
(MBIA Insd).................................... * 09/01/15 2,496,104
-------------
60,616,270
-------------
VIRGINIA 2.2%
1,320 Fairfax Cnty, VA Ctf Part...................... 5.300% 04/15/23 1,417,654
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease
Rev Henrico Cnty Regl Jail Proj (Prerefunded @
08/01/05)...................................... 6.500 08/01/10 1,582,710
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease
Rev Henrico Cnty Regl Jail Proj (Prerefunded @
08/01/05)...................................... 7.125 08/01/21 1,589,715
1,630 Richmond, VA (FSA Insd)........................ 5.125 01/15/08 1,776,814
1,340 Richmond, VA (FSA Insd)........................ 5.500 01/15/10 1,515,620
5,000 Virginia St Pub Sch Auth Sch Fin 1997
Resolution Ser C............................... 5.000 08/01/20 5,383,200
-------------
13,265,713
-------------
WASHINGTON 5.5%
5,000 Bellevue, WA Convention Ctr Auth Spl Oblig Rev
Rfdg (MBIA Insd)............................... * 02/01/24 1,921,050
3,230 Clark Cnty, WA Pub Util Dist No. 001 Gen Sys
Rev Rfdg (FSA Insd) (f)........................ 5.500 01/01/07 3,465,112
3,000 Clark Cnty, WA Pub Util Dist No. 001 Gen Sys
Rev Rfdg (FSA Insd)............................ 5.625 01/01/12 3,366,150
5,000 Cowlitz Cnty, WA Spl Swr Rev CSOB Wastewtr
Treatment Rfdg (FGIC Insd)..................... 5.500 11/01/19 5,843,150
5,000 Energy Northwest WA Elec Rev Proj No 3 Ser A
Rfdg........................................... 5.500 07/01/17 5,589,400
3,000 Energy Northwest WA Elec Rev Proj No 3 Ser A
Rfdg (FSA Insd)................................ 5.500 07/01/18 3,372,210
5,000 King Cnty, WA Ser B Rfdg (MBIA Insd)........... 5.250 01/01/34 5,233,000
1,000 Port Seattle, WA Rev Ser B (AMT) (MBIA Insd)... 5.625 02/01/24 1,085,740
1,345 Tacoma, WA Elec Sys Rev Ser A Rfdg (FSA
Insd).......................................... 5.750 01/01/15 1,532,103
1,750 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev (MBIA Insd)........................... 5.750 07/01/12 1,885,888
-------------
33,293,803
-------------
</Table>
See Notes to Financial Statements
C-24
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
WEST VIRGINIA 1.1%
$6,550 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp
Rev Potomac Edison Co Ser A (AMT) (MBIA Insd)
(f)............................................ 6.875% 04/15/22 $ 6,575,611
-------------
WISCONSIN 0.9%
5,000 Wisconsin St Hlth & Ed Fac Auth Mercy Hlth Sys
Corp (AMBAC Insd).............................. 5.500 08/15/25 5,387,100
-------------
GUAM 0.9%
5,000 Guam Pwr Auth Rev Ser A (AMBAC Insd)........... 5.250 10/01/34 5,285,800
-------------
PUERTO RICO 1.0%
2,000 Puerto Rico Muni Fin Agy Ser A (FSA Insd)...... 5.250 08/01/20 2,228,340
3,500 Puerto Rico Pub Bldgs Auth Rev Govt Facs Ser I
(Comwth Gtd)................................... 5.250 07/01/33 3,667,405
-------------
5,895,745
-------------
TOTAL LONG-TERM INVESTMENTS 148.1%
(Cost $832,047,426)....................................................... 894,019,978
SHORT-TERM INVESTMENTS 1.1%
(Cost $6,400,000)......................................................... 6,400,000
-------------
TOTAL INVESTMENTS 149.2%
(Cost $838,447,426)....................................................... 900,419,978
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................. 3,329,717
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (49.7%)................. (300,116,361)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $ 603,633,334
=============
</Table>
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(b) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers. Restricted Securities comprise 4.4% of net
assets applicable to common shares.
(c) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(d) Securities purchased on a when-issued or delayed delivery basis.
(e) Security converts to a fixed coupon rate at a predetermined date.
(f) The Trust owns 100% of the bond issuance.
ACA--American Capital Access
See Notes to Financial Statements
C-25
VAN KAMPEN MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Comwth Gtd--Commonwealth of Puerto Rico
FGIC--Financial Guaranty Insurance Co.
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
C-26
VAN KAMPEN MUNICIPAL TRUST
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2004
<Table>
ASSETS:
Total Investments (Cost $838,447,426)....................... $900,419,978
Cash........................................................ 31,897
Receivables:
Interest.................................................. 11,989,459
Investments Sold.......................................... 2,839,753
Other....................................................... 15,611
------------
Total Assets............................................ 915,296,698
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,326,321
Investment Advisory Fee................................... 457,720
Income Distributions--Common Shares....................... 138,245
Other Affiliates.......................................... 34,355
Variation Margin on Futures............................... 5,438
Trustees' Deferred Compensation and Retirement Plans........ 369,938
Accrued Expenses............................................ 214,986
------------
Total Liabilities....................................... 11,547,003
Preferred Shares (including accrued distributions).......... 300,116,361
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $603,633,334
============
NET ASSET VALUE PER COMMON SHARE ($603,633,334 divided by
36,365,393 shares outstanding)............................ $ 16.60
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 36,365,393 shares issued and
outstanding).............................................. $ 363,654
Paid in Surplus............................................. 538,413,497
Net Unrealized Appreciation................................. 61,956,652
Accumulated Undistributed Net Investment Income............. 3,813,714
Accumulated Net Realized Loss............................... (914,183)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $603,633,334
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 12,000 issued with liquidation preference of
$25,000 per share)........................................ $300,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $903,633,334
============
</Table>
See Notes to Financial Statements
C-27
VAN KAMPEN MUNICIPAL TRUST
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2004
<Table>
INVESTMENT INCOME:
Interest.................................................... $44,193,797
-----------
EXPENSES:
Investment Advisory Fee..................................... 5,364,429
Preferred Share Maintenance................................. 801,595
Administrative Fee.......................................... 261,204
Trustees' Fees and Related Expenses......................... 152,106
Legal....................................................... 81,836
Custody..................................................... 50,288
Other....................................................... 387,907
-----------
Total Expenses.......................................... 7,099,365
Less Credits Earned on Cash Balances.................... 508
-----------
Net Expenses............................................ 7,098,857
-----------
NET INVESTMENT INCOME....................................... $37,094,940
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (748,208)
Futures................................................... (440,822)
-----------
Net Realized Loss........................................... (1,189,030)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 46,947,631
-----------
End of the Period:
Investments............................................. 61,972,552
Futures................................................. (15,900)
-----------
61,956,652
-----------
Net Unrealized Appreciation During the Period............... 15,009,021
-----------
NET REALIZED AND UNREALIZED GAIN............................ $13,819,991
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(3,258,016)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $47,656,915
===========
</Table>
See Notes to Financial Statements
C-28
VAN KAMPEN MUNICIPAL TRUST
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 37,094,940 $ 37,242,943
Net Realized Gain/Loss.................................. (1,189,030) 2,809,023
Net Unrealized Appreciation During the Period........... 15,009,021 1,757,060
Distributions to Preferred Shareholders:
Net Investment Income................................. (3,180,653) (3,055,413)
Net Realized Gain..................................... (77,363) -0-
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 47,656,915 38,753,613
Distributions to Common Shareholders:
Net Investment Income................................. (34,036,953) (34,036,119)
Net Realized Gain..................................... (868,390) -0-
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ 12,751,572 4,717,494
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 590,881,762 586,164,268
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $3,813,714 and $3,974,030,
respectively)......................................... $603,633,334 $590,881,762
============ ============
</Table>
See Notes to Financial Statements
C-29
VAN KAMPEN MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
------------------------------
2004 2003 2002 (a)
------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 16.25 $ 16.12 $ 16.07
------- ------- -------
Net Investment Income..................................... 1.03 1.02 1.06
Net Realized and Unrealized Gain/Loss..................... .37 .13 .01
Common Share Equivalent of Distributions Paid to Preferred
Shareholders:
Net Investment Income................................... (.09) (.08) (.11)
Net Realized Gain....................................... -0-(f) -0- -0-
------- ------- -------
Total from Investment Operations............................ 1.31 1.07 .96
Distributions Paid to Common Shareholders:
Net Investment Income................................... (.94) (.94) (.91)
Net Realized Gain....................................... (.02) -0- -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD.......................... $ 16.60 $ 16.25 $ 16.12
======= ======= =======
Common Share Market Price at End of the Period.............. $ 14.90 $ 14.57 $ 14.30
Total Return (b)............................................ 9.15% 8.60% 10.49%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................. $ 603.6 $ 590.9 $ 586.2
Ratio of Expenses to Average Net Assets Applicable to Common
Shares (c)................................................ 1.19% 1.23% 1.35%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)........................... 6.24% 6.28% 6.70%
Portfolio Turnover.......................................... 19% 24% 38%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (c)................................................ .79% .81% .89%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)........................... 5.70% 5.77% 5.98%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.......................... 12,000 12,000 12,000
Asset Coverage Per Preferred Share (e)...................... $75,312 $74,245 $73,861
Involuntary Liquidating Preference Per Preferred Share...... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share.................... $25,000 $25,000 $25,000
</Table>
* Non-Annualized
(a)As required, effective November 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
accreting market discount on fixed income securities. The effect of this
change for the year ended October 31, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains and
losses per share by $.01 and increase the ratio of net investment income to
average net assets applicable to common shares from 6.69% to 6.70%. Per
share, ratios and supplemental data for periods prior to October 31, 2002
have not been restated to reflect this change in presentation.
(b)Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale of
all shares at the closing common share market price at the end of the period
indicated.
(c)Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d)Ratios reflect the effect of dividend payments to preferred shareholders.
(e)Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
(f)Amount is less than $0.01 per share.
C-30
<Table>
<Caption>
TWO
MONTHS
YEAR ENDED OCTOBER 31, ENDED YEAR ENDED AUGUST 31,
- --------------------------------- OCTOBER 31, -----------------------------------------
2001 2000 1999 1998 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
$ 14.91 $ 14.60 $ 17.39 $ 17.32 $ 16.60 $ 15.84 $ 15.73 $ 15.56
------- ------- -------- -------- -------- -------- -------- --------
1.13 1.17 1.20 .21 1.26 1.28 1.30 1.31
1.12 .42 (2.30) .08 .72 .73 .10 .26
(.27) (.34) (.24) (.02) (.30) (.29) (.30) (.32)
-0- -0- (.06) (.04) -0- -0- -0- -0-
------- ------- -------- -------- -------- -------- -------- --------
1.98 1.25 (1.40) .23 1.68 1.72 1.10 1.25
(.82) (.94) (.96) (.16) (.96) (.96) (.99) (1.08)
-0- -0- (.43) -0- -0- -0- -0- -0-
------- ------- -------- -------- -------- -------- -------- --------
$ 16.07 $ 14.91 $ 14.60 $ 17.39 $ 17.32 $ 16.60 $ 15.84 $ 15.73
======= ======= ======== ======== ======== ======== ======== ========
$ 13.79 $12.625 $13.1875 $16.8125 $16.1875 $ 15.75 $ 14.50 $ 14.25
15.97% 2.80% -14.47% 4.84%* 9.06% 15.87% 8.98% 2.39%
$ 584.4 $ 542.1 $ 530.9 $ 630.6 $ 628.2 $ 601.9 $ 574.6 $ 570.7
1.55% 1.67% 1.60% 1.57% 1.57% 1.61% 1.61% 1.65%
7.26% 8.07% 7.43% 7.20% 7.42% 7.86% 8.08% 8.58%
28% 39% 80% 6%* 94% 54% 36% 49%
1.01% 1.07% 1.06% 1.07% 1.06% 1.07% 1.06% 1.07%
5.51% 5.71% 5.95% 6.48% 5.66% 6.04% 6.20% 6.48%
12,000 12,000 12,000 6,000 6,000 6,000 6,000 6,000
$73,700 $70,177 $ 69,241 $155,104 $154,696 $150,322 $145,764 $145,113
$25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements
C-31
VAN KAMPEN MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Trust (the "Trust") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to seek to provide a high
level of current income exempt from federal income tax, consistent with
preservation of capital. The Trust will invest in a portfolio consisting
substantially of municipal obligations rated investment grade at the time of
investment, but may invest up to 20% of its assets in unrated securities which
are believed to be of comparable quality to those rated investment grade. The
Trust commenced investment operations on September 27, 1991. Effective November
30, 2003, the Trust's investment adviser, Van Kampen Investment Advisory Corp.
merged into its affiliate, Van Kampen Asset Management (the "Adviser").
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services or dealers are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
segregate assets with the custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
payment is made. At October 31, 2004, the Trust had $10,326,321 of when-issued
and delayed delivery purchase commitments.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and discount is accreted over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 2004, the Trust had an
C-32
VAN KAMPEN MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
accumulated capital loss carryforward for tax purposes of $930,080, which will
expire on October 31, 2012.
At October 31, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $837,846,231
============
Gross tax unrealized appreciation........................... $ 63,518,261
Gross tax unrealized depreciation........................... (944,514)
------------
Net tax unrealized appreciation on investments.............. $ 62,573,747
============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
The tax character of distributions paid during the years ended October 31,
2004 and 2003 was as follows:
<Table>
<Caption>
2004 2003
Distribution paid from:
Ordinary Income........................................... $ 71,612 $190,906
Long-term capital gain.................................... 945,753 -0-
---------- --------
$1,017,365 $190,906
========== ========
</Table>
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent book and
tax difference of $37,650 related to book and tax accretion differences was
reclassified from accumulated undistributed net investment income to accumulated
net realized loss.
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $198,860
</Table>
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of gains or losses recognized for tax purposes on
open futures transactions on October 31, 2004.
F. EXPENSE REDUCTION During the year ended October 31, 2004, the Trust's custody
fee was reduced by $508 as a result of credits earned on cash balances.
C-33
VAN KAMPEN MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser
provides investment advice and facilities to the Trust for an annual fee payable
monthly of .60% of the average daily net assets of the Trust. Effective November
1, 2004, the investment advisory fee was reduced from .60% to .55%. In addition,
the Trust paid a monthly administrative fee to Van Kampen Investments Inc. or
its affiliates (collectively "Van Kampen"), the Trust's Administrator, at an
annual rate of .05% of the average daily net assets of the Trust. Effective June
1, 2004, the administrative fee was reduced from .05% to .00%.
For the year ended October 31, 2004, the Trust recognized expenses of
approximately $55,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Trust, of which a trustee of the Trust
is a partner who provides legal services to the Trust, and is therefore an
affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the year ended October
31, 2004, the Trust recognized expenses of approximately $65,400 representing
Van Kampen's cost of providing accounting and legal services to the Trust, which
are reported as part of "Other" and "Legal" expenses, respectively, in the
Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
also officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $165,364,191 and $164,885,171,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
In order to seek to manage the interest rate exposure of the Trust's
portfolio in a changing interest rate environment, the Trust may purchase or
sell financial futures contracts or engage in transactions involving interest
rate swaps, caps, floors or collars. The Trust expects to enter into these
transactions primarily as a hedge against anticipated interest rate or
fixed-income market changes, for duration management or for risk management
purposes, but may also enter into these transactions to generate additional
income. All of the Trust's portfolio holdings, including derivative instruments,
are marked to market each day with the change in value reflected in the
unrealized appreciation/depreciation. Upon disposition, a realized gain or loss
is recognized accordingly, except when taking delivery of a security underlying
a futures contract. In this instance, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
Risks may arise as a result of the potential inability of the counterparties to
meet the terms of their contracts.
C-34
VAN KAMPEN MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in exchange traded futures contracts on U.S. Treasury
Bonds and Notes and typically closes the contract prior to the delivery date.
Futures contracts are valued at the settlement price established each day on the
exchange on which they are traded.
Upon entering into futures contracts, the Trust maintains an amount of cash
or liquid securities with a value equal to a percentage of the contract amount
with either a future commission merchant pursuant to rules and regulations
promulgated under the 1940 Act, as amended, or with its custodian in an account
in the broker's name. This amount is known as initial margin. During the period
the futures contract is open, payments are received from or made to the broker
based upon changes in the value of the contract (the variation margin). The risk
of loss associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts for the year ended October 31, 2004, were
as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2003............................. 98
Futures Opened.............................................. 104
Futures Closed.............................................. (180)
----
Outstanding at October 31, 2004............................. 22
====
</Table>
The futures contracts outstanding as of October 31, 2004, and the
descriptions and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
SHORT CONTRACTS CONTRACTS DEPRECIATION
U.S. Treasury Notes 10-Year Futures
December 2004 (Current Notional Value of $113,563 per
contract)............................................... 4 $ (4,578)
U.S. Treasury Notes 5-Year Futures
December 2004 (Current Notional Value of $111,375 per
contract)............................................... 18 (11,322)
-- --------
22 $(15,900)
== ========
</Table>
B. INVERSE FLOATING RATE SECURITIES An Inverse Floating Rate security is one
where the coupon is inversely indexed to a short-term floating interest rate
multiplied by a specified factor. As the floating rate rises, the coupon is
reduced. Conversely as the floating rate declines, the coupon is increased. The
price of these securities may be more volatile than the price of a comparable
fixed rate security. These instruments are typically used by the Trust to
enhance the yield of the portfolio.
5. PREFERRED SHARES
The Trust has outstanding 12,000 Auction Preferred Shares ("APS") in four series
of 3,000 shares each. Dividends are cumulative and the dividend rate is
periodically reset through an auction process. The dividend periods for Series A
and C are generally 7 days.
C-35
VAN KAMPEN MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
The dividend periods for Series B and D are 28 days. The average rate in effect
on October 31, 2004 was 1.538%. During the year ended October 31, 2004, the
rates ranged from 0.590% to 1.760%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of "Preferred Share
Maintenance" expense in the Statement of Operations.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests, and the APS are subject to
mandatory redemption if the tests are not met.
6. INDEMNIFICATIONS
The Trust enters into contracts that contain a variety of indemnifications. The
Trust's maximum exposure under these arrangements is unknown. However, the Trust
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
C-36
VAN KAMPEN MUNICIPAL TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Van Kampen Municipal Trust
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Trust (the "Trust"), including the portfolio of investments, as
of October 31, 2004, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The Trust's financial highlights for the periods ended prior to October
31, 2000 were audited by other auditors whose report, dated December 6, 1999,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Trust as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets and the financial highlights
for the respective stated periods, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 10, 2004
C-37
VAN KAMPEN MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be
re-registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued
on the valuation date, generally at the lower of market price or net asset
value, except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value
C-38
VAN KAMPEN MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN continued
of the Trust's Common Shares, resulting in the acquisition of fewer Common
Shares than if the dividend or distribution had been paid in Common Shares
issued by the Trust. All reinvestments are in full and fractional Common Shares
and are carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
prorata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
C-39
VAN KAMPEN MUNICIPAL TRUST
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 2004. The Trust designated 99.8% of the income distributions as a
tax-exempt income distribution. The Trust designated and paid $945,753 as a
long-term capital gain distribution. In January, the Trust provides tax
information to shareholders for the preceding calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
C-40
VAN KAMPEN MUNICIPAL TRUST
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2004,
where shareholders voted on the election of trustees.
1) With regard to the election of the following trustees by the common
shareholders of the Trust:
<Table>
<Caption>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------------------------
R. Craig Kennedy.......................................... 32,083,886 845,041
Jack E. Nelson............................................ 32,063,916 865,011
Richard F. Powers, III.................................... 32,091,066 837,861
</Table>
2) With regard to the election of the following trustee by the preferred
shareholders of the Trust:
<Table>
<Caption>
# OF SHARES
----------------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------------------------
Hugo Sonnenschein........................................... 10,306 44
</Table>
The other trustees of the Trust whose terms did not expire in 2004 are David C.
Arch, J. Miles Branagan, Jerry D. Choate, Rod Dammeyer, Linda Hutton Heagy,
Howard J Kerr, Mitchell M. Merin, Wayne W. Whalen, and Suzanne H. Woolsey.
C-41
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve until reaching their retirement age or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing
Blistex Inc. since 1991 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, 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.
</Table>
C-42
<Table>
<Caption>
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
</Table>
C-43
<Table>
<Caption>
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing
CAC, L.L.C. since 1991 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Stericycle,
San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical
to February 2001, Vice Systems, Inc., and GATX
Chairman and Director of Corporation, and Trustee
Anixter International, of The Scripps Research
Inc., a global Institute and the
distributor of wire, University of Chicago
cable and communications Hospitals and Health
connectivity products. Systems. Prior to January
Prior to July 2000, 2004, Director of
Managing Partner of TeleTech Holdings Inc.
Equity Group Corporate and Arris Group, Inc.
Investment (EGI), a Prior to May 2002,
company that makes Director of Peregrine
private investments in Systems Inc. Prior to
other companies. February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
</Table>
C-44
<Table>
<Caption>
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 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
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (52) Trustee Trustee Director and President of 83 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. 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.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 85 Trustee/Director/Managing
736 North Western Avenue since 1992 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
C-45
<Table>
<Caption>
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 85 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 83 Trustee/Director/Managing
(62) since 2003 Officer of the National General Partner of funds
815 Cumberstone Road Academy of in the Fund Complex.
Harwood, MD 20776 Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
C-46
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
</Table>
C-47
<Table>
<Caption>
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm 85 Trustee/Director/Managing
333 West Wacker Drive since 1991 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the
Fund Complex.
</Table>
* Such Trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Adviser by reason of
their current or former positions with Morgan Stanley or its affiliates.
C-48
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeitus Investment Management,
Inc. from January 1997 to July 2000.
James M. Dykas (38) Chief Financial Officer Executive Director of Van Kampen Asset Management and Morgan
1 Parkview Plaza Officer and since 1999 Stanley Investment Management. Chief Financial Officer and
Oakbrook Terrace, IL 60181 Treasurer Treasurer of funds in the Fund Complex. Prior to August
2004, Assistant Treasurer of funds in the Fund Complex.
Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Chief Investment Investment Management Inc. and Director of Morgan Stanley
Officer Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since May 2003.
1221 Avenue of the Americas President and since 2003 Chief Executive Officer and Chairman of Investor Services.
New York, NY 10020 Principal Executive Vice President and Principal Executive Officer of
Executive funds in the Fund Complex. Managing Director of Morgan
Officer Stanley. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer and Managing Director of Morgan Stanley Investment
Management Inc.
</Table>
C-49
<Table>
<Caption>
VAN KAMPEN MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen
Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and
certain other subsidiaries of Van Kampen Investments. Prior
August 2004, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
</Table>
C-50
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
C-51
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences,
through the use of "cookies." "Cookies" recognize your computer each
time you return to one of our sites, and help to improve our sites'
content and personalize your experience on our sites by, for example,
suggesting offerings that may interest you. Please consult the Terms of
Use of these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC.
VKQ ANR 12/04 RN04-02826P-Y10/04
C-52
APPENDIX D
TARGET FUND ANNUAL REPORT DATED OCTOBER 31, 2004
D-1
Item 1. Report to Shareholders.
The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Investment Grade Municipal Trust performed during the annual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the trust's financial statements and a list of trust investments
as of October 31, 2004.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND
THAT THE VALUE OF TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID
FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM
TAX (AMT).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
D-2
Performance Summary as of 10/31/04
<Table>
<Caption>
INVESTMENT GRADE MUNICIPAL TRUST
SYMBOL: VIG
- ---------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (11/30/89) 6.34% 4.82%
10-year 6.35 4.34
5-year 8.15 6.66
1-year 7.74 6.85
- ---------------------------------------------------------
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
NAV per share is determined by dividing the value of the trust's portfolio
securities, cash and other assets, less all liabilities, by the total number of
common shares outstanding. The common share market price is the price the market
is willing to pay for shares of the trust at a given time. Common share market
price is influenced by a range of factors, including supply and demand and
market conditions. Total return assumes an investment at the beginning of the
period, reinvestment of all distributions for the period in accordance with the
trust's dividend reinvestment plan, and sale of all shares at the end of the
period.
The Lehman Brothers Municipal Bond Index is a broad-based statistical composite
of municipal bonds. The index does not include any expenses, fees or sales
charges, which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
D-3
Trust Report
FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
Van Kampen Investment Grade Municipal Trust is managed by the Adviser's
Municipal Fixed Income team.(1) Current members include Thomas Byron, Vice
President; Robert Wimmel, Vice President; and John Reynoldson, Executive
Director.
MARKET CONDITIONS
The interest-rate environment of the 12 months ended October 31, 2004 was marked
by two periods of steadily declining yields, with a significant sell-off in the
middle. Yields fell steadily through the first half of the period, approaching
the historical lows of 2003. This trend persisted until March, at which point
yields reversed direction and began an upward march as prices fell. These losses
were steepest in April, as a surprisingly strong employment report and signals
from members of the Federal Open Market Committee (the Fed) caused investors to
expect a near-term rate increase. Rates went on to decline from May through the
end of the period as the market digested the Fed's newly hawkish rate stance.
Investors were further comforted when, after the Fed raised rates at its June
30, 2004 meeting, its members indicated that the path of future rate increases
would be measured.
Unusually, longer-maturity securities largely outperformed in this period of Fed
tightening. Historically, the typical pattern in periods of tightening policy
has seen yields rise across all maturities. During the review period, however,
yields of shorter maturity bonds rose while those of bonds with longer
maturities declined slightly.
Lower-quality municipal bonds also performed strongly in this environment, as
the difference in yields (known as the "yield spread") between AAA and BBB rated
bonds decreased by roughly 20 basis points for 20-year bonds. As a result,
sectors with heavy exposure to lower-rated debt, such as hospitals and
industrial-revenue bonds, posted higher total returns than sectors dominated by
higher-rated debt.
Issuance for the first ten months of 2004 (the final ten months of the review
period) was roughly six percent lower than in the same period in 2003. That
said, 2003 was a record year, and at the current pace of issuance, 2004 could
well be one of the largest years in recent memory. The strong supply met with
faltering demand from mutual funds, as fund investors withdrew over $15 billion
in net cash during the period. This faltering demand was largely offset by
increased participation in the market by insurance companies and individual
investors.
(1)Team members may change without notice at any time.
D-4
PERFORMANCE ANALYSIS
The trust's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding, while market
price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On both an NAV basis and a market price basis,
the trust outperformed its benchmark index, the Lehman Brothers Municipal Bond
Index. (See table below.)
The trust uses leverage to enhance its dividend to common shareholders. The
trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are reinvested in longer-term securities, taking advantage
of the difference between short- and longer-term rates. The Fed's policy of
raising interest rates in the final months of the period made the trust's
borrowing activity more expensive. These expenses, however, were more than
offset by the strong performance of the bonds we invested in, leading to the
trust's outperformance versus its benchmark, which is unleveraged.
The historically low level of interest rates led us to maintain the trust's
overall interest-rate sensitivity at a level below that of its benchmark. This
strategy helped shield the trust from negative returns during those times during
the period when yields rose. That said, yields overall declined over the period,
and the strategy exerted a drag on performance.
The fund experienced some significant call activity during the period, as
issuers sought to lower their interest costs by refinancing their bonds at lower
market rates. We reinvested the proceeds into bonds with more favorable
prospects for total return. Many of these securities were in the 15- to 20-year
segment of the market, which our analysis indicated offered the most appealing
combination of value and total-return potential.
In keeping with our long-term approach, we bought and sold bonds at the long end
of the market as they came into and out of fair value. This strategy entails
purchasing bonds with attractive total-return prospects and selling them once
they have reached our performance targets. Many of our purchases in this
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2004
<Table>
<Caption>
- ---------------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS MUNICIPAL
NAV MARKET PRICE BOND INDEX
7.74% 6.85% 6.03%
- ---------------------------------------------------------------
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL
FLUCTUATE AND TRUST SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. SEE PERFORMANCE SUMMARY FOR ADDITIONAL PERFORMANCE INFORMATION
AND INDEX DEFINITION.
D-5
strategy involved health-care bonds, which offered attractive valuations for
much of the period.
We remained focused on controlling the trust's risk profile range through
attention to credit quality and diversification. By the end of the 12-month
period, more than 76 percent of the trust's total investments were invested in
bonds rated AAA and AA; these represent the two highest tiers of credit ratings.
The portfolio was also well diversified across the major sectors of the
municipal bond market. Its three largest sector exposures were general purpose,
public building, and public education.
While it is impossible to predict the exact turning point when interest rates
will move decisively higher, we believe the trust remains well positioned for
the near future. We will continue to search the municipal bond markets for
interesting opportunities.
There is no guarantee that any securities mentioned will continue to perform
well or be held by the trust in the future.
D-6
<Table>
<Caption>
RATINGS ALLOCATION AS OF 10/31/04
AAA/Aaa 68.1%
AA/Aa 8.4
A/A 11.5
BBB/Baa 0.7
BB/Ba 0.5
B/B 6.2
Non-Rated 4.6
<Caption>
TOP 5 SECTORS AS OF 10/31/04
General Purpose 15.1%
Public Building 13.9
Public Education 11.9
Health Care 10.6
Wholesale Electric 7.1
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/04
California 10.8%
Illinois 8.3
Texas 8.1
New Jersey 6.7
Kansas 5.8
Florida 5.7
Washington 5.5
Missouri 5.5
Colorado 4.6
New York 3.8
Ohio 3.2
South Carolina 3.2
Massachusetts 3.1
Alaska 3.1
Pennsylvania 2.6
Connecticut 2.0
Nevada 1.9
Arizona 1.6
Georgia 1.5
Indiana 1.5
Oregon 1.5
Alabama 1.5
North Carolina 1.4
Guam 1.4
Puerto Rico 1.4
Tennessee 1.3
New Hampshire 1.2
Maryland 0.7
Arkansas 0.6
Wisconsin 0.5
-----
Total Investments 100.0%
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. Ratings and summary of investments by
state classification are as a percentage of total investments. Sectors are as a
percentage of long-term investments. Securities are classified by sectors that
represent broad groupings of related industries. Van Kampen is a wholly owned
subsidiary of a global securities firm which is engaged in a wide range of
financial services including, for example, securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services. Rating allocations based upon ratings as issued by Standard
and Poor's and Moody's, respectively.
D-7
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen trust provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
trust's second and fourth fiscal quarters by filing the schedule
electronically with the Securities and Exchange Commission (SEC). The
semiannual reports are filed on Form N-CSRS and the annual reports are
filed on Form N-CSR. Van Kampen also delivers the semiannual and annual
reports to trust shareholders, and makes these reports available on its
public web site, www.vankampen.com. In addition to the semiannual and
annual reports that Van Kampen delivers to shareholders and makes
available through the Van Kampen public web site, each trust files a
complete schedule of portfolio holdings with the SEC for the trust's
first and third fiscal quarters on Form N-Q. Van Kampen does not deliver
the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Van Kampen public web site. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and
N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You
may also review and copy them at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings
information available by periodically providing the information on its
public web site, www.vankampen.com. Each Van Kampen trust provides a
complete schedule of portfolio holdings on the public web site on a
calendar-quarter basis approximately 30 days after the close of the
calendar quarter. Van Kampen closed-end funds do not presently provide
partial lists of their portfolio holdings on a monthly basis, but may do
so in the future.
You may obtain copies of a trust's fiscal quarter filings, or its monthly
or calendar-quarter web site postings, by contacting Van Kampen Client
Relations at 1-800-847-2424.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
The trust's policies and procedures with respect to the voting of proxies
relating to the trust's portfolio securities and information on how the
trust voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available without charge,
upon request, by calling 1-800-847-2424 or by visiting our web site at
www.vankampen.com. This information is also available on the Securities
and Exchange Commission's web site at http://www.sec.gov.
D-8
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MUNICIPAL BONDS 148.6%
ALABAMA 2.2%
$1,000 Gadsden, AL Wts Ser B (AMBAC Insd)............... 5.250% 08/01/21 $ 1,096,630
------------
ALASKA 4.5%
1,000 Alaska St Intl Arpt Rev Ser B (AMBAC Insd)....... 5.750 10/01/17 1,152,230
1,000 Matanuska-Susitna Boro, AK Ctf Part Pub Safety
Bldg Lease (FSA Insd)............................ 5.750 03/01/16 1,127,590
------------
2,279,820
------------
ARIZONA 2.4%
1,000 Phoenix, AZ Civic Impt Corp Wastewtr Sys Rev Jr
Lien (Prerefunded @ 07/01/10) (FGIC Insd)........ 6.250 07/01/17 1,185,090
------------
ARKANSAS 0.9%
426 Dogwood Addition PRD Muni Ppty Owners Multi-Purp
Imp Dist No 8 Maumelle AK Impt Ser 2001 Rfdg
(Acquired 03/14/01, Cost $425,960) (a) (f)....... 7.500 03/01/06 426,092
------------
CALIFORNIA 16.0%
750 California St Dept Wtr Res Pwr Ser A............. 6.000 05/01/15 878,010
1,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)............................................ 5.375 05/01/18 1,109,200
995 California St Pub Wks Brd UCLA Replacement Hosp
Ser A (FSA Insd)................................. 5.375 10/01/20 1,092,391
4,290 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(Escrowed to Maturity) (MBIA Insd) (b)........... * 09/01/17 2,347,273
225 Foothill/Eastern Corridor Agy CA Toll Rd Rev Conv
Cap Apprec Sr Lien Ser A (Prerefunded @ 01/01/10)
(c).............................................. 0/7.150 01/01/13 271,849
500 Fresno, CA Uni Sch Dist Ser A Rfdg (MBIA Insd)... 6.100 08/01/12 596,285
1,000 Los Angeles, CA Uni Sch Dist Ser A (MBIA Insd)... 5.375 07/01/18 1,118,910
1,000 San Joaquin Hills, CA Transn Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd)............ * 01/15/27 313,240
1,000 San Joaquin Hills, CA Transn Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd)............ * 01/15/28 295,280
------------
8,022,438
------------
COLORADO 6.9%
1,000 Colorado Hlth Fac Auth Rev Evangelical Lutheran
Ser A............................................ 5.250 06/01/34 1,019,960
180 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 11.500 09/01/05 193,948
205 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 11.500 09/01/06 238,811
235 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 11.500 09/01/07 292,869
265 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 11.500 09/01/08 349,670
</Table>
See Notes to Financial Statements
D-9
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
COLORADO (CONTINUED)
$ 300 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 11.500% 09/01/09 $ 413,985
340 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 11.500 09/01/10 487,988
220 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity)..................................... 11.500 09/01/11 327,510
100 Jefferson Cnty, CO Residential Mtg Rev (Escrowed
to Maturity) (g)................................. 9.000 09/01/12 137,182
------------
3,461,923
------------
CONNECTICUT 2.9%
1,360 Bridgeport, CT Ser A (MBIA Insd)................. 5.250 08/15/24 1,468,514
------------
FLORIDA 8.5%
1,000 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd)............................................ 5.950 07/01/20 1,027,260
1,000 Highlands Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys Ser D......................... 5.375 11/15/35 1,035,450
1,000 Jacksonville, FL Rev Better Jacksonville (MBIA
Insd)............................................ 5.250 10/01/21 1,094,720
1,000 West Palm Beach, FL.............................. 5.250 03/01/14 1,095,120
------------
4,252,550
------------
GEORGIA 2.2%
1,000 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)................................ 5.250 11/01/16 1,122,820
------------
ILLINOIS 12.3%
150 Bedford Park, IL Tax Increment 71st & Cicero Proj
Rfdg............................................. 7.000 01/01/06 152,838
1,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien C 2 Rfdg (AMT) (FSA Insd)................... 5.250 01/01/30 1,034,130
400 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airl Inc Proj Ser B Rfdg (Variable Rate Coupon)
(AMT) (d) (e).................................... 6.100 11/01/35 60,000
1,250 Chicago, IL Proj Ser C Rfdg (FGIC Insd).......... 5.500 01/01/40 1,354,225
55 Chicago, IL Single Family Mtg Rev Ser B (AMT)
(GNMA Collateralized)............................ 7.625 09/01/27 55,261
510 Cook Cnty, IL Sch Dist No 107 (g)................ 7.150 12/01/08 593,482
575 Cook Cnty, IL Sch Dist No 107 (g)................ 7.200 12/01/09 685,653
625 Cook Cnty, IL Sch Dist No 107.................... 7.000 12/01/10 753,162
500 Hodgkins, IL Tax Increment Ser A Rfdg............ 7.625 12/01/13 536,010
250 Lake Cnty, IL Cmnty Unit (Escrowed to Maturity)
(Radian Insd) (b)................................ 7.600 02/01/14 328,982
1,000 McHenry & Kane Cntys, IL Cmnty (FGIC Insd)....... * 01/01/16 616,270
------------
6,170,013
------------
</Table>
See Notes to Financial Statements
D-10
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
INDIANA 2.2%
$1,000 MSD Warren Twp IN Vision 2005 First Mtg (FGIC
Insd)............................................ 5.500% 07/15/20 $ 1,112,490
------------
KANSAS 8.6%
1,825 Cowley Cnty, KS Uni Sch Dist Impt Rfdg (MBIA
Insd) (g)........................................ 5.250 10/01/22 1,983,994
400 Overland Pk, KS Dev Corp Rev First Tier Overland
Park Ser A....................................... 7.375 01/01/32 409,420
1,000 Wyandotte Cnty, KS Sch Dist 500 Rfdg (FSA
Insd)............................................ 5.000 09/01/19 1,095,340
740 Wyandotte Cnty/Kansas City, KS Uni Govt Indl Rev
Brd Pub Util Bldg Complex Proj (MBIA Insd) (g)... 5.000 05/01/09 812,372
------------
4,301,126
------------
MARYLAND 1.0%
500 Maryland St Econ Dev Corp Student Hsg Rev Univ MD
College Pk Proj.................................. 5.625 06/01/35 516,610
------------
MASSACHUSETTS 4.6%
600 Massachusetts St Dev Fin Agy Rev Proj Ser A (MBIA
Insd)............................................ 5.125 02/01/34 618,720
1,500 Massachusetts St Fed Hwy Grant Antic Nt Ser A.... 5.750 06/15/14 1,699,830
------------
2,318,550
------------
MISSOURI 8.2%
1,000 Cape Girardeau Cnty, MO Indl Dev Auth Hlthcare
Fac Rev Southeast MO Hosp Assoc.................. 5.625 06/01/27 1,019,470
400 Fenton, MO Tax Increment Rev & Impt Gravois
Bluffs Proj Rfdg................................. 7.000 10/01/21 433,400
1,000 Saint Charles, MO Ctf Part Ser B................. 5.500 05/01/18 1,076,240
1,460 Saint Louis, MO Brd Ed Direct Dep Pgm Ser A Rfdg
(FSA Insd)....................................... 5.000 04/01/21 1,558,638
------------
4,087,748
------------
NEVADA 2.8%
1,000 Clark Cnty, NV Indl Dev Rev Southwest Gas Corp
Proj Ser A (AMT) (AMBAC Insd).................... 5.250 07/01/34 1,032,000
390 Nevada Hsg Div Single Family Mtg Mezz Ser D2
(AMT)............................................ 6.300 04/01/21 391,330
------------
1,423,330
------------
NEW HAMPSHIRE 1.8%
525 New Hampshire Hlth & Ed Fac Auth Rev Derryfield
Sch.............................................. 6.750 07/01/20 518,695
350 New Hampshire Hlth & Ed Fac Hlthcare Sys Covenant
Hlth............................................. 5.500 07/01/34 358,810
------------
877,505
------------
</Table>
See Notes to Financial Statements
D-11
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW JERSEY 10.0%
$1,000 New Jersey Econ Dev Auth Econ Dev Rev Kapkowski
Rd Landfill Proj Rfdg............................ 5.750% 04/01/31 $ 989,230
500 New Jersey Econ Dev Auth Rev Cigarette Tax....... 5.750 06/15/34 513,800
1,500 New Jersey Econ Dev Auth Wtr Fac Rev NJ American
Wtr Co Inc Ser B (AMT) (FGIC Insd)............... 5.375 05/01/32 1,558,110
1,000 New Jersey St Ed Fac Auth Higher Ed Cap Impt Ser
A (AMBAC Insd)................................... 5.250 09/01/21 1,094,190
765 New Jersey St Trans Corp Cap Grant Antic Nt Ser B
(AMBAC Insd)..................................... 5.500 02/01/08 840,781
------------
4,996,111
------------
NEW YORK 5.6%
1,000 New York City Ser H.............................. 5.750 03/15/13 1,132,340
1,000 New York St Urban Dev Corp Rev Personal Income
Tax Ser C 1 (FGIC Insd).......................... 5.500 03/15/19 1,133,770
500 Yonkers, NY Indl Dev Agy Civic Fac Rev Cmnty Dev
Ppty Yonkers Inc Ser A........................... 6.625 02/01/26 539,380
------------
2,805,490
------------
NORTH CAROLINA 2.2%
1,000 North Carolina Muni Pwr Agy Ser A (MBIA Insd).... 5.250 01/01/20 1,086,710
------------
OHIO 4.8%
1,000 Franklin Cnty, OH Convention Fac Auth Tax & Lease
Rev Antic Bds Rfdg (AMBAC Insd).................. 5.250 12/01/19 1,106,070
1,250 Ohio St Bldg Auth St Fac Admin Bldg Fd Proj Ser A
(FSA Insd)....................................... 5.000 04/01/22 1,317,650
------------
2,423,720
------------
OREGON 2.2%
1,000 Oregon St Dept Admin Ser C Rfdg (MBIA Insd)...... 5.250 11/01/18 1,109,480
------------
PENNSYLVANIA 3.8%
1,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Coll Toledo Edison Co Proj Rfdg.................. 7.625 05/01/20 1,042,580
315 Crawford Cnty, PA Hosp Auth Sr Living Fac Rev
Wesbury Utd Methodist Cmnty (g).................. 5.875 08/15/10 332,511
500 Harrisburg, PA Res Gtd Sub Ser D 2 (FSA Insd).... 5.000 12/01/33 548,555
------------
1,923,646
------------
SOUTH CAROLINA 4.8%
1,235 Rock Hill, SC Util Sys Rev Ser C Rfdg (FSA Insd)
(g).............................................. 5.250 01/01/15 1,362,736
1,000 South Carolina Jobs Econ Elec & Gas Co Proj Ser A
(AMBAC Insd)..................................... 5.200 11/01/27 1,052,450
------------
2,415,186
------------
</Table>
See Notes to Financial Statements
D-12
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
TENNESSEE 2.0%
$ 400 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp First
Mtg Ser B Impt & Rfdg............................ 8.000% 07/01/33 $ 475,768
400 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp Ser B
Impt & Rfdg (MBIA Insd).......................... 7.750 07/01/29 518,888
------------
994,656
------------
TEXAS 12.0%
1,000 Dallas-Fort Worth, TX Intl Arpt Rev Impt Jt Ser A
Rfdg (AMT) (FGIC Insd)........................... 5.500 11/01/31 1,046,370
1,500 Fort Worth, TX Wtr & Swr Rev Impt Rfdg........... 5.750 02/15/16 1,704,585
1,000 Houston, TX Arpt Sys Rev Sub Lien Ser A (AMT)
(FSA Insd)....................................... 5.625 07/01/30 1,062,540
400 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones
Mem Hosp Proj.................................... 7.250 01/01/31 386,684
1,000 North Cent TX Hlth Fac Dev Hosp Baylor Hlthcare
Sys Proj Ser A................................... 5.125 05/15/29 1,016,360
196 Pecos Cnty, TX Ctf Part (Acquired 06/23/97, Cost
$196,000) (a).................................... 6.000 01/12/08 197,128
605 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (FSA Insd)...................... 5.500 09/01/13 617,923
------------
6,031,590
------------
WASHINGTON 8.2%
1,000 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg
(FSA Insd)....................................... 5.500 07/01/17 1,124,070
1,660 Pierce Cnty, WA (AMBAC Insd) (g)................. 5.750 08/01/16 1,888,765
1,000 Port Seattle, WA Rev Ser B (AMT) (MBIA Insd)..... 5.625 02/01/24 1,085,740
------------
4,098,575
------------
WISCONSIN 0.8%
400 Wisconsin St Hlth & Ed Fac Beaver Dam Cmnty Hosp
Inc Ser A........................................ 6.000 08/15/19 396,900
------------
GUAM 2.1%
1,000 Guam Pwr Auth Rev Ser A (AMBAC Insd)............. 5.250 10/01/34 1,057,160
------------
PUERTO RICO 2.1%
1,000 Puerto Rico Pub Bldg Auth Rev Gtd Govt Fac Ser I
(Comwlth Gtd).................................... 5.250 07/01/33 1,047,830
------------
TOTAL INVESTMENTS 148.6%
(Cost $69,005,907).......................................................... 74,510,303
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%................................... 643,710
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (49.9%)................... (25,005,651)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%................................ $ 50,148,362
============
</Table>
See Notes to Financial Statements
D-13
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2004 continued
Percentages are calculated as a percentage of net assets applicable to
common shares.
* Zero coupon bond
(a) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers. Restricted securities comprise 1.2% of net
assets applicable to common shares.
(b) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) Non-income producing security.
(e) This borrower has filed for protection in federal bankruptcy court.
(f) Affiliated issuer. See Notes to Financial Statements
(g) The Trust owns 100% of the bond issuance.
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
Comwth Gtd--Commonwealth of Puerto Rico
FGIC--Financial Guaranty Insurance Co.
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
Radian--Radian Asset Assurance
See Notes to Financial Statements
D-14
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2004
<Table>
ASSETS:
Total Investments (Cost $69,005,907)........................ $74,510,303
Receivables:
Interest.................................................. 1,084,909
Investments Sold.......................................... 35,320
Other....................................................... 1,291
-----------
Total Assets............................................ 75,631,823
-----------
LIABILITIES:
Payables:
Custodian Bank............................................ 107,931
Investment Advisory Fee................................... 38,079
Variation Margin on Futures............................... 23,438
Income Distributions--Common Shares....................... 15,583
Other Affiliates.......................................... 6,821
Trustees' Deferred Compensation and Retirement Plans........ 204,603
Accrued Expenses............................................ 81,355
-----------
Total Liabilities....................................... 477,810
Preferred Shares (including accrued distributions).......... 25,005,651
-----------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $50,148,362
===========
NET ASSET VALUE PER COMMON SHARE ($50,148,362 divided by
4,839,000 shares outstanding)............................. $ 10.36
===========
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 4,839,000 shares issued and
outstanding).............................................. $ 48,390
Paid in Surplus............................................. 51,562,586
Net Unrealized Appreciation................................. 5,435,875
Accumulated Undistributed Net Investment Income............. (166,136)
Accumulated Net Realized Loss............................... (6,732,353)
-----------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $50,148,362
===========
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 250 issued with liquidation preference of $100,000
per share)................................................ $25,000,000
===========
NET ASSETS INCLUDING PREFERRED SHARES....................... $75,148,362
===========
</Table>
See Notes to Financial Statements
D-15
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2004
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 3,715,556
-----------
EXPENSES:
Investment Advisory Fee..................................... 446,772
Preferred Share Maintenance................................. 82,351
Trustees' Fees and Related Expenses......................... 57,987
Legal....................................................... 22,073
Custody..................................................... 5,565
Other....................................................... 139,847
-----------
Total Expenses.......................................... 754,595
-----------
NET INVESTMENT INCOME....................................... $ 2,960,961
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(2,213,329)
Futures................................................... (640,859)
-----------
Net Realized Loss........................................... (2,854,188)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,859,177
-----------
End of the Period:
Investments............................................. 5,504,396
Futures................................................. (68,521)
-----------
5,435,875
-----------
Net Unrealized Appreciation During the Period............... 3,576,698
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 722,510
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (279,002)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 3,404,469
===========
</Table>
See Notes to Financial Statements
D-16
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................................... $ 2,960,961 $ 3,033,160
Net Realized Gain/Loss.................................... (2,854,188) 841,950
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 3,576,698 (334,213)
Distributions to Preferred Shareholders:
Net Investment Income................................... (279,002) (271,360)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations.............................................. 3,404,469 3,269,537
Distributions to Common Shareholders:
Net Investment Income................................... (2,380,306) (2,380,271)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
INVESTMENT ACTIVITIES................................... 1,024,163 889,266
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................... 49,124,199 48,234,933
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of ($166,136) and ($466,689),
respectively)........................................... $50,148,362 $49,124,199
=========== ===========
</Table>
See Notes to Financial Statements
D-17
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
--------------------------------
2004 2003 2002 (a)
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................. $ 10.15 $ 9.97 $ 10.01
-------- -------- --------
Net Investment Income.................................. .61 .63 .65
Net Realized and Unrealized Gain/Loss.................. .15 .10 (.13)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income................................ (.06) (.06) (.07)
-------- -------- --------
Total from Investment Operations......................... .70 .67 .45
Distributions Paid to Common Shareholders:
Net Investment Income.................................. (.49) (.49) (.49)
-------- -------- --------
NET ASSET VALUE, END OF THE PERIOD....................... $ 10.36 $ 10.15 $ 9.97
======== ======== ========
Common Share Market Price at End of the Period........... $ 9.07 $ 8.96 $ 8.69
Total Return (b)......................................... 6.85% 8.91% 5.64%
Net Assets Applicable to Common Shares at End of the
Period (In millions)................................... $ 50.1 $ 49.1 $ 48.2
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c)...................................... 1.53% 1.49% 1.42%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)........................ 5.99% 6.19% 6.62%
Portfolio Turnover....................................... 19% 36% 37%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c)................................... 1.01% .99% .93%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)........................ 5.42% 5.64% 5.87%
SENIOR SECURITIES:
Total Preferred Shares Outstanding....................... 250 250 250
Asset Coverage Per Preferred Share (e)................... $300,616 $296,504 $292,949
Involuntary Liquidating Preference Per Preferred Share... $100,000 $100,000 $100,000
Average Market Value Per Preferred Share................. $100,000 $100,000 $100,000
</Table>
(a)As required, effective November 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
accreting market discount on fixed income securities. The effect of this
change for the year ended October 31, 2002 was to increase net investment
income per share by less than $.01, decrease net realized and unrealized
gains and losses per share by less than $.01 and increase the ratio of net
investment income to average net assets by .01%. Per share, ratios, and
supplemental data for periods prior to October 31, 2002 have not been
restated to reflect this change in presentation.
(b)Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale of
all shares at the closing common share price at the end of the period
indicated.
(c)Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d)Ratios reflect the effect of dividend payments to preferred shareholders.
(e)Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
D-18
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- -------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
$ 9.43 $ 9.39 $ 10.66 $ 10.66 $ 10.47 $ 10.75 $ 10.50
-------- -------- -------- -------- -------- -------- --------
.67 .76 .83 .86 .96 .88 .88
.59 .09 (1.26) .01 .12 (.19) .40
(.18) (.21) (.17) (.19) (.18) (.19) (.20)
-------- -------- -------- -------- -------- -------- --------
1.08 .64 (.60) .68 .90 .50 1.08
(.50) (.60) (.67) (.68) (.71) (.78) (.83)
-------- -------- -------- -------- -------- -------- --------
$ 10.01 $ 9.43 $ 9.39 $ 10.66 $ 10.66 $ 10.47 $ 10.75
======== ======== ======== ======== ======== ======== ========
$ 8.70 $ 8.08 $ 8.8125 $11.0625 $10.9375 $ 11.00 $ 10.625
14.11% -1.60% -15.09% 7.63% 6.13% 11.02% 2.88%
$ 48.4 $ 45.6 $ 45.4 $ 51.6 $ 51.6 $ 50.7 $ 52.0
1.46% 1.52% 1.69% 1.47% 1.47% 1.51% 1.52%
6.77% 8.25% 8.11% 8.14% 9.14% 8.32% 8.22%
45% 41% 46% 33% 25% 39% 50%
.96% .98% 1.12% .99% .99% 1.01% 1.02%
4.98% 5.92% 6.41% 6.40% 7.38% 6.55% 6.31%
250 250 250 250 250 250 250
$293,730 $282,465 $281,691 $306,365 $306,303 $302,730 $308,150
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
</Table>
See Notes to Financial Statements
D-19
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Investment Grade Municipal Trust (the "Trust") is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
a high level of current income exempt from federal income tax, consistent with
preservation of capital. The Trust will normally invest at least 80% of its
total assets in tax-exempt municipal securities rated investment grade at the
time of investment. The Trust commenced investment operations on November 30,
1989. Effective November 30, 2003, the Trust's investment adviser, Van Kampen
Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management
(the "Adviser").
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services or dealers are valued at
fair value using procedures established in good faith by the Board of Trustees.
Futures contracts are valued at the settlement price established each day on the
exchange on which they are traded. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
segregate assets with its custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
payment is made. At October 31, 2004, the Trust had no when-issued or delayed
delivery purchase commitments.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and discount is accreted over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 2004, the Trust had an
D-20
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
accumulated capital loss carryforward for tax purposes of $6,800,874, of which
$1,930,614 will expire on 10/31/05, $965 will expire on 10/31/07, $196,107 will
expire on 10/31/08, $840,184 will expire on 10/31/09, $929,222 will expire on
10/31/10, and $2,903,782 will expire on 10/31/12.
At October 31, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $68,985,823
===========
Gross tax unrealized appreciation........................... $ 5,880,802
Gross tax unrealized depreciation........................... (356,322)
-----------
Net tax unrealized appreciation on investments.............. $ 5,524,480
===========
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually. Distributions from net realized gains for book
purposes may include short-term capital gains and a portion of futures gains,
which are included as ordinary income for tax purposes.
The tax character of distributions paid during the years ended October 31,
2004 and 2003 were as follows:
<Table>
<Caption>
2004 2003
Distributions paid from:
Ordinary income........................................... $15,735 $3,083
Long-term capital gain.................................... -0- -0-
------- ------
$15,735 $3,083
======= ======
</Table>
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent difference
relating to book to tax accretion differences totaling $1,100 was reclassified
from accumulated undistributed net investment income to accumulated net realized
gain.
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $9,230
</Table>
Net realized gains or losses differ for financial and tax reporting purposes
primarily as a result of gains and losses recognized for tax purposes on open
futures transactions on October 31, 2004.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser
provides investment advice and facilities to the Trust for an annual fee payable
monthly of .60% of the
D-21
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
average daily net assets of the Trust. Effective November 1, 2004, the
investment advisory fee was reduced from .60% to .55%.
For the year ended October 31, 2004, the Trust recognized expenses of
approximately $5,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Trust, of which a trustee of the Trust
is a partner who provides legal services to the Trust, and is therefore an
affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the year ended October
31, 2004, the Trust recognized expenses of approximately $26,300 representing
Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen")
cost of providing accounting and legal services to the Trust, which are reported
as part of "Other" and "Legal" expenses, respectively, in the Statement of
Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
also officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
company. Affiliated companies are defined by the Investment Company Act of 1940,
as amended, as those companies in which a fund holds 5% or more of the
outstanding voting securities.
<Table>
<Caption>
MARKET
REALIZED INTEREST VALUE
NAME PAR GAIN/(LOSS) INCOME 10/31/04 COST
Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Dist No 8 Maumelle, AK
Impt Ser 2001 Rfdg.................. $425,960 $0 $36,710 $426,092 $425,960
</Table>
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $14,941,022 and $13,628,603,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
In order to seek to manage the interest rate exposure of the Trust's
portfolio in a changing interest rate environment, the Trust may purchase or
sell financial futures contracts or engage in transactions involving interest
rate swaps, caps, floors or collars. The Trust expects to enter into these
transactions primarily as a hedge against anticipated interest rate or
fixed-income market changes, for duration management or for risk management
purposes, but may also enter into these transactions to generate additional
income. All of the Trust's portfolio holdings, including derivative instruments,
are marked to market each day with the change in value reflected in the
unrealized appreciation/depreciation. Upon disposition, a
D-22
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
realized gain or loss is recognized accordingly, except when taking delivery of
a security underlying a futures contract. In this instance, the recognition of
gain or loss is postponed until the disposal of the security underlying the
futures contract. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
During the period, the Trust invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Trust
generally invests in exchange traded futures on U.S. Treasury Bonds and Notes
and typically closes the contract prior to delivery date. Upon entering into
futures contracts, the Trust maintains an amount of cash or liquid securities
with a value equal to a percentage of the contract amount with either a future
commission merchant pursuant to rules and regulations promulgated under the
Investment Company Act of 1940, as amended, or with its custodian in an account
in the broker's name. This amount is known as initial margin. During the period
the futures contract is open, payments are received from or made to the broker
based upon changes in the value of the contract (the variation margin). The risk
of loss associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts, each with a par value of $100,000, for
the year ended October 31, 2004, were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2003............................. 62
Futures Opened.............................................. 418
Futures Closed.............................................. (385)
----
Outstanding at October 31, 2004............................. 95
====
</Table>
The futures contracts outstanding as of October 31, 2004 and the
descriptions and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 10-Year Futures December 2004 (Current
Notional Value of $113,563 per contract)................ 17 $(19,459)
U.S. Treasury Notes 5-Year Futures December 2004 (Current
Notional Value of $111,375 per contract)................ 78 (49,062)
-- --------
95 $(68,521)
== ========
</Table>
5. PREFERRED SHARES
The Trust has outstanding 250 Remarketed Preferred Shares ("RP"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through a
remarketing process. The rate in effect on October 31, 2004 was 1.650%. During
the year ended October 31, 2004, the rates ranged from 0.923% to 1.650%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
shares. These fees are included as a component of "Preferred Share Maintenance"
expense in the Statement of Operations.
D-23
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2004 continued
The RP are redeemable at the option of the Trust in whole or in part at the
liquidation value of $100,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the RP are subject to
mandatory redemption if the tests are not met.
6. INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
D-24
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Van Kampen Investment Grade
Municipal Trust
We have audited the accompanying statement of assets and liabilities of Van
Kampen Investment Grade Municipal Trust (the "Trust"), including the portfolio
of investments, as of October 31, 2004, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Trust's financial highlights for the periods ended
prior to October 31, 2000 were audited by other auditors whose report, dated
December 6, 1999, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the Trust's
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Investment Grade Municipal Trust as of October 31, 2004, the results of
its operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 10, 2004
D-25
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be
re-registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued
on the valuation date, generally at the lower of market price or net asset
value, except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value
D-26
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN continued
of the Trust's Common Shares, resulting in the acquisition of fewer Common
Shares than if the dividend or distribution had been paid in Common Shares
issued by the Trust. All reinvestments are in full and fractional Common shares
and are carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
D-27
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, NY 10020
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 2004. The Trust designated 99.4% of the income distributions as a
tax-exempt income distribution. In January, the Trust provides tax information
to shareholders for the preceding calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
D-28
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2004,
where shareholders voted on the election of trustees.
With regard to the election of the following trustees by the common shareholders
of the Trust:
<Table>
<Caption>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------------------------
J. Miles Branagan.......................................... 4,130,248 373,364
Linda Hutton Heagy......................................... 4,131,548 372,064
Mitchell M. Merin.......................................... 4,134,834 368,778
Wayne W. Whalen............................................ 4,130,740 372,872
</Table>
The other trustees of the Trust whose terms did not expire in 2004 are David C.
Arch, Jerry D. Choate, Rod Dammeyer, R. Craig Kennedy, Howard J Kerr, Jack E.
Nelson, Richard F. Powers III, Hugo F. Sonnenschein, and Suzanne H. Woolsey.
D-29
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Asset Management (the "Adviser"),
Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen
Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The
term "Fund Complex" includes each of the investment companies advised by the
Adviser or its affiliates as of the date of this Statement of Additional
Information. Trustees serve until reaching their retirement age or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing
Blistex Inc. since 1989 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Director of
the Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago. Director of
St. Vincent de Paul
Center, a Chicago based
day care facility serving
the children of low
income families. Board
member of the Illinois
Manufacturers'
Association.
J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, 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.
</Table>
D-30
<Table>
<Caption>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
</Table>
D-31
<Table>
<Caption>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing
CAC, L.L.C. since 1989 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Stericycle,
San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical
to February 2001, Vice Systems, Inc., and GATX
Chairman and Director of Corporation, and Trustee
Anixter International, of The Scripps Research
Inc., a global Institute and the
distributor of wire, University of Chicago
cable and communications Hospitals and Health
connectivity products. Systems. Prior to January
Prior to July 2000, 2004, Director of
Managing Partner of TeleTech Holdings Inc.
Equity Group Corporate and Arris Group, Inc.
Investment (EGI), a Prior to May 2002,
company that makes Director of Peregrine
private investments in Systems Inc. Prior to
other companies. February 2001, Director
of IMC Global Inc. Prior
to July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM).
</Table>
D-32
<Table>
<Caption>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 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
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (52) Trustee Trustee Director and President of 83 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. 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.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President 85 Trustee/Director/Managing
736 North Western Avenue since 1992 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
D-33
<Table>
<Caption>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (64) Trustee Trustee President Emeritus and 85 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey, Ph.D. Trustee Trustee Chief Communications 83 Trustee/Director/Managing
(62) since 2003 Officer of the National General Partner of funds
815 Cumberstone Road Academy of in the Fund Complex.
Harwood, MD 20776 Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004 and Director
Operating Officer from of Neurogen Corporation,
1993 to 2001. Director of a pharmaceutical company,
the Institute for Defense since January 1998.
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, Director
of the Rocky Mountain
Institute and Trustee of
Colorado College. Prior
to 1993, Executive
Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
D-34
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing
1221 Avenue of the Americas President since Executive Officer of General Partner of funds
New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex.
Executive President Complex. Chairman,
Officer and Chief President, Chief
Executive Executive Officer and
Officer Director of the Adviser
since 2002 and Van Kampen Advisors
Inc. since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
</Table>
D-35
<Table>
<Caption>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm 85 Trustee/Director/Managing
333 West Wacker Drive since 1989 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the
Fund Complex.
</Table>
* Such Trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Adviser by reason of
their current or former positions with Morgan Stanley or its affiliates.
D-36
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeitus Investment Management,
Inc. from January 1997 to July 2000.
James M. Dykas (38) Chief Financial Officer Executive Director of Van Kampen Asset Management and Morgan
1 Parkview Plaza Officer and since 1999 Stanley Investment Management. Chief Financial Officer and
Oakbrook Terrace, IL 60181 Treasurer Treasurer of funds in the Fund Complex. Prior to August
2004, Assistant Treasurer of funds in the Fund Complex.
Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Chief Investment Investment Management Inc. and Director of Morgan Stanley
Officer Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since May 2003.
1221 Avenue of the Americas President and since 2003 Chief Executive Officer and Chairman of Investor Services.
New York, NY 10020 Principal Executive Vice President and Principal Executive Officer of
Executive funds in the Fund Complex. Managing Director of Morgan
Officer Stanley. Chief Administrative Officer, Managing Director and
Director of Morgan Stanley Investment Advisors Inc., Morgan
Stanley Services Company Inc. and Managing Director and
Director of Morgan Stanley Distributors Inc. Chief Executive
Officer and Director of Morgan Stanley Trust. Executive Vice
President and Principal Executive Officer of the
Institutional and Retail Morgan Stanley Funds; Director of
Morgan Stanley SICAV; previously Chief Global Operations
Officer and Managing Director of Morgan Stanley Investment
Management Inc.
</Table>
D-37
<Table>
<Caption>
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen
Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and
certain other subsidiaries of Van Kampen Investments. Prior
August 2004, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
</Table>
D-38
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc.,
Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange
Corp., as well as current and former individual investors in Van Kampen mutual
funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised by
us. This Policy is, however, applicable to individuals who select us to be a
custodian of securities or assets in individual retirement accounts, 401(k)
accounts, 529 Educational Savings Accounts, accounts subject to the Uniform
Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies you or
your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser,
(continued on back)
D-39
VAN KAMPEN
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
your use of our Web sites and your product and service preferences, through the
use of "cookies." "Cookies" recognize your computer each time you return to one
of our sites, and help to improve our sites' content and personalize your
experience on our sites by, for example, suggesting offerings that may
interest you. Please consult the Terms of Use of these sites for more
details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC.
VIG ANR 12/04
RN04-02837P-Y10/04
D-40
APPENDIX E
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
IV. POLICY STATEMENT
Introduction -- Morgan Stanley Investment Management's ("MSIM") policy
and procedures for voting proxies ("Proxy Voting Policy and Procedures") with
respect to securities held in the accounts of clients apply to those MSIM
entities that provide discretionary investment management services and for which
a MSIM entity has authority to vote proxies. The policies and procedures and
general guidelines in this section will be reviewed and updated, as necessary,
to address new or revised proxy voting issues. The MSIM entities covered by
these policies and procedures currently include the following: Morgan Stanley
Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley Investment
Management Inc., Morgan Stanley Investment Management Limited, Morgan Stanley
Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Asset Management, and Van Kampen Advisors Inc. (each a "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates").
Each MSIM Affiliate will use its best efforts to vote proxies as part
of its authority to manage, acquire and dispose of account assets. With respect
to the MSIM registered management investment companies (Van Kampen,
Institutional and Advisor Funds) (collectively referred to as the "MSIM Funds"),
each MSIM Affiliate will vote proxies pursuant to authority granted under its
applicable investment advisory agreement or, in the absence of such authority,
as authorized by the Boards of Directors or Trustees of the MSIM Funds. A MSIM
Affiliate will not vote proxies if the "named fiduciary" for an ERISA account
has reserved the authority for itself, or in the case of an account not governed
by ERISA, the Investment Management or Investment Advisory Agreement does not
authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent
and diligent manner, vote proxies in the best interests of clients, including
beneficiaries of and participants in a client's benefit plan(s) for which the
MSIM Affiliates manage assets, consistent with the objective of maximizing
long-term investment returns ("Client Proxy Standard"). In certain situations, a
client or its fiduciary may provide a MSIM Affiliate with a proxy voting policy.
In these situations, the MSIM Affiliate will comply with the client's policy
unless to do so would be inconsistent with applicable laws or regulations or the
MSIM Affiliate's fiduciary responsibility.
Proxy Research Services -- To assist the MSIM Affiliates in their
responsibility for voting proxies and the overall global proxy voting process,
Institutional Shareholder Services ("ISS") and the Investor Responsibility
Research Center ("IRRC") have been retained as experts in the proxy voting and
corporate governance area. ISS and IRRC are independent advisers that specialize
in providing a variety of fiduciary-level proxy-related services to
institutional investment managers, plan sponsors, custodians, consultants, and
other institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. While the
MSIM Affiliates may review and utilize the ISS and IRRC recommendations in
making proxy voting decisions, they are in no way obligated to follow the ISS
and IRRC recommendations. In addition to research, ISS provides vote execution,
reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A.
below) will carefully monitor and supervise the services provided by the proxy
research services.
E-1
Voting Proxies for Certain Non-US Companies -- While the proxy voting
process is well established in the United States and other developed markets
with a number of tools and services available to assist an investment manager,
voting proxies of non-US companies located in certain jurisdictions,
particularly emerging markets, may involve a number of problems that may
restrict or prevent a MSIM Affiliate's ability to vote such proxies. These
problems include, but are not limited to: (i) proxy statements and ballots being
written in a language other than English; (ii) untimely and/or inadequate notice
of shareholder meetings; (iii) restrictions on the ability of holders outside
the issuer's jurisdiction of organization to exercise votes; (iv) requirements
to vote proxies in person, (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the shareholder meeting; and
(vi) requirements to provide local agents with power of attorney to facilitate
the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies
will be voted on a best efforts basis only, after weighing the costs and
benefits of voting such proxies, consistent with the Client Proxy Standard. ISS
has been retained to provide assistance to the MSIM Affiliates in connection
with voting their clients' non-US proxies.
III. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may, pursuant to the procedures set forth in Section IV. below, vote in a manner
that is not in accordance with the following general guidelines, provided the
vote is approved by the Proxy Review Committee and is consistent with the Client
Proxy Standard.
VI. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items, unless otherwise
determined by the Proxy Review Committee, the following
proposals will be voted in support of management.
o Selection or ratification of auditors.
o Approval of financial statements, director and auditor
reports.
o General updating/corrective amendments to the chatter.
o Approval of the payment of a dividend.
o Proposals to limit Directors' liability and/or broaden
indemnification of Directors.
o Proposals requiring that a certain percentage (up to
66%) of the company's Board members be independent
Directors.
o Proposals requiring that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
E-2
o Proposals recommending set retirement ages or requiring
specific levels of stock ownership by Directors.
o Proposals to eliminate cumulative voting.
o Proposals to eliminate preemptive rights.
o Proposals for confidential voting and independent
tabulation of voting results.
o Proposals related to the conduct of the annual meeting
except those proposals that relate to the "transaction
of such other business which may come before the
meeting."
2. Election of Directors. In situations where no conflict exists,
and where no specific governance deficiency has been noted,
unless otherwise determined by the Proxy Review Committee,
will be voted in support of nominees of management.
Unless otherwise determined by the Proxy Review
Committee, a withhold vote will be made where:
(i) A nominee has, or any time during the previous
three years had, a relationship with the issuer
(e.g., investment banker, counsel or other
professional service provider, or familial
relationship with a senior officer of the
issuer) that may impair his or her independence;
(ii) A direct conflict exists between the interests
of the nominee and the public shareholders; or
(iii) Where the nominees standing for election have
not taken action to implement generally accepted
governance practices for which there is a
"bright line" test. These would include
elimination of dead hand or slow hand poison
pills, requiring Audit, Compensation or
Nominating Committees to be composed of
independent directors and requiring a majority
independent board.
3. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on a
shareholder, unless otherwise determined by the Proxy Review
Committee, will be voted in support of management.
CAPITALIZATION CHANGES
o Proposals relating to capitalization changes that
eliminate other classes of stock and voting rights.
o Proposals to increase the authorization of existing
classes of common stock (or securities convertible into
common stock) if. (i) a clear and legitimate business
purpose is stated; (ii) the number of shares requested
E-3
is reasonable in relation to the purpose for which
authorization is requested; and (iii) the authorization
does not exceed 100% of shares currently authorized and
at least 30% of the new authorization will be
outstanding.
o Proposals to create a new class of preferred stock or
for issuances of preferred stock up to 50% of issued
capital.
o Proposals for share repurchase plans.
o Proposals to reduce the number of authorized shares of
common or preferred stock, or to eliminate classes of
preferred stock.
o Proposals to effect stock splits.
o Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits
that do not adjust proportionately to the authorized
share amount will generally be approved if the resulting
increase in authorized shares coincides with the proxy
guidelines set forth above for common stock increases.
COMPENSATION
o Proposals relating to Director fees, provided the
amounts are not excessive relative to outer companies in
the country or industry.
o Proposals for employee stock purchase plans that permit
discounts up to 15%, but only for grants that are part
of a broad based employee plan, including all
non-executive employees.
o Proposals for the establishment of Employee Stock Option
Plans and other employee ownership plans.
ANTI-TAKEOVER MATTERS
o Proposals to modify or rescind existing supermajority
vote requirements to amend the charters or bylaws.
o Proposals relating to the adoption of anti-greenmail
provisions provided that the proposal: (i) defines
greenmail; (ii) prohibits buyback offers to large block
holders not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no
anti-takeover measures or other provisions restricting
the rights of shareholders.
4. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on the
shareholder, unless otherwise determined by the Proxy Review
Committee, will be voted against (notwithstanding management
support).
E-4
o Proposals to establish cumulative voting rights in the
election of directors.
o Proposals relating to capitalization changes that add
classes of stock which substantially dilute the voting
interests of existing shareholders.
o Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights
or super-voting rights.
o Proposals to create "blank check" preferred stock.
o Proposals relating to changes in capitalization by 100%
or more.
o Compensation proposals that allow for discounted stock
options that have not been offered to employees in
general.
o Proposals to amend bylaws to require a supermajority
shareholder vote to pass or repeal certain provisions.
o Proposals to indemnify auditors.
5. The following types of non-routine proposals, which
potentially may have a substantive financial or best interest
impact on an issuer, will be voted as determined by the Proxy
Review Committee.
CORPORATE TRANSACTIONS
o Proposals relating to mergers, acquisitions and other
special corporate transactions (i.e., takeovers,
spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined
on a case-by-case basis. In all cases, ISS and IRRC
research and analysis will be used along with MSIM
Affiliates' research and analysis, including, among
other things, MSM internal company-specific knowledge.
o Proposals relating to change-in-control provisions in
non-salary compensation plans, employment contracts, and
severance agreements that benefit management and would
be costly to shareholders if triggered.
o Proposals relating to shareholders rights plans that
allow appropriate offers to shareholders to be blocked
by the board or trigger provisions that prevent
legitimate offers from proceeding.
o Proposals relating to Executive/ Director stock option
plans. Generally, stock option plans should meet the
following criteria:
(i) Whether the stock option plan is incentive
based;
(ii) For mature companies, should be no more than 5%
of the issued capital at the time of approval;
E-5
(iii) For growth companies, should be no more than 10%
of the issued capital at the time of approval.
ANTI-TAKEOVER PROVISIONS
o Proposals requiring shareholder ratification of poison
pills.
o Proposals relating to anti-takeover and related
provisions that serve to prevent the majority of
shareholders from exercising their rights or effectively
deter the appropriate tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals will be supported, unless
otherwise determined by the Proxy Review Committee:
o Proposals requiring auditors to attend the annual
meeting of shareholders.
o Proposals requiring non-U.S. companies to have a
separate Chairman and CEO.
o Proposals requiring that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
o Proposals requiring that a certain percentage of the
company's members be comprised of independent and
unaffiliated Directors.
o Proposals requiring confidential voting.
o Proposals to reduce or eliminate of supermajority voting
requirements.
o Proposals requiring shareholder approval for shareholder
rights plan or poison pill.
o Proposals to require the company to expense stock
options.
2. The following shareholder proposals will be voted as
determined by the Proxy Review Committee.
o Proposals that limit tenure of directors.
o Proposals to limit golden parachutes.
o Proposals requiring directors to own large amounts of
stock to be eligible for election.
o Proposals that request or require disclosure of
executive compensation in addition to the disclosure
required by the Securities and Exchange Commission
("SEC") regulations.
E-6
o Proposals that limit retirement benefits or executive
compensation.
o Proposals requiring shareholder approval for bylaw or
charter amendments.
o Proposals requiring shareholder approval of executive
compensation.
o Proposals requiring shareholder approval of golden
parachutes.
o Proposals to eliminate certain anti-takeover related
provisions.
o Proposals to prohibit payment of greenmail.
3. The following shareholder proposals will not be supported,
unless otherwise determined by the Proxy Review Committee.
o Proposals to declassify the Board of Directors (if
management supports a classified board).
o Proposals requiring a U.S. company to have a separate
Chairman and CEO.
o Proposals requiring that the company prepare reports
that are costly to provide or that would require
duplicative efforts or expenditures that are of a
non-business nature or would provide no pertinent
information from the perspective of institutional
shareholders.
o Proposals to add restrictions related to social,
political or special interest issues that impact the
ability of the company to do business or be competitive
and that have a significant financial or best interest
impact to the shareholders.
o Proposals that require inappropriate endorsements or
corporate actions.
VII. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible
for creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
(a) The Committee, which is appointed by MSIM's Chief
Investment Officer ("CIO"), consists of senior
investment professionals who represent the different
investment disciplines and geographic locations of the
firm. The Committee is responsible for establishing
MSIM's proxy voting policy and guidelines and
determining how MSIM will vote proxies on an ongoing
basis.
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(b) The Committee will periodically review and have the
authority to amend, as necessary, these Proxy Voting
Policy and Procedures and establish and direct voting
positions consistent with the Client Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to
MSIM's Proxy Voting Policy and Procedures; and (2)
review proposals at upcoming shareholder meetings of
MSIM portfolio companies in accordance with this Policy
including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee,
or its designee, will timely communicate to ISS MSIM's
Proxy Voting Policy and Procedures (and any amendments
to them and/or any additional guidelines or procedures
it may adopt).
(d) The Committee will meet on an ad hoc basis to (among
other matters): (1) authorize "split voting" (i.e.,
allowing certain shares of the same issuer that are the
subject of the same proxy solicitation and held by one
or more MSIM portfolios to be voted differently than
other shares) and/or "override voting" (i.e., voting all
MSIM portfolio shares in a manner contrary to the Proxy
Voting Policy and Procedures); (2) review and approve
upcoming votes, as appropriate, for matters for which
specific direction has been provided in these Policy and
Procedures; and (3) determine how to vote matters for
which specific direction has not been provided in these
Policy and Procedures. Split votes will generally not be
approved within a single Global Investor Group team. The
Committee may take into account ISS and IRRC
recommendations and the research as well as any other
relevant information they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of interest,
the Committee will request a special committee to
review, and recommend a course of action with respect
to, the conflict(s) in question ("Special Committee").
The Special Committee shall be comprised of the Chairman
of the Proxy Review Committee, the Compliance Director
for the area of the firm involved or his/her designee, a
senior portfolio manager (if practicable, one who is a
member of the Proxy Review Committee) designated by the
Proxy Review Committee and MSIM's Chief Investment
Officer or his/her designee. The Special Committee may
request the assistance of MSIM's General Counsel or
his/her designee and will have sole discretion to cast a
vote. In addition to the research provided by ISS and
IRRC, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their
decisions and actions, which documentation will be
maintained by the Committee and the Special Committee,
or their designee(s), for a period of at least 6 years.
To the
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extent these decisions relate to a security held by a
MSIM U.S. registered investment company, the Committee
and Special Committee, or their designee(s), will report
their decisions to each applicable Board of Trustees/
Directors of those investment companies at each Board's
next regularly scheduled Board meeting. The report will
contain information concerning decisions made by the
Committee and Special Committee during the most recently
ended calendar quarter immediately preceding the Board
meeting.
(g) The Committee and Special Committee, or their
designee(s), will timely communicate to applicable
portfolio managers, the Compliance Departments and, as
necessary, ISS, decisions of the Committee and Special
Committee so that, among other things, ISS will vote
proxies consistent with their decisions.
B. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
1. If there is a possibility that a vote may involve a material
conflict of interest, the vote must be decided by the Special
Committee in consultation with MSIM's General Counsel or
his/her designee.
2. A material conflict of interest could exist in the following
situations, among others:
(a) The issuer soliciting the vote is a client of MSIM or an
affiliate of MSIM and the vote is on a material matter
affecting the issuer;
(b) The proxy relates to Morgan Stanley common stock or any
other security issued by Morgan Stanley or its
affiliates; or
(c) Morgan Stanley has a material pecuniary interest in the
matter submitted for a vote (e.g., acting as a financial
advisor to a merger or acquisition for which Morgan
Stanley will be paid a success fee if completed).
C. PROXY VOTING REPORTS
1. MSIM will promptly provide a copy of these Policy and
Procedures to any client requesting it. MSIM will also, upon
client request, promptly provide a report indicating how each
proxy was voted with respect to securities held in that
client's account.
2. MSIM's legal department is responsible for filing an annual
Form N-PX on behalf of each registered management investment
company for which such filing is required, indicating how all
proxies were voted with respect to such investment company's
holdings.
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PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 5.3 of the Registrant's Declaration of Trust, a copy of which is
filed as an exhibit hereto, provides for indemnification, as set forth below:
"Section 5.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is or has been a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words, "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or its Shareholders by
reason of a final adjudication by the court or other body before which
the proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there
has been either a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or a
reasonable determination, based upon a review of readily available
facts (as opposed to a full trial-type inquiry) that he did not engage
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in such conduct:
(A) by vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter); or
(B) by written opinion of independent legal counsel.
(C) The rights of indemnification herein provided by be
insured against by policies maintained by the Trust, shall be
severable, shall not effect any other rights to which any Trustee
or officer may now or hereafter be entitled, shall continue as to
a Person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators, and
assigns of such Person. Nothing contained herein shall affect any
rights to indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by contract or
otherwise under law.
(D) Expenses of preparation and presentation of a defense to
any claim, action, suit, or proceeding of the character described
in paragraph (a) of this Section 5.3 shall be advanced by the
Trust prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to
indemnification under this Section 5.3, provided that either
(i) such undertaking is secured by a surety bond or
some other appropriate security or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or an independent
legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending."
ITEM 16. EXHIBITS
1. (a) Declaration of Trust of the Registrant and amendments thereto +
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(b) Form of Certificate of Vote Establishing Preferred Shares and
Amendments thereto+++
2. Bylaws of the Registrant and amendment thereto+
3. Not applicable
4. Form of Agreement and Plan of Reorganization ++++
5. (a) Specimen share certificate for common shares of the
Registrant+
(b) Specimen share certificate for preferred shares of the
Registrant+
6. (a) Investment Advisory Agreement+
(b) Amendment to Investment Advisory Agreement+
7. Not Applicable
8. (a) Form of Amended and Restated Deferred Compensation Agreement+
(b) Form of Retirement Plan for Each Closed End Fund+
9. (a) Custodian Contract+
(b) Amendment of Custodian Contract+
10. Not Applicable
11. Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Registrant+
12. Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP+++++
13. (a) Transfer Agency and Service Agreement+
(b) Auction Agency Agreement+
(c) Form of Broker-Dealer Agreement+
(d)(i) Letter of Representations+
(ii) Form of Letter of Representations+
(e) Administration Agreement+
(f) Amended and Restated Legal Services Agreement+
(g) Fund Accounting Agreement and amendment thereto+
14. Consent of independent registered public accounting firm for the
Registrant and for the Target Fund+
15. Not Applicable
16. Power of Attorney+
17. (a) Code of Ethics of the Investment Adviser+
(b) Code of Ethics of the Funds+
99. Form of Proxy card for the Target Fund+
+ Filed herewith.
++ Incorporated by reference to Registrant's Registration Statement on Form
N-14 as filed via EDGAR on March 18, 2005
+++ Filed as Appendix B to the Statement of Additional Information and
incorporated herein by reference to Registrant's Registration Statement
on Form N-14 as filed via EDGAR on March 18, 2005
++++ Filed as Appendix A to the Statement of Additional Information and
incorporated herein by reference to Registrant's Registration Statement
on Form N-14 as filed via EDGAR on March 18, 2005
+++++ To be filed by further amendment
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by other items of the applicable form.
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(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees that, if the Reorganization
discussed in the registration statement close, it shall file by post-effective
amendment either a copy of the Internal Revenue Service private letter ruling
applied for or an opinion supporting the tax matters discussed in the
registration statement.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant 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 New York and the State of New York, on May 5, 2005.
VAN KAMPEN MUNICIPAL TRUST
By: /s/ Lou Anne McInnis
------------------------------------
Lou Anne McInnis
Assistant Secretary
Amendment to the Pursuant to the requirements of the Securities Act of
1933, as amended, this amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
SIGNATURES TITLE
---------- -----
Principal Executive Officer:
/s/ Ronald E. Robison* Executive Vice President
- ------------------------------------------- and Principal Executive Officer
Ronald E. Robison
Principal Financial Officer:
/s/ James W. Garrett*
- ------------------------------------------- Chief Financial
James W. Garrett Officer and Treasurer
Trustees:
/s/ David C. Arch* Trustee
- -------------------------------------------
David C. Arch
/s/ Jerry D. Choate* Trustee
- -------------------------------------------
Jerry D. Choate
/s/ Rod Dammeyer* Trustee
- -------------------------------------------
Rod Dammeyer
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/s/ Linda Hutton Heagy* Trustee
- -------------------------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy* Trustee
- -------------------------------------------
R. Craig Kennedy
/s/ Howard J Kerr* Trustee
- -------------------------------------------
Howard J Kerr
/s/ Mitchell M. Merin* Trustee
- -------------------------------------------
Mitchell M. Merin
/s/ Jack E. Nelson* Trustee
- -------------------------------------------
Jack E. Nelson
/s/ Richard F. Powers, III* Trustee
- -------------------------------------------
Richard F. Powers, III
/s/ Hugo F. Sonnenschein* Trustee
- -------------------------------------------
Hugo F. Sonnenschein
/s/ Wayne W. Whalen* Trustee
- -------------------------------------------
Wayne W. Whalen
/s/ Suzanne H. Woolsey* Trustee
- -------------------------------------------
Suzanne H. Woolsey
* Signed by Lou Anne McInnis pursuant to a power of attorney, filed herewith.
/s/ Lou Anne McInnis May 5, 2005
- -------------------------------------------
Lou Anne McInnis
Attorney-in-Fact
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SCHEDULE OF EXHIBITS TO FORM N-14
VAN KAMPEN MUNICIPAL TRUST
Exhibit
- -------
1. (a) Declaration of Trust of the Registrant and amendments thereto
2. Bylaws of the Registrant and amendment thereto
5. (a) Specimen share certificate for common shares of the Registrant
(b) Specimen share certificate for preferred shares of the Registrant
6. (a) Investment Advisory Agreement
(b) Amendment to Investment Advisory Agreement
8. (a) Form of Amended and Restated Deferred Compensation Agreement
(b) Form of Retirement Plan for Each Closed End Fund
9. (a) Custodian Contract
(b) Amendment to Custodian Contract
11. Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP
13. (a) Transfer Agency and Service Agreement
(b) Auction Agency Agreement
(c) Form of Broker-Dealer Agreement
(d)(i) Letter of Representations
(ii) Form of Letter of Representations
(e) Administration Agreement
(f) Amended and Restated Legal Services Agreement
(g) Fund Accounting Agreement and amendment thereto
14. Consent of independent registered public accounting firm for the
Registrant and for the Target Fund
16. Power of Attorney
17. (a) Code of Ethics of the Investment Adviser
(b) Code of Ethics of the Funds
99. Form of Proxy card for the Target Fund